PAVING THE WAY FOR RECOVERY
ANNUAL REPORT 2016 01 CONTENTS CONTENTS | continued 02
3 Important Developments in 2016
9 Highlights of company History
11 Our Assets
13 Our Products
15 Vertical Integration
17 Our Value Creation Model
23 Letter From CEO
25 Macroeconomic Overview
29 Market Overview
46 Mission, Strategic Vision, Goals
47 Operations Review
53 Financial Review
62 Risk Management
69 Sustainable Development Strategy
72 Corporate Governance Avis Poultry Complex
80 Consolidated Financial Statements Avangardco IPL is the largest Despite the political and economic producer of shell eggs and dry challenges faced by Ukrainian egg products in Ukraine and businesses in 2016, Avangardco Europe. Relations with investors, IPL retained its leading positions analysts, creditors, distributors, in the domestic and international suppliers, customers, consumers, markets increasing the share of government agencies and other sales through high-margin institutions play a vital role in the channels (exports and retail company’s eco-system. chains), whilst further diversifying the geography of exports and Avangardco IPL consistently attaining international quality adheres to high standards of certification for its products. product quality and biosecurity.
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 03 IMPORTANT DEVELOPMENTS IN 2016 IMPORTANT DEVELOPMENTS IN 2016 | continued 04
First Signs of Recovery Give closing at 17% YOY 1 for the Government Doubles the A New Government Programme abolish the special VAT regime Rise to Cautious Optimism for year it was a major Minimum Wage to Boost to Support Agriculture Expected for agricultural producers in Ukraine's Economy Going improvement compared to Consumer Demand to Partially Offset VAT Subsidy 2017. The new programme is Forward the 2015 level of 83% YOY 2 ; Cutback expected to partially offset the Annual GDP Growth In December 2016, the negative impact from the latter 2016 became another difficult Macroeconomic revival is Government of Ukraine approved On December, 2016 the decision on the company's year for Ukraine's economy, in certainly very welcome news a crucial decision to increase the Parliament of Ukraine adopted a bottom line. many critical respects probably but it will only make a minimum wage from UAH 1,600 5-year programme to provide the most difficult year +2.3% YOY difference to the company's (~ USD 60 1) to UAH 3,200 (~ USD support to domestic agricultural Avangardco Retains Market economically since the military sales or bottom line when it 120 2) per month with effect from producers in the amount of 1% of Leadership Despite Unprece- conflict and annexation of translates into increased the 1st of January, 2017. the gross value of their output. dented Demand Contraction Crimea by Russia sent Ukraine's household income that gets and Increased Cost Inflation economy into a nosedive. But spent on company products. there's a glimmer of hope this Household income indeed Without exaggeration, 2016 has time around. got back on a growth track in Minimum Wage Increase Subsidy for the Farming been the worst year for the second half of 2016 and Industry in 2017 Ukraine's egg farming industry While consumer demand in even though this modest yet in the past three years. All the general and particularly demand Inflation Decelerated positive growth is mostly negative consequences of the for eggs continued to contract down to the low baseline ongoing recession finally under pressure from the effect it's very welcome I UAH 3,200 manifested themselves in full consequences of continued news indeed; taking a heavy toll on household economic recession throughout UAH 4bn income and home demand. 2016, macroeconomic fundamentals Retail trade also started to started showing cautious signs of | 13.9% YOY pick up during 2016 for the For the third consecutive year, improving: first time in three years egg consumption has been recording a growth rate of 4% contracting in absolute terms. In GDP was growing in each of YOY. In US dollar terms this may not 2016, total egg consumption the four consecutive seem like much but in relative decreased 8.6% YOY and that's quarters of 2016 producing a This is all excellent news of terms we are talking about a The programme, among other on top of a 10.5% YOY decline positive annual GDP growth course but it's important to bear twofold increase in the income elements, features a subsidy of the year before. of 2.3% YOY against a 9.8% in mind that macroeconomic of Ukraine's poorest families. UAH 4bn for the farming YOY GDP contraction the improvements do not translate This category has suffered a industry in 2017. Importantly, it's not just that year before; into fresh and solvent demand Retail Trade very severe loss of income from households keep winning over for company products the ongoing economic recession The subsidy will be distributed market share from industry. We Started to Pick Up Inflation decelerated to 13.9% overnight. cutting back on spending across automatically on a monthly are talking here about a net YOY and while it is still high the board. As a result, they've basis in proportion to the contraction in the consumption and mostly fuelled by built up substantial deferred amount of VAT paid within the of eggs coming from all sources, increasing utility prices and a demand for goods and services, allocated funds, whilst subsidy which may suggest that low- weaker local currency, it's including basic foodstuffs, such for poultry producers will be income families increasingly only a third of its 2015 level of +4% YOY as eggs. The increased minimum capped at 50% of its monthly abandon animal proteins from 48.7% YOY; wage has a strong potential for amount. their diets. In favourable converting the deferred demand Local currency depreciation into real solvent demand. This is very welcome news also slowed down substantially Avangardco is determined to indeed especially in view of 1, 2 Calculated at UAH/USD 1, 2 and while it failed to break Calculated at weighted claim its fair share of this another decision by the exchange rate as at 31 December out of double-digit territory average rate for the period. demand demand come 2017. Government to completely 2016.
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 05 IMPORTANT DEVELOPMENTS IN 2016 | continued IMPORTANT DEVELOPMENTS IN 2016 | continued 06
economic circumstances, such a Share of Sales through Company's Share Sales through Retail Chains its shell egg output via the carefully maintained its own trend could indicate that Retail Chains in of Ukraine's Industrial Reach 60% of Sales Volume for so-called wholesalers, small portfolio of trusted wholesalers, consumers are upgrading from the First Time firms and sole traders acting as since 2009, the company has Total Egg Sales Egg Production eggs to more expensive options, intermediaries whose business been pursuing a strategy aimed e.g. poultry, pork and beef. That, Throughout 2016, Avangardco it is to buy eggs from the at reducing sales through however, is not the case. In continued to push ahead with its company and other industrial middlemen while expanding times of economic distress, this long-term strategy to increase producers and resell them to trade through supermarket implies a net contraction in the 31% the share of sales made in the end consumers. This sales chains. consumption of animal proteins domestic market through channel is inherently unstable as a category. I 60% established retail chains. and unpredictable in every Retailers are just another type of possible way. There are intermediary but unlike Cost inflation also peaked in In 2009, the company made a hundreds of those middlemen, wholesalers they are big, 2016 depleting producer bottom pivotal decision that would they come and go, they often established and a lot more lines and forcing most of them Company's Share of transform its sales profile and operate without assets of their predictable. into the red. During two Ukraine's Egg and Egg performance. Until that time own. And even though consecutive quarters (Q2 and Product Exports Avangardco sold up to 80% of Avangardco has built and In 2009, Avangardco was selling Q3) Avangardco was also selling at a loss. The company was Share of Exports in forced to do so by unprecedented Total Egg Sales demand contraction coupled with an oversupply situation in the home market created by households and further I 17% 65% aggravated by a decline in export volume occurring all at the same time.
Avangardco responded to this This has helped the company new challenge by increasing the retain its industry leadership, share of sales made through preserve its assets and start Company's Share established retail chains, preparing for the revival of of Ukraine's Production processing a larger volume into demand expected from egg powder and directing more resumed GDP growth, increased of Dry Egg Products sales down the export channel. minimum wage and other positive developments of 2016 that have yet to produce a Shell Eggs Processed favourable impact on consumer into Egg Powder demand.
87%
I 35% YOY
Avangardco Shell Eggs at a Supermarket Shelf
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 07 IMPORTANT DEVELOPMENTS IN 2016 | continued IMPORTANT DEVELOPMENTS IN 2016 | continued 08
a mere 2% through supermarket enhances an organisation’s ability chains. By the end of 2016, their to satisfy its customers and share of company sales reached provides a coherent foundation 60%. This is especially valuable for growth and sustained success. now, in the current distressed Avangardco Applies Strong Bio-Security Defences market circumstances aggravated ISO 9001:2015 is less prescriptive by the growing presence of a ISO 9001:2015 than its predecessor, focusing completely uncontrollable Certificate instead on performance. This has market player - egg-producing been achieved by combining the households - often creating process approach with risk-based oversupply situations and thinking, and employing the depressing the price. Trading Plan-Do-Check-Act cycle at all through retailers dramatically levels in the organisation. enhances the accuracy of our production planning and sales forecasting, which is so Avangardco's Bio-Security crucial in the current challenging Safeguards Prove Strong amid environment. Outbreaks of Avian Influenza in Ukraine Avis Successfully Completes ISO 22000:2005 Certification, In November 2016, an outbreak of Chornobaivske Well on its Way bird flu was registered in Kherson to it, Avangardco Group ISO Province of Ukraine for the first 9001:2015 Certification Achieved time since 2008. In response to in January 2017 this outbreak followed by several more in Chernivtsi and Odessa In November 2016, Avis, one of ISO 22000:2005 Provinces several importing Avangardco's two modern mega- Certificate countries, among them - key farms, successfully completed export markets for Avangardco Avis Poultry Complex Chornobaivske Poultry Complex certification to ISO 22000:2005 temporarily banned Ukrainian for its food safety management poultry products. The EU followed system. The other mega-farm, suit but then reduced its ban to Chornobaivske, is well on its way the affected provinces only. to receiving its certificate in early Importantly, all those outbreaks Avis and Chornobaivske remained banned imports from Ukraine. its rapid expansion in the home 2017. occurred at individual egg- unscathed, and so did our other market and internationally. farming households practicing farms where the bio-security Nataliya Vasylyuk Returns as CEO Under Ms. Vasylyuk's leadership, At the group level, Avangardco little to no bio-security at all, safeguards may not be as Avangardco went public in 2010 received ISO 9001:2015 certification which stands in stark contrast to advanced as at the two In 2016, Avangardco warmly and became the world's second for its quality management Avangardco's strong bio-security mega-farms, yet they are more welcomed Ms. Nataliya Vasylyuk largest egg producer. system in January 2017. defences. than solid. back on board as CEO of the company. At this difficult juncture in the The latest edition of ISO 9001, And even though some of the Avangardco can continue to company's history, Ms. Vasylyuk ISO's flagship quality management outbreaks occurred in or close to export its products to the UAE Ms. Vasylyuk was at the helm of returns to lead Avangardco standard, allows organisations to the home provinces of and EU, as well as to its other the company at the most crucial back to growth, success and adapt to a changing world. It Avangardco's mega-farms, both export regions, which have not moments in its history directing prominence.
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 09 HIGHLIGHTS OF COMPANY HISTORY HIGHLIGHTSIMPORTANT OF DEVELOPMENTS COMPANY HISTORY 2016 || continuedcontinued 10
20032003 2003-20092003-2009 2010-20132010-2013 20142014 20152015 20162016
The history of the company The company implements a Avangardco IPL enters On 30 September 2014, In 2015, despite the difficult Avangardco IPL restructured its begins with the purchase of the strategy of expansion through international financial markets Imperovo Foods receives official situation in the Ukrainian debt with JSC "Oschadbank" Avangard poultry farm located mergers and acquisitions, as well by successfully completing an authorization to export dry egg economy and demand and extended its maturity to in West Ukraine not far from as organic growth. During this IPO on the London Stock products to the European Union. contraction in the home market 2022 with a grace period until Ivano-Frankivsk. The holding period, the company purchased Exchange and attracting USD On 18 August 2014, the and overseas, the company 2018. company was later named after additional 18 laying farms, 3 208mn in new investment. An company’s eggs and dry egg scored a number of important the first poultry farm acquired. hatcheries, 3 rearing farms and 4 additional USD 200mn was products become Kosher achievements. Avis poultry complex was feed mills. In order to cover raised through a Eurobond certified. certified to ISO 22000:2005 production needs for replacement placement. In particular, we added 7 new (Food safety management flock, the company also In 2014, the company suspended country markets to our export system), while Avangardco constructed additional rearing The company continues and recognised impairment of destinations for a total of 42. group passed ISO 9001:2015 farms. During the same period, growing organically. Through a the following assets: the laying certification for its quality the company constructs large-scale investment program farm "Yuzhnaya- Holding", The share of the EU in our egg management system. warehouses for long-term egg culminating in the construction rearing farm "Yuzhnaya- powder exports rose to 40%. storage and 2 feed mills. This of the Avis and Chornobaivske Holding", laying farm and Trade through retail chains strategy ensures the company’s modern poultry complexes, hatchery "Ptytsecomplex" due became our largest sales presence in 14 regions of Ukraine laying flock capacity increased to the annexation of the channel for the first time in and Crimea and supports our to 30.1mn hens, while annual Autonomous Republic of company history. vertically integrated business production capacity reached Crimea, as well as the laying model. In 2009, the company 8.6bn eggs. In 2013, the company farm "Chervonyi Prapor", rearing We successfully restructured a commissioned a modern egg completes a project for increasing farm "Chervonyi Prapor", laying USD 200mn Eurobond that processing plant, Imperovo egg processing capacity at farm "Interbusiness" and represents a lion's share of our Foods, outfitted with state-of- Imperovo Foods to 6mn eggs "Vyhlehirskyi feed mill" due to a debt portfolio shifting its the-art equipment in partnership daily. military conflict in Eastern maturity from October 2015 to with Sanovo, a world leader in the Ukraine. October 2018. manufacture of egg processing equipment. As a result, the company became the largest producer of shell eggs and and dry egg products in Ukraine. Avangardco IPL was incorporated on 23 October 2007 under the laws of Cyprus to serve as the ultimate holding company for Avangard.
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 11 OUR ASSETS IMPORTANTOUR DEVELOPMENTS ASSETS | continued 2016 | continued 12
Asset Base Remains Solid region with close access to the Despite Loss of Assets in Eastern Black Sea, which makes exports Ukraine and Crimea to the countries of the Middle East, Africa, Asia, and South Avangardco IPL operates a Paci fic more effective and complex and vertically integrated allows the company to minimise network of assets, which logistical costs. enables the company to produce its finished products Despite substantial loss of being shell eggs and dry egg assets due to the annexation of products, key inputs, such as Crimea and a military conflict animal feed, and core that has engulfed parts of manufacturing assets being Ukraine's eastern provinces of laying hens. A unique feature Donetsk and Luhansk we have of our vertically integrated been able to preserve the core business model is recycling of our asset base and retain all animal waste into valuable the key links in our vertically commodities - biogas, thermal integrated business model. energy and electrical power. We have also concentrated Our assets comprise 19 laying about 88% of our laying flock at farms, 10 rearing farms, 6 feed Avis and Chornobaivske, our mills, 3 hatcheries, 2 poultry vertically integrated poultry complexes Avis and Chornobaivske complexes built and operated and an egg processing plant, using state-of-the-art egg 1 Imperovo Foods. farming technologies.
We stay close to Ukrainian consumers by operating production facilities in 14 regions of Ukraine, which enables us to cover the whole country and meet 1 In 2014, the company suspended consumer demand in an and recognised impairment the efficient and timely manner. following assets: the laying farm The company’s production "Yuzhnaya- Holding", rearing facilities are evenly distributed farm "Yuzhnaya-Holding", laying 19 Laying farms geographically. For example, the farm and hatchery "Ptytsecomplex" 10 Rearing farms 6 Feed mills Avis poultry complex, located in due to the annexation of the 3 Long-terms storage facilities Western Ukraine, supplies Autonomous Republic of 3 Hatcheries eggs to the Imperovo Foods Crimea, as well as the laying 2 Poultry complexes Avis and processing plant located near farm "Chervonyi Prapor", Chornobaivske the EU border. This allows the rearing farm "Chervonyi Prapor", 1 Egg processing plant Imperovo Foods company to minimise the cost of laying farm "Interbusiness" and Temporarily suspended facilities due to the military conflict in Eastern Ukraine and exports to European countries. "Vyhlehirskyi feed mill" due to a annexation of Crimea The Chornobaivske poultry military conflict in Eastern complex is located in Kherson Ukraine. Temporarily occupied territories
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 13 OUR PRODUCTS IMPORTANTOUR DEVELOPMENTSPRODUCTS | continued 2016 | continued 14
SHELL EGGS consumer preferences, we approximately 2,000 outlets EGG PRODUCTS yolk powder. Depending on We export 91% of our dry egg produce white and brown eggs. throughout Ukraine including key clients preferences, we can add products. The main customers of Avangardco produces "table" supermarkets chains such as Avangardco produces the many additives to the product, for egg products are companies in shell eggs. Depending on weight, We sell shell eggs as branded Auchan, ATB, Silpo, Novus, following main types of dry egg example sugar, salt, etc. The the food industry such as they are divided into 5 categories: packaged eggs in 10-egg cartons Pakko, Velyka Kyshenya, Karavan, products: egg albumen powder, company produces its dry confectionery, fat-and-oil, bread, premium, supreme, first, second and in 30-egg trays. Domestically Brusnichka and others. We export high-whip, egg albumen powder, products at the state-of-the-art meat processing and others. and small. To accomodate our shell eggs are sold through about 17% of our shell eggs. high-gel, whole egg powder, egg egg processing facility Imperovo yolk powder and heat-stable egg Foods (www.imperovo.com.ua).
Product type Application & Functionality Product description Category Shell egg weight, grams
Premium or XL 73 and more Egg albumen Suitable for the confectionery and Consists of 100% natural Supreme or L 63 — 72.9 powder, high-whip bakery industry. The advantages of de-sugared, spray dried and First or M 53 — 62.9 this product include excellent pasteurized egg white. 100 g of whipping qualities and good foam powder dissolved in 700 g of water Second or S 45 — 52.9 stability. A further advantage is the corresponds to 800 g of fresh egg Small 35 — 44.9 storage conditions, handling and white (equivalent to approx. 25 shelf life of powder compared to eggs). liquid products.
OUR BRANDS Egg albumen Suitable for the confectionery, Consists of 100% natural powder, high-gel bakery and meat industry. The de-sugared, spray dried and advantages of this product include pasteurized egg white. 100 g of Kvochka (Mother Hen) Domashny (Homelaid) Organic Eggs premium gelling and water binding powder dissolved in 700 g of water properties. corresponds to 800 g of fresh egg white (equivalent to approx. 25 eggs).
Whole-egg powder Suitable for baked products, ready Consists of 100% whole egg powder. meals, meat products etc. The Pasteurized and spray dried whole advantages of this product include egg. 100 g dissolved in 300 g of water its texture and emulsifying corresponds to 400 g fresh whole egg properties. (equivalent to approx. 8 shell-eggs).
Kvochka is a popular brand in the Nothing beats homelaid eggs, be We offer Ukrainian buyers a Egg yolk powder Suitable for mayonnaise, dressings, Consists of 100% natural pasteurized packaged eggs segment. Kvochka it for a family breakfast, feast or modern product under the pasta, ice cream, baked products, and spray dried egg yolk. 100 g of offers consumers high-quality for baking delicious pastries. We Organic Eggs brand. This product cake mix or other products where powder dissolved in 125 g of water egg yolk is needed. The advantages (equivalent to approx. 225 g of liquid and healthy products at an make sure we deliver them to takes the top spot in the Kvochka of this product include its emulsifying egg yolk). attractive price. We produce our your table. Domashny (Homelaid) brand portfolio and celebrates qualities, taste, colour and texture. own feed for laying hens and we branded eggs are eggs from hens the company's commitment to know for a fact that Kvochka that receive all our loving care offering only fresh and natural Heat-stable egg This type is used mainly in the Consists of 100% natural pasteurized eggs are not only healthy but also and natural feeds. These eggs products. yolk powder mayonnaise industry, as it is and spray dried egg yolk. 100 g of very tasty. Kvochka - branded are nutritious, healthy and very characterized by thermostability as powder dissolved in 125 g of water eggs have been endorsed by the tasty! well as excellent emulsifying (equivalent to approx. 225 g of liquid Ukrainian Research Institute of properties. Provides stable emulsion egg yolk). Nutrition. in high temperature conditions, long-term storage.
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 15 VERTICAL INTEGRATION VERTICAL INTEGRATION | continued 16
Avangardco's vertically integrated the largest hatchery in Europe - Avangardco had 10.3mn 7 StorageStorage ffacilities:acilities: 8 ProductionProduction ooff eegggg pproducts:roducts: business model provides with a production capacity of laying hens as at year end, which stronger control over costs and 21.1mn one-day old chicks per produced 2.5bn shell eggs in - In addition to short-term - Avangardco has increased improves efficiency, whilst year. 2016. storage facilities at each laying egg processing capacity at ensuring consistent quality of farm, Avangardco operates 2 4 Imperovo Foods to 6mn shell inputs and quality control at 5 6 SShellhell eegggg pproduction:roduction: - 88% of our laying flock is long-term egg storage facilities eggs per day to manage the External supplier each stage of production located at the modern and more with a total capacity of 200mn peaks and troughs in demand 2 of - Avangardco operates 6 inputs efficient Avis and Chornobaivske shell eggs. and produce added-value dry rearing farms with a capacity of 1 s poultry complexes. egg products. 1 2 EExternalxternal iinputs:nputs: 7.0mn pullets and 12 3 laying - Imperovo egg processing farms with a capacity of 21.7mn plant has its own long-term - In 2016 approximately 1.0bn 1 - Avangardco is largely laying hens across Ukraine. storage facility of 20mn shell shell eggs was processed into self-sufficient in terms of core 3 Internal valu eggs. 12,219 tons of dry egg products. 2 production materials, sourcing Grain from third parties only breeder suppliers e-addi 9 Co-generation:Co-generation: flock, feed grains and a small ng processes Compound proportion of animal feed feed A company-owned biogas plant 4 Feed required for shell egg production. suppliers mills at Chornobaivske poultry Breeder complex with a total capacity of flock 3 AAnimalnimal ffeedeed pproduction:roduction: suppliers 6MW, allows Avangardco to 5 6 7 Finis dispose of chicken manure and 1 and by-phed prod - Avangardco operates 4 feed Hatcheries produce green electricity, heat mills with a total production 8 and organic fertilizers while rod ucts capacity of 104 tons of feed per uc protecting the environment of ts Laying hour. Rearing 9 the region. farms farms Storage facilities - In addition, the newly built 10 Sales:Sales: Kamyanets-Podilsky feed plant Egg processing at the Avis poultry complex has Shell eggs: - Avangardco sells its plant unpackaged a 10 ton-per-hour soybean Biogas and branded products to thousands of plant 10 extrusion line and a grain elevator Dry egg customers across Eurasia and with a capacity of 56 th tons. products Export, Africa and is fully committed to wholesalers, retailers its customers’ wellbeing, Electric 10 - In 2016, we produced 84% of power and B2B ensuring that its products are of the animal feed required for shell a consistently high quality and Biofertilizers egg production. National grid safe for consumption. 10 4 ProductionProduction ooff hhatchingatching eeggs:ggs: Manure
Agri - Avangardco is 100% self- Slaughtered producers sufficient in hatching eggs. poultry 10 External suppliers omers ust Internal processes Meat C - Currently, the company 1, 2, 3, 4 Excluding suspended Finished products processors and produces all hatching eggs at packers facilities in Eastern Ukraine and By-products the Slovyany hatchery, which is Crimea. Sales
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 17 OUR VALUE CREATION MODEL OUR VALUE CREATION MODEL | continued 18
VERTICAL INTEGRATION + integration go as far as to Laying of eggs is not where it Milling include in-house production of ends though. We set aside some Grain Feed Most businesses have just one manufacturing assets. of the eggs laid and add more stream of value creation. They value by processing them into Breeding Rearing buy their inputs and add value Egg farming is one industry several varieties of egg products. Breeders Pullets Layers to them by processing or where this is not only possible reselling them. but also highly feasible. Very few But even that is not all there is to Processing industrial egg farmers, however, our value creation model. As Eggs Egg products Avagardco business model have the capabilities required to part of our core operations, we integrates multiple value-adding produce their own manufacturing generate by-products, which activities that form our unique assets - laying hens. would be discarded as waste if value streams or cycles. we didn’t think of a way of using Anaerobic Digestion Co-generation Heat, Avangardco has that capability. them productively. Manure Biogas power, biofertiliser We go beyond classical vertical We produce, or rather, grow our integration by doing own productive assets, our hens, The diagram below describes considerably more than just from a very young age. As a Avangardco’s multiple and producing our inputs instead of matter of fact, they are born into mutually enhancing cycles of OUR STREAMS OF VALUE us source key inputs and manner. All our value creation buying them. our hatcheries, grown to value creation. It also shows our CREATION productive assets and add value streams share three important egg-laying age and used value-adding activities and to them in the most secure, characteristics or dimensions: In few industries does vertical productively until we retire them. identifies our finished products. Our value creation streams help sustainable and cost-effective
We look for the best deals on our inputs and productive assets and Avangardco’s Value Creation Model Doing it cost-effectively add value at the lowest cost to improve profitability.
We put biological security first. It overrides all other considerations Doing it safely when we make our sourcing decisions. e B r s i u g o n g g a E a s We use sustainable sourcing practices to ensure that we continue to M Doing it sustainably P E s have uninterrupted access to our key inputs and productive assets. r Grain u g e ll g e d t p e s r e
o r
d
B
u
c t s The Feed Stream ed Fe Milling Grain Feed La yers
H Animal feed is without a doubt ea ers DoingDoing iitt ccost-effectively:ost-effectively: the not the decisive one – t, p tilis ower and biofer our most important input and cheaper the price we pay for biosecurity always takes cost driver. Its share of the feed the higher our margin precedence in all our company’s cost of production is on egg sales, as simple as that; sourcing decisions including Value-adding activities as high as 70% as of 2016. We feed, which represents one of Internal processes source animal feed cost- DoingD oing iitt ssafely:afely: cost is an the potential avenues of Finished products effectively, safely and sustainably: important consideration but contagion.
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It is the second dimension that forward to lock in the best investment in grain, this strategy IPL includes them both in its breeders ourselves. The company links in the supply chain are convinced us early on in our possible price and secure enabled us to forecast and vertically integrated ecosystem. owns and operates two3 equally rigorously controlled. company’s history that there seamless supply. We were manage our overall profitability hatcheries equipped to the state If a stand-alone egg farm was no better way to enforce always getting a better deal to a high degree of accuracy Unlike in most industries, in egg of the art of modern technology, without vertical integration rigorous biosecurity standards because we were buying in bulk given the fact that feed is our farming manufacturing assets one of which is Europe’s largest, buys its layers from a than to build and operate our and buying forward fixing the largest cost input. are not built or manufactured, where it breeds the parents of third-party, strong as the own animal feed mills where we price when it was at its lowest, they are grown at a special type our future laying hens. We buy latter's biosecurity defences 1 have produced up to 84 % of the that’s around harvesting season. This strategy has paid off in the of farm called a rearing farm. breeder chickens from Lohmann may be, the risk of disease volume of animal feed that we Yes, we had to invest additionally past and we are sure it will in the Vertically integrated industrial Tierzucht, Hy-Line International, affecting the flock is bound require to sustain our into grain storage facilities to future. It’s just that we have had egg producers normally buy H&N, the world’s leaders in to be higher than for a operations. We buy grain and store the grain but the discounts to suspend it temporarily in the one-day-old pullets from breeders poultry genetics, and then vertically integrated farm other ingredients and mix we were getting on our grain current difficult economic to rear them to laying age at produce the pullets that we that gets its layers from a compound feed in strict purchases made that investment circumstances faced with a which point the new laying hens eventually grow into layers. rearing farm enforcing accordance with the recipes worthwhile. Our research shows dearth of liquidity. We still are moved into a laying farm to biosecurity standards of prescribed by our suppliers of that the discounts were as large produce most of the feed we lay eggs. Those with no vertical Breeding and rearing operations equal rigour. breeder flock. as 15% on average compared to need at our own feed integration at all buy fully grown enable us to source our primary buying spot, which given the large mills in a biologically controlled laying hens from third-party productive assets, laying hens, DDoingoing iitt sustainably:sustainably: we buy DDoingoing itit ssustainably:ustainably: on top volume of grain we were buying environment, so the fact that we rearing farms. cost-effectively, safely and grain from a large community of all the benefits that this each cycle gave quite a boost to have put buying grain forward sustainably: of grain farmers with whom depth of vertical integration our aggregate margin. This is how on hold for a while has not Avangardco IPL owns and we’ve built long-term business DoingDoing itit cost-effectively:cost-effectively: it is offers in terms of profitability vertical integration works at its compromised the strength of operates 6 2 rearing farms where relationships over the years. by definition cheaper for us and biosecurity, it ensures an most basic. our biosecurity defences. we rear all our laying hens in a to produce our laying hens exceptionally high degree of For several years, we successfully biologically secure and in-house rather buy them as sustainability to our business practised a sourcing strategy On top of earning us an controlled environment. one-day-old pullets or fully model allowing us to consisting in buying grain additional rate of return on our grown layers. accurately plan our breeding, But unlike most other industrial rearing and laying operations egg farmers we do not buy our DDoingoing iitt ssafely:afely: biological within one planning cycle. pullets from breeders, we are security works best if all the
The Breeding and Rearing Streams
Breeding Rearing Laying as a Value-Adding circumstances brought on by a Breeders Pullets Layers Activity Enhanced by Vertical military aggression against Integration Ukraine and annexation of parts of our territory by a foreign It is extremely rare even for and complex supply and value buying them from third parties. Laying of eggs is a value-adding power, our margin from egg cases of the strongest vertical chain that incorporates a activity that benefits from all farming operations has integration to include the traditional production stream Unique to egg farming are two other streams of vertical plummeted dramatically but we production of the manufacturing involving the manufacturing of more streams of vertical integration if there are any. The hope to recover its normal assets with which finished products inputs, such as feed, as integration and value creation streams described above have sustainable level when the crisis are created. It is not that unusual described above, where value is whereby the industry’s traditionally contributed to is over. 2 in poultry farming but it’s not the added and extra margin is productive assets – laying hens – Excluding suspended facilities Avangard’s impressively high norm all the same. earned in the classical sense of are created. And Avangardco in Eastern Ukraine and Crimea. margin on egg sales until recently. vertical integration by producing In the current critical economic Egg farming relies on a unique inputs in-house instead of 1 As of 2016. 3 As of 2016.
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 21 OUR VALUE CREATION MODEL | continued OUR VALUE CREATION MODEL | continued 22
The Processing Stream The Anaerobic Digestion and Heat and Power Co-Generation Streams Processing Eggs Egg products Anaerobic Digestion Co-generation Heat, Manure Biogas power, biofertiliser The next stream of our vertical process into powder come model – biogas produced from integration goes beyond egg from our own egg-laying chicken manure generated by production. We process eggs farms protected by our Avangard’s megafarms of Avis Avis and Chornobaivske are DoingDoing iitt ssafely:afely: it is obvious from the grid at the normal into dry egg products to create strong biosecurity defences. and Chornobaivske will be huge not only in terms of that the safest way to deal price and sell all our green a new commodity by adding Upon breaking, the egg mass converted to heat, electric production volume or flock, they with manure potentially energy at the green tariff. value to shell eggs. Dry egg gets pasteurised, which power and biofertilisers using are also Eurasia’s largest by posing a biosecurity risk Using a by-product of products or egg powder come renders it and the resulting co-generation technology. another important metric – the especially if generated in anaerobic manure treatment, in several distinct varieties egg products sterile. amount of chicken manure large volumes is to dispose we will also be producing depending on their uses. There produced in one place. Each one of it on site without having to liquid and granulated are varieties produced from egg DDoingoing iitt ssustainably:ustainably: it is a of the two megafarms when move it anywhere. Anaerobic biofertilisers, for which we yolks, some from egg whites unique feature of our vertical fully populated can generate manure digestion is a will be consuming the that bifurcate into sub-varieties integration that is extremely close to 1,200 tons of manure process whereby manure thermal power obtained with high gel-forming capabilities critical in the unique per day. gets biologically deactivated from biogas processing. or high foaming capacity. Egg circumstances of Ukraine’s in a controlled environment. Admittedly, the margin-earning powder also has a much longer home egg market where Unless it is safely disposed of, potential of our vertical shelf life; it can be stored for up organised industry traditionally manure can present a major DDoingoing iitt sustainably:sustainably: recycling integration has been depressed to 2 years. Avangradco IPL has shares the market with environmental challenge. The biological waste into valuable over the past three years due to built and operates Eurasia’s egg-producing households best and most environmentally commodities and at the the economic recession that set largest and most modern that cause unmanageable sound way of dealing with same time preventing in after Crimea was annexed by egg-breaking plant capable of oversupply situations in manure is to convert it to biogas environmental pollution. It Russia and the military conflict producing both dried and liquid times of crisis when household through anaerobic digestion and just doesn’t get any more started in Eastern Ukraine. But varieties of egg products. income drops forcing families then convert it to thermal sustainable than that. Yet, only on the financial side, to switch to home-laid eggs. energy, electric power and there’s more. The biogas technically it keeps on running We produce egg powder Egg processing allows the biofertiliser via co-generation. plants that we are building at like clockwork. We are confident cheaply and safely while the company to literally save any Avis and Chornobaivske are that we will be able to recover sustainability features of this excessive volume it DoingDoing itit cost-effectively:cost-effectively: By expected to fully meet our our historically high margins business segment benefit our inadvertently produces, recycling manure productively demand for heat and when the crisis has passed. entire vertically integrated when household production we avoid the costs of having electricity. We estimate that business model. surges, from being sold at a to dispose of it in the at full capacity our biogas loss or spoilt, by converting it conventional way, literally by plants will be generating DDoingoing iitt ccost-effectively:ost-effectively: we to egg powder that can be taking it to a landfill. True, it surplus power that we’ll be are one of the world’s most stored for a considerably costs money to operate a able to sell to the national cost effective producers of longer time. biogas plant but the value grid at the so-called green egg products because we derived from manure turned tariff, which is significantly source eggs in-house at a to biogas turned to heat and higher than the normal price cost that fully benefits from There are two more streams of power more than compensates of power produced from our deep vertical integration. value creation that the company for the cost of biogas plant fossil fuels. In fact, we intend has added recently to its operation. to continue sourcing electricity DDoingoing iitt ssafely:afely: all eggs we vertically integrated business
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 23 LETTER FROM CEO LETTER FROM CEO | continued 24
retail chains. As of 2016, they agricultural producers as payers technological edge as one of the represented our largest of Value Added Tax. most efficient, cost-effective distribution channel accounting and technologically advanced for 60% of total egg sales. Another government programme, industrial producers and however, promises to partially processors of chicken eggs not By promoting sales through offset the adverse impact of this only in Ukraine but also in all of retail chains we make our sales move. Among its many Eurasia. increasingly more predictable elements, it features a direct and secure. subsidy to the farming industry. We hope that 2017 will usher in a In 2017, its amount is expected genuine recovery and we will We have also increased the to total UAH4bn. claim our fair share of the share of egg output processed deferred demand for eggs that into dry egg products as a risk Exports of Ukrainian shell eggs has built up over the past three mitigation strategy against and egg products further years. We expect seasonal price oversupply situations created in declined as political instability in fluctuations in Ukraine’s domestic Ukraine’s domestic shell egg the Middle East and North Africa shell egg market to stabilise and market by increased household continued to obstruct trade in a healthy balance between production, coinciding with a most commodities including industrial and household Nataliya Vasylyuk, weaker consumer demand and eggs. production to be recovered. Chief Executive Officer reduction in export sales. Egg product exports also We very much look forward to a In 2016, while the overall contracted as competition peaceful resolution of the economic situation in Ukraine toughened in the global egg military conflicts in Ukraine and Dear shareholders, bondholders, in GDP, strong inflation, threefold though we have lost a substantial remained largely unfavourable, product market due to MENA, which will normalise both lenders and business partners! depreciation of Ukraine’s proportion of our assets we we started seeing some early increased presence of US and domestic trade and exports. national currency and have not completely divested signs of a recovery. GDP European producers. It gives me great pleasure to unprecedented contraction of any of those that represent produced a small yet positive Let me once again thank you for welcome you on behalf of our consumer demand brought on crucial links in our integrated growth for the first time in three Amid those pressures, we were your appreciation of our current entire team at Avangardco IPL by a severe decline in value chain, e.g. hatcheries, feed years, whilst both inflation forced to further reduce our situation. We thank you for your and extend our sincerest disposable household income. mills or egg processing facilities. and devaluation decelerated. flock size, cut production and faith in the company and we are appreciation to all of you for Towards the end of the year the sales while at the same time confident that with your your continued interest in our Some industries and companies We have responded to demand government approved a series increase egg processing to unwavering support Avangadco company, your unwavering have been worse affected than contraction in several ways. In of important decisions aimed at counter oversupply in Ukraine’s IPL will soon reemerge as a commitment, support and others. Ukraine’s modern particular, we have concentrated boosting consumer demand domestic shell egg market. vibrant growth story and regain understanding of the many egg-farming industry has a higher proportion of the including a decision to double its position as a world leader challenges and difficulties that suffered a substantial decline company’s laying capacity at the minimum wage from While these developments put in its industry and one of the current situation presents. under pressure from overall our modern and more efficient January 2017. considerable pressure on our Ukraine’s most successful public contraction in egg consumption, vertically integrated poultry debt-servicing capacity we companies. The military aggression against increased production of eggs by complexes of Avis and At the same time, a number of continued servicing our Ukraine perpetrated by a households and reduced Chornobaivske while enforcing unfavourable developments Eurobond obligations. In Sincerely, foreign power resulting in the exports. some of the world’s most occurred in Ukraine’s tax particular, we made coupon annexation of sovereign stringent biological security and regulatory environment payments on our Eurobond Nataliya Vasylyuk Ukrainian territory and effective Amid these difficult circumstances, standards. affecting agricultural producers. based on renegotiated terms. Chief Executive occupation of parts of Ukraine’s we have been able to preserve In particular, the government Officer eastern provinces has triggered our core segments and our We have also substantially completely abolished the We have managed to retain our a deep economic recession unique vertically integrated increased the share of egg sales preferential treatment of market leadership and marked by a double-digit decline business model and even made through Ukraine’s major
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ECONOMIC RECOVERY LocalLocal ccurrencyurrency ddepreciationepreciation slowsslows ddownown ttoo.oo. In 2016, the 1 3 The Tide Has Turned at Last GDP Growth, YOY, in constant 2010 prices, %: Ukrainian hryvnia lost 17% of Change in Disposable Income its value YOY, which is no of Households, YOY, %5 : After three years of seemingly small loss, of course, but 4 irreversible economic downturn 4.8% compared to the 83% the 7.6% 7.3% brought on by the Russian 2.3% year before it is quite an 5.6% 1.5% 4.7% 4.0% aggression, annexation of 0.1% achievement. 1.9% 1.9% Crimea and the occupation of -1% -1.9% parts of Ukrainian territory in the -2.4% RealReal hhouseholdousehold iincomencome hhasas -4.3% -9.0% easternmost provinces of -5.3% yetyet t too c catchatch u upp w withith -7% -14.1% -14.9% Donetsk and Lugansk bordering macroeconomicmacroeconomic improvements.improvements. -16.0% on Russia, the national economy Real household income -23.5% -26.6% of Ukraine has finally started -14.4% -14.5% started to contract sharply -34.0% showing the first signs of a -16% from Q2 2014 as the economic recovery. downturn triggered by the foreign military aggression Q1 15 Q1 13 Q1 16 Q1 14 Q1 15 Q1 16 Q1 14 Q2 15 Q2 13 Q3 15 Q3 13 Q2 16 Q3 16 Q2 14 Q4 15 Q3 14 Q4 13 Q4 14 Q2 15 Q3 15 Q2 16 Q3 16 Q2 14 Q4 15 Q3 14 Q4 16 GDPGDP getsgets backback onon a growthgrowth Q4 14 began to unfold. The most track.track. In 2016, Ukraine's GDP severe loss of income befell produced a positive year- Source: State Statistics Service of Ukraine Ukrainian households in 2015 Source: State Statistics Service of Ukraine over-year growth of 2.3%. with the trough of the curve Admittedly, much if not all reached in Q2 2015. In the this growth is attributable to last two quarters of 2015 and the low baseline effect but Q1 2016 the decline in real what's important here is not 2 household income continued the size of the growth, in CPI and UAH/USD Exchange Rate : but the pace of the decline absolute or relative terms, decelerated and eventually but the very fact that it's turned to growth from the finally happened. The tide 30 70 second quarter of 2016. has turned! 25 60 Admittedly, there remains a 50 20 lot of catching up to do AAnnualnnual iinnflaationtion ddeceleratesecelerates 40 before real household toto 13.9%13.9% fromfrom 48.7%48.7% thethe yearyear 15 30 income approaches the level before.before. Even though it failed 10 20 of 2013. to break out of double-digit 5 territory, inflation demonstrated 10 a huge improvement in 2016 0 0 dropping more than three Jul, 15 Jul, 16 Jan, 17 Jan, 15 Jan, 16 Jun, 15 Jun, 16 Oct, 15 Mar, 15 Apr, 15 Oct, 16 Mar, 16 Sep, 15 Apr, 16 Feb, 15 Sep, 16 Feb, 16 Dec, 15 Dec, 16 Nov, 15 May, 15 Nov, 16 Aug, 15 May, 16 times from the year before. Aug, 16 There are factors at play, 1, 2, 5 Excluding the Autonomous however, that are pushing Republic of Crimea, the city of inflation up, e.g. increasing Sevastopol and the military Weighted average UAH/USD rate utility prices. conflict zone in Eastern Ukraine. Inflation rate YOY, %, rhs
Source: State Statistics Service of Ukraine, company 3, 4 Calculated at weighted data average rate for the period.
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OPTIMISM GOING FORWARD fundamentals will be further strengthened by the positive GDP, Household Income and Real GDP of Ukraine, effects of a decision adopted Aggregate Corporate Bottom Line, UAH, mn: Retail Trade Expected to Grow in bn USD (1992-2022): by the Ukrainian Government to double the size of the Experts and analysts from minimum wage from UAH government agencies, think 1,600 (~ USD 60 2 ) to UAH 600 000 tanks and reputable international 3 188 198 3,200 (~ USD 120 ) per 400 000 176 180 163 173 financial institutions agree that 149 154 month with effect from the 200 000 136 137 131 124 0 the recovery that started in 2016 112 122 1st of January, 2017. 100 2009 2010 2011 2012 2013 2014 2015 2016 2017 will continue into 2017 and 89 8588 200 000- 67 52 52 400 000- beyond. They may disagree as 35383846 43 3944 22 3332 Just as in the case with GDP, 600 000- to its pace or risks that may most economists agree that this 800 000- 1 000 000- undermine it or slow it down but increase will have a positive they are almost unanimous impact on domestic demand in predicting sustainable and retail trade that also started improvements across most picking up towards the end of
2011 Profits 1992 1997 2017 1995 2012 2021 1993 2015 2013 1998 1996 1999 2018 2016 2019 1994 2014 2001 2010 2022 2007 2002 2020 2005 2003 2008 2006 2009 2004 macroeconomic fundamentals 2000 2016. Losses going forward. Aggregate Profits MacroeconomicMacroeconomic ffundamentalsundamentals Source: Based on National Statistics and Projections by Ukraine’s Ministry of Finance, Source: Based on National Statistics and Projections by expectedexpected ttoo strengthen.strengthen. The Independent Macroeconomic Forecasts Group while announcing the decision Independent Macroeconomic Forecasts Group World Bank and the IMF to double the minimum wage in predict that in 2017 Ukraine’s December 2016, made the GDP will grow by 2%. The following statement: «To the old demand, also known as profits have also started to pick IMF is also predicting a lower Retail Trade Dynamic, YOY, extent that this decision is going deferred demand - the up as per official statistics. annual inflation rate in 2017 at comparable prices, %:1 to increase income for the purchases of goods and services compared to 2016 – poorest strata of the population that households have had to Admittedly, far not all employers 11.5% YOY. Some indepen- it will be spent in the first place defer until later under income will be giving raises across the dent economists, such as 10% on food, clothes and other pressures. board. But at the very least we Independent Macroeconomic essentials». could count on officially 4% Forecasts Group (IMF Group) This move is going to affect the registered minimum wage (http://imfgroup.com.ua/en/), This view is shared by most entire labour market, not only earners. According to official are even more optimistic in economists because it simply minimum wage earners. statistics, there are 3.7 million their outlook for Ukraine’s makes sense. Ukraine’s economy Employers will be forced to working Ukrainians officially GDP growth in 2017 and -9% has seen such severe loss of increase wages and salaries to reported as drawing the beyond. disposable household income in higher-paid personnel to retain minimum wage. For this category the past three years, triggering a talent and preserve their pay alone, the decision to double the -21% DomesticDomestic demanddemand expectedexpected critical contraction of domestic grade systems. Admittedly, this minimum wage from UAH 1,600 toto recover.recover. The positive demand, that any increase in the is going to put additional strain to UAH 3,200 will increase 2015 2013 2016 trends setting in across 2014 income of the poorest families, on corporate profits already payroll by UAH 5.92bn per Ukraine’s macroeconomic those drawing minimum wages, under pressure from the ongoing month in 2017. is bound to translate into new economic recession. However, Source: State Statistics Service of Ukraine 1 Excluding the Autonomous demand for basic goods and this effect will be to a certain 2, 3 Republic of Crimea, the city of services, e.g. food, clothing, etc. extent mitigated by a simultaneous Calculated at UAH/USD Sevastopol and the military Technically, that would not be reduction in payroll taxes and exchange rate as at 31 December conflict zone in Eastern Ukraine. new demand, rather it would be the good news is that corporate 2016.
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UKRAINE’S EGG MARKET FOR In 2016, total egg consumption Egg production experienced a rate of decline of 14.3% the year SHELL EGGS continued to decrease dropping further net contraction of 9.9% before.
Kvochka Branded Shell Eggs to 10,923mn eggs or 8.6% YOY. YOY in 2016, which can be Market Contraction Decelerates Per capita consumption considered an improvement to Single Digits, Exports declined to 256 eggs per year. compared to the double-digit Continue Declining
TotalTotal ProductionProduction DDecreasesecreases iinn ResponseResponse t too D Decliningeclining ConsumptionConsumption Egg Production in Ukraine during 2007-2016, mn eggs:
From the year 2000, egg
consumption in Ukraine was 1 2 3 4 Year 2007 2009 2010 22011 2012 2013 2014 2015 2016E growing steadily exceeding 310 eggs per capita for the first time in 2011. In 2012, domestic egg Total 14,063 15,908 17,055 18,690 19,117 19,094 19,587 16,783 15,114 consumption slightly contracted growth rate, % -1.2% 6.4% 7.2% 9.6% 2.3% х 2.6% -14.3% -9.9% as the volume of export of shell Households 6,458 6,650 6,805 6,952 7,133 7,000 7,051 7,021 7,032 eggs and egg products share of total 45.9% 41.8% 39.9% 37.2% 37.3% 36.7% 36.0% 41.8% 46.5% increased. production, % Industry 7,605 9,258 10,250 11,738 11,984 12,094 12,536 9,762 8,081 Since 2014, egg consumption share of total 54.1% 58.2% 60.1% 62.8% 62.7% 63.3% 64.0% 58.2% 53.5% per capita has started to decline production, % under pressure from the unfolding economic recession Egg Consumption Per Capita vs. Source: State Statistics Service of Ukraine, Pro-Consulting triggered by the annexation of Other Basic Foodstuffs : Crimea and foreign occupation of parts of Ukrainian territory. 350 Just as in the case with industry’s largest player. At the The annexation of Crimea alone 300 consumption, egg production same time, households (small resulted in a 5% reduction in also enjoyed steady growth home farms), once the market’s 250 Ukraine’s total egg consumption from the early 2000s until 2014 largest supplier, were (as of 2013). The partially 200 when recession started. consistently giving up market occupied provinces of Donetsk 150 Between 2007 and 2014, total share to a considerably more and Lugansk once accounted egg production increased 39% efficient industry. 100 for 14% of domestic consumption YOY from 14,063mn eggs to (as of 2013). 50 19,587mn eggs in response to Towards the end of 2014, 310 256 280 309 increasing domestic consumption however, the trend reversed 0 In 2015, egg consumption and growing exports. again and households started contracted by 10.5% YOY totaling Milk, kg Shell eggs, pcs Meat and meat Bread products, kg products, kg regaining their lost market turf. 11,949mn eggs as purchasing This period was characterised But it’s not because they power declined in response to by rapid expansion of modern suddenly became more efficient 1, 2 ,3, 4 Excluding the Autonomous household income contraction. 2013 2014 2015 2016E egg-farming industry, a process than industrial egg producers. Republic of Crimea, the city of Per capita consumption Source: State Statistics Service of Ukraine, very much inspired and led by Sevastopol and the military dropped to 280 eggs. Pro-Consulting Avangardco IPL as the conflict zone in Eastern Ukraine.
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Ukraine’sUkraine’s DDomesticomestic EEgggg MMarket:arket: a This is the mechanism whereby hibernates until it gets warm UniqueUnique CCompetitiveompetitive EEnvironment.nvironment. household production squeezes again, the egg price skyrockets out industrial producers that Shell Egg Production in and families are forced to pay Ukrainian Egg Producer Prices, UAH per 10 eggs: Competition between households have no other choice but to several times more for their Ukraine by Segment, %: and industry in Ukraine’s egg adjust their production volume, eggs now.
market does not lend itself to which is hard to do because, then 21,00 being described in classical again, households do not operate This neatly encapsulates the 19,00 market competition terms as a single market participant, Households, harmful effect that households where two or more players they do not do any production 37% exert on Ukraine’s domestic egg 17,00 would be competing to improve planning. That is why it is market. They are rocking the 15,00 their product quality, reduce extremely difficult to predict the boat increasing price 13,00 costs, promote their products to volume they are collectively fluctuations, and every time they 2013 11,00 win a larger market share than going to put to the market. force the price below breakeven 9,00 their competitors. In fact, in our Hence, avoiding overproduction point for industry and killing off case one of the players – becomes next to impossible and more industrial producers the 7,00 industry– is indeed behaving that the price often drops below cost price rebounds to a new high 5,00 Industry,
way but the other – households of production for most industrial 63% simply because when household Jul Jun Jan Oct Apr Mar Dec Sep Feb Nov May – is acting in an erratic and producers when the market gets production volume eventually Aug unpredictable manner. Because strongly oversupplied. drops the market gets even they are not a market player in more undersupplied because 2014 2015 2016 the classical sense of the word. This is what happened in Q2 and the capacity destroyed during Q3 2016. Excessive household the summer waterboarding of Source: Pro-Consulting Households when referred to as production sent the price industrial egg farmers is no egg producers are simply nosediving, killing off smaller longer there, which creates an families living in villages or small industrial producers and forcing increasingly greater shortage in Exports of Eggs and Egg Products from Ukraine 1: towns and keeping one or two the larger ones to sell at a loss. the market causing the price to hike. hens to produce and eat their Even Avangardco IPL that has the own eggs. unique opportunity of converting In 2016, the pressure on Households, 17.5 excessive production volume into domestic egg prices from 47% 16.6 This is more of a hobby when durable egg products or selling it households was further family income is high but it to foreign buyers had to sustain compounded by a sudden drop becomes a necessity when losses because of the great in export sales towards the end family income drops. Unlike uncertainty that households 2016 of the year. industrial layers, homebred hens create in the domestic egg 9.9 9.6 only lay eggs in warm weather market. ExportsExports ContinueContinue DecliningDeclining asas 8.1 reaching their peak productivity PoliticalPolitical IInstabilitynstability iinn MMENAENA during the summer months. In Consumers may be excited when Industry, PersistsPersists 652 1,111 899 716 times of economic hardship, the price drops in the summer 53% 651 more and more families decide and they only wish they could Political instability in parts of the 2012 2013 2014 2015 2016 (E) to rear their own laying hens store up eggs to last them until Middle East and North Africa satisfying family demand for the next summer. But, alas, this is region continued into 2016 eggs and putting any surplus to impossible, eggs are a perishable Source: State Statistics Service of Export of shell eggs, mn eggs 1 the market instead of buying product. In the late autumn, Ukraine, Pro-Consulting Excluding the Autonomous Export of egg products, th tons their eggs from industrial excitement turns to frustration Republic of Crimea, the city of Source: State Statistics Service of Ukraine, producers. when household production Sevastopol and the military Pro-Consulting conflict zone in Eastern Ukraine.
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further depressing Ukrainian ExportsExports StayStay SSluggishluggish OOverallverall egg exports to the region, which exceptexcept fforor EEUU contracted almost by half Production of Shell Eggs and Egg Products compared to 2014. Overall exports of egg products in Ukraine: stayed sluggish in 2016
Apart from causing a loss of 33.2 compared to the year before hard-currency revenues, reduced 31.2 except for trade with the EU. In 28.8 export sales are also putting 27.9 value terms, Ukrainian exports 25.2 considerable pressure on the 22.1 23.2 of egg products to the European home market and domestic egg 18.7 Union increased by 22% YOY. prices as described above. According to the European Major Ukrainian producers, Commission, Ukraine now ranks with Avangardco IPL at the lead, as the EU’s largest third-country 7,051 7,000 8,929 11,984 12,536 9,762 7,133 8,760 12,094 have been actively exploring 7,021 7,032 8,081 7,363 8,640 7,503 7,547 supplier of egg products. alternative export destinations to 2012 2015* 2013* alleviate the country’s excessive 2014* Leading Ukrainian producers 2017F* 2016E* 2018F* dependency on MENA as its 2019F* including Avangardco IPL are largest export market. determined to expand egg Egg production by households, mn pcs product exports going forward Egg production by industry, mn pcs UKRAINE’S MARKET FOR EGG by exploring new markets and Egg product production, th tons PRODUCTS further expanding trade with the Source: State Statistics Service of Ukraine, EU. Apart from serving as a Pro-Consulting Producers Increase Egg Product source of hard-currency Output to Mitigate Oversupply in Ukrainian Egg Product Exports to the EU, USD mn : revenues, they act as a cure Home Shell Egg Market while helping heal the imperfections Exports Stay Sluggish except for and imbalances of Ukraine’s EU domestic shell egg market 28.2 affected by consumer demand EggEgg ProducersProducers IncreaseIncrease OutputOutput 23.1 contraction. ofof EggEgg ProductsProducts toto ProtectProtect HomeHome ShellShell EggEgg MarketMarket fromfrom OversupplyOversupply
In 2016, Ukraine increased the production of egg products by 24% compared to the year 3.0 before. Admittedly, most of this growth in egg processing volume resulted from mitigation 2014 2015 2016 strategies used by leading industrial egg producers including Source: State Statistics Service of Ukraine, Pro-Consulting Avangardco IPL in response to oversupply situations in Ukraine’s domestic shell egg market.
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GLOBAL MARKET FOR EGGS on the welfare of laying hens. AND EGG PRODUCTS Global Trade in Eggs and EU egg farmers were given 12 Egg Imports by Iraq vs. Growth Expected to Resume in years to achieve compliance Egg Products, USD mn: Other MENA Markets, USD mn: 2017 with the new Directive. During the transition period, while they WorldWorld EggEgg TradeTrade DeclinesDeclines asas were upgrading their operations GlobalGlobal PProductionroduction IIncreasesncreases to meet the new requirements, they substantially reduced
In 2016, world production of production volume creating a 402 eggs grew by 1.7% YOY shortage in the EU egg market, 325 227 452
reaching a total volume of 3,896 4,191 4,499 4,086 3,735 3,903 3,954 3,987 which was eagerly met by
72.3mn tons. Global output of egg-exporting third countries. 444 egg products increased by 2.5% By 2016, most industrial egg
YOY totalling 4,451 th tons. 1,429 1,580 1,515 1,420 1,350 1,381 1,403 1,413 farmers of the EU had largely 388 239 completed the conversion and 448 478 322 2012 2015 2013 Expansion of domestic 2014 recovered their production 2017F 2018F 2019F 2016E 2012 2015 2013 2014
production was observed across volume. In 2016, total egg 2016E all major egg-importing markets, production in volume terms Egg product import which led to further contraction exceeded the 2012 volume by Iraq Egg import of global trade in both eggs and 13%. Trade between EU Other countries Source: WTO/UNCTAD International Trade Centre, egg products. In value terms, member states has contracted. Source: WTO/UNCTAD International Trade Centre, Pro-Consulting global imports of shell eggs and Pro-Consulting egg products decreased by 9% At the same time, the European YOY and 5% YOY respectively Import of Eggs and Egg Products Union has retained its trading Us Dry Egg Product Exports, USD mn: while import volumes contracted volume as an exporter of egg by Key Importing Markets, USD mn: across all major importing products, especially dried ones. markets. In 2015, the EU claimed 47% of 3 500 such exports while in 2011 its 25 TTwowo LLargestargest GGloballobal MMarketsarkets 3 000 share was 36%, which proves DrivingDriving DDeclineecline iinn WWorldorld EEgggg that the EU is strengthening its 20 2 500 TradeTrade position as one of the world’s 15 2 000 largest exporters of egg Two of the world’s largest 1 500 powder. 10 markets, namely the EU and 1 000 MENA, were responsible for MMENA:ENA: In 2016, the market of 5 most of the decline in global egg 500 MENA continued demonstrating trade during 2016. 0 a steady decline in egg imports 0 European MENA Far East CIS Southeast SSA in value terms. Iraq, traditionally EEU:U: In 2016, the European Union Union Asia Ukraine’s largest export market, Q1 15 Q1 16 Q1 14 Q2 15 Q3 15 Q2 16 Q3 16 Q2 14 Q4 15 Q3 14 Q4 16 reduced imports of eggs and reduced its egg imports by 26% Q4 14 egg products by 5% YOY in in 2016 as compared to 2015 value terms vs. 7% YOY in 2015. 2014 2015 2016E Source: WTO/UNCTAD International Trade Centre
This was triggered by the Source: WTO/UNCTAD International Trade Centre, eventual implementation of EU Pro-Сonsulting Council Directive 1999/74/EC
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triggering a further decline in largest exporter of egg products, This situation forced many Ukrainian egg exports. Suffice it got back on a growth track importing countries to impose say that back in 2013 Iraq ranked following a decline in production bans on any poultry products KEY SHELL EGG IMPORTERS second globally among egg- volume due to outbreaks of from the affected regions, importing countries. This drop in avian influenza in 2015. which, in its turn, contributed to the volume of imports is due to overall contraction of the world EU the ongoing war on ISIS that has Most of this recovery, however, egg market. engulfed Iraq and the higher occurred towards the end of Share of global imports - 47 % Key Importers High levels of economic risks affecting trade logistics 2016. The US has returned to its GGrowthrowth E Expectedxpected t too R Resumeesume Production - 7.6mn tons in the Region, %: development, flat population with this part of the world. traditional export markets being inin 22017017 growth, high incomes and the Far East and South East urbanization rates. SSouthouth EastEast AsiaAsia AlsoAlso ReducesReduces Asia. Despite all the challenges posed ImportsImports by the developments of 2016, EU egg demand almost fully Other, Germany, OOutbreaksutbreaks o off B Birdird F Flulu i inn Avangardco IPL cautiously satisfied by local production. 32% 39% The market of South East Asia DifferentDifferent RRegionsegions CContributeontribute ttoo predicts a small revival in the also reduced its imports of eggs GlobalGlobal DDeclineecline iinn EEgggg TTraderade global market for eggs and egg EU-27 egg market fairly and egg products by 18% in 2016 products in the short-term. The balanced with steady as compared to 2015. In 2016, outbreaks of avian highest pace of recovery is to be production volume. France, influenza occurred in different expected in the market worst 6% This decline was mainly driven parts of the world forcing affected by or, to put it another Netherlands, New breeding conditions by Japan, the world’s largest producers to reduce their flock way, mainly responsible for the 23% banning standard battery consumer of dried egg products size to prevent the disease from recent decline in global trade cages under European reducing its imports. spreading further. being the Middle East and North Council Directive 1999/74/EC Africa, Avangardco’s largest resulted in a temporarily UUSS RRecoversecovers afterafter OutbreaksOutbreaks ooff Cases of bird flu were reported in export market. decrease in shell egg BirdBird FFlulu many EU Member States, Taiwan, production and increased South Korea, Israel, India, Egypt Key Metrics: imports. The situation gradually In 2016, the US being the world’s and several other countries. improved as European 225 producers largely adjusted their production to the 218 requirements of the Directive. As a result imports returned to the level of 2011.
Most of the trade conducted intra-EU with relatively low 936 836 1090 1288 volumes from beyond its 2007 2016 borders.
Imports, th tons Import demand largely Exports, th tons driven by demand for eggs Consumption per capita, eggs for further processing.
Source: WTO/UNCTAD International Trade Centre, Pro-Consulting
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 39 MARKET OVERVIEW | continued MARKET OVERVIEW | continued 40
MENA CIS
Share of global imports - 18 % Key Importers MENA has huge oil reserves Share of global imports - 10 % Key Importers Largest egg producers Production - 3.8mn tons in the Region, %: generating most income. Production - 4.8mn tons in the Region, %: include Russia, Ukraine and Belarus. High population growth; Other, some countries have Tajikistan, Traditionally high egg 5% doubled population in the 2% consumption encouraging Other, Iraq, Ukraine, past 20 years. growth of egg farming 24% 55% 8% industry. Middle class set to grow Syria, boosting purchasing power. Hatching eggs making up 6% most egg imports as poultry MENA has changed sector grows. UAE, Russia, 15% dramatically in the past fifty 85% years. Caloric intake has Eggs increasingly imported increased by 54% and by countries of Central Asia protein intake by 57%. (Kyrgyzstan and Tajikistan) Protein intake stil lower than and the Caucasus (Georgia, in developed countries. Armenia and Azerbaijan).
Key Metrics: Lack of water resources Key Metrics: Except for Ukraine and constraining local agriculture Belarus, all CIS countries are and encouraging imports. net importers of eggs. 105 105 233 Imports growing consistently 206 with Turkey traditionally in first place among exporters to the region and expanding in recent years within increased imports from the 174 63 457 83 European Union and Ukraine. 37 57 118 135 2007 2016 2007 2016 A military conflict and political Imports, th tons instability in 2015-2016 led to Imports, th tons Exports, th tons a partial closure of borders Exports, th tons Consumption per capita, eggs and significant complications Consumption per capita, eggs of import procedures.
Source: WTO/UNCTAD International Trade Centre, Pro-Consulting Source: WTO/UNCTAD International Trade Centre, Pro-Consulting
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 41 MARKET OVERVIEW | continued MARKET OVERVIEW | continued 42
KEY EGG PRODUCT IMPORTERS
Sub-Saharan Africa EU
Share of global imports - 2 % Key Importers Rapid population growth Share of global imports - 60 % Key Importers European countries among Production - 2.1mn tons in the Region, %: over the past 30 years in the Region, %: the world’s largest producers (1980s – 483 million people, and consumers of egg now –over 1 billion). products.
High poverty levels keeping Germany, In some EU countries more Angola, food consumption low. 20% than half of all eggs 32% Other, produced turned into egg 46% High dependency on grain Other, products. 53% imports constraining growth UK, of local egg production. 18% Most of the trade is intra-EU. Mozambique, Reserves of natural resources Liquid egg products Liberia, 12% Netherlands, 10% (oil, metals, precious stones, 9% dominate imports as most of etc.) attracting interest from it takes place between EU BRICS investors, economic member states. growth to encourage protein consumption, in particular In the past several years, the eggs. share of exports of dry egg Key Metrics: Key Metrics: products outside the EU has Growth in the region expected been increasing. In 2016, the to significantly outpace share of European exports of global economic growth dry egg products to other according to the World Bank. countries amounted to 47%.
34 35 Growing consumer demand to encourage food imports including eggs.
38 3 54 19 Decline in imports due to a 603 652 807 1017 2007 2016 slowdown of the region’s 2007 2016 economy. Imports, th tons Imports, USD mn Exports, th tons Exports, USD mn Consumption per capita, eggs
Source: WTO/UNCTAD International Trade Centre, Pro-Consulting Source: WTO/UNCTAD International Trade Centre, Pro-Consulting
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Far East MENA
Share of global imports - 13 % Key Importers A large population and high Share of global imports - 7 % Key Importers MENA has the highest in the Region, %: rates of economic in the Region, %: dependency on imported development. egg products in the world.
Other, Korea, 6% Japan, a global and regional Egg processing as an 8% leader in egg product Qatar, industry does not exist. imports with a highly 23% Other, Taiwan, developed egg processing Dry egg products take up 11% 41% industry. Japan consumes nearly 50-60% of total egg more than 50% of all eggs product imports. produced in the country in Saudi Japan, the form of egg products. Arabia , Leading economies of the 19% 75% However, in 2016 Japan region represent its largest UAE, reduced its imports of egg 17% egg product importers. products. A military conflict and The Far East region as a unstable political situation in whole is a net importer of 2015-2016 negatively affected egg products with some imports to the region. Key Metrics: countries more dependent Key Metrics: on imports than others.
Up to 73% of imported egg products are dried egg products.
Consumer demand expanding steadily encouraging import growth as food-processing 137 19 174 30 industry evolves. 33 19 88 30 2007 2016 2007 2016
Imports, USD mn Imports, USD mn Exports, USD mn
Source: WTO/UNCTAD International Trade Centre, Pro-Consulting Source: WTO/UNCTAD International Trade Centre, Pro-Consulting
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 45 MARKET OVERVIEW | continued MISSION, STRATEGIC VISION, GOALS 46
Our mission is to promote public Doing business in line with is to become the world’s health by giving consumers global best practices; number 1 producer of eggs and access to affordable, healthy egg products. We aim to maintain and safe animal proteins globally Combining socially and leading positions in Ukraine and environmentally responsible earn international recognition South East Asia Avangardco IPL focus areas are: business practices. through high product quality and advanced business practices. Share of global imports - 4 % Key Importers One of the world’s highest Improving product quality; Avangardco IPL strategic vision population densities (nearly in the Region, %: Our Goals: 29% of world population). We strive to optimise the use of production capacity and increase Rapid economic growth over Increase Production Efficiency production efficiency by utilising new poultry farms while modernising the past 30 years. existing assets and adopting modern agricultural technologies. Thailand, Other, 34% Retain leading positions in the domestic market through high 33% Income growth encourages Diversify Sales to Maximize Profits product quality and ability to supply large product volumes. protein consumption growth. Continue increasing product sales through higher-margin channels Egg processing practically by promoting business with local and national supermarket chains, non-existent (except India). introducing new client loyalty programmes and establishing Indonesia, Vietnam, contacts with transnational FMCG companies operating in Ukraine. 16% 17% All countries of the region are net importers of egg Increase the presence of branded products under the Kvochka products except for India. umbrella brand in supermarket chains and other retail stores throughout Ukraine by implementing brand recognition programmes and balanced pricing policies.
Diversify export sales by further developing exports to the EU, Key Metrics: Focus Efforts on Increasing Export MENA, Africa, Asia and the CIS. of Eggs and Dry Egg Products Strengthen positions in the aforementioned markets to become a leading supplier of eggs and egg products.
Attract new clients in new markets and regain positions in MENA as soon as the situation in the region allows.
Avangardсo has introduced modern technologies at its Maintain High Product Quality production facilities in order to maintain high product quality. At the same time, vertical integration implies that we can exercise 22 47 57 79 strict quality controls at all stages of production. 2007 2016 Receive certification to export shell eggs of class “A” to the EU. Imports, USD mn Exports, USD mn Have Chornobaivske poultry complex certified to ISO 22000:2005 (Food safety management system).
The company strives to establish and maintain long-term relations Pursue Global Best Business Practices with all key stakeholders. In addition to developing production, sales Source: WTO/UNCTAD International Trade Centre, Pro-Consulting and pricing, this task envisages significant investment in staff training and new methods of creating strategic value for our partners.
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PERFORMANCE REVIEW: most operationally efficient and Increase the share of exports ATB 1 DOMESTIC OPERATIONS cost-effective enterprises, namely in total sales; Laying Flock, mn hens : the company's vertically Shell Egg Segment integrated megafarms of Avis Increase sales of branded and Chornobaivske - the twin shell eggs via all sales Fozzy 1 FlockFlock ConsolidationConsolidation CContinuesontinues poultry complexes being among channels. inin RResponseesponse ttoo FFurtherurther HHomeome 86% 88% the largest industrial egg farms 12 80% 90% MarketMarket CContractionontraction 79% in all of Eurasia, also boasting of In its early days, the company 80% 10 1
1.2 some of the world's highest was selling all its eggs through 70% Auchan In 2016, shell egg consumption 8 60% rates of operational efficiency just one channel, middlemen in Ukraine's home market 50% and cost effectiveness. also known as wholesalers 6 continued to decline reaching a 40% whose business it is to buy eggs new low of 256 eggs per capita 4 30% Faced with a series of severe from the likes of Avangard and Novus Ukraine 1 or 10,923mn eggs for the whole 20% price shocks during 2016, resell them to end consumers at 2 10% 8.48.6 2.3 9.1 2.2 1.5 year. 9.1 Avangardco IPL decided to a profit at traditional outdoor 0 0% concentrate a still higher farmers' markets being at that 31.12.2015 30.06.2016 30.09.2016 31.12.2016 Industrial egg production proportion of its production at time pretty much the only place Velyka Kishenya 1 dropped by 17.2% YOY in 2016 Avis and Chornobaivske where eggs were sold in the while household production only increasing their share of the mass market. edged up by an indiscernible Avis and Chornobaivske company's laying flock to 88%. 0.16% YOY In 2015, both Other farms This distribution channel, Avis and Chornobaivske share, % (rhs) industrial and household SSalesales tthroughhrough RRetailetail CChainshains however, is fraught with risks Eko market 1 production declined by 22% ReachReach 660%0% ooff TTotalotal SSalesales fforor and uncertainties. Having to sell YOY and 0.4% YOY respectively. In 2016, most Ukrainian industrial overproduction by households, thethe FFirstirst TTimeime through an army of small traders So, what’s been happening is producers were struggling to Avangardco IPL has the unique has always acted as a check on not a market redistribution survive and, for better or worse, capability of venting off In 2016, Avangardco IPL continued Avangard's ability to predict excessive volume from the between industry and many did not. The situation implementing its long-term demand and forecast sales, Karavan 1 households, it’s a net contraction, came to a head during Q2 and market by processing more shell strategy aimed at increasing the which becomes a critical which suggests that income Q3 when a seasonal surge in eggs into egg powder, which share of sales made through constraint in times of crisis. pressures have grown so strong household production coincided has a significantly longer shelf more profitable, more reliable, life, and/or increasing shell egg 1 that families increasingly cut with a sudden and very painful predictable and less risky sales In 2009, Avangard introduced Tavria V back on or altogether abandon drop in export sales triggered by exports. channels. to the supermarket shelves the animal proteins from their diets. the continuing military conflict in traditional farmers' market In times of economic growth, MENA, one of the key export Those safety valves, however, The company has been mode of buying eggs offering also have their limitations. reduction in egg consumption markets for Ukrainian egg consistently pursuing this for the first time the option of MegaMarket could point to the contrary producers. During two consecutive strategy for several years buying loose eggs, i.e. as many suggesting that families are quarters of 2016 - Q2 and Q3 - already. It consists of three core eggs as a buyer's budget getting wealthier but only if this Unlike most industrial egg the market was so grossly elements or activities and seeks accommodated rather than a oversupplied that Avangardco is concurrent with a commensurate producers, both still surviving to increase three components of fixed quantity on a tray. Billa increase in the consumption of and already defunct, Avangardco IPL had to sell shell eggs in company sales: more expensive animal proteins, IPL is particularly resilient to Ukraine's home market at a loss. Over the years, Avangardco IPL e.g. poultry, pork and beef, price shocks. Due to its vertically has built solid business Increase the share of sales which, unfortunately, is not the integrated business model, Another ace up its sleeve, also relationships with Ukraine's made through retail chains in Pakko case with Ukraine at this critical whenever the domestic egg unavailable to competition, is leading retail chains: the home market; juncture. market becomes oversupplied, Avangardco's ability to concentrate usually due to uncontrolled production at the company's
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Brusnichka CautiousCautious OOptimismptimism GGoingoing In 2016 industrial egg output the fact that most of this ForwardForward decreased by 17.2% YOY. reduction in sales is due to a Evolution of Sales through Retail Chains, Avangardco IPL reduced its significantly larger proportion of In 2016, Ukraine's total egg production by 27% YOY to 2.5bn egg output processed into dry % of Total Shell Egg Sales: Alliance Market production lost a further 9.9% eggs while sales of shell eggs egg products rather than sold YOY and even though the rate of declined by 46% YOY to 1.5bn as shell eggs. In 2016, Avangard 60% decline returned to single-digit eggs. This number should be increased processing of shell territory compared to 14.3% the viewed in its proper context, eggs by 35% YOY to 1.0bn eggs.
44% year before it serves as evidence however, to enable users to draw that total demand contraction meaningful conclusions. It sounds 35% 35% 33% In its first year of trading 30% continued into 2016. almost lethal unless you consider through supermarket chains, this channel accounted for a 15% mere 2% of total shell egg sales. Shell Egg Segment. Key Operational Figures: In 2016, sales through retail 2%
chains reached 60% of total shell egg sales. Units 22015 2016 Change 2011 2012 2015 2013 2016 2014 2010 2009 Sales of Avangardco's retail brand of Kvochka also increased Total Production Units (mn) 3,434 2,496 (27%) as a percentage of total shell Processing Units (mn) 770 1,039 35% egg sales from 4% of total shell Sales Units (mn) 2,798 1,515 (46%) egg sales in 2015 to 8% in 2016. Export Units (mn) 421 252 (40%) Average Sales Price UAH (excl. VAT) 1.22 1.35 11% Avangardco IPL remains strongly Shell Egg Sales Structure by Volume,%: committed to promoting its business partnerships with Ukraine's leading retailers going Amid all these negative 11% YOY to UAH 1.35 per egg engulfed Iraq, once Ukraine's 15% forward. In these difficult 17% developments there's a glimmer excluding VAT. largest buyer of shell eggs, and
economic circumstances, we are 4%
8% of hope from the first signs of Syria, formerly an important working together with economic recovery that started Most economists agree that the logistical hub for trade with the supermarket chains to restore in 2016. GDP decline has finally economic recovery that started Middle East. pricing stability to Ukraine's egg turned to growth and while in 2016 will continue into 2017 40% market, mitigate seasonal there's a lot of catching up to do and beyond and boost consumer As a result, Ukrainian shell egg demand fluctuations and consumer demand is already demand in general and demand exports contracted by a further 52% maintain consistent supply in reacting positively along with for eggs in particular. 20.3% YOY in volume terms. the market. the volume of retail trade as Avangardco IPL had to reduce 23% 41% discussed in the macroeconomic ShellShell EggEgg ExportsExports DeclineDecline export sales by 40% YOY to 2015 2016 section of this report. FurtherFurther aass IInstabilitynstability iinn MMENAENA 252mn eggs. PersistsPersists Closer to home, domestic egg Exporting shell eggs has its Wholesale prices following two quarters of On the export front, Ukraine natural logistical constraints due Retail chains record lows started to grow suffered a further loss of shell to perishability. Potential markets 1 Top-10 food retailers by total Kvochka again in Q4 2016. In 2016, egg export volume as trade with must lie close enough to the sales area in Ukraine in 2016. Export Avangardco IPL was able to MENA remained obstructed by exporting country, not farther Rating by GT Partners Ukraine. raise its average selling price by the war on ISIS that has than 10 days of delivery time away.
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Egg Product Segment producers that had finally completed the conversion Dry Egg Product Segment. Key Operational Figures: necessary to comply with the Egg Products Sales Structure by Volume, %: requirements of the EU Council Directive on the Welfare of Laying Hens and increased Units 22015 2016 Change production, and US producers that regained their market share,
Dry egg product Tons 9,057 12,219 35% mainly in the Far East and South production Pacific, following a series of Sales volume Tons 11,445 9,028 (21%) outbreaks of avian influenza. Export Tons 8,929 8,249 (8%) Average Sales Price USD/Kg 5.66 5.57 (2%) FFurtherurther GGrowthrowth ooff TTraderade wwithith EUEU andand ExpansionExpansion iintonto SSouthouth 91% EastEast AAsiasia aandnd OOtherther MMarketsarkets 22% 78% 9%
2015 2016 We are not at all put off by the ProductionProduction ooff DryDry EEgggg ProductsProducts slight decline in our egg product IncreasesIncreases i inn R Responseesponse t too exports to South East Asia. As OversupplyOversupply inin DomesticDomestic ShellShell the largest consumer of Domestic EggEgg MarketMarket albumen, this market has a solid Export growth outlook going forward In 2016, Avangardco IPL and we think we will be able to increased its output of dry egg capitalise on our unrivalled cost products by 35% YOY to 12,219 advantages vis-a-vis competition tons. Unfortunately, however, while our quality is already the primary reason for that consistent with that market's increase was not sales high expectations as is the case expansion. Rather, Avangardco with the European Union. IPL was forced to process a larger proportion of shell eggs Our exports of egg products to produced in response to a the EU continued to grow in critical oversupply situation 2016 reaching 57% of total egg created in Ukraine's domestic powder exports. In 2016, we sold egg market by decreased egg products to 16 countries all exports coupled with over the globe and there are uncontrolled overproduction by more country markets in the households. pipeline. We are also actively exploring new markets to Over the same period the expand our export geographies company's egg product sales further. declined by 21% YOY to 9,028 tons. Egg product exports lost 8% YOY in 2016 and amounted to 8,249 tons mainly due to increased competition from EU
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FINANCIAL RESULTS FINANCIAL PERFORMANCE: OVERVIEW OPERATIONS Revenue bridge, USD th: Sales Revenue Declined as Key Financial Highlights: Market Demand Contracted at Home and Abroad 229,924 (71,454) 59,454 (21,208) Units 22015 2016 Change 191,304 SalesSales RRevenueevenue DDecreasesecreases uundernder 9,032 (13,673) PressurePressure ffromrom HHomeome DDemandemand (771) Consolidated Revenue USD ‘000 229,924 191,304 (17%) Contraction,Contraction, LLossoss ooff EExportsxports Cost of Sales USD ‘000 209,190 175,875 (16%) andand CContinuedontinued DDevaluationevaluation Gross Profit USD ‘000 22,125 13,197 (40%) Gross Profit Margin % 10% 7% (3 p.p.) In 2016, Avangardco IPL Operating Profit/(Loss) USD ‘000 (87,104) (14,880) - suffered a further loss of sales Operating Margin % - - - revenue due to continued EBITDA USD ‘000 (1,417) 1,486 - contraction of Ukraine’s home EBITDA Margin % - 1% - market and adverse
Net Profit/(Loss) USD ‘000 (158,390) (56,636) - developments in its key export Other product market being the Middle East quantity Due to egg Due to egg to Due egg to Due Due to egg to Due Devaluation price in USD price in UAH 2015 revenue and North Africa. 2016 revenue product quantity с In 2016, Avangardco IPL was reflected in the ‘Other activities’ not affect Avangard o’s Thus, in 2016, the company’s trading in grain purchased from segment. Since these operations operating or net profit. consolidated revenue decreased an affiliate of Ukrlandfarming are of a technical nature and by 17% YoY to USD 191.3mn. This PLC at market rates. This was have a minimum margin, they do was due to: Sales Revenue by Segment, %: Negative influence: 0.3% 0.7% Key Financial Highlights Excluding Grain Trading : 3% 46% YoY and 21% YoY 26% decrease in sales of shell 28% Consolidated Change YOY 1% Grain tradding eggs and dry egg products 5% Units 201 5 financials excluding excluding in 2016 grain trading in 2016 grain trading respectively. 26%
Consolidated Revenue USD ‘000 229,924 50,168 141,136 (39%) 2% YoY decrease in the average sales price of egg Cost of sales USD ‘000 209,190 47,847 128,028 (39%) 68% Gross Profit USD ‘000 22,125 2,321 10,876 (51%) products in US dollar terms. Gross Profit Margin % 10% 5% 8% (2 p.p.) 42% Distribution expenses USD ‘000 10,773 2,470 6,088 (43%) 17% YoY devaluation of the Operating Profit/(Loss) USD ‘000 (87,104) (149) (14,731) - Ukrainian Hryvnia against the 2015 2016 Operating Margin % - - - - US dollar. EBITDA USD ‘000 (1,417) - 1,635 - EBITDA Margin % - - 1% - Positive influence: Shell eggs Net Profit/(Loss) US$ ‘000 (158,390) - (56,487) - 11% YoY increase in the Egg products average sales price of shell Poultry eggs in the Ukrainian Animal feed Hryvnia. Other
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Increase in other income Outbreaks of bird flu in some Export Geographies, % of Revenue from Exports of from revenue generated by parts of Ukraine caused several Shell Eggs and Egg Products: grain trading operations of major importing countries to USD 50.2mn. ban Ukrainian poultry and poultry products including eggs. Sales revenue dropped in both 2% Importantly, Avangardco farms 40% The CIS core segments of the company’s were not affected but it was no operations - shell eggs and dry luck. We have put in place solid The EU egg products, by 49% YOY to biological security defences that USD 79.8mn and 22% YOY to protect our flock from disease 50.3mn respectively. The and the outbreaks were reduction in shell egg sales was 47.8% registered dozens if not 10% chiefly caused by continued hundreds of miles away from the home market contraction while The Far East nearest Avangard egg farm. 3 egg product sales dropped due MENA Unfortunately, the import bans 0.2% to further decline in exports. remain in force as this report SSA goes to print.2 EExportsxports DDeclineecline aass MMilitaryilitary ConConflictict inin MENAMENA ContinuesContinues The countries that have whilewhile O Outbreaksutbreaks o off A Avianvian imposed import bans include InInfluenzauenza inin UkraineUkraine OOutsideutside some of the company’s key AvangardAvangard CauseCause SSeveraleveral exports markets: ImportingImporting CCountriesountries ttoo BBanan Export destinations UkrainianUkrainian EEggsggs I. Iraq (20% of export proceeds 1 ) and Jordan (8% of 1 In 2016, revenue from exports of export proceeds ) introduced a Export Country Markets with Shares: shell eggs and egg products temporary import ban on 1 Export proceeds from sales of declined by 30% YOY to USD Shell Eggs: poultry products from across eggs and egg products. 66.7mn and amounted to 47% of Ukraine. consolidated revenues excluding 2 As at 16 March 2017, Ukraine’s UAE, Iraq, Iraq, 20% grain trading operations. UAE, II. The UAE (7% of export State Service for Food Safety 78% 68% proceeds 1 ) and the EU (40% of and Consumer Protection 2015 9% 2016 Sales to the EU and MENA 1 export proceeds ) have banned published a list of countries that Moldova, 8% generated 88% of export Israel, imports only from the regions imposed temporary restrictions 8% 1 Syria, 2% revenue. where avian influenza was Moldova, Turkey, 1% on poultry and poultry product Other, 1% 5% detected. exports from Ukraine due to The top 5 markets where we avian influenza. Among them, export shell eggs continue to be Egg Products: Avangardco can continue to Iraq, China, Qatar, Yemen, Jordan Indonesia, Jordan, Iraq, UAE, Moldova, Syria and export its products to the UAE that introduced a temporary 14% 11% Pakistan, Turkey. Taiwan, and EU, and to its other export import ban on poultry products Thailand, 8% 17% 8% regions which have not banned from across Ukraine. Hong Kong, Indonesia, Our top 5 markets for the export imports from Ukraine. the EU, Saudi Arabia and the UAE 7% of egg products include only banned exports from the 2015 Pakistan, 2016 Thailand, Denmark, Jordan, Pakistan, 7% 4% affected regions of Ukraine. Denmark, Indonesia and Thailand. Denmark, Other, 55% Other, 3 38% 16% Including Turkey and Pakistan 15%
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UnprecedentedUnprecedented OversupplyOversupply inin aggravated by continued cost 0.049 per egg due to activities of USD 14.9mn. On top HomeHome MarketMarket ForcedForced AvangardAvangard inflation affecting the devaluation of the Ukrainian of the shortfall in sales during Q2 toto SellSell atat a LossLoss duringduring Q2Q2 andand Shell Egg Price Dynamics in Ukraine's Home company’s key cost driver being hryvnia. and Q3 and cost inflation the Q3Q3 22016016 animal feed. Another contributing company’s profitability was also Market during 2016 by Quarter, UAH per 10 eggs: factor was a series of increases Cost per kg of egg products in impacted by provisions for During Q2 and Q3 2016, the in utility rates. US dollar terms fell 1% YoY to doubtful debts of USD 18.6mn 16,00 seasonal peak in household 4.58 driven by the decreased and a reduction in income from production coincided with 14,00 In 2016, cost per egg rose by 14% cost of eggs used for processing the special VAT regime for weaker consumer demand and a 12,00 YOY to UAH 1.26. in USD terms. agricultural producers.
dramatic reduction in export 10,00 sales due to the military conflict In US dollar terms, the cost of As a result, in 2016, the company 8,00 in the Middle East. sales of shell eggs fell 4% YoY to incurred a loss from operating 6,00
This caused the price to plummet 4,00 a lot more abruptly and steeply 2,00 Cost of Sales of Shell Eggs by Component, UAH per egg : than the year before catching even the most advanced and 0,00 Q1 2016 Q2 2016 Q3 2016 Q4 2016 efficient industry players off Q33 2016 Q4 2016 % guard, including Avangard, and forcing the company to sell Avangardco cost of sales Market price 2 below cost. Feed 0.871 0.888 2% Source: Pro-Consulting, company data Grain 0.192 0.195 2% Even though the company has Oil cake 0.489 0.498 2% several effective safeguards Other 0.190 0.195 3% Labour 0.061 0.062 2% against such situations, e.g. Average Animal Feed Price, UAH per ton: processing excessive shell eggs Depreciation 0.066 0.066 0% into dry egg products, exporting Packing, veterinary medicines 0.104 0.101 (3%) more eggs or putting excessive Other 0.162 0.152 (6%) volume into long-term storage, Total 1.264 1.269 0.4% but they all have their reasonable limitations.
This dramatic drop in egg prices couldn't help adversely affecting our annual sales. It also put considerable pressure on the company's margin performance. 6,631 6,521 6,272 6,219 6,576 6,960 7,274 5,924 6,438 6,461 6,778 7,520 7,140 7,181 6,968 7,104
MMarginargin TThinshins uundernder PPressureressure Q1 15 Q1 16 Q2 15 Q3 15 Q2 16 Q3 16 Q4 15 fromfrom PPricerice EErosionrosion aandnd CCostost Q4 16 InInflationation
Avangard Market 1 The price erosion in Ukraine’s 2 In volume terms, standard recipe shell egg market was further of feed consists of grain (48%), oil cake (48%) and other ingredients 1 Avangard standard recipe by (4%). volume.
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EBITDAEBITDA TTurnsurns PPositiveositive wwhilehile NNetet PPressureressure oonn CCashash SSomewhatomewhat circumstances this may be CAPEX. In 2016, investment cash LossLoss ShrinksShrinks toto a TThirdhird ooff LLastast RelievedRelieved b byy S Streamliningtreamlining viewed as a positive development, outflow totalled USD 9.4mn. Year’sYear’s EBITDA Bridge between 2015 and 2016, USD th: WorkingWorking C Capital,apital, L Lowerower especially given the fact that we MaintenanceMaintenance CCapexapex aandnd closed the year with a net cash The company has made Despite the decline in ReducedReduced DDebtebt SServicingervicing outflow from operations of USD considerable efforts over the consolidated revenue of 17% 3.3mn. past three years to extend the (1,417) (38,620) 12,281 1,486 YOY and a loss recognised on 31,413 1,453 The company’s net working maturity of its outstanding debt revaluation of biological assets capital improved slightly in 2016 Cash outflow from investment obligations and deleverage (3,624) due to a reduction in laying freeing up USD 21mn in cash. activities also decreased where possible. This, in part, has flock, EBITDA turned positive. Admittedly, this streamlining because with a reduced asset resulted in a reduced cash Yes, it may be a small number was chiefly due to downscaling base the company is now having outflow from financing activities. compared to the company’s but in our current cash-tight to invest less in maintenance normal EBITDA in the hundreds of millions of US dollars, a mere USD 1.5mn, but it’s a crucial victory giving hope that the Highlights of Cash Flow Statement: of BA SG&A COGS Income
company has started to recover Revenue
from the many and heavy Revaluation EBITDA_2015 shocks it has suffered over the EBITDA_2016 USD’000 2015 2016 Other operating past three years.
Net cash generated from/ (used in) operating activities 1,215 (3,255) The company has also survived Net cash generated from/ (used in) investing activities (35,258) (9,373) a major shock of asset loss Net cash generated from/ (used in) financing activities (15,245) (6,991) caused by the military conflict in Net increase/ (decrease) in cash (49,288) (19,619) Eastern Ukraine and the Cash at the end of the period 31,307 12,570 annexation of Crimea. This shock mostly played out in 2014 and 2015 when Avangardco IPL had to recognise heavy losses that forced the company’s bottom line way into the red.
We closed 2016 with a net loss of USD 56.6mn, which was not good but compared to USD 158.4mn in 2015 it came as welcome news.
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DebtDebt S Situationituation R Remainsemains The economic recession exposures. from doing our best to help our ChallengingChallenging asas LiquidityLiquidity CrisisCrisis triggered by the annexation of country recover. ContinuesContinues Debt Portfolio by Source and Currency, %: Crimea and effective occupation While companies normally of parts of Donetsk and Lugansk cannot control political or Avangardco IPL has put in Total debt rose to USD 344.1mn Provinces has significantly sovereign risk they can use place a comprehensive risk as a result of PIK payment increased most of the risks mitigants to contain their management framework that Loans and borrowings Eurobonds accumulation. Net debt affecting our company’s exposure to market, financial enables us to identify, measure increased to USD 331.5mn. Source 36% 64% operations. and operational risk. and effectively mitigate most risks, except those that are The debt portfolio mainly At the same, by 2016 most risks Admittedly, Ukraine is now outside our control. EUR UAH consists of Eurobonds, loans USD had already manifested considered a country with a high and borrowings. 64% of total Currency 64% 22% 14% themselves while organisations level of country risk over the debt is a Eurobond maturing in had largely thought of ways to continued military conflict in 2018. adapt to the new and riskier Eastern Ukraine and annexation environment or come up with of Crimea. And this is a risk we 86% of company debt is strategies to mitigate their risk can hardly do much about, apart denominated in US dollars and Euros. Debt Servicing Schedule , USDmn : Ability to manage Risk category the risk
Political and country Limited Eurobond = USD 236mn 236 Market Medium including PIK interest Operational Strong Financial Medium 31 32 16 17 15 14 Shareholder Limited 2017 2018 2019 2020 2021 2022 and after Labour Strong Tax Limited
Debt Portfolio Highlights, USD th: Political and Country Risks
31.09..2016 31.12.2016 Ukraine remains a country with The company operates in dropped to an all-time low high political and economic Ukraine, therefore the company’s undermining currency stability risks. The deterioration of the assets and operational activities further and exposing gross Total Debt 336,354 345,253 344,076 political and economic situation are subject to risk in case of imbalances in Ukraine's balance Long-term loans 64,423 52,164 93,924 and the devaluation of the unfavourable changes in the of payments that FDIs Current portion of long-term debt 19,015 31,418 31,135 national currency against other political and economic situation traditionally helped offset in the Long-term finance lease (incl. VAT) 45 4 3 world currencies have impaired in the country. The political crisis past. As private capital inflows Bond liability 202,871 212,168 219,014 the country’s ability to honour that started in 2014 spilt over dried up donor investors Short-term loans 50,000 49,499 - its external obligations. In the into 2015 and continued into remained the only source of Cash and cash equivalents 31,307 14,306 12,570 context of the continued 2016. foreign currency influx into the Net Debt 305,047 330,947 331,506 political instability, political risk country other than the is one of the primary risk types. Foreign direct investments dwindling exports. The IMF and
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other donors, however, have not Processing more eggs into and must be stored in refrigerated our quality management system is traceability. Traceability is especially EU buyers of our dry been quick to release funds dry egg products and conditions. certified to ISO 9001:2015, which highly valued by our customers, egg products. because their programmes increasing the share of require that Ukraine meet exports to counter oversupply All these vulnerabilities need certain prerequisites, i.e. in the home market; particularly strong defences to Avangardco’s Traceability of Dry Egg Products implement deep and prevent the related operational comprehensive reforms, in Reducing costs where risks from ever materialising. which the country has possible, in part, by admittedly shown little concentrating about 88% of We strongly rely on our rigorous progress. However, the military our production at our highly decontamination practices, conflict in Eastern Ukraine efficient and cost-effective regular flock vaccinations and remains a significant destabilizing poultry complexes of Avis other routine controls for factor. and Chornonaivske. protection against biological hazards by enforcing some of Market Risk: Manifestation and Operational Risk: Manifestation the world’s most rigorous Mitigation and Mitigation biosecurity standards both on our farms, at our hatcheries, Market risk has hit us hard from In the past three years, the feed mills and egg processing all sides: company’s risk management plant and in transit as we move system has been put to the test, inputs, hens and outputs from Seasonal demand fluctuations especially on the operational site to site. have grown more extreme as side. To operate any kind of households faced with enterprise in a country affected Our biosecurity framework is income loss increasingly by foreign military aggression very finely balanced and switch to producing eggs is a challenge for most fi ne-tuned to run like clockwork. within the household during organisations, let alone one We know how to operate it in a the warm months of the year whose business involves stable and peaceful environment, when homebred hens lay farming live animals. we also know how to work it eggs forcing the price below in critical situations. But, break-even for industrial Operationally, a modern unfortunately, when a military producers; industrial egg farm is a very conflict erupts in your country, complex enterprise with when company assets get Sales have declined due to multiple inputs, outputs and raided or taken over by armed demand contraction from processes, most of which pose terrorists it becomes impossible Our biosecurity defences were Financial Risk: Manifestation and test exposing all the issues and both foreign and domestic an operational risk. What is to operate them, ensure put to the real test in 2016 when Mitigation challenges an organisation is customers; more, most of the inputs, the seamless supply of inputs and outbreaks of avian influenza hit facing commercially, operationally core manufacturing assets execute rigorous bio-security several regions of Ukraine The company is not a financial and financially. Material Cost of production has (laying hens) and the outputs controls. It is for this reason that including those where some of institution and it uses financial developments affecting an inflated as the price of forage are exposed to biological we have had to shut down our Avangardco’s assets are located tools as needed, to finance its organisation’s business always grain being a global hazards. Feed, hens and eggs assets both in the conflict zone causing Ukraine’s key importing operations rather than generate reflect on its financial risk exchange-traded commodity are potentially susceptible to and around it. countries to impose temporary financial gains. Management position. It is fair to say that adjusted for devaluation. disease. The core manufacturing bans on poultry imports from takes all the necessary steps to financial risk summarises the We have responded to it by: assets are routinely retired upon On top of protecting us from the affected regions of Ukraine ensure the company’s stability in effect from all other types of reaching maximum laying age biological hazards our bio- or the whole country, including the current market conditions. risk, just as financial accounts Downscaling operations to and replaced with young laying security framework supports a eggs. neatly encapsulate an avoid overproduction; hens. Eggs are also perishable very important characteristic of Financial risk serves as a litmus organisation’s assets, liabilities,
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profitability, cash flows and maturity extensions from its pushing off its final maturity Avangardco's Risk Management Matrix equity position using the key lenders. What is more, the date to 2018 and agreeing on language of financial concepts central bank of Ukraine adding a Paid-in-Kind coupon Prevene tion or mitigation and principles. imposed tough restrictions on to alleviate the pressure on R isk Impact measurs es buying foreign currency, even the company’s cash position; When sales drop or earnings for legitimate business needs, decline, an organisation’s which put inexorable pressure We have also significantly POLITICALPOLITICAL RRISK:ISK: AABILITYBILITY TTOO MMITIGATEITIGATE - LLIMITEDIMITED financials deteriorate exposing on the company’s debt- increased sales through Loss of the country’s The loss of territories where Avangardco’s Suspend operations, evacuate gaps in liquidity, profitability, servicing capacity forcing the Ukraine’s major retail chains territorial integrity assets are located may continue to force movable assets. asset turnover or debt servicing company to seek an as a percentage of our total the company to suspend operations and capacity or all of those at the extension from its major shell egg sales. On the debit close its farms, which could lead to significant material losses. same time as has been the case lenders, in the first place its side, we have had to extend with Avangardco IPL over the Eurobond holders. more trade credit but, at the Loss of assets Unlawful seizure of private assets could Pursue legal action and other past three years. same time, trade through cause material financial damage. avenues of asset recovery. We have responded to those established nationwide Manifestations: challenges by: distribution organisations Risk of sovereign default Sovereign default may limit Avangardco's Continue honouring debt enables us to predict our sales ability to raise new debt. obligations. The national currency of Approaching our lenders, in and profitability a lot more MARKETMARKET RISK:RISK: ABILITYABILITY TTOO MMITIGATEITIGATE - MMEDIUMEDIUM Ukraine has devalued three the first place our Eurobond accurately and manage our times since the onset of the holders with restructuring cash flows effectively to meet Seasonal demand fluctuations Demand for eggs in Ukraine is subject to Increase the share of shell egg crisis in 2014. Apart from a proposals, which has secured our obligations as they fall and egg production by seasonal fluctuations. Households are output processed into egg substantial translation effect us quite some breathing due. households active on the market in the spring and powder, increase exports, use from local currency space in the face of debt- summer seasons; consequently, long-term egg storage facilities. denominated items the servicing payments and consumption of industrially produced threefold devaluation has repayments inflated by the eggs decreases during these periods. resulted in a commensurate steep devaluation in local As eggs are a perishable product with a hike in the price of animal feed currency terms; shelf life of up to 28 days, a drop in egg being the company’s largest sales below production volume may cause cost component because Bringing our foreign-currency losses. feed is made from grain and outlays to a minimum by grain is a global exchange- reducing breeder flock Decreasing demand for Inability to sell eggs and egg products Downscale to match new demand products and a decline may lead to financial losses. level. traded commodity whose purchasing as part of in sales price adjusts to its hard downscaling, cutting back on currency value almost any foreign - currency- Cost increases Feed prices are volatile; in Ukraine they Reduce costs where possible, immediately regardless of the denominated expenditures depend on world market trends. concentrate production at the most depth of devaluation of a and hoarding foreign currency cost-effective enterprises, search given national currency; proceeds from exports to for and lock in the best deals to buy inputs. naturally hedge our hard-
Liquidity declined due to sales currency obligations; Counterparty risks The instability of company contractors In our case, the best mitigant contraction aggravated by and key clients, including their inability to against counterparty risk is our cost inflation constraining the As part of our debt meet their contractual obligations in a strategy to promote sales through company’s ability to service restructuring, we have timely manner, may lead to a decrease in Ukraine's top retail chains. and repay its debt. Importantly, renegotiated the terms of sales volumes or financial losses and negatively impact future financial results. it is liquidity rather than our USD200mn Eurobond, solvency problems that representing a lion’s share of forced Avangarco IPL to seek our aggregate debt position,
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Avangardco's Risk Management Matrix (cont.)
Prevention or mitigation Prevention or mitigation R isk Impact R isk Impact measures measures
OOPERATIONALPERATIONAL RISK:RISK: ABILITYABILITY TTOO MMITIGATEITIGATE - SSTRONGTRONG industries. Deterioration of performance The company follows best indicators of these companies may cause disclosure practices and avoids Disease outbreak among Disease may cause material damage to In 2016, a series of outbreaks of a negative perception of the company by transactions with related parties, poultry population the company’s business. bird flu hit Ukraine including external audiences. as confirmed by KPMG audits. regions where Avangardco IPL operates some of its assets. Our solid bio-security defences held LABOURLABOUR RISK:RISK: ABILITYABILITY TOTO MMITIGATEITIGATE - SSTRONGTRONG out, and not a single one of our Strikes Suspension of production due to strikes Avangardco employees are not millions of birds was infected may lead to significant losses. unionized; all facilities operate under testifying to the strength of our collective labour agreements. bio-security safeguards. Avangardco creates favorable working conditions for its employees; Product contamination In case of product contamination, the We work proactively to prevent salaries exceed the national company may have to face product recalls any contamination from ever average. and demands for compensation occurring. payments. Employee turnover The loss of qualified employees will delay the Staff turnover among key employees execution of the company’s strategic is low. Avangardco offers FINANCIALFINANCIAL RRISK:ISK: AABILITYBILITY TTOO MMITIGATEITIGATE - MMEDIUMEDIUM plans. opportunities for professional development and invests in staff National currency devaluation Devaluation of the Ukrainian hryvnia Increase exports, convert FX- development programmes. against other world currencies has a denominated debt to local negative impact on the company’s currency where possible TAXTAX RRISK:ISK: AABILITYBILITY TTOO MMITIGATEITIGATE - LLIMITEDIMITED financial results in US dollar terms, and also increases the cost of servicing debts Changes in the tax system Non-compliance with laws and Comply with applicable tax denominated in foreign currency. of Ukraine regulations may lead to significant fines regulations, practise legitimate tax and penalties. avoidance where possible. Interest rate changes Possible fluctuations in the cost of In order to minimise the risk of financial instruments as a result of interest interest rate growth, in current Changes in tax treatment of the industry rate changes. economic conditions the company may increase tax pressure on the company. prefers to borrow at fixed interest
rates. The cost of floating-rate loans is tied to EURIBOR. The company regularly analyses the sensitivity of key financial indicators to LIBOR and EURIBOR fluctuations.
Liquidity risk Liquidity risk lies in the inability of the Request longer trade credit from company to meet financial obligations. suppliers, offer customers incentives for paying early, renegotiate debt maturities with lenders.
SHAREHOLDERSHAREHOLDER RRISK:ISK: ABILITYABILITY TTOO MMITIGATEITIGATE - MMEDIUMEDIUM Risks related to the majority The majority shareholder in Avangardco Avangardco continues to operate shareholder also owns several other companies in the as a separate legal entity with its food, transport, real estate and financial own treasury.
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Our mission is to promote global becoming a leading global value for our shareholders and Quality and Safety Management The system ensures quality In addition, the company’s key public health by giving producer of eggs. other stakeholders through System control and risk management at production facilities are certified consumers access to affordable, sustainable performance. Our each stage of food production to ISO 22000:2005 for Food healthy and safe eggs and egg We strongly believe that the values guide us to a sustainable To provide effective quality so our customers can be fully Safety Management Systems. products. We aim to achieve this only way to fulfil our mission and future. control, the company has con fident of the safety and high This certification ensures that by following our vision of our vision is to create long-term developed and implemented an quality of products. products are strictly compliant integrated quality and safety with all recommendations and management system. It is based Ongoing Quality Control requirements throughout each on the key best practice stage of food production. We do business in a transparent manner and remain open to our international norms and The company applies several Transparency stakeholders both as a public corporation and as a socially and principles for food quality levels of quality and safety Avangardco respects the environmentally responsible company. standards set for food control for its products: religious beliefs and traditions of producers, including: its customers. With this in mind, Implemented HACCP the company has had its We focus on product and service quality. While our other competitive Hazard Analysis and Critical Internal audits to verify the production of shell eggs and Quality advantages can help us attract new clients, high product quality is a Control Point approach quality control system egg products certified to Kosher key factor for client retention. (HACCP) and Halal requirements. External audits by independent Good Manufacturing Practice certification authorities. We strive to ensure the safety of our operations and products for (GMP) Safety employees, consumers and the environment. Standards of the International Certificates Organisation for Standardisation (ISO) In January 2017, Avangardco's Standards of the GLOBAL- Quality Management System We pursue sustainable development. Innovation, quality, efficiency G.A.P. (EurepGAP) was certified to ISO 9001:2015. Sustainability and safety allow us to continue to create value for both consumers and shareholders.
We use innovation to be as efficient as possible in today’s rapidly ISO 9001:2015 ISO 22000:2005 HACCP system ISO 9001:2008 Innovation changing global business environment. Certificate: Certificate: Certificate: Certificate:
We do business with maximum efficiency; this gives us a platform for Efficiency long-term growth and creation of long-term value for both consumers and shareholders.
We honour our obligations and maintain our long-term reputation as a Commitment reliable partner.
foto
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Corporate Governance Statement founder, became Chairman of The Board of Directors shall the Board replacing Nataliya meet not less than four times a FSSC 22000 ISO 22000:2005 Halal Kosher The company is incorporated in Vasylyuk, who retook the year and as needed. To enable Certificate: Certificate: Certificate: Certificate: Cyprus but, as its shares are not position of Chief Executive the Board of Directors to carry listed on the Cyprus Stock Officer of Avangardco IPL out their duties, each Director Exchange, it is not required to and remained on the Board of has full access to all relevant comply with the corporate Directors. information. governance regime of Cyprus. The current Board of Directors is Board Committees Avangardco IPL shares are as follows: traded on the London Stock It is the intention of the Board of Exchange in the form of GDRs Oleg Bakhmatyuk Directors to establish Audit, but, as it does not have a premium (Chairman of the Board) Nomination and Remuneration listing and as a company Committees as described below. incorporated in Cyprus, the Nataliya Vasylyuk The Board may form other company is not subject to the (Chief Executive Officer) Committees as necessary in UK Combined Code on order to ensure effective Corporate Governance issued Oleg Michael Pohotsky governance. by the Financial Reporting (Non-Executive Director) Council. Committees as described below. Biosecurity population to the younger. facilities have never registered a Iryna Melnyk The Board may form other case of avian flu, Newcastle In the absence of any mandatory (CFO, Member of the Board, Committees as necessary in In order to minimize the risk of During maintenance breaks in the disease or Marek’s disease. requirements, Avangardco IPL is appointed on 16 September order to ensure effective disease and epidemics among production process, production in the process of building its 2016) governance. the poultry population, the sites are thoroughly cleaned and Laying farm employees are own corporate governance company has implemented a disinfected. prohibited from keeping birds in system based on international The company considers this to The Audit Committee wide range of measures in line their households. best practice recommendations. be a satisfactory balance of The Audit Committee shall with international practices. Our farms are located at a large It is also guided by key Board members for the purposes comprise not less than three distance from one another to We constantly monitor the health of corporate governance principles*. of decision making. In addition, Directors, at least one of Strict control prevents contact make it possible to enforce an our employees as well as of the this structure follows the whom will be an independent between the population and emergency quarantine in case of poultry population. In addition, we Avangardco’s Corporate recommendation of The UK Non-Executive Director. carriers of diseases such as wild contagious disease outbreaks. have strict biosecurity measures in Governance System Corporate Governance Code The Audit Committee’s birds and vermin. place at our compound feed mills. that the function of the responsibilities include, We control feed delivery, minimise This includes limited access, Board Composition and Balance Chairperson of the Board and among other things, We contain the birds indoors; contact between humans and disinfection barriers and disinfection CEO should be separated. reviewing the company’s every production facility is poultry flock, and follow the of warehouses, as well as regular The company’s Board consists financial statements, surrounded by a disinfection practice of thorough selection of spot checks of raw materials and of three Executive Directors and Board of Directors' Responsibili- accounting policies and barrier and is located at least breeding stock more resistant to finished feed at local and regional one independent Non- ties and Meetings internal controls and 300-1,200 meters from the disease. laboratories. The company’s structure Executive Director. overseeing its relationship nearest settlements. includes specialised laboratories The Directors are responsible for with its external auditors. We vaccinate all chickens in our staffed with highly qualified em- On 16 September 2016, Iryna formulating, reviewing and The company’s laying farms use incubators against Newcastle ployees. All employees are required to Marchenko, a former Member of approving the company’s and its The Nomination Committee a separate rearing system for disease, Marek’s disease, bronchitis, pass mandatory training before the Board of Directors and CEO subsidiaries’ strategies, budgets, The Nomination Committee birds of different age in order to IBD and other diseases in working at the company; we regularly of Avangardco IPL resigned. certain items of capital shall comprise not less than prevent transmission of accordance with Ukrainian check and update their knowledge Following this change, Oleg expenditure and senior person- three Directors, two of whom infection from the older legislation. The company’s of compliance with biosecurity rules. Bakhmatyuk, the company’s nel appointments. will be independent
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non - executive Directors. The Remuneration Committee policy on remuneration; Corporate Governance Structure: The Nomination Committee’s The Remuneration Committee however, no Director or responsibilities include, shall comprise not less than manager will be entitled to among other things, three Directors, two of whom vote on any decisions reviewing the composition of will be independent non- regarding his or her own Nataliya Vasylyuk, the company’s Board of executive Directors. The remuneration. CEO Directors and making Remuneration Committee’s recommendations to the responsibilities include, Oleg Michael Pohotsky Oleg Bakhmatyuk Audit Committee Board with regard to any among other things, (Non Executive Director) (Chairman To be appointed changes. determining the company’s of the Board) Iryna Melnyk Nomination Committee (CFO, appointed on To be appointed 16 September 2016)
* Avangardco IPL’s Key Independent Director Remuneration Committee To be appointed Board of Directors To be appointed Corporate Governance Principles
Shareholders are given the these activities; executive interested parties. In opportunity to exercise their bodies are held accountable accordance with the rights associated with their by the company's Board of company’s charter, the shareholdings in the company; Directors and shareholders; highest management body is the shareholders’ meeting Executive Board Equal relations exist for Timely disclosure of complete held at least once a year. The shareholders on a one-share and reliable information shareholders elect the Board one-vote basis, including about the company is made of Directors, and approve the minority shareholders; in order to enable shareholders annual report and other Nataliya Vasylyuk - Chief Executive Officer and investors to make reports from the Board of The Board of Directors informed decisions, in Directors and the company’s oversees the strategic accordance with the Listing auditor. The Board manages Iryna Melnyk - Chief Financial Officer management of the company’s Rules and Disclosure and the company, with the activities and controls the Transparency Rules of the exception of the exclusive actions of executive bodies UK Financial Services authority of the general within the company; Authority; shareholders’ meeting, and Vasyl Marchuk - Head of Business Development recommends dividends, Current company activities Effective control over the which are then approved by are managed by its executive company’s financial and the shareholders’ assembly, Oleg Solovei - Chief Legal Officer bodies in the interests of economic activity is ensured but cannot be higher than the ensuring long-term stable in order to protect the rights recommended amount. development and achieving and legitimate interests of Volodymyr Rudenko - Chief Operations Officer returns for shareholders from shareholders and other
Stanislav Pogorely - Deputy Chief Financial Officer
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 75 BOARD OF DIRECTORS BOARD OF DIRECTORS | continued 76
OlegOleg BaBakhmatyukk OlegOleg Michael Pohotsky ChChairmanairman of the Board IIndependentnde NoNon-Executiven Director OlegOleg BakhmatyukB graduated of the Board of Directors of frfromom thethe Chernivtsi Institute of Avangardco IPL. Since 2013 Mr. OlegOleg Pohotsky holds an MBA All three closed-end funds are EconomEconomicsi and Law with a Bakhmatyuk has been a member ffromrom the Harvard University NYSE-listed. Mr. Pohotsky also degreedegree iinn business administration of the Board of Directors of GGraduaterad School of Business and serves on the Board of Advisors anandd fromfrom the Ivano-Frankivsk Avangardco IPL. Mr. Bakhmatyuk a JJurisu Doctor degree from the of Kaufman & Co., a Boston- National Technical University of again took over as Chairman of UUniversityniv of Miami Law School. based boutique investment OOilil andand Gas with a degree in the Board of Directors of HHee aalso holds a BSChE degree banking firm and in the position eengineering,ngineer physics and Avangardco IPL in April 2016. ffromrom Clarkson University. Mr. of Senior Advisor to Governance managemanagement.m PPohotskyoho has been the managing Metrics International. Since 2010 Mr. Bakhmatyuk has ppartnerart of Right Bank Partners, a OOlegleg BakhmatyukB founded served as Chairman and CEO of ccorporateorp governance and Mr. Pohotsky has served as an AvangarAvangard in 2003 and Ukrlandfarming PLC. Oleg sstrategytrat advisory firm. He serves independent non-executive UkrlandUkrlandfarmingfa PLC in 2007. Bakhmatyuk owns several other asas ChairmanC of the Board of the Director of the company since companies in the food, H&QH&Q Healthcare and Life Sciences 2011. BetweeBetweenn 2010 and 2013 Mr. transport, real estate and FundsFund and as a director of the BakhmatyukBakhmat served as Chairman finance sectors. NewNew America High Income Fund,
NataliyaNataliya VasylyukV IrynaIryna Melnyk Board Member BBoardoar Member
Nataliya Vasylyuk obtained a company in 2007. Between IrynaIryna Melnyk graduated from Melnyk was promoted to Chief Finance and Accounting degree 2007 and 2010 she served as tthehe Economy Faculty of Financial Officer of Avangardco from the Ivano-Frankivsk CEO and from April 2010 to SStefanyktef Prykarpattya National IPL in 2013. Ms. Melnyk became a National Technical University of January 2013 while staying on as UniversityUniv in 2002 with a degree member of the Board of Oil & Gas in 2005. She began her CEO she also became a member iinn businessb administration. She Directors of Avangardco IPL in career in 2004 as sales and of the Board of Directors of wwasas appointed as financial September 2016. marketing director at LLC Avangardco IPL. Nataliya directordire of Stanislavska Trading Prykarpattya Financial Company, Vasylyuk served as Chair of the CompanyCom in 2005 and was then from 2004 to 2007 she Board from January 2013 to appointedapp CEO of Ukrmyaso in served as CFO at LLC April 2016. She retook the 2007.200 Ms. Melnyk joined the Stanislavska Trade Company. position of CEO in April 2016. companycom in 2010 as Deputy Nataliya Vasylyuk joined the ChiefChie Financial Officer. Iryna
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 77 MANAGEMENT BOARD MANAGEMENT BOARD | continued 78
Nataliya Vasylyuk Chief Executive Officer Vasyl Marchuk Head of Business Development Nataliya Vasylyuk obtained a became a member of the Board Finance and Accounting degree of Directors of Avangardco IPL. Vasyl Marchuk graduated from became head of the Ukrainian from the Ivano-Frankivsk Nataliya Vasylyuk served as the Ivano-Frankivsk National Association of Regional Gas National Technical University of Chair of the Board from January Technical University of Oil & Gas Distribution Companies in 2010. Oil & Gas in 2005. She began her 2013 to April 2016. She retook the in 1994 with degrees in Mr. Marchuk joined the company career in 2004 as sales and position of CEO in April 2016. mechanical engineering and in 2010. marketing director at LLC accountancy. He held Prykarpattya Financial Company, management posts in various then from 2004 to 2007 she companies from 1995. In 1997 he served as CFO at LLC Stanislavska was appointed CFO of Trade Company. Nataliya Vasylyuk Prykarpattyaoblenergo. In 2001 joined the company in 2007. he was appointed deputy Between 2007 and 2010 she chairman for financial and served as CEO and from April economic matters at 2010 to January 2013 while Ivano-Frankivskgas. In 2004 he staying on as CEO she also became chairman of Lvivgas. He
Iryna Melnyk OlegOl Solovei Chief Financial Officer CChiefh Legal Officer
Iryna Melnyk graduated from Melnyk was promoted to Chief OlegOl Solovei graduated from the Ukrprofzdravnitsa in 2006. the Economy Faculty of Financial Officer of Avangardco TTarasa Shevchenko National Stefanyk Prykarpattya National IPL in 2013. Ms. Melnyk became a UnUniversity in 1998 with a diploma Mr. Solovei joined the company University in 2002 with a degree member of the Board of in law. He was appointed head of in 2011. in business administration. She Directors of Avangardco IPL in the Kyivenergo Property and was appointed as financial September 2016. MMateriala Relations Department in director of Stanislavska Trading 22001.0 He became head of Company in 2005 and was adadministration at the Social appointed CEO of Ukrmyaso in IInsurancens against Temporary 2007. Ms. Melnyk joined the IIncapacitync Fund in 2005. Mr. company in 2010 as Deputy SSoloveio was appointed head of Chief Financial Officer. Iryna the legal department at
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 79 MANAGEMENT BOARD | continued CONSOLIDATED FINANCIAL STATEMENTS 80
Board of Directors and other COMPANY SECRETARY: Leonardo Business Center officers 19-21 Bohdana Khmelnytskoho Str. Gliage Investments Limited 11th floor Volodymyr Rudenko BOARD OF DIRECTORS: 3 Anexartisias & Kyriakou Matsi 01030 Kyiv,Ukraine Chief Operations Officer 3040 Limassol Oleg Bakhmatyuk Cyprus INDEPENDENT AUDITORS: Volodymyr Rudenko graduated Analysis Officer. Since November (Chairman of the Board) from the Kyiv National University 2016, Mr. Rudenko has served as REGISTERED OFFICE: KPMG Limited with a degree in economic Chief Operations Officer. Nataliya Vasylyuk 14, Esperidon Str. cybernetics in 2005. After (Chief Executive Officer) 3 Anexartisias & Kyriakou Matsi 1087 Nicosia, Cyprus graduation Mr. Rudenko worked 3040 Limassol for Ukrainian Gas and Finance Oleg Michael Pohotsky Cyprus BANKERS: Consulting Group as an (Non Executive Director) economic analyst and later for LEGAL ADVISORS: UBS AG System Technology Company Iryna Melnyk Postfach, CH-8098 Zurich Investments as head of the (Member of the Board, appointed Freshfields Bruckhaus Deringer LLP payment transactions control on 16 September 2016) 65 Fleet Street Deutsche Bank AG division. In 2008, he was London EC4Y 1HS De Entree 99-197 promoted to the position of Iryna Marchenko (Member of the United Kingdom 1101 HE Amsterdam head of Financial Reporting and Board, resigned on 16 Postbus 12797 Control. Mr. Rudenko joined the September 2016) Avellum Partners LLC 1100 AT Amsterdam company in 2011 as Chief
Declaration of the Members of the Members o off th thee B Boardoardfd o off StanislavStan Pohorilyi Board of Directors and the person Directors: DepDeputyu Chief Financial Officer responsible for the preparation of the consolidated financial Oleg Bakhmatyukmatyuk Mr. Pogorely graduated from promoted to Deputy Chief statements of the Company tthehe Kyiv National Economic Financial Officer the same year. Nataliya Vasylyuksylyuk UniUniversityv named after Vadym We, the Members of the Board HetmanHetm with a degree in tax and of Directors and the person Oleg Michaelel PoPohotskyhotsky taxataxation in 2001. He started his responsible for the preparation carecareer as assistant auditor in of the consolidated financial Iryna Melnykk UUkrproductkrp Group in 2003. In statements of AvangardCo 2002007,7 Mr. Pogorely served as Investments Public Limited (the Person responsible for the heaheadd of Internal Audit of “Company”) for the year ended preparation of the consolidated UUkrmyaso.krm Mr. Pogorely joined 31 December 2016, based on our financial statements for the year AvaAvangardn in 2010 as head of opinion, which is a result of ended 31 December 2016: InteInternalr Audit and was diligent and scrupulous work, declare that the elements Stanislav Pohorilyi (Deputy CFO) written in the consolidated financial statements are true and complete. 23 March2017
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MANAGEMENT REPORT amounted to USD 56 978 deterioration of the relationship foreign currency by individuals consolidated financial statements Reporting Council because it is a thousand (2015: loss USD 154 between Ukraine and the Russian and companies, the requirement reflect management’s current Cyprus incorporated company. The Board of Directors of 640 thousand) which the Board Federation. Following the to convert 65% (2015: 75%) of assessment of the impact of the Nevertheless, the Directors intend AvangardCo Investments Public of Directors recommends to be instability in Crimea, regional foreign currency proceeds to local Ukrainian business environment to establish audit, nomination and Limited (the “Company”) transferred to the revenue reserve. tensions have spread to the currency, a ban on payment of on the operations and the remuneration committees and presents to the members its Eastern regions of Ukraine, dividends abroad, a ban on early financial position of the Group. may form other committees as annual report together with the Examination of the development, primarily Donetsk and Lugansk repayment of foreign loans and The future business environment necessary in order to improve audited consolidated financial position and performance of the regions. In May 2014, protests in restrictions on cash withdrawals may differ from management’s corporate governance. statements of the Company and activities of the Group those regions escalated into from banks. These events had a assessment. of its subsidiaries (together with military clashes and armed negative effect on Ukrainian Events after the reporting period the Company referred to as “the The Group recorded a loss of conflict between supporters of companies and banks, significantly Share capital Group”) for the year ended 31 USD 56 636 thousand compared the self-declared republics of the limiting their ability to obtain The events after the reporting December 2016. to a loss of USD 158 390 Donetsk and Lugansk regions and financing on domestic and There was no change in the share period are presented in note 40 to the thousand in the previous year. the Ukrainian forces, which international markets. capital of the Company during the consolidated financial statements. Principal activities The Group’s total assets also continued throughout the date of year. decreased to USD 529 491 these financial statements. As a The final resolution and the effects Branches The principal activities of the thousand from USD 624 171 result of this conflict, part of the of the political and economic crisis Board of Directors Group which remained the thousand mainly as a result of Donetsk and Lugansk regions are difficult to predict but may The Group did not operate same as in the previous year are: Ukrainian Hryvnia devaluation. remains under control of the have further severe effects on the The members of the Board of through any registered branches keeping of technical laying self-proclaimed republics, and Ukrainian economy. Directors as at 31 December 2016 during the year. hen, production and selling Dividends Ukrainian authorities are not and at the date of this report are of eggs, currently able to fully enforce The uncertain economic presented on page 1. Related party balances and The Board of Directors does not Ukrainian laws on this territory. conditions in Ukraine have affected transactions incubation (production and recommend the payment of a the cash flow forecasts of the There is no requirement in the sale of day-old chick), dividend for the year (2015: nil). Political and social unrest Group's management in relation Company's Articles of Association Disclosed in note 33 to the farming of young poultry for combined with the military to the impairment assessment for for the retirement of directors by consolidated financial statements. sale, and poultry, Principal risks and uncertainties conflict in the Donetsk and financial and non-financial assets. rotation, thus all Directors Lugansk regions has deepened The Group's management has presently members of the Board Independent Auditors production and selling of The principal risks and the ongoing economic crisis, assessed whether any impairment continue in office. mixed fodder and uncertainties faced by the caused a fall in the country’s gross provisions are deemed necessary The independent auditors of the Group are disclosed in notes 37 domestic product and foreign for the Group's financial assets There were no significant Company, KPMG Limited have processing of eggs and and 39 to the consolidated trade, deterioration in state carried at amortised cost by changes in the assignment of expressed their willingness to selling of egg products. financial statements. finances, depletion of the National considering the economic responsibilities and remuneration continue in office. A resolution Bank of Ukraine’s foreign currency situation and outlook at the end of of the Board of Directors. giving authority to the Board of Financial results Ukraine’s political and economic reserves, significant devaluation of the reporting period. Directors to reappoint them and situation has deteriorated the national currency and a further The Directors are responsible for fix their remuneration will be The results of the Group for the significantly since 2014. downgrading of the Ukrainian Whilst management believes it is formulating, reviewing and proposed at the next Annual year ended 31 December 2016 Following political and social sovereign debt credit ratings. taking appropriate measures to approving the Company’s and its General Meeting of the Company. are set out in the consolidated unrest in early 2014, in March support the sustainability of the subsidiaries’ strategies, budgets, statement of profit or loss and 2014, various events in Crimea Following the devaluation of the Group’s business in the current certain items of capital By Order of the Board of Directors, other comprehensive income on led to the accession of the national currency, the National circumstances, a continuation of expenditures and senior personnel page 12 to the consolidated Republic of Crimea to the Bank of Ukraine introduced certain the current unstable business appointments. Although the financial statements. Russian Federation, which was administrative restrictions on environment could negatively Company is listed on the London not recognised by Ukraine and currency conversion transactions, affect the Group’s results and Stock Exchange, it is not subject Nataliya Vasylyuk The loss for the year attributable many other countries. This event which among others included financial position in a manner not to the UK Corporate Governance Chief Executive Officer to the owners of the Company resulted in a significant restrictions on purchases of currently determinable. These Code issued by the Financial Nicosia, 23 March 2017
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INDEPENDENT AUDITORS' to time (the "Companies Law, affect the Ukrainian economy from mostly internal sources. accuracy of the discounted in the "Report on other legal REPORT TO THE MEMBERS OF Cap. 113"). and the operations of the Group Consequently, we have cash flow model; requirements" section. AVANGARDCO INVESTMENTS and its ability to meet its determined the valuation of PUBLIC LIMITED Basis for opinion obligations as they fall due. our biological assets to be a key evaluating the adequacy of Responsibilities of the Board of opinion is not qualified in audit matter. the financial statements Directors for the consolidated Report on the audit of We conducted our audit in respect of this matter. disclosures, including fi nancial statements the consolidated financial accordance with International How the matter was addressed disclosures of key assumptions, statements Standards on Auditing (ISAs). Key audit matters in our audit judgments and sensitivities. The Board of Directors is Our responsibilities under those responsible for the preparation Opinion standerds are further described Key audit matters are those Our audit approach in this area Other information of consolidated financial in the "Auditors responsibilities matters that, in our professional included, among others: statements that give a true and We have audited the for the audit of the consilidated judgment, were of most The Board of Directors is fair view in accordance with accompanying consolidated financial statements " section of significance in our audit of the considering the appropriateness responsible for the other IFRS-EU and the requirements financial statements of our report. We are independent financial statements of the of the valuation methodology information. The other of the Companies Law, Cap. 113, AvangardCo Investments Public of the Group in accordance with current period. There matters by reviewing the valuation information comprises the and for such internal control as Limited (the "Company"), and the Code of Ethics for were addressed in the context expert's report, whose information included in the the Board of Directors its subsidiaries (the "Group"), Professional Accountants of the of our audit of the financial competence was firstly Management report, but does determines is necessary to whith are presented on pages 11 International Ethics Standards statementes as a whole, and in assessed, on the methodology not include the consolidated enable the preparation of to 78 and comprise the Board for Accountants (IESBA forming our opinion thereon, used by the Group and financial statements and our consolidated financial statements consolidated statement of Code), and the ethical and we do not provide a agreeing its consistency with auditor's report thereon. that are free from material financial position as at 31 requirements in Cyprus that are separate opinion on these IFRS; misstatement, whether due to December 2016, and the relevant to our audit of the matters. Our opinion on the consolidated fraund or error. consolidated statements of consolidated financial statements, evaluating the operating financial statements does not profit or loss and other and we have fulfilled our other Valuation of biological assets effectiveness of controls cover the other information and In preparing the consolidated comprehensive income, changes ethical responsibilities in over the estimation of the we do not express any form of financial statements, the Board in equity and cash flow the year accordance with there Refer to Note 6 (biological number of poultry; assurance conclusion thereon, of Directors is responsible for then ended and notes to the requirements and the IESBA assets) and to Note 38 (fair except as required by the assessing the Group's ability to financial statements, including a Code. We believe that the audit values) to the consolidated evaluating the Group's inputs Companies Law, Cap. 113. continue as a going concern, summary of significant accounting evidence we have obtained is financial statements. used in calculating the disclosing, as applicable, policies. sufficient and appropriate to estimated cash flows such as In connection with our audit of matters related to going provide a basis for our opinion. The key audit matter egg prices, inflation rate etc. the consolidated financial concern and using the going In our opinion, the accompanying through observation to internal statements, our responsibility is concern basis of accounting, consolidated financial statements Emphasis of matter The Group's biological assets supporting documentation to read the other information unless there is an intention to give a true and fair view of the consist of poultry, which is and their reasonableness and, in doing so, consider cither liquidate the Group or to consolidated financial position We draw attention to notes 2.4, measured at fair value less costs against external data; whether the other information is cease operations, or there is no of the Company as at 31 December 4.12 and 39 to the consolidated to sell. materially inconsistent with the realistic alternative but to do so. 2016, and of its consolidated financial statements, which involving our own valuation consolidated financial statements financial performance and its describe the political and social Estimating the fair value is a specialist to assist in evaluating or our knowledge obtained in The Board of Directors is consolidated cash flows for the unrest and regional tensions in complex process as it involves a the appropriateness of the the audit or otherwise appears responsible for overseeing thr years then ended in accordance Ukraine.The impact of the number of judgments and discounted rate used, which to be materially misstated. If, Group's financial reporting process. with International Financial events referred to in notes 2.4, estimates regarding various included observing market based on the work we have Reporting Standarts as adopted 4.12 and 39 about the continuing inputs and the valuation model. data from market sources performed, we conclude that Auditor's responsibilities for the by the European Union economic and political crisis Due to the nature of the asset, such as bond yields, risk there is a material misstatement audit of the consolidated (IFRS-EU) and the requirements in Ukraine and their final the valuation technique includes premiums, inflation rates etc.; of this other information, we are financial statements of the Cyprus Companies Law, resolution cannot be a discounted cash flow model required to report that fact. Our Cap. 113, as amended from time determined and may adversely that uses a number of inputs testing the mathematical report in this regard is presented Our objectives are to obtain
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reasonable assurance about may involve collusion, obtained up to the date of relationships and other matters of account have been kept 151 of the Companies Law, whether the consolidated forgery, intentional omissions, our auditors' report. However, that may reasonably be thought by the Company, so far as it Cap. 113, and which is financial statements as a whole misrepresentations, or the future events or conditions to bear on our independence, appears from our examination included as a specific section are free from material override of internal control. may cause the Group to and where applicable, related of these books. of the Management Report, misstatement, whether due to cause to continue as a going safeguards. have been prepared in fraund or error, and to issue an Obtain an understanding of concern. The consolidated financial accordance with the auditors' report that includes internal control relevant to From the matter communicated statements are in agreement requirements of the our opinion. Reasonable the audit in order to design Evaluate the overall with the Board of Directors, we with the books of account. Companies Law, Cap. 113, assurance is a high level of audit procedures that are presentation, structure and determine those matters that and is consistent with the assurance, but is not a appropriate in the content of the consolidated were of most significance in the In our opinion and to the best financial statements. guarantee that an audit circumstances, but not for financial statements, including audit of the consolidated of our information and conducted in accordance with the purpose of expressing an the disclosures, and whether financial statements of the according to the explanations In the light of the knowledge ISAs will always detect a material opinion on the effectivenses the consolidated financial current period and are therefore given to us, the consolidated and understanding of the misstatement when it exists. of the Group's internal statements represent the the key audit matters. We financial statements give the business and the Company’s Misstatement can arise from control. underlying transactions and describe these matters in our information required by the environment obtained in the fraund or error and are events in a manner that auditors’ report unless law or Companies Law, Cap. 113, in course of our audit, we have considered material if, Evaluate the appropriateness achieves a true and fair riew. regulation precludes public the manner so required. not identified material individually or in the aggregate, of accounting policies used disclosure about the matter or misstatements in the they could reasonably be and the reasonableness of Obtain sufficient appropriate when, in extremely rare In our opnion, the Management corporate governance expected to influence the accounting estimates and audit evidence regarding the circumstances, we determine Report on page 3 to 5, the statement in relation to the economic decisions of users related disclosures made by financial information of the that a matter should not be preparation of which is the information disclosed for taken on the basis of these the Board of Directors. entities or business activities communicated in our report responsibility of the Board of items (iv) and (v) of consolidated financial statements. within the Group to express because the adverse consequences Directors, has been prepared subparagraph 2(a) of Article Conclude on the an opinion on the consolidated of doing so would reasonably be in accordance with the 151 of the Companies Law, As part of an audit in appropriateness of the financial statements. We are expected to outweigh the public requirements of the Cap. 113. accordance with ISAs, we Board of Directors' use of the responsible for the direction, interest benefits of such Companies Law, Cap. 113, exercise professional judgment going concern basis of supervision and performance communication. and the information given is In our opnion, the corporate and maintain professional accounting and, based on of the group audit. We consistent with the financial governance statement skepticism throghout the audit. the audit evidence obtained, remain solely responsible for Report on other legal statements. includes all information We also: whether a material our audit opinion. requirements referred to in subparagraphs uncertainty exists related to We communicate with the In the light of the knowledge (i), (ii), (iii) and (vi) of Identify and assess the risks events or conditions that Board of Directors regarding, Pursuant to the additional and understanding of the paragraph 2(a) of Article 151 of material misstatement of may cast significant doubt amount other matters, the requirements of the Auditors business and the Company’s of the Companies Law, Cap. the consolidated financial on the Group's ability to planned scope and timing of the and Statutory Audits of Annual environment obtained in the 113. statements, whether due to continue as a going concern. audit and significant audit and Consolidated Accounts of course of our audit, we have fraud or error, design and If we conclude that a fi ndings, including any signifi- Law 2009, L42(I)/2009, as not identified material Other matter perform audit procedures material uncertainty exists, cant deficiencies in internal amended from time to time misstatements in the responsive to those risks, and we are required draw control that we identify during (“Law 42(I)/2009”), we report Management Report. This report, including the obtain audit evidence that is attention in our auditors' our audit. the following: opinion, has been prepared for sufficient and appropriate to report to the related In our opinion, the and only for the Company’s provide a basis for our disclosures in the consolidated We also provide the Board of We have obtained all the information included in the members as a body in opinion. The risk of not financial statements or, if Directors with a statement that information and explanations corporate governance accordance with Section 34 of detecting a material such disclosures are we have complied with relevant we considered necessary for statement in accordance Law 42(I)/2009 and for no misstatement resulting from inadequate, to modify our ethical requirements regarding the purposes of our audit. with the requirements of other purpose. We do not, in fraud is higher that for one opinion. Our conclusions are independence, and to subparagraphs (iv) and (v) giving this opinion, accept or resulting from error, as fraud based on the audit evidence communicate with them all I our opinion, proper books of paragraph 2(a) of Article assume responsibility for any
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other purpose or to any other Consolidated statement of financial position person to whose knowledge this AS AT 31 DECEMBER 2016 report may come to. (in USD thousand, unless otherwise stated)
The engagement partner on the audit resulting in this Not e 31 Dec ember 2016 31 December 2015 inderendent auditors’ report is Maria A. Papacosta. AASSETSSSETS Property, plant and equipment 5 357 821 404 930 Non-current biological assets 6 14 273 13 403 Deferred tax assets 19 5 663 2 761 Held to maturity investments 7 5 700 9 257 Other non-current assets 5 6 Non-currentNon-current aassetsssets 383383 446262 430430 357357
Maria A. Papacosta, FCCA Certified Public Accountant and Inventories 9 62 144 58 149 Registered Auditor Current biological assets 6 7 755 13 736 for and on behalf of Trade accounts receivable, net 10 40 628 56 665 Prepaid income tax 19 41 72 KPMG Limited Prepayments and other current assets, net 11 14 412 21 027 Certified Public Accountant and Taxes recoverable and prepaid 8 8 479 12 858 Registered Auditor Cash and cash equivalents 12 12 570 31 307 14 Esperidon Street CurrentCurrent aassetsssets 146146 002929 193193 814814 1087 Nicosia TOTALTOTAL AASSETSSSETS 529529 449191 624624 117171 Cyprus 23 March 2017 EQUITYEQUITY Share capital 13 836 836 Share premium 13 201 164 201 164 Reserve capital 115 858 115 858 Retained earnings 864 457 921 435 Effect of translation into presentation currency (1 053 923) (1 018 085) EquityEquity aattributablettributable ttoo oownerswners ooff tthehe CCompanyompany 128128 339292 221221 220808 Non-controllingNon-controlling iinterestsnterests 1010 441818 1313 847847 TotalTotal eequityquity 138138 881010 235235 005555
LIABILITIESLIABILITIES Long-term bond liabilities 15 219 014 202 871 Long-term loans 14 93 924 64 423 Deferred tax liabilities 19 351 410 Deferred income 1 123 1 384 Dividends payable 29 542 29 542 Long-term finance lease 3 28 Non-currentNon-current lliabilitiesiabilities 343343 995757 298298 658658
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Consolidated statement of financial position Consolidated statement of profit and loss and other comprehensive income AS AT 31 DECEMBER 2016 (cont.) FOR THE YEAR ENDED 31 DECEMBER 2016 (in USD thousand, unless otherwise stated) (in USD thousand, unless otherwise stated)
For the year ended For the year ended Noote Not e 31 Dec embmberer 2016 31 December 2015 31 December 2016 31 December 2015
Revenue 23 191 304 229 924 Current portion of non-current liabilities 18 31 224 19 125 (Loss)/profit from revaluation of biological Short-term loans 16 - 50 000 assets at fair value 6 (2 232) 1 391 Trade payables 20 3 062 3 375 Cost of sales 24 (175 875) (209 190) Other accounts payable 21 12 438 17 958 GGROSSROSS PPROFITROFIT 1313 119797 2222 125125 CurrentCurrent liabilitiesliabilities 4466 772424 9090 445858 General administrative expenses 26 (7 886) (7 195) TOTALTOTAL LLIABILITIESIABILITIES 390390 668181 389389 111616 Distribution expenses 27 (8 558) (10 773) TOTALTOTAL EEQUITYQUITY AANDND LLIABILITIESIABILITIES 529529 449191 624624 117171 Income from government grants and incentives 31.1 98 107 Income from special VAT treatment 31.2 5 376 25 098 Other operating expenses 28 (17 107) (116 466) LOSSLOSS FFROMROM OOPERATINGPERATING AACTIVITIESCTIVITIES ((1414 880)880) ((8787 1104)04)
Finance income 30 2 825 3 978 Finance costs 29 (31 280) (32 528) Losses on exchange (16 622) (43 616) NNETET FFINANCEINANCE CCOSTSOSTS ((4545 0077)77) ((7272 166)166)
LOSSLOSS BBEFOREEFORE TTAXAX (59(59 9957)57) (159(159 2270)70)
Income tax credit 19 3 321 880 LOSSLOSS FFOROR TTHEHE YYEAREAR (56(56 6636)36) (158(158 390)390)
OTHEROTHER CCOMPREHENSIVEOMPREHENSIVE IINCOMENCOME FFOROR TTHEHE YYEAREAR Items that are or may be reclassified subsequently to profit or loss Effect from translation into presentation currency (39 609) (255 410)
TTOTALOTAL CCOMPREHENSIVEOMPREHENSIVE IINCOMENCOME ((9696 2245)45) ((413413 800)800)
LOSSLOSS ATTRIBUTABLEATTRIBUTABLE TO:TO: Owners of the Company (56 978) (154 640) Non-controlling interests 342 (3 750) (56(56 6636)36) (158(158 390)390) On 23 March 2017 the Board of Directors of AvangardCo TOTALTOTAL COMPREHENSIVECOMPREHENSIVE IINCOMENCOME AATTRIBUTABLETTRIBUTABLE TTO:O: Investments Public Limited Owners of the Company (92 816) (396 321) approved and authorised these Nataliya Vasylyuk Iryna Melnyk Non-controlling interests (3 428) (17 479) consolidated financial statements Director, CEO Director, CFO (96(96 2245)45) (413(413 800)800) for issue. LossLoss pperer ssharehare BasicBasic aandnd ddilutediluted ((USD)USD) 3535 (9)(9) (24)(24)
The notes on pages 16 to 77 form an integral part of these consolidated financial statements. The notes on pages 16 to 77 form an integral part of these consolidated financial statements.
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Consolidated statement of changes in equity Consolidated statement of cash flows FOR THE YEAR ENDED 31 DECEMBER 2016 FOR THE YEAR ENDED 31 DECEMBER 2016 (in USD thousand, unless otherwise stated) (in USD thousand, unless otherwise stated)
Attributable to owners of the Como pany
Foreign The year ended The year ended Capital Non- Share SShare Retained currency Total Note contribution Total controlling 31 December 2016 31 December 2015 capital preemium earnings translation equity reserve reserve interests CCASHASH FFLOWSLOWS FFROMROM OOPERATINGPERATING AACTIVITIESCTIVITIES BBalancealance aatt 1 JJanuaryanuary 22015015 836836 115115 885858 201201 116464 1 007777 115858 (776(776 4404)04) 618618 661212 2727 227676 645645 888888 ComprehensiveComprehensive iincomencome Loss before income tax (59 957) (159 270) Loss for the year - - - (154(154 6640)40) - (154 640) (3 750) (158(158 3390)90) Adjustments for: Effect from translation into - - - - (241 681) (241 681) (13 729) (255(255 4410)10) Depreciation of property, plant and equipment 5 15 657 17 628 presentation currency TTotalotal ccomprehensiveomprehensive iincomencome - - - (154(154 6640)40) ((241241 6681)81) ((396396 3321)21) ((1717 4479)79) (413(413 8800)00) Change in allowance for irrecoverable amounts 18 582 40 156 28 TransactionsTransactions wwithith oownerswners Profit/loss on disposal of current assets (14) 20 28 Results of operations under - - - (1(1 0083)83) - (1 083) 181 (902)(902) (Income)/loss on disposal of non current assets (150) 95 28 common control - Impairment of current assets 709 39 869 6 Effect from changes in ownership - - - - - 3 869 3 886969 Effect of fair value adjustments on biological assets 28 2 232 (1 391) TotalTotal ttransactionsransactions wwithith oownerswners - - - (1(1 0083)83) - (1 083) 4 050 2 996767 Gains realised from accounts payable written-off 31.1 (262) (178) BalanceBalance aatt 3311 DDecemberecember 22015015 883636 111515 885858 220101 116464 921921 443535 (1(1 001818 0085)85) 221221 220808 1313 884747 235235 005555 Amortization of deferred income on government grants (98) (107) Discount bonds amortization 28 2 096 1 974 BalanceBalance aatt 1 JJanuaryanuary 22016016 836836 115115 885858 201201 116464 921921 443535 (1(1 001818 0085)85) 221221 220808 1313 884747 235235 005555 Impairement of funds - 28 190 ComprehensiveComprehensive iincomencome Discount on VAT government bonds amortization (1 449) (1 979) Loss for the year - - - (56(56 9978)78) - (56 978) 342 (56(56 6636)36) Interest income (1 376) (1 999) Effect from translation into - - - - (35 838) (35 838) (3 771) (39(39 6609)09) Interest payable on loans and bonds 29 186 27 947 presentation currency Losses on exchange 16 622 36 021 TotalTotal ccomprehensiveomprehensive iincomencome - - - (56(56 9978)78) (35(35 8838)38) (92(92 8816)16) (3(3 4428)28) (96(96 2245)45) BalanceBalance aatt 3311 DDecemberecember 22016016 836836 115115 885858 201201 116464 864864 445757 (1(1 005353 9923)23) 128128 339292 1010 441818 138138 881010 OOperatingperating pprorofit bbeforeefore wworkingorking ccapitalapital cchangeshanges 2121 777878 2626 976976 Increase in trade receivables (5 802) (30 086) (1) IdiththCIn accordance with the Cyprus (2)(2) CompaniesC i iincorporatedt d iin periodi d off twot years fromf theth Decrease/(increase) in prepayments and other current assets 224 (2 627) Companies Law, Cap. 113, Cyprus which do not distribute end of the year of assessment Decrease in taxes recoverable and prepaid 7 134 24 493 Section 55 (2) the share 70% of their profits after tax, to which the profits refer, are Increase in inventories (11 945) (17 472) premium can only be used by as defined by the Special Cyprus tax residents. The Decrease in deferred income (7) - the Company in (a) paying up Contribution for the Defense amount of this deemed Decrease in other non-current assets - 13 unissued shares of the Company of the Republic Law, during dividend distribution is to be issued to members of the year after the end of the reduced by any actual dividend Increase/(decrease) in trade payables 351 (1 259) the Company as fully paid year of assessment to which paid out of the profits of the (Increase)/decrease in biological assets (196) 5 030 bonus shares; (b) writing off the profits refer, will be relevant year at any time. This Decrease in finance leases (39) (16) the expenses of, or the deemed to have distributed special contribution for (Decrease)/increase in other accounts payable (10 486) 1 123 commission paid or discount this amount as dividend. defence is paid by the Company CCashash ggeneratedenerated ffromrom ooperationsperations 1 001212 6 117575 allowed on, any issue of shares Special contribution for for the account of the owners. Interest paid (4 224) (4 897) or debentures of the Company; defence at 17% for the tax year Income tax paid (43) (63) and (c) providing for the 2014 and thereafter will be The above requirements of the premium payable on redemption payable on such deemed Law are not applied in the case of NetNet ccashash ((usedused iin)/generatedn)/generated ffromrom ooperatingperating aactivitiesctivities (3(3 2255)55) 1 221515 of any redeemable preference dividend to the extent that the the Company due to the fact that shares or of any debentures of owners (individuals and its owners are not residents in the Company. companies) at the end of the Cyprus for tax purposes. period of two years from the
The notes on pages 16 to 77 form an integral part of these consolidated financial statements. The notes on pages 16 to 77 form an integral part of these consolidated financial statements.
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Consolidated statement of cash flows 1. General information companies. The restructuring Ukraine, the companies of the FOR THE YEAR ENDED 31 DECEMBER 2016 (cont.) was undertaken to achieve legal Group which have been affected AvangardCo Investments Public consolidation of control over and are not operational are (in USD thousand, unless otherwise stated) Limited (the “Company”) was agricultural companies of the described in note 39 to the incorporated as a limited liability Group. The reorganisation did consolidated financial The year ended The year ended company on 23 October 2007 in not affect the principal activities statements. Note 31 December 2016 31 December 2015 accordance with the provisions of the Group. of the Cyprus Companies Law, In order to build a vertically- CCASHASH FFLOWSLOWS FFROMROM IINVESTINGNVESTING AACTIVITIESCTIVITIES Cap. 113, under the name of The history of "Avangard" integrated group, reduce Ultrainvest Limited. On 8 July began with the acquisition by business risk and gain additional Payments and receipts - property, plant and equipment (12 981) (37 446) 2009, the Registrar of Companies the principal owner of the first profit due to synergies, the Acquisitions of subsidiary - 5 in Cyprus issued a certificate to poultry farm "Avangard" located Group acquired a hen breeding Proceeds from sale of non-current assets 779 - the effect that the Company in the Ivano-Frankivsk region of concern. This ensures breeding Interest received 2 829 2 183 was re-registered as a public Ukraine. Subsequently, to supply of the required number of high NNetet ccashash uusedsed iinn iinvestingnvesting aactivitiesctivities (9(9 3373)73) (35(35 2258)58) limited company and changed the poultry farm with growing quality daily chickens and their its name to AvangardCo birds, the subsidiary "Avangard- timely delivery to factories. CASHCASH FFLOWSLOWS FFROMROM FFINANCINGINANCING AACTIVITIESCTIVITIES Investments Public Limited. The Agro" was established. In 2004 Company was listed at London a concept of development of The construction of new full New loans received 50 208 12 484 Stock Exchange Main Market on this business line was designed, cycle egg production facilities, Repayment of loans (51 952) (13 729) 6 May 2010. as a result of which in fully automated, in compliance Interest paid for bonds issued (5 247) (14 000) 2005-2009 other major with European standards of NetNet ccashash uusedsed iinn finnancingancing aactivitiesctivities (6(6 9991)91) (15(15 2245)45) The Company's registered office enterprises of agrarian industry quality is an integral part of the is at 3 Anexartisias & Kyriakou in Ukraine joined the Group. Group's growth strategy. NetNet ddecreaseecrease iinn ccashash aandnd ccashash eequivalentsquivalents (19(19 6619)19) (49(49 2288)88) Matsi, 3040 Limassol, Cyprus. The Group's activities cover all The Group’s subsidiaries all of CashCash aandnd ccashash eequivalentsquivalents aatt 1 JJanuaryanuary 3131 330707 117117 885656 The consolidated financial the links of the value chain: from which are incorporated in Impairement of funds - (25 639) statements of the Company as production of combined feed, Ukraine, their principal activities Effect from translation into presentation currency 882 (11 622) at and for the year ended 31 maintenance and breeding of and the effective ownership CashCash aandnd ccashash eequivalentsquivalents aatt 3311 DDecemberecember 1212 1212 557070 3131 330707 December 2016 comprise the chickens to production and sale interests are as follows: Company and its subsidiaries of eggs and egg products. As at (together with the Company 31 December 2016 the production referred to as the “Group”). facilities of the Group include 32 poultry facilities (consisting of 19 In 2009 the principal owner of egg laying farms, 10 farms for AvangardCo Investments Public growing young laying hens and Limited reorganised the Group, 3 breeder farms), 6 fodder mills, as a result of which AvangardCo 3 long-term egg storage Investments Public Limited facilities and 1 plant for became the holding company of manufacture of egg products. an agricultural group of This vertically - integrated agricultural enterprises, which in structure of the Group allows the past were under the processing of approximately common ownership and control 84% of its own fodder. The of this owner. The restructuring Group's activities cover almost was carried out by the transfer all the territory of Ukraine. Due The notes on pages 16 to 77 form an integral part of these consolidated financial statements. of direct interest in the Group's to the operating environment in
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 95 CONSOLIDATED FINANCIAL STATEMENTS | continued CONSOLIDATED FINANCIAL STATEMENTS | continued 96
Ownership Ownership Ownership Ownership Principal Country of Principal Country of Compan y name interest (%) interest (%) Coompan y name interest (%) interest (%) Activity registration Activity registration 31 December 2016 31 December 2015 31 December 2016 31 December 2015
PJSC Agroholding Avangard Keeping of Ukraine 98,00% 98,00% LLC "KOMERTSBUDPLAST" Ukraine 98,00% 98,00% (PJSC Ptakhohospodarstvo Chervonyi Prapor) technical laying LLC "AGROMASH-ZAHID" Assets holding Ukraine 98,00% 98,00% LLC Yuzhnaya - Holding hen, production Ukraine 100,00% 100,00% LLC "STC-INVESTMENTS" companies Ukraine 98,00% 98,00% PPB LLC Ptytsecompleks and selling Ukraine 100,00% 100,00% LLC "TRANSMAGISTRAL" Ukraine 93,00% 92,00% PSPC Interbusiness of eggs Ukraine 100,00% 100,00% PJSC Avangard* Ukraine 0,00% 99,00% SC Avangard-Agro of PJSC Agroholding Avangard Ukraine 98,00% 98,00% PJSC Chornobaivske* Ukraine 0,00% 97,00% SC Ptakhohospodarstvo Donetske Ukraine 100,00% 100,00% PJSC Agrofirma Avis* Ukraine 0,00% 100,00% of PSPC Interbusiness PJSC Kirovskiy* Ukraine 0,00% 100,00% LLC Slovyany Ukraine 90,00% 90,00% SC Ptakhofabryka Lozuvatska of Avangardco Ukraine 0,00% 100,00% SC Ptakhohospodarstvo Lozuvatske Incubation Ukraine 100,00% 100,00% Investments Public Limited* of Avangardco Investments Public Limited (production and LLC Makarivska Ptakhofabryka* Dormant Ukraine 0,00% 100,00% SC Zorya of PJSC Agroholding Avangard sale of day-old Ukraine 98,00% 98,00% LLC PF Volnovaska* Ukraine 0,00% 100,00% SC Ptakhofabryka Chervonyi Prapor Poultry, chick), farming Ukraine 98,00% 98,00% PJSC Cross-PF Zorya* Ukraine 0,00% 89,00% of PJSC Ptakhohospodarstvo ChervoniyPrapor of young poultry PJSC Ptakhofabryka Pershe Travnya* Ukraine 0,00% 93,00% SC Ptakhohospodarstvo Yuzhnaya Holding for sale Ukraine 100,00% 100,00% PJSC Chernivetska Ptakhofabryka* Ukraine 0,00% 98,00% of LLC Yuzhnaya Holding ALLC Donetska Ptakhofabryka* Ukraine 0,00% 100,00% SC Ptakhogopodarstvo Volnovaske Ukraine 100,00% 100,00% LLC Torgivenlniy Budynok Bohodukhivska Ukraine 100,00% 100,00% of PSPC Interbusiness Ptakhofabryka* SC Ptakhohospodarstvo Chornobaivske Ukraine 98,00% 98,00% of PJSC Agroholding Avangard LLC Rohatyn-Korm Ukraine 100,00% 100,00% *As at 31 December 2015 the Torgivenlniy Budynok are liquidated as legal entities. PJSC Vuhlehirskyi Eksperementalnyi Production and Ukraine 100,00% 100,00% Group completed the process of Bohodukhivska Ptakhofabryka, Kombikormovyi Zavod selling of animal restructuring through transfer of SC Rogatynska Ptakhofabryka The parent company of the PJSC Volnovaskyi Kombinat Khliboproduktiv feed Ukraine 99,00% 99,00% assets and liabilities. The of PJSC Avangard, SC Group is AvangardCo LLC Kamyanets-Podilsky Kombikormoviy Zavod Ukraine 98,00% 98,00% following companies’ assets and Gorodenkivska Ptakhofabryka Investments Public Limited, LLC Pershe Travnya Kombikormoviy Zavod Ukraine 98,00% 98,00% liabilities were transferred to of PJSC Avangard were registered in Cyprus, with an LLC Imperovo Foods Processing of eggs Ukraine 96,00% 96,00% PJSC Agroholding Avangard transferred to PSPC Interbusiness. issued share capital of 6 387 185 and selling of egg (PJSC Ptakhohospodarstvo Currently the company LLC ordinary shares as at 31 December products Chervonyi Prapor): PJSC Torgivenlniy Budynok 2016with nominal value of € 0,10 LLC Agrarnyi Holding Avangard Rendering services Ukraine 100,00% 100,00% Avangard, PJSC Chornobaivske, Bohodukhivska is in the process per share. under guarantee PJSC Agrofirma Avis, PJSC of liquidation as legal entity. agreements Kirovskiy, PJSC Cross-PF Zorya, Companies: PJSC Avangard, LLC Torgivenlniy Dim Avangard (LLC Imperovo LTD) Rental services Ukraine 99,00% 99,00% PJSC Ptakhofabryka Pershe PJSC Chornobaivske, PJSC LLC "GENERAL KONSTRAKSHYN" Ukraine 98,00% 98,00% Travnya, PJSC Chernivetska Agrofirma Avis, PJSC Kirovskiy, LLC "LOHISTYK AGROTRADE" Ukraine 100,00% 100,00% Ptakhofabryka. Additionaly, the PJSC Cross-PF Zorya, PJSC LLC "REMTREYDSTANDART" Ukraine 98,00% 98,00% assets and liabilities of: SC Ptakhofabryka Pershe Travnya, LLC "COMPANY NEW REGION" Assets holding Ukraine 98,00% 98,00% Ptakhofabryka Lozuvatska of PJSC Chernivetska Ptakhofabryka, LLS "PRIME LEADER" companies Ukraine 98,00% 98,00% Avangardco Investments Public SC Ptakhofabryka Lozuvatska of LLC "CITY REGION" Ukraine 98,00% 98,00% Limited, LLC Makarivska Avangardco Investments Public LLC "FORVARDTRANS" Ukraine 98,00% 98,00% Ptakhofabryka, LLC PF Volnovaska, Limited, LLC Makarivska LLC "UNITED LOHISTYK" Ukraine 98,00% 98,00% ALLC Donetska Ptakhofabryka, Ptakhofabryka, LLC PF Volnovaska, LLC "AGROTRADE BUSINESS" Ukraine 98,00% 98,00% LLC Areal-Snigurivka, LLC ALLC Donetska Ptakhofabryka
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The shares were distributed as 2. Basis of preparation currency for financial and operations. This adoption did follows: management reporting purposes. not have a material effect on the 2.12.1 SStatementtatement ooff ccomplianceompliance Exchange differences arising are financial statements of the
31 Decemb er 22016 31 Decemb er 2015 classified as equity and Group. Owner These consolidated financial transferred to the translation Number of shares Ownership interest (%) Number of shares Ownership interest (%) statements have been prepared reserve. The following Standards, in accordance with International Amendments to Standards and Omtron Limited 1 848 575 28,9% 1 848 575 28,9% Financial Reporting Standards 22.4.4 GGoingoing cconcernoncern bbasisasis Interpretations have been issued Tanchem Limited 926 280 14,5% 926 280 14,5% (IFRSs) as adopted by the but are not yet effective for Mobco Limited 1 - 1 - European Union (EU) and the These consolidated financial annual periods beginning on 1 BNY (Nominees) Limited 1 437 500 22,5% 1 437 500 22,5% UkrLandFarming Plc 2 174 825 34,1% 2 174 825 34,1% requirements of the Cyprus statements have been prepared January 2016. Those which may Other 4 - 4 - Companies Law, Cap. 113. and under the going concern basis, be relevant to the Group are set 6 387387 185185 100,0%100,0% 6 338787 118585 100,0%100,0% are for the year ended 31 which assumes the realisation of out below. The Group does not December 2016. assets and settlement of plan to adopt these Standards liabilities in the course of early. 22.2.2 BBasisasis ooff mmeasurementeasurement ordinary economic activity. As at 31 December 2016 and 31 Omtron Limited and Tanchem UkrLandFarming Plc were as Renewals of the Group’s assets, (i) Standards and Interpretations December 2015 the interests in Limited beneficially owned by follows: These consolidated financial and the future activities of the adopted by the EU statements have been prepared Group, are significantly IFRS 9 “Financial Instruments” on the historical cost basis, influenced by the current and (effective for annual periods Ownership intereest (%) Ownership interest (%) except for the biological assets future economic environment in beginning on or after 1 January as at 31 Decembeer 2016 as at 31 December 2015 which are measured at fair value Ukraine. The Board of Directors 2018). and bonds, loans and and Management are closely investments held to maturity monitoring the events in the Omtron Limited 100% 100% IFRS 15 “Revenue from which are measured at current operating environment Tanchem Limited 100% 100% contracts with customers” amortised cost. of the Group described in note (effective for annual periods 39to the consolidated financial beginning on or after 1 January 22.3.3 FFunctionalunctional aandnd ppresentationresentation statements and concider that 2018). As at 31 December 2016 and 31 UkrLandFarming Plc beneficially were as follows: currencycurrency the Group is able to continueits December 2015 the direct owned by Oleg Bakhmatyuk operations as a going concern (ii) Standards and Interpretations interests in Mobco Limited and ("the beneficial owner" hereinafter) The functional currency of all and that it will be able to meet not adopted by the EU companies of the Group is the its obligation as they fall due. IAS 7 (Amendments) Ukrainian Hryvnia ("UAH") “Disclosure Initiative” Ownership intereest (%) Ownership interest (%) except in the case of the Cyprus 2.52.5 StandardsStandards aandnd iinterpretationsnterpretations (effective for annual as at 31 Decembeer 2016 as at 31 December 2015 parent company, AvangardCo accounting periods beginning Investments Public Limited, Adoption of new and revised on or after 1 January 2017). Mobco Limited 100% 100% whose functional currency International Financial Reporting UkrLandFarming Plc 95% 95% changed from UAH to Euro Standards and Interpretations as IAS 12 (Amendments) ("EUR") as from 1 January 2014. adopted by the European Union “Recognition of Deferred Tax Transactions in currencies other (EU) Assets for Unrealised Losses” than the functional currency of (effective for annual the Group’s companies are As from 1 January 2016, the accounting periods beginning treated as transactions in Group adopted all changes to on or after 1 January 2017). foreign currencies. The Group's International Financial Reporting management decided to use US Standards (IFRSs) as adopted Annual Improvements to dollar ("USD") as the presentation by EU which are relevant to its
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IFRSs 2014-2016 Cycle 3. Significant accounting policies affect those returns through its The Group does not restate Acquisitions of business not as at the date of acquisition, (effective for annual periods power over the investee. The assets and liabilities to their under common control together with their share of beginning on or after 1 January The following accounting financial statements of fair values. Instead the Group changes in their equity after the 2017 (IFRS 12) and 1 January policies have been applied subsidiaries are included in incorporates the assets and The purchase method is applied date of acquisition. Equity 2018 (IFRS 1 and IAS 28)). consistently for all the years consolidated financial statements liabilities at the amounts for the consolidation of attributable to owners of presented in these consolidated from the date that control recorded in the books of the subsidiaries being acquired. On non-controlling interest is IFRS 2 (Amendments) financial statements. The commences until the date that acquired company (the acquisition, the identifiable reported as a separate item in “Classification and Measurement accounting policies have been control ceases. predecessor carrying values) assets and liabilities of the the consolidated statement of of Share-based Payment consistently applied by all com- adjusted only to achieve subsidiary are measured at fair financial position. Transactions” (effective for panies of the Group. Loss of control harmonisation of accounting value on the acquisition date, annual periods beginning on policies. irrespective of the extent of any Business combinations and or after 1 January 2018). 33.1.1 BBasisasis ooff cconsolidationonsolidation On the loss of control, the Group non controlling interest. goodwill No goodwill arises in derecognizes the assets and Non-controlling interests are IFRS 4 (Amendments) predecessor accounting. The consolidated financial liabilities of the subsidiary, any reflected proportionally to fair Business combinations (other “Applying IFRS 9 Financial Predecessor accounting may statements comprise the non-controlling interests and the value of cost of recognised than those of businesses under Instruments with IFRS 4 lead to differences in financial statements of the other components of equity assets and liabilities. common control) are accounted Insurance Contracts” consolidation, for example parent company AvangardCo related to the subsidiary. Any for using the purchase method. (effective for annual periods the consideration given may Investments Public Limited and surplus or deficit arising on the If necessary, adjustments are beginning on or after differ from the aggregate The cost of an acquisition is 1 January 2018). the financial statements of the loss of control is recognized in book value of the assets and entered into the financial measured as the aggregate of companies controlled by the profit or loss. If the Group liabilities (as of the date of statements of subsidiaries to the consideration transferred, IFRS 15 (Clarifications) Company as at 31 December retains any interest in the the transaction) of the bring the accounting policies measured at acquisition date fair “Revenue from Contracts 2016. previously owned subsidiary, acquired entity. Such used into compliance with the value and the amount of any with Customers” (effective then such interest is measured differences are included in accounting policies used by non-controlling interest in the for annual periods beginning Transactions under common at fair value at the date that equity in retained earnings. other companies of the Group. acquiree. For each business on or after 1 January 2018). control control is lost. Subsequently, it combination, the acquirer is accounted for as an equity- The consolidated financial Transactions eliminated on measures the non controlling IAS 40 (Amendments) Consolidation of companies accounted investee or as an statements incorporate the consolidation interest in the acquiree either at “Transfers of Investment including organisations and available-for-sale financial asset acquired entity's results as if fair value or at the proportionate Property” (effective for entities under common control depending on the level of both entities (acquirer and Intra-Group transactions and share of the acquiree’s annual periods beginning on requires that all the organisations influence retained. acquiree) had always been balances are eliminated from identifiable net assets. or after 1 January 2018). and enterprises being combined from the date that the consolidated financial Acquisition costs incurred are consolidated are controlled by Combinations of businesses common control was statements. Unrealised profits expensed. IFRIC 22 “Foreign Currency one and the same party or under common control achieved. Consequently, and losses, from transactions Transactions and Advance parties, both before consolidation the consolidated financial between the Group’s Companies When the Group acquires a Consideration” (effective for and after it, and this control is A business combination in which statements reflect both are also subject to elimination. business, it assesses the financial annual periods beginning on not transitory. the combining entities are entities' full periods results, assets and liabilities assumed for or after 1 January 2018). ultimately controlled by the even though the business Non-controlling interests(NCI) appropriate classification and combination may have Subsidiaries same individual both before and designation in accordance with IFRS 16 “Leases” (effective occurred part of the way after the combination and the NCI is represented by interest in the contractual terms, economic for annual periods beginning through the period. In A subsidiary is an entity which is control is not transitory is the subsidiaries not owned by circumstances and pertinent on or after 1 January 2019). addition, the corresponding controlled by another entity. An accounted using the pooling of the Group. NCI in subsidiaries as conditions as at the acquisition amounts for the previous The Board of Directors expects investor controls an investee interests accounting principles at the reporting period is the date. This includes the period also reflect the that the adoption of these financial when the investor is exposed, or (otherwise known as "carry over proportion of fair value of the separation of embedded combined results of both reporting standards in future has rights, to variable returns accounting" or "predecessor relevant subsidiaries' identified derivatives in host contracts by entities, even though the periods will not have a material accounting"). The principles of from its involvement with the transaction did not occur assets and liabilities attributable the acquiree. effect on thefinancial statements investee and has the ability to predecessor accounting are: until the current period. to those non-controlling interest of the Group.
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If the business combination is acquired, the difference is 3.23.2 FForeignoreign ccurrencyurrency ttranslationranslation (b) Presentation currency assessed in a reliable way; estimated residual values of achieved in stages, the recognised in profit or loss. such assets at the end of their acquisition date fair value of the (а) Transactions and balances The financial results and position it is intended for use during useful lives. Such cost includes acquirer’s previously held equity After initial recognition, goodwill of each subsidiary are translated more than one operating the cost of replacing significant interest in the acquiree is is measured at cost less any Transactions in foreign curren- into the presentation currency cycle (usually more than 12 parts of the plant and remeasured to fair value as at accumulated impairment losses. cies are initially recorded by the as follows: months). equipment and borrowing costs the acquisition date through For the purpose of impairment Group entities at their respec- (1) At each reporting period of After completion, PPE for long-term construction profit and loss. testing, goodwill acquired in a tive functional currency rates financial statements all the previously under construction is projects if the recognition business combination is, from prevailing at the date of the assets and liabilities are transferred to the relevant criteria are met. When Any contingent considerationis the acquisition date, allocated to transaction. translated at the exchange category of PPE. significant parts of property, measured at fair value at the each of the Group’s cash rate of the National Bank of plant and equipment are Ukraine at that reporting acquisition date. Subsequent generating units that are Monetary assets and liabilities Expenses after the initial required to be replaced from period; changes to the fair value of the expected to benefit from the are translated into the functional recognition of property, plant time to time, the Group contingent consideration which combination, irrespective of currency of each company and equipment recognises such parts as (2) Income and expenses are is deemed to be an asset or whether other assets or liabilities included into the Group, at the individual assets with specific translated at the average liability, will be recognised in of the acquiree are assigned to rates ruling at the reporting estimated useful lives and exchange rates (except for Any subsequent expenses, accordance with IAS 39 either in those units. period. Foreign exchange gains depreciation, respectively. the cases when such average increasing the future economic profit or loss or as change to and losses, arising from transac- exchange rate is not a benefits from the asset, are Likewise, when a major other comprehensive income. If Where goodwill forms part of a tions in foreign currency, and reasonably approximate treated as additions. Otherwise, inspection is performed, its cost the contingent consideration is cash-generating unit and part of also from translation of mone- value reflecting cumulative the Group recognises is recognised in the carrying classified as equity, it shall not the operation within the unit tary assets and liabilities into the influence of all exchange subsequent expenses as value of the plant and be remeasured until it is finally that is disposed of, the goodwill functional currency of each rates prevailing at the date of expenses of the period, in which equipment as a replacement if settled within equity. associated with the operation company included into the transaction, in which case they have been incurred. The the recognition criteria are disposed of is included in the Group at the rate ruling at the income and expenses are Group divides all expenses satis fied. All other repair and Goodwill is initially measured at carrying value of the operation end of the year, are recognised translated at the exchange related to the property, plant maintenance costs are rates at the date of cost being the excess of the when determining the gain or to profit or loss. and equipment, into the recognised in the statement of transaction); consideration transferred over loss on disposal of the operation. following types: comprehensive income as the Group’s net identifiable Goodwill disposed in such case The exchange rates used for the incurred. (3) All exchange differences are assets acquired and liabilities is measured based on the preparation of these consolidat- current repairs and expenses recognised in other assumed. If this consideration is relative values of the operation ed financial statements, are for maintenance and Depreciation of property, plant comprehensive income. lower than the fair value of the disposed of and the portion of presented as follows: technical service; and equipment is calculated net assets of the subsidiary the cash-generating unit retained. using the straight-line method 33.3.3 P Property,roperty, p plantlant a andnd capital refurbishment, over the estimated useful lives Weighted average Weighted average including modernisation. Cuurren cy 31 December 2016 for the year ended 31 December 2015 for the year ended equipmentequipment agreed upon with the technical 31 December 2016 31 December 2015 personnel of the Group. Initial recognition of property, Subsequent measurement of US dollar to Ukrainian Hryvnia 27,1909 25,5458 24,0007 21, 8290 plant and equipment (“PPE”) property, plant and equipment The estimated useful lives for Euro 0,9567 0,9023 0,9152 0,9018 the property, plant and PPE is recognised by the Group After initial recognition as an equipment are as follows: The empowerment of the USD translation into presentation rate established by the National as an asset only in a case, when: asset, the Group applies the model of accounting for the against UAH has resulted in the currency. Bank of Ukraine. At the moment, it is probable that the Group property, plant and equipment reduction of various values the Ukrainian Hryvnia is not a will receive certain future at historical cost, net of disclosed in the statements of The foreign currencies may be freely convertible currency economic benefits; profit or loss and of financial freely convertible to the territory outside of Ukraine. accumulated depreciation and any accumulated losses from position. This reduction is of Ukraine at the exchange rate the historical cost can be applicable only in case of which is close to the exchange impairment, taking into account
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action costs. Subsequent to will not result from the need of recovery inthe fair value of an
initial recognition, loans and increasing the working capital, in impaired available for sale Land Not depreciated receivables are measured at which case they will be included equity security is recognized in Buildings and constructions 10-70 years amortised cost using the into current assets. Subsequent other comprehensive income. Machinery and equipment 5-25 years effective interest method, less to initial recognition available for Equipment for biological assets 5-30 years any impairment losses. Loans sale financial assets are Vehicles 5-15 years (c) Held-to-maturity investments Other equipment 3-10 years and receivables comprise of recorded at fair value through Construction in progress Not depreciated cash and cash equivalents and equity and changes therein, Held-to-maturity investments trade and other accounts other than impairment losses are non-derivative financial receivable. and foreign currency differences assets with fixed or on available for sale debt determinable payments that an Depreciation methods, residual Group evaluates whether any location and condition necessary Loans issued by the Group are instruments that are recognised entity intends and is able to hold values and useful lives of assets indicators of possible for them to be capable of financial assets resulting from in other comprehensive income. to maturity and that do not are reviewed at each reporting impairment of an asset exist. If operating in the manner intended delivering cash to the borrower. meet the definition of loans and period and adjusted if the recoverable value of an by the Management. Loans issued are accounted for Impairment loss on available for receivables and are not appropriate. asset or a group of assets within at amortised cost using the sale financial assets is designated on initial recognition PPE is lower than their carrying 3.43.4 FFinancialinancial iinstrumentsnstruments effective interest method, less recognised by reclassifying the as assets at fair value through An asset is not depreciated (residual) value, the Group any impairment losses. losses accumulated in the fair profit or loss or as available for during the first month of its recognises such asset or group (i) Non - derivative financial assets value reserve in equity to profit sale. Held-to-maturity investments availability for use. The acquired of assets as impaired, and (b) Available for sale financial or loss. are measured at amortised cost. asset is depreciated starting accrues a provision for The Group classifies its non- assets If an entity sells a held-to- from the following month of the impairment of the amount of derivative financial assets as The cumulative loss that is maturity investment other than date it is available for use and excess of the carrying value loans and accounts receivable, Available for sale financial reclassifled from equity to profit in insignificant amounts or as a depreciation is fully accumulated over the recoverable value of available-for-sale financial assets, are non-derivative or loss is the difference between consequence of a non-recurring, when useful life terminates. the asset. Impairment losses are assets and held-to-maturity financial assets that are the acquisition cost net of any isolated event beyond its recognised immediately in profit investments. The classification designated as available for sale principal repayments and control that could not be Derecognition or loss. depends on the purposes for or are not classified into any amortization and the current fair reasonably anticipated, all of which the financial assets were other category of financial value, less impairment loss its other held-to-maturity An item of property, plant and Assets under construction and acquired. Management takes assets. Available for sale recognized previously in profit investments must be reclassified equipment and any significant unistalled equipment decision concerning the financial assets are recognised or loss. Changes in cumulative as available-for-sale for the part initially recognised is classification at initial at fair value plus directly impairment losses attributable current and next two financial derecognised upon disposal or Assets under construction recognition and reviews such attributable transaction costs. to the application of the reporting years. Held-to-maturity when no future economic comprise costs directly related classification for reliability at effective interest method are investments are measured at benefits are expected from its to construction of property, each reporting period. Investments which Management reflected as a component of amortised cost. use. Any gain or loss arising on plant and equipment including plans to hold for an indefinite interest income. If in a derecognition of the asset an appropriate allocation of (a) Loans and accounts period of time, and which may subsequent period the fair value Initial recognition (calculated as the difference directly attributable variable receivable be sold to improve liquidity or of an impaired available for sale between the net disposal overheads that are incurred in due to changes in interest rates, debt security increases and the All financial assetsand liabilities proceeds and the carrying value construction. Construction in Loans and accounts receivable are classified as available for sale increase can be related are recognised at fair value plus of the asset) is included in profit progress is not depreciated. are non-derivative financial financial assets. These assets are objectively to an event transaction costs. The best or loss when the asset is Depreciation of the construction assets with fixed or included into non-current assets occurring after the impairment confirmation of fair value at derecognised. in progress, on the same basis as determinable payments which unless the Group has an obvious loss was recognized then the initial recognition is transaction for other property, plant and are not quoted in an active intention to hold these assets for impairment loss is reversed, with price. Gains or losses on initial Impairment equipment items, commences market. Such assets are a period less than twelve the amount of reversal recognition are reflected only if when the assets are available for recognised initially at fair value months from the reporting recognized in profit or loss. the difference between fair At each reporting period the use, i.e. when they are in the plus directly attributable trans- period, and if selling these assets However, any subsequent value and transaction price is
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confirmed by other actual and future cash flows is based on the group of financial assets. A for specific impairment. Those Derecognition defer the liabilities at least by 12 regular market transactions best estimates of management, financial asset or group of found not to be specifically months from the reporting carried out with the same and the discount rate is fi nancial assets is considered to impaired are then collectively The financial assets are period. instruments or with such represented by the market be impaired if and only if there assessed for any impairment derecognised if the term of estimation of which the interest rate for similar is objective evidence of that has been incurred but not contractual rights for cash flows Initial recognition valuation technique is based on instruments prevailing at the impairment as a result of one or yet identified. Assets that are from financial assets expires, or open market data. reporting period. When using more events which occurred not individually significant are the Group transfers all the Financial liabilities are initially pricing models, the inputs are after initial recognition of the collectively assessed for signi ficant risks and benefits recognised at fair value adjusted All acquisitions and sales of based on average market data asset and that loss event, had an impairment by grouping from asset ownership. for directly related transaction financial instruments which are prevailing at the reporting impact on the estimated future together assets with similar costs in case of loans and to be carried out on a regular period. cash flows from the financial risks characteristics. (ii) Non - derivative financial borrowings. basis, set by regulations asset or group of financial assets liabilities or marketing agreements Subsequent measurement that can be reliably estimated. In assessing collective Subsequent measurement (acquisitions and sales carried impairment, the Group uses The Group initially recognizes out under regular transaction After the initial recognition all Impairment evidence may historical trends of the probability debt securities issued and Trade and other accounts procedures) are recognised at available for sale investments, comprise indicators that a of default, the timing of subordinated liabilities on the payable initially recognised at the date of transaction. are measured at fair value debtor or group of debtors is in recoveries and the amount of date that they originated. All fair value is subsequently except for any instruments significant financial difficulties, is loss incurred, adjusted for other financial liabilities are accounted for at amortized Change in value of an asset which are not traded on an unable to repay the debt or management's judgment as to recognized initially on the trade value using the effective interest which is measured at fair active market and for which fair makes inaccurate payments of whether current economic and date which is the date that the method. value between one date of value cannot be measured interest or principal amount of credit conditions are such that Group becomes a partyto the committing to purchase the reliably; such instruments are debt, and also the probability of the actual losses are likely to be contractual provision for Borrowings initially recognised assets and settlement date, is measured at cost plus bankruptcy or any other greater or lesser than suggested theinstrument. The Group at fair value of liability net recognised either in profit or transactions costs less fi nancial reorganisation. In by historical trends. classifies non-derivative financial of transaction costs are loss (for assets classified at fair impairment losses. addition, such evidence includes liabilities into the other financial subsequently reported at value through profit or loss), or other observable data indicating An impairment loss in respect of liability category. Such financial amortised cost; any difference in equity (for assets classified as Loans and accounts receivable a decrease in expected cash a financial assets at amortised liabilities are recognized initially between the amount of received available-for-sale). and held-to-maturity investments, flows from the financial asset cost is calculated as the at fair value less any directly funds and amount of repayment are measured at amortised cost which is subject to reliable difference between its carrying attributable transaction costs is reported within interest Principles of fair value less impairment losses. measurement, for example, an amount and the present value of using the effective interest expenses during the period in measurement Amortised cost is calculated overdue debt. For an investment the estimated cash flows method. which borrowings were received using the effective interest in an equity security, a discounted using the asset's under the effective interest Fair value of financial method. Premium and discount, significant prolonged decline in original effective interest rate. Other financial liabilities method. instruments is based on their including initial transaction its fair value below its cost Losses are recognized in profit comprise loans and borrowings, market price prevailing at the costs, are included in the is objective evidence of or loss and reflected in an bonds liabilities, bank overdrafts Derecognition reporting period without carrying amount of the impairment. allowance account against loans and trade and other payables. deduction of transaction costs. corresponding instrument and and receivables. Interest on the The financial liabilities are amortised using the effective Financial assets measured at impaired asset continues to be (a) Loans and borrowings derecognised if the term of In case the market price is not interest method. amortised cost recognized. When an event contractual obligations expires, available, the fair value of an occurring after at the Loans and borrowings are contractual obligations fulfilled instrument is determined using Impairment of financial assets The Group considers evidence impairment was recognized financial liabilities of the Group or agreement cancelled. pricing or discounted cash flow of impairment for a financial causes the amount of resulting from raising models. At each reporting period the asset measured at amortised impairment loss to decrease, the borrowings. Loans and borrowings Group measures whether there cost at both a specific asset and decrease in impairment loss is are classified as short-term When using a discounted cash is any objective evidence of collective level. All individually reversed through profit or loss. liabilities except for cases when flow model, the determination of impairment of financial assets or significant assets are measured the Group has vested right to
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3.53.5 BBondsonds The cost of inventories comprises be sold at cost or above. is recognised in profit or loss. 33.8.8 CCashash aandnd ccashash eequivalentsquivalents assessments of the time value of all expenses for acquisition, However, when decrease in money and the risks specific to Initial recognition processing and other expenses price for raw materials indicates The Group includes the following Cash and cash equivalents the asset or cash generating incurred in bringing the that cost of finished goods will elements into cost of laying hens include cash at banks, cash in unit. Financial liabilities are initially inventories to their present exceed the net realisable value, in the process of growing: hand, cash in transit and issued recognized at fair value adjusted location and condition. The cost raw materials are written-off to letters of credit. The bank If the expected recoverable Animal feed for transaction costs that are of work in progress and finished net realisation values. deposits are held without a amount of an asset (or cash- directly attributable to the issue goods includes the cost of raw specific maturity, are subject to generating unit) is estimated to Depreciation of property, of the bond. materials, direct labour and 3.73.7 BBiologicaliological aassetsssets insignificant risk of changes in be less than its carrying value, plant and equipment related other production costs, and their fair value and are used by the carrying value of the asset to the process of growing Subsequent measurement also corresponding part of The following groups of the Group in the management of (or cash-generating unit) shall production overheads. biological assets are its short term commitments. be reduced to its recoverable Wages and salaries of After initial recognition bonds distinguished by the Group: amount. That reduction is an personnel related to the are measured at amortised cost The Group regularly reviews process of growing 33.9.9 IImpairmentmpairment ooff nnon-currenton-current impairment loss, unless the asset using the effective interest rate inventories to determine whether replacement poultry (non- assetsassets is carried at revalued amount. current asset); method. there are any indicators of Other expenses directly Any impairment loss of a damage, obsolescence, slow related to the process of The Group assesses at each revalued asset shall be treated commercial poultry (current Derecognition movement, or a decrease in net growing reporting period the carrying as a revaluation decrease. If the asset); realisable price. When such value of its non-current assets to impairment loss is reversed When an existing financial events take place, the amount Determination of the fair value of determine whether there is any subsequently, the carrying value other biological assets liability is replaced by another by which inventories are biological assets objective evidence that of an asset (or cash-generating (current asset); from the same lender on impaired, is recognised in profit non-current assets are impaired. unit) increases to the revised substantially different terms, or or loss. (a) Non current assets - assets Due to an absence of an active If any such evidence exists, the and estimated amount of its the terms of an existing liability with useful life of more than a market for laying hens in recoverable amount of the asset recoverable amount, where are substantially modified, such Impairment of inventories year. Age of livestock Ukraine, to determine the fair is estimated in order to increased carrying value does an exchange or modification is poultry is between 1 – 194 value of biological assets, the determine the extent of the not exceed the carrying value treated as a derecognition of At each reporting period, the days old. Group uses the discounted impairment loss (if any). If it is which could be determined only the original liability and the Group assesses the necessity to value of the asset’s expected net not possible to estimate the in the case where no impairment recognition of a new liability. In impair obsolete and surplus (b) Current assets - assets with cash flows. recoverable amount of the loss for an asset (or cash- this case, the difference in the inventory and supplies. useful life within one year. individual asset, the Group shall generating unit) was recognised Age of livestock poultry is respective carrying amounts is Determination of the fair value of determine the recoverable in the previous years. Reversal of between 195 – 560 days old. recognised in profit or loss. Cost of inventories may be agricultural produce amount of the cash-generating the impairment loss is irrecoverable if the realisable The Group performs a biological unit to which the asset belongs recognised as profit immediately. 33.6.6 IInventoriesnventories value for such inventories has asset measurement at initial Agricultural produce harvested (the asset’s cash-generating decreased due to their damage, recognition and as at each from biological assets is unit). 3.103.10 ValueValue addedadded taxtax (VAT)(VAT) Inventories are measured at the whole or partial obsolescence or reporting period, at fair value measured at its fair value less lower of cost and net realisable resulting from changes in market less any estimated expenses for estimated point-of-sale costs at The expected recoverable There are two rates of value value. Net realisable value is prices. Cost of inventories may sale, except in the cases, were the point of harvest. A gain or amount of a cash-generating added taxes: 20% – on import determined as the estimated be irrecoverable if possible costs fair value cannot be determined loss arising on initial recognition unit is the higher of the and sales of goods and services selling price less estimated costs for completion or sale have reliably. Costs to sell include all of agricultural produce at fair cash-generating unit’s fair value in the territory of Ukraine and 0% of completion and preliminary increased. costs that would be necessary value less estimated point-of- less costs to sell and its value in - on export of goods and estimated distribution and to sell the assets, including sale costs is included in the use. In estimating value in use, rendering of services and works selling costs. The cost of Raw and other materials in transportation costs. profit or loss in the period in the future cash flows are outside Ukraine. inventories is based on the inventories are not written-off which it arises. discounted to present value first-in-first-out (FIFO) principle. below cost, if finished goods, in The difference between the fair using a pre-tax discount that The VAT liability is equal to the which they will be included, will value less estimated costs to sell reflects current market total amount of VAT accrued
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during the reporting period and operating activities and its date between the tax bases of temporary difference arises been enacted or substantively 3.133.13 FinanceFinance income/expenseincome/expense arises at the earlier of goods capital expenditures. The assets and liabilities and their from the initial recognition of enacted at the reporting period. shipment to the customer or at balance of VAT recoverable may carrying amounts for financial an asset or liability in a For all financial instruments the date of receipt of payment be realised by the Group either reporting purposes. transaction that is not a Deferred tax items are measured at amortised cost and from the client. through a cash refund from the business combination and at recognised in correlation to the interest bearing financial assets state budget or by set off against Deferred tax liabilities are the time of the transaction, underlying transaction either in classified as available-for-sale, VAT credit is the amount by VAT liabilities with the state recognised for all taxable affects neither the other comprehensive income or interest income or expense is which a taxpayer is entitled to budget in future periods. temporary differences, except: accounting profit nor taxable directly in equity. recorded using the effective reduce his/her VAT liabilities in profit or loss; interest rate (EIR), which is the the reporting period. The right to The net amount of value added where the deferred tax Deferred tax assets and deferred rate that exactly discounts the VAT credit arises on the earlier of tax recoverable from, or payable liability arises from the initial in respect of deductible tax liabilities are offset, if a legally estimated future cash payments the date of payment to supplier to, the taxation authority is recognition of goodwill or of temporary differences enforceable right exists to set off or receipts through the expected or the date of receipt of goods included as part of receivables or an asset or liability in a associated with investments current tax assets against life of the financial instrument by the company. payables in the consolidated transaction that is not a busi- in subsidiaries deferred tax current income. or a shorter period, where statement of financial position. ness combination and, at the assets are recognised only to appropriate, to the net carrying The Group’s entities apply the time of the transaction, the extent that it is probable 3.123.12 RRevenueevenue rrecognitionecognition value of the financial asset or special VAT taxation treatment 3.113.11 IIncomencome ttaxax affects neither the accounting that the temporary differences liability. Interest income is prescribed by the Tax Code of profit nor taxable profit or will reverse in the Revenue includes the amount of included in finance income to the Ukraine, which entered into force Income tax expense comprises loss; foreseeable future and compensation received or to be statement of profit and loss and on 1 January 2011, regarding the current and deferred tax. It is taxable profit will be received for realisation of other comprehensive income. agricultural activities, which recognised in profit or loss in respect of taxable available against which the products and services in the Foreign currencies gain and loss provides preferential VAT except to the extent that temporary differences temporary differences can course of the ordinary activities are reported on a net basis as treatment to support agricultural it relates to a business associated with investments be utilised. of the Group. Revenue is either a finance income or producers. combination, or items in subsidiaries where the recognised net of value added finance cost depending on recognised directly in equity or in timing of the reversal of the The carrying value of deferred tax, returns, trade discounts and whether foreign currency For goods and services supplied OCI. temporary differences can be tax assets is reviewed at each intragroup transactions. movements are in a net gain or at the 20% tax rate, revenue, controlled and it is probable reporting period and reduced to net loss position. expenses and assets are Current tax that the temporary differences the extent that it is no longer Revenue is recognised when recognised net of VAT amount, will not reverse in the probable that sufficient taxable persuasive evidence exists that 3.143.14 LeasesLeases unless: Current tax comprises the foreseeable future. profit will be available to allow all the significant risks and rewards expected tax payable or or part of the deferred tax asset have been transferred to the The determination of whether an the value added tax incurred receivable on the taxable income Deferred tax assets are to be utilised. Unrecognised customer, recovery of the arrangement is, or contains, a on a purchase of assets or or loss for the year and any recognised for all deductible deferred tax assets are consideration is probable, the lease is based on the substance services is not recoverable adjustment to tax payable or temporary differences, carry reassessed at each reporting associated cost and possible of the arrangement at inception from the taxation authority, in receivable in respect of previous forward of unused tax credits date and are recognised to the return of goods and the amount date: whether fulfilment of the which case the value added years. It is measured using tax and unused tax losses, to the extent that it has become of revenue can be measured arrangement is dependent on tax is recognised as part of rates enacted or substantively extent that it is probable that probable that future taxable reliably. the use of a specific asset or the cost of acquisition of the enacted at the reporting period. taxable profit will be available profits will allow the deferred tax assets or the arrangement asset or as part of the Current tax also includes any tax against which the deductible asset to be recovered. Revenue from services rendered conveys a right to use the asset. expense item as applicable; arising from dividends. temporary differences, and the is recognised in profit or loss in carry forward of unused tax Deferred tax assets and liabilities proportion to the stage of A lease is classified as finance receivables and payables that Deferred tax credits and unused tax losses can are measured at the tax rates completion of the transaction at lease, when, according to lease are stated including the value be utilised except: that are expected to apply in the the reporting period. The stage terms, the lessee assumes all the added tax. Deferred tax is provided using year when the asset is realised or of completion is assessed by significant risks and benefits where the deferred tax asset The Group classifies VAT the liability method on tempo- the liability is settled, based on reference to surveys of work associated with ownership of the relating to the deductible recoverable arising from its rary differences at the reporting tax rates (and tax laws) that have performed. relevant assets. All other leases
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are classified as operating leases. recognised over the lease term operating income in the same by the Group as income only obligation (legal or constructive) segment as well as those that on the same basis as rental periods as the corresponding after the fulfilment of respective as a result of a past event, it is can be allocated on a reasonable Group as a lessee income. Contingent rents are expenses, which they conditions. probable that an outflow of basis. Unallocated items recognised as revenue in the compensate, on a systematic resources embodying economic comprise mainly corporate Finance leases, which transfer to period in which they are earned. basis: Return of the government benefits will be required to settle assets, head office expenses and the Group substantially all the grants the obligation and a reliable tax assets and liabilities. All grants, compensating the risks and benefits incidental to 3.153.15 DDistributionistribution ooff ddividendsividends estimate can be made of the expenses of the preceding ownership of the leased item, are If subsidies are returned partially amount of the obligation. Where The Group is organised by periods, shall be recognised capitalised at the commencement The amount payable to the or completely, the amount to be the Group expects some or all of reportable segments and this is by the Group in full in the of the lease at the fair value of owners of the Company in the returned shall be deducted from a provision to be reimbursed, for the primary format for segmental period of their receipt as the leased property or, if lower, form of dividends is recognised the remaining unused amount of example under an insurance reporting. Each segment other operating income; at the present value of the as a liability in the financial the government subsidies. If an contract, the reimbursement is provides products or services minimum lease payments. Lease statements of the Group in the amount, exceeding the unused recognised as a separate asset which are subject to risks and All grants, related to assets payments are apportioned period the dividends were part of the government but only when the reimbursement rewards that are different from not depreciated, such as a between finance charges and approved by the owners of the subsidies, is to be returned, the is virtually certain. The expense those of other reportable land site, shall be correlated reduction of the lease liability so Company. Group shall immediately reflect relating to any provision is segments. by the Group with the as to achieve a constant rate of the amount of such excess as the presented in the statement of expenses to fulfill the interest on the remaining balance 3.163.16 BBorrowingorrowing ccostsosts expenses in the reporting period. comprehensive income net of 3.223.22 EventsEvents afterafter tthehe rreportingeporting obligations. Where a grant in of the liability. Finance charges any reimbursement. If the effect periodperiod the form of provision of a are recognised in the statement Borrowing costs that are directly 3.183.18 C Contingentontingent a assetsssets a andnd of the time value of money is land site is conditional on of comprehensive income. attributable to the acquisition, liabilitiesliabilities material, provisions are discounted The Group adjusts the construction of a building on construction or production of a using a current pre-tax rate that consolidated financial statements the site, the Group divides Leased assets are depreciated qualifying asset, which necessarily Contingent liabilities are not reflects, where appropriate, the amounts if events after the the recognition of the grant over the useful life of the asset. requires significant time to be recognised in the consolidated risks specific to the liability. The reporting period demand as other operating income However, if there is no prepared for use in accordance financial statements. Such unwinding of the discount is adjustments. Events after the over the whole useful life of reasonable certainty that the with the group’s intentions or for liabilities are disclosed in the recognised as finance cost. reporting period requiring the building; Group will obtain ownership by sale, are capitalised as the part of notes tothe consolidated adjustments of the consolidated the end of the lease term, the initial value of such asset. All financial statements, with the 3.203.20 SSharehare ccapitalapital financial statements amounts All grants, related to the asset is depreciated over the other borrowing costs are exception of when the probability relate to the confirmation amortised assets, shall be shorter of the estimated useful expensed in profit or loss in the of an outflow of resources Ordinary shares are classified as or contradiction of the recognised by the Group as a life of the asset and the lease period they were incurred. embodying economic benefits is equity. The difference between circumstances prevailing at the decrease in the expenses for term. Borrowing costs include interest remote. the fair value of the consideration reporting period, as well as amortisation during the payments and other expenses received and the nominal value estimates and judgments of periods, when the amortisation Operating lease payments are incurred by the Group related to Contingent assets are not of share capital issued is management, which are made of these assets is accrued. recognised as an expense in the borrowings. recognised in the consolidated transfered to share premium. under conditions of uncertainty statement of profit and loss and financial statements, but are Incremental costs directly and incompleteness of other comprehensive income on 3.173.17 GGovernmentovernment ggrantsrants Accounting for government disclosed in the notes in such attributable to the issue of information at the reporting a straight line basis over the lease grants for agricultural activities cases when there is a possibility ordinary shares, net of any tax period. term. Recognition of government of receiving economic benefits. effects, are recognised as a grants The Group recognises deduction from equity. If non-adjusting events that Group as a lessor unconditional state grants 3.193.19 PProvisionsrovisions occurred after the reporting The Group recognises government related to biological activities as 3.213.21 OOperatingperating ssegmentsegments period are significant, non- Initial direct costs incurred in grantswhen received. income only in cases when A provision is a liability of disclosure of information about negotiating an operating lease such government grants are uncertain amount or timing. Segment results that are them may affect the economic are added to the carrying value The Group recognises the receivable. A contingent Provisions are recognised when reported to the CEO include decisions of users which are of the leased asset and government grants as other government grant, is recognised the Group has a present items directly attributable to a made on the basis of these
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financial statements. Accordingly, benefits from its activities. accounting estimates in 4.54.5 VVATAT rrecoverableecoverable separate customers may result in The Group does not accrue the Group discloses the nature of Where control over subsidiaries accordance with IAS 8 " adjustments related to the provisions for doubtful debts on such events and estimates of and the parent company belongs Accounting Policy, Changes in Management classified VAT amount of provision for doubtful balances with intragroup parties their financial effect or states the to the ultimate beneficial owner, Accounting Estimates and recoverable balance as current debts reflected in the regardless of the origin date of impossibility of such estimate for these transactions are Errors". These estimates may based on expectations that will consolidated financial statements current debt, as these would be each material category of considered to be combinations have a significant effect on the be realised within twelve months as impairments of receivables. eliminated on consolidation. non-adjusting events that of business under common carrying value of property, plant from the reporting period. In occurred after the reporting control, which are outside the and equipment and depreciation addition management assessed Group approach is used in 4.74.7 LegalLegal proceedingsproceedings period. scope of IFRS3: “Business recognised in profit or loss. whether the allowance for calculating the impairment of combinations”. irrecoverable VAT needs to be receivables: The Group’s management 4. Significant accounting 4.44.4 IImpairmentmpairment ooff nnon-on-finnancialancial created. applies significant assumptions judgements and estimates 4.24.2 FairFair vvaluealue llessess ccostsosts ttoo ssellell ooff assetsassets Group approach - receivables in the measurement and biologicalbiological aassetsssets In making this assessment, are grouped, and turnover is recognition of provisions for and In preparing theseconsolidated An impairment exists when the management considered past analysed for the group as a risks of exposure to contingent financial statements, Management Biological assets are recorded at carrying value of an asset or cash history of receiving VAT refunds whole, rather than on each liabilities, related to existing legal has made judgments, estimates fair values less costs to sell. The generating unit exceeds its from the state budget. For VAT individual debt separately. proceedings and other unsettled and assumptions that affect the Group estimates the fair values recoverable amount, which is the recoverable expected to be set Based on the analysis of claims, and also other contingent application of the Group’s of biological assets based on the higher of its fair value less costs off against VAT liabilities in accounts receivable according liabilities. Management’s judgment accounting policies and the following key assumptions: to sell and its value in use. The future periods, management to the previous reporting period is required in estimating the reported amounts of income, fair value less costs to sell based its estimates on detailed data for the share of uncollectible probability of a successful claim expenses, assets and liabilities. Average production of eggs calculation is based on available projections of expected excess receivables, interest is calculated against the Group or the Actual results may differ from over lifecycle of poultry data from binding sales of VAT input over VAT output in for calculation of reserve for crystallising of a material these estimates. transactions in an arm’s length the normal course of business. doubtful debt of current reporting obligation, and in determining Average productive life of transaction of similar assets or period. Subsequently, to calculate the probable amount of the final Estimates and underlying livestock poultry observable market prices less 4.64.6 IImpairmentmpairment ooff rreceivableseceivables the provision of doubtful debt of settlement or obligation. Due to assumptions are reviewed on an incremental costs for disposing current reporting period, uncertainty inherent to the ongoing basis. Revisions to Estimated future sales price of the asset. The value in use The Group reviews its trade and interest is applied to outstanding process of estimation, actual estimates are recognized calculation is based on a other receivables for evidence of balance for the current period, expenses may differ from the prospectively. Projected production costs discounted cash flow model. The their recoverability. less the amount of accounts initial estimates. Such preliminary and costs to sell cash flows are derived from the receivable, provision for which is estimates may alter as new Assumptions and estimation budget for the next five years The Group provides for doubtful calculated on an individual basis. information is received, from uncertainties Discount rate and do not include restructuring debts to cover potential losses internal specialists within the activities that the Group is not when a customer may be unable The amount of impairment in Group, if any, or from third Information about assumptions Mortality rate yet committed to or significant to make necessary payments. In respect of doubtful debt is parties, such as lawyers. Revision and estimation uncertaintiesthat future investments that will assessing the adequacy of reported in the statement of of such estimates may have a have a significant risk of resulting 4.34.3 UUsefulseful llivesives ooff pproperty,roperty, enhance the asset’s performance provision for doubtful debts, comprehensive income in other significant effect on the future in a material adjustment are plantplant aandnd eequipmentquipment of the cash generating unit being Management considers the operating expenses. results of operating activity. disclosed below: tested. The recoverable amount current economic conditions in The Group estimates the is the most sensitive to the general, the age of accounts Bad debts which are recovered 4.84.8 ImpairmentImpairment ooff oobsoletebsolete aandnd 4.14.1 BasisBasis ofof consolidationconsolidation remaining useful life of property, discount rate used for the receivable, the Group’s are written-off from the surpluss u r p lus inventoryinventory (transactions(transactions uundernder ccommonommon plant and equipment at least discounted cash flow model as experience in writing off of consolidated statement of fi- control)control) once a year at the end of the well as the expected future cash receivables, solvency of nancial position along with a At each reporting period, the fiscal year. Should the in fl ows and the growth rate used customers and changes in corresponding adjustment to the Group assesses the necessity to Control is the ability to govern an expectations differ from previous for extrapolation purposes. conditions of settlements. provision for doubtful debts, and impair obsolete and surplus entity’s financial and operating estimates, changes are Economic changes, industry the recovered amount is inventory. If such necessity policies with the aim of receiving accounted for as changes in situation or financial position of recognised in profit or loss. exists, the reserve is calculated
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and necessary adjustments are domicile. 4.104.10 CContingentontingent lliabilitiesiabilities broker quotes or pricing services, then the fair value measurement which continued throughout the made. is used to measure fair values, is categorised in its entirety in date of these financial Deferred tax assets are Contingent liabilities are then the valuation team assesses the same level of the fair value statements. As a result of this Estimation of the amount of recognised for all unused tax determined by the occurrence or the evidence obtained from the hierarchy as the lowest level conflict, part of the Donetsk and impairment against obsolete and losses to the extent that it is non-occurrence of one or more third parties to support the input that is significant to the Lugansk regions remains under surplus inventory is based on the probable that taxable profit will future events. Measurement of conclusion that such valuations entire measurement.The Group control of the self-proclaimed type of inventory, inventory be available against which the contingent liabilities is based on meet the requirements of IFRS, recognises transfers between republics, and Ukrainian turnover, the date of balance losses can be utilised. Significant Management’s judgments and including the level in the fair value levels of the fair value hierarchy authorities are not currently able origination and estimated shelf management judgment is estimates of the outcomes of hierarchy in which such at the end of the reporting to fully enforce Ukrainian laws life of particular type of inventory. required to determine the such future events. In particular, valuations should be classified. period during which the change on this territory. amount of deferred tax assets the tax laws in Ukraine are has occurred. 4.94.9 DDeferredeferred ttaxax aassetsssets that can be recognised, based complex and significant Significant valuation issues are Political and social unrest upon the likely timing and the management judgement is reported to the Board of Futher information about the combined with the military Uncertainties exist with respect level of future taxable profits required to interpret those laws Directors. assumption made in measuring conflict in the Donetsk and to the interpretation of complex together with future tax planning in connection with the tax affairs fair values is included in relevant Lugansk regions has deepened tax regulations and the amount strategies. of the Group, which is open to When measuring the fair value of notes. the ongoing economic crisis, and timing of future taxable challenge by the tax authorities. an asset or a liability, the Group caused a fall in the country’s income. Given the wide range of Deferred tax assets are reviewed Additionally, the impact on the uses market observable data as 44.12.12 U Ukrainiankrainian b businessusiness gross domestic product and international business relationships at each reporting period and Group of the economic and far as possible. Fair values are environmentenvironment foreign trade, deterioration in and the long-term nature and reduced to the extent where no politicalsituation in Ukraine (note categorised into different levels state finances, depletion of the complexity of existing contractual longer exists any probability for 39). in a fair value hierarchy based on Ukraine’s political and economic National Bank of Ukraine’s agreements, differences arising sufficient taxable profit to be the inputs used in the valuation situation has deteriorated foreign currency reserves, between the actual results and received, which enables realising 4.114.11 MMeasurementeasurement ooff ffairair vvaluesalues techniques as follows. significantly since 2014. signi ficant devaluation of the the assumptions made, or future the whole number of or a part of Following political and social national currency and a further changes to such assumptions, deferred tax assets. Estimate of A number of the Group's Level 1: quoted prices unrest in early 2014, in March downgrading of the Ukrainian could necessitate future probability includes judgments, accounting policies and (unadjusted) in active 2014, various events in Crimea sovereign debt credit ratings. adjustments to tax income and which are based on expected disclosures require the markets for identical assets led to the accession of the Following the devaluation of the expense already recorded. The characteristics of activity. To measurement of fair values, for or liabilities. Republic of Crimea to the national currency, the National Group establishes provisions, estimate the probability of both financial and non-financial Russian Federation, which was Bank of Ukraine introduced based on reasonable estimates, utilising deferred tax assets in assets and liabilities. Level 2: inputs other than not recognised by Ukraine and certain administrative restrictions for possible consequences of future, various factors are used, quoted prices included in many other countries. This event on currency conversion audits by the tax authorities of including previous years’ results, The Group has an established Level 1 that are observable resulted in a significant transactions, which among the respective regions in which it operating plans, expiry of tax control framework with respect for the asset or liability, either deterioration of the relationship others included restrictions on operates. losses recovery, strategies of tax to the measurement of fair directly (i.e. as prices) or between Ukraine and the purchases of foreign currency planning. Should actual results values. This includes a valuation indirectly (i.e. derived from Russian Federation. Following by individuals and companies, The amount of such provisions is differ from the estimates, and team that has overall prices). the instability in Crimea, regional the requirement to convert 75% based on various factors, such as should such estimates need to be responsibility for overseeing tensions have spread to the of foreign currency proceeds to experience of previous tax audits reviewed in future periods, this all significant fair value Level 3: inputs for the asset Eastern regions of Ukraine, local currency, a ban on and differing interpretations of can negatively influence the measurements, including Level 3 or liability that are not based primarily Donetsk and Lugansk payment of dividends abroad, a tax regulations by the taxable financial position, financial results fair values, and reports directly to on observable market data regions. In May 2014, protests in ban on early repayment of entity and the responsible tax and cash flows. Should the the CFO. (unobservable inputs). those regions escalated into foreign loans and restrictions on authority. Such differences of estimated utilisation of deferred military clashes and armed cash withdrawals from banks. interpretation may arise on a tax assets be reduced, such The valuation team regularly If the inputs used to measure the conflict between supporters of These events had a negative wide variety of issues depending reduction is to be recognised in reviews significant unobservable fair value of an asset or a liability the self-declared republics of effect on Ukrainian companies on the conditions prevailing in profit or loss. inputs and valuation adjustments. might be categorised in different the Donetsk and Lugansk and banks, significantly limiting the respective Group companies’ If third party information, such as levels of the fair value hierarchy, regions and the Ukrainian forces, their ability to obtain financing
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 117 CONSOLIDATED FINANCIAL STATEMENTS | continued CONSOLIDATED FINANCIAL STATEMENTS | continued 118
on domestic and international actions are being performed to environment influence on the Equipment Assets under markets. maintain financial stability of the financial position of the Group. Buildings Мachhinery for construction- and aand Other Group in current circumstances, Situation development may Land biological VVehicles in-progress Total structures equ ippment equipment The final resolution and the continuation of the current differ from management assets and uninstalled equipment effects of the political and unstable business environment expectations. These financial economic crisis are difficult to may adversely affect results and statements were not adjusted to CostCost predict but may have further financial position of the Group, reflect events after the reporting BalanceBalance aatt 1 JJanuaryanuary 22015015 1 775656 360360 771010 8585 447979 8484 333838 3 111414 1 773030 9898 885454 635635 981981 severe effects on the Ukrainian in a manner not currently period. Acquisitions of subsidiary - 4 000 3 - 428 121 - 4 552552 economy. determinable. These consolidated Acquisitions - 1 453 1 197 122 32 93 34 167 3737 006464 financial statements reflect Disposals - (13) (162) (12) (42) (52) (19) (300)(300) Whilst, Group’s management current management estimation Internal transfers - 18 276 (2 266) 28 520 22 49 (44 601) - considers that all necessary of Ukrainian business Foreign currency translation (603) (125 941) (29 198) (31 460) (1 108) (613) (30 756) (219(219 679)679) Reclassification - 957 20 (647) - (6) (324) - BalanceBalance aatt 3311 DDecemberecember 22015015 1 115353 259259 444242 5555 007373 8080 886161 2 444646 1 332222 5757 321321 457457 661818
AccumulatedAccumulated ddepreciationepreciation 5. Property, plant and BalanceBalance aatt 1 JJanuaryanuary 22015015 - 2424 332727 9 112424 1919 557171 1 889797 1 114040 - 5656 005959 equipment Depreciation charge - 9 200 4 794 3 172 268 194 - 1717 662828 Depreciation eliminated on disposal - (4) (104) (2) (38) (46) - (194)(194) Foreign currency translation - (9 223) (3 478) (7 031) (671) (402) - (20(20 8805)05) Assets under Equipment Reclassification - 509 (845) 345 - (9) - - Buildings Мachhinery construction- for Other Land a nd aand VVehicles in-progress Total BBalancealance aatt 3311 DDecemberecember 22015015 - 2244 880909 9 449191 1166 005555 1 445656 887777 - 5252 688688 biological equipment structures equ ippment assets and uninstalled equipment NetNet bbookook vvaluealue BalanceBalance aatt 3311 DDecemberecember 22015015 1 115353 234234 663333 4545 558282 6464 880606 990990 445445 5757 321321 404404 930930 CCostost BalanceBalance aatt 1 JJanuaryanuary 22016016 1 115353 259259 444242 5555 007373 8080 886161 2 444646 1 332222 5757 331515 457457 661212 NetNet bbookook vvaluealue Acquisitions 25 196 135 769 309 44 14 181 1515 665959 BalanceBalance aatt 1 JJanuaryanuary 22015015 1 775656 336336 338383 7676 335555 6464 776767 1 221717 590590 9898 885454 579579 922922 Disposals (4) (4) (319) (2) (24) (12) (648) (1(1 0013)13) Internal transfers - 1 032 (4 420) 7 556 - 1 (4 169) - Foreign currency translation (137) (29 289) (5 828) (11 508) (304) (157) (6 131) (53(53 3354)54) As at 31 December 2016 and plant and equipment that was and short-term loans was as Reclassification - (20 130) (5 861) 25 069 (5) - 927 - 31 December 2015 the property, used as security for long-term follows: BalanceBalance aatt 3311 DDecemberecember 22016016 1 003737 211211 224747 3838 778080 102102 774545 2 442222 1 119898 6161 447575 418418 990404 Carrying value of security as at
AccumulatedAccumulated ddepreciationepreciation 31 December 2016 31 December 2015 BalanceBalance aatt 1 JJanuaryanuary 22016016 - 2424 880202 9 448989 1616 005151 1 445555 876876 - 5252 667373 Depreciation charge - 6 904 2 762 5 646 207 138 - 1515 665757 Buildings and structures 35 377 25 981 Depreciation eliminated on disposal - (1) (106) - (21) (11) - (139)(139) Мachinery and equipment 1 160 9 614 Foreign currency translation - (3 190) (1 042) (2 582) (182) (112) - (7(7 1108)08) Equipment for biological assets 23 784 5 268 Reclassification - (2 148) (3 816) 5 964 - - - - Land 1 025 - BalanceBalance aatt 3311 DDecemberecember 22016016 - 2626 336767 7 228787 2525 007979 1 445959 891891 - 6161 008383 Vehicles - 46 Other equipment - 1 NetNet bbookook vvaluealue Assets under construction-in-progress and - 282 BalanceBalance aatt 3311 DDecemberecember 22016016 1 003737 184184 888080 3131 449393 7777 666666 963963 307307 6161 447575 357357 882121 uninstalled equipment 6611 334646 4141 192192
As at 31 December 2016 and 31 equipment which were acquired 42 thousand respectively. December 2015 the net book under finance leases amounted value of property, plant and to USD 28 thousand and USD
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6. Biological assets Due to the absence of an active 2016 was applied (for the year Regulatory and environmental market for laying hen in Ukraine ended 31 December 2015: risk to determine the fair value of 36,94%). No tee 31 Dec emmberber 2016 31 December 2015 biological assets, the Group uses The Group is subject to laws and the discounted net present value The line item “Other changes” regulation in Ukraine. The Group
NNon-currenton-current bbiologicaliological aassetsssets of future net cash flows expected includes hen mortality, has established environmental Replacement poultry a), b) 14 273 13 403 from the biological assets. As a discarding and utilisation of policies and procedures aimed at 1414 227373 1313 440303 discount rate, the rate of 26,13% poultry. compliance with local CCurrenturrent bbiologicaliological assetsassets prevailing as at 31 December environment and other laws. Commercial poultry a), b) 7 755 13 736 7 775555 1313 773636 TotalTotal 2222 002828 2727 113939 7. Held to maturity investments a) Commercial poultry and replacement poultry were as follows: Held to maturity investments as at 31 December 2016 and 31 December 2015 were as follows: 31 Decemb er 22016 31 Decemb er 2015
Number, thousand head Fair value Number, thousand head Fair value 31 Dec emmberber 2016 31 December 2015
Loman 13 356 21 879 11 041 22 576 Hy-Line - - 1 094 1 374 VAT government bonds 7 664 13 025 Hisex - - 73 9 Discount VAT government bonds a), b) (1 964) (3 768) Brown Nick - - 1 000 2 113 5 770000 9 225757 Decalb 125 94 202 463 Tetra 77 55 197 604 Coupon receivable a), b) 409 604 1313 558558 2222 002828 1313 660707 2727 113939
During the year 2014 the Group’s government bonds as a interest of 9,5% and mature in b) Reconciliation of commercial and replacement poultry fair value was as follows: management decided to settlement of VAT refundable. 2019. voluntarily obtain VAT These bonds bear a semi-annual BalanceBalance aatt 1 JJanuaryanuary 22015015 4949 886565 Acquisitions 5 068 Increase in value as a result of increase in weight/number 54 941 Net change in fair value 1 391 Decrease in value resulting from assets disposal (6 490) 8. Taxes recoverable and prepaid Effect from translation into presentation currency (16 544) Decrease in value resulting from hens slaughtering (60 969) Other changes (122) Taxes recoverable and prepaid as at 31 December 2016 and 31 December 2015 were as follows: BalanceBalance aatt 3311 DDecemberecember 22015015 2727 113939 BalanceBalance aatt 1 JJanuaryanuary 22016016 2727 113939 Acquisitions 4 090 Note 31 Dec emmberber 2016 31 December 2015 Increase in value as a result of increase in weight/number 45 398 Net change in fair value (2 232) Decrease in value resulting from assets disposal (2 997) VAT settlements a) 8 403 11 782 Effect from translation into presentation currency (3 060) Other taxes prepaid 76 1 076 Decrease in value resulting from hens slaughtering (46 217) 8 447979 1212 885858 Other changes (93) BBalancealance aatt 3311 DDecemberecember 22016016 2222 002828
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a) VAT settlements related to settlement of future tax pattern, history of cash refunds As at 31 December 2016 an The fair values of trade accounts losses in relation to trade VAT recoverable arising from liabilities of the entity under and expectations that funds will amount of USD 9 135 thousand receivable due within one year accounts receivable is reported operating activities and capital this tax within non- be realised within twelve or 22,5% of the total carrying approximate to their carrying in note 37 to the consolidated expenditure, is subject to: agricultural transactions. months from the reporting value of trade accounts amounts as presented above. financial statements. period. receivable is due from the single cash refund through release The VAT settlements are most significant debtor (as at 31 The exposure of the Group to of budgetary funds by the receivable within one year December 2015–see note 37). credit risk and impairment Government; based on the prior years’
9. Inventories 11. Prepayments and other current assets, net
Inventories as at 31 December 2016 and 31 December 2015 were as follows: Prepayments and other current assets as at 31 December 2016 and 31 December 2015 were as follows:
31 Dec ember 2016 31 December 2015 31 Dec ember 2016 31 December 2015
Raw and basic materials 20 103 38 733 Prepayments 9 590 12 738 Work-in-progress a), b) 281 51 Provision for doubtful debts a), b) (4 139) (4 643) Agricultural produce 1 685 356 Other non-trade accounts receivable 5 129 8 590 Finished goods 22 475 8 357 Current portion of VAT bonds 3 832 4 342 Package and packing materials a), b) 5 546 7 904 a), b) 1414 441212 2121 002727 Goods for resale 10 070 1 562 Other inventories 1 984 1 186 The overall decrease in unstable situation in Ukraine. prepayments and other current 6262 114444 5858 114949 prepayments and other current assets is reported in note 37 to assets is associated with the The exposure of the Group to the consolidated financial Raw and basic materials mainly in the quantity of 2 495 757 032 The amout of inventories change of the Group's policy for credit risk and impairment statements. consist of grains and mixed (2015: 3 434 218 812 items) written - off for the year ended 31 procurement of grain due to the losses in relation to fodder inventories. which have fair value amounted December 2016 was USD 415 to USD 131 891 thousand (2015: thousand (2015: USD 37 326 The Group produced shell eggs USD 191 935 thousand). thousand). 12. Cash and cash equivalents
Cash and cash equivalents as at 31 December 2016 and 31 December 2015 were as follows: 10. Trade accounts receivable, net
Trade accounts reveivable as at 31 December 2016 and 31 December 2015 were as follows: 31 Dec ember 2016 31 December 2015
31 Dec ember 2016 31 December 2015 Cash in banks 12 570 31 301 Cash in hand a), b) - 6 CashCash aandnd ccashash eequivalentsquivalents rrepresentedepresented iinn 1212 557070 3131 330707 Trade receivables-gross 91 115 94 295 consolidatedconsolidated sstatementtatement ooff ccashash flowsows Provision for doubtful debts a), b) (50 487) (37 630) 4040 662828 5656 666565 a),a), b)
a), b)
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For the year ended 31 December liquidation (note 28). relation to cash and cash a) As at 31 December 2016 and 31 December 2015 the long-term bank loans by maturities were as follows:
2015 an amount of USD 28 190 equivalents is reported in note thousand was impaired as a The exposure of the Group to 37to the consolidated financial
result of Finansova Iniciatyva credit risk and impairment statements. 31 Dec cemberember 2016 31 December 2015 Bank being placed under losses and to liquidity risk in
Less than one year 31 134 18 308 From 1 to 2 years 15 998 17 675 a), b) From 2 to 3 years 17 038 13 259 13. Share capital From 3 to 4 years 14 507 10 817 From 4 to 5 years 14 302 8 438 a), b) Over 5 years 31 753 14 572 31 Decemb er 22016 31 Decemb er 2015 124124 773232 8383 006969 Number of shares Sharre capital, USD ths Number of shares Share capital, USD ths
Authorised b) As at 31 December 2016 and 31 December 2015the long-term bank loans by currencies were as follows: Ordinary shares Euro 0,10 each 6 500 000 908 6 500 000 908
Issued and fully paid 31 Dec cemberember 2016 31 December 2015 BalanceBalance aatt 3311 DDecemberecember 6 387387 185185 836836 6 338787 118585 836836
Long-term bank loans in UAH 47 976 913 Long-term bank loans in EUR 76 756 82 156 a), b) On 22 April 2010 the Company ordinary shares with nominal issue costs of USD 6 914 thou- 124124 773232 8383 006969 increased its authorized share value EUR 0,10 per share. sand) (10 GDR are equal to 1 capital by 1 500 000 ordinary ordinary share) as a result of initial c) As at 31 December 2016 and 31 December 2015 a),the b) interest rates for long-term bank loans were as follows: shares of EUR 0,10 per share. In respect of this share issue, the placement of 14 375 000 GDR on Company generated net share the main market of London Stock In May and June 2010 the premium amounting to USD 201 Exchange, out of which the 13 871 31 Dec cemberember 2016 31 December 2015 Company issued 1 387 185 164 thousand (net of share 859 GDR were issued.
Long-term bank loans denominated in UAH 12,5%-18% 18% 1,5%+EURIBOR- 1,5%+EURIBOR- a), b) 14. Long-term loans Long-term bank loans in EUR 2,7%+EURIBOR 2,7%+EURIBOR
Long-term loans as at 31 December 2016 and 31 December 2015 were as follows: d) Commodity credit in the agricultural a),products b) under a payments. The commodity credit amount of USD 327 thousand Government contract. In case of does not have a maturity date. (2015: USD 369 thousand) is default after the maturity of the 31 Dec cemberember 2016 31 December 2015 represented by a liability of the loan the Group’s companies are The exposure of the Group to Group's companies, OJSC subject to fine and, according to interest rate risk and liquidity risk Long-term bank loans in national currency 47 976 913 “Volnovahskyi Kombinat Khilbo- Ukrainian laws, is set equal to in relation to loans and Long-term bank loans in foreign currency 76 756 82 156 a), b) prodiktiv” and OJSC compulsory payments in the borrowings is reported in note 37 Total loans 124124 773232 8383 006969 “Ptakhohospodarstvo Chervonyi State budget of Ukraine, applying to the consolidated financial Commodity credit 327 369 Prapor” for an interest-free sanctions stipulated by the laws statements. 125125 005959 8383 443838 a), b) budget loan received in the years with regard to late payment of Current portion of non-current liabilities for bank loans in national currency (806) (456) 1995-1998 for the acquisition of taxes and making of non-tax Current portion of non-current liabilities for bank loans in foreign currency (30 329) (18 559) 9393 992424 6464 442323
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15. Bond liabilities Considering different options Maturity: Amended to 29 16. Short-term loans regarding the maturity of the October 2018, 100% of On 29 October 2010, the bonds, the Company has principal to be redeemed at Short-term loans as at 31 December 2016 and 31 December 2015 were as follows: Company issued 2 000 five year successfully completed a this date. non-convertible bonds with par restructuring of its USD 200m value equal to USD 100 000 10% Notes due in 29 October Coupon: The 5% coupon will Note 31 Dec cember 2016 31 December 2015 each. The Notes have been 2015 via a Scheme of be payable on 29 October admitted to the official list of the Arrangement ( the “Scheme”). 2015 (representing the Short-term bank loans in foreign currency a), b), c) - 50 000 UK listing Authority and to The Scheme was approved by a semi-annual payment of the - 5050 000000 trading on London Stock majority in number representing existing 10% coupon), with Exchange plc's regulated more than 75% in value of 2% to be paid in cash as a market with effect from creditors present and voting regular coupon payment and а) As at 31 December 2016 and 31 December 2015 the short-term bank loans by maturity were as follows: 1 November 2010. The USD either in person or by proxy at 3% to be paid as payment in
200 000 000 10% Notes, bear the Scheme Meeting held on kind ("PIK"). The 10% coupon interest from 29 October 2010 22 October 2015. Following this, will be payable semi-annually Note 31 Dec cember 2016 31 December 2015 at a rate of 10% per annum by an order dated 26 October in arrears on 29 April and 29 payable semi annually in arrears 2015, the High Court of Justice October of each year, From 6 to 12 months a), b), c) - 50 000 on 29 April and 29 October in of England and Wales commencing 29 April 2016, - 5050 000000 each year, commencing on 29 sanctioned the Scheme. but subject to the following April 2011. The maturity date is PIK and cash payment 29 October 2015 and the As a result of the Scheme the provisions: b) As at 31 December 2016 and 31 December 2015 the short-term bank loans by currencies were as follows: placement price was 98,093% of following key amendments were the principal amount of the made to the terms and condi- Notes. tions of the Notes: Note 31 Dec cember 2016 31 December 2015
Short-term bank loans in USD a), b), c) - 50 000 Interest payment date PIK Inte reste % Cash Innterest % - 5050 000000
29.04.16 75 25 29.10.16 75 25 c) Short-term bank loans interest rate by currency as at 31 December 2016 and 31 December 2015 were as follows: a), b) 29.04.17 50 50 29.10.17 50 50
29.04.18 25 75 Note 31 Dec cember 2016 31 December 2015 a), b) 29.10.18 0 100
Short-term bank loans denominated in USD a), b), c) - 50 000 The Company appointed UBS Surety providers of the bonds Foods, (4) PSPC Interbusiness, - 5050 000000 Limited as sole solicitation following the Scheme were as (5) LLC Slovyany. agent, Latham & Watkins as follows: (1) LLC Torgivelniy The exposure of the Group to interest rate risk and liquidity risk in relation to short term borrowings is reported in legal counsel, and DFKing as Budynok Bohodukhivska The exposure of the Group to note 37 to the consolidated financial statements. information and tabulation Ptahofabryka, (2) PJSC interest rate risk and liquidity agent amongst other Agroholding Avangard (PJSC risk in relation to bond liabilities consultants to assist it in the Ptakhohospodarstvo Chervonyi is reported in note 37 to the implementation of the Scheme. Prapor), (3) LLC Imperovo consolidated financial statements.
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17.Securities 19. Deferred tax assets and liabilities, income tax expense
Long-term loans (Note 14) and short-term loans (Note 16) as at 31 December 2016 and 31 December 2015 The principal components of deferred tax assets and liabilities before netting off on a company basis as at were secured on assets as follows: 31 December 2016 and 31 December 2015 were as follows:
31 Dec cember 2016 31 December 2015 31 Dec cember 2016 31 December 2015
Buildings and structures 35 377 25 981 InInfluuenceence ooff ttemporaryemporary ddifferencesifferences oonn ddeferredeferred ttaxax aassetsssets Machinery and equipment 1 160 9 614 Property, plant and equipment, non-current assets 3 755 1 499 Equipment for biological assets 23 784 5 268 Provisions 1 558 852 Land 1 025 - TotalTotal ddeferredeferred ttaxax aassetsssets 5 331313 2 351351 Vehicles - 46 Other equipment - 1 InInfluuenceence ooff ttemporaryemporary ddifferencesifferences oonn ddeferredeferred ttaxax lliabilitiesiabilities Assets under construction-in-progress and uninstalled equipment - 282 Deferred expenses (1) - TotalTotal 6161 334646 4141 119292 TTotalotal ddeferredeferred ttaxax lliabilitiesiabilities (1)(1) -
NetNet ddeferredeferred ttaxax aassetsssets 5 331212 2 351351 As at 31 December 2016 and 31 LLC Imperovo Foods, Prapor), LLC Slovyany, December 2015 surety providers PSPC Interbusiness, PJSC LLC Torgivenlniy Budynok Total deferred tax assets 5 663 2 761 of the liabilities of Ukr Land Agroholding Avangard (PJSC Bohodukhivska Ptakhofabryka. Total deferred tax liabilities (351) (410) Farming Plc were as follows: Ptakhohospodarstvo Chervonyi NNetet ddeferredeferred ttaxax aassetsssets 5 331212 2 351351
Principal components of income tax expense 18. Current portion of non-current financial liabilities As at 31 December 2016 and 31 December 2015the rate of income tax in Ukraine was equal to 18%. The current portion of non-current financial liabilities as at 31 December 2016 and 31 December 2015 was as follows: 31 Dec cember 2016 31 December 2015
31 Dec cember 2016 31 December 2015 Current income tax (124) (18) Deferred tax asset 3 445 898 Trade and other payables IncomeIncome ttaxax ccreditredit fforor tthehe yyearear 3 332121 880880 Deferred income (current portion) 89 94 Financial liabilities Current portion of finance lease liabilities - 13 Reconciliation of deferred tax liabilities VAT included in current portion of finance lease liabilities - 3 Current portion of non-current liabilities for bank loans 30 329 18 559 31 Dec cember 2016 31 December 2015 in foreign currency Current portion of non-current liabilities for bank loans 806 456 in national currency BalanceBalance aass aatt 1 JJanuaryanuary 2 351 2 463 3131 222424 1919 112525 Deferred tax credit 3 445 898 Effect of translation into presentation currency (484) (1 010) BalanceBalance aass aatt 3311 DDecemberecember 5 331212 2 351351 The exposure of the Group to non-current financial liability is consolidated financial statements. liquidity risk in relation to reported in note 37 to the
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Reconciliation between income tax expense and accounting (loss)/profit multiplied by the rate of 21. Other accounts payable income tax Other accounts payable as at 31 December 2016 and 31 December 2015 were as follows:
31 December 2016 31 December 2015
Note 31 Dec cember 2016 31 December 2015
Accounting loss before tax (59 957) (159 270) Less accounting profit of the companies being fixed agricultural tax payers 15 495 (19 440) Accrued expenses for future employee benefits 280 408 (44 462) (178 710) Other accrued expenses 208 217 Accounting loss of the companies being income tax payers at the rate 12,5% (41 370) (60 964) Wages and salaries and related taxes liabilities 512 209 Accounting loss of the companies being income tax payers at the rate 18% (3 092) (117 746) Other taxes and compulsory payments liabilities a) 430 11 006 (44(44 4462)62) (178(178 7710)10) Accounts payable for property, plant and equipment 214 160 Advances received from customers b) 389 528 Income tax, taxable at the rate of 12,5% (5 171) (7 621) Interest payable on loans 6 042 2 677 Income tax, taxable at the rate of 18% (557) (21 194) Accrued coupon on bonds 1 919 896 Tax effect of allowances and income not subject to tax 9 049 29 695 Other payables c) 2 444 1 857 TTaxax aass pperer cconsolidatedonsolidated sstatementtatement ooff pprorofit oorr llossoss aandnd ootherther ccomprehensiveomprehensive 3 332121 880880 1212 443838 1717 995858 incomeincome - ccreditredit a) Other taxes and compulsory for the sale of agriculture and other. AsAs aatt 1 JJanuaryanuary 22015015 4848 payments liabilities mainly products and finished goods Income tax accrued for the year (18) comprises of liabilities for VAT from buyers. The exposure of the Group to Income tax paid for the year 63 and community charges. liquidity risk in relation to other Effect of translation into presentation currency (21) c) Other payables consist of accounts payable is reported in AsAs aatt 3311 DDecemberecember 22015/015/ 1 JJanuaryanuary 22016016 7272 b) Advances received from payables for electricity, gas, note 37 to the consolidated Income tax accrued for the year (124) customers consist of prepayments water, security services, lease financial statements. Income tax paid for the year 43 Effect of translation into presentation currency 50 AsAs aatt 3311 DDecemberecember 22016016 4141 22. (Loss)/profit from operating activities
(Loss)/profit from operating activities is stated after (charging)/crediting the following items: 20. Trade payables
Note 31 Dec cember 2016 31 December 2015 Trade payables as at 31 December 2016 and 31 December 2015 were as follows:
Depreciation of property, plant and equipment 5 (15 659) (17 628) Note 31 Dec cember 2016 31 December 2015 Income/(loss) on disposal of non current assets 28 150 (95) Provisions for doubtful debts and amounts written off 28 (18 582) (40 156) Trade payables 2 955 3 218 Payroll and related expenses 32 (7 785) (8 787) Short-term notes issued a) 107 157 Independent auditors' remuneration for statutory (603) (394) 3 006262 3 337575 audit of annual accounts
a) As at 31 December 2016 and interest-bearing, notes. payables is reported in note 37 31 December 2015 the to the consolidated financial short-term notes issued were The exposure of the Group to statements. represented by promissory, non liquidity risk in relation to trade
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23. Revenue 26. General administrative expenses
Sales revenue for the year ended 31 December 2016 and 31 D ecember 2015was as follows: General administrative expenses for the year ended 31 December 2016 and 31 December 2015 were as follows: For thee year endendeed For the year ended For thee year ended For the year ended 31 Decememberber 2020116 31 December 2015 31 December 2016 31 December 2015 Revenue from finished goods 140 761 229 299 Revenue from goods sold and services rendered 50 543 625 Salaries and wages of administrative personnel 32(3 641) (3 180) 191191 330404 229229 992424 Services provided by third parties (2 936) (3 126) Depreciation (98) (97) Repairs and maintenance costs (264) (49) For the year ended 31 December (2015: 17,8%) from the Group’s one of the Group’s clients (note Tax expenses, except for income tax (316) (196) 2016 USD 45 119 thousand (2015: revenue refers to the sales 37). Material usage (236) (308) USD 40 886 thousand) or 23,6% transactions carried out with Other expenses (395) (239) (7(7 8886)86) (7(7 1195)95)
24. Cost of sales 27. Distribution expenses Cost of sales for the year ended 31 December 2016 and 31December 2015 was as follows: Distribution expenses for the year ended 31 December 2016 and 31 December 2015 were as follows: For thee year endendeed For the year ended NNote 31 Decememberber 2020116 31 December 2015 For thee year ended For the year ended
31 December 2016 31 December 2015 Cost of finished goods sold 25(127 930) (208 906) Cost of goods sold and services rendered (47 945) (284) Salaries and wages of distribution personnel 32(439) (434) (175(175 8875)75) (209(209 1190)90) Transport expenses (4 332) (4 431) Depreciation (165) (237) Services provided by third parties (3 492) (5 573) Packing materials (47) (28) 25. Cost of sales by elements Repairs and maintenance costs (5) (13) Other expenses (78) (57) The cost of finished goods sold (Note 24) for the year ended 31 December 2016 and 31 December 2015 (8(8 5558)58) (10(10 7773)73) was as follows:
For thee year endendeed For the year ended NNote 28. Other operating expenses 31 Decememberber 2020116 31 December 2015
Raw materials (101 568) (158 819) Other operating expenses for the year ended 31 December 2016 and 31 December 2015 were as follows: Payroll of production personnel and related taxes 32 (3 705) (5 173) For thee year ended For the year ended Depreciation (15 393) (17 295) NNote 31 December 2016 31 December 2015 Services provided by third parties (7 173) (27 447) Other expenses (91) (172) Profit/(loss) on disposal of current assets 14 (20) 24 (127(127 9930)30) (208(208 9906)06) Income/(loss) on disposal of non current assets 150 (95) Impairment of current assets (709) (39 869) Services provided by third parties storage services, gas, water, premises, sanitary cleaning services, Impairment of funds a) - (28 190) consists of expenses for electricity, current repairs of production veterinary services and other.
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 133 CONSOLIDATED FINANCIAL STATEMENTS | continued CONSOLIDATED FINANCIAL STATEMENTS | continued 134
31. Government grants received For thee year endendeed For the year ended NNote 31 December 2020116 31 December 2015 31.131.1 IIncomencome ffromrom ggovernmentovernment Income from government grants year ended 31 December 2016 and grantsgrants aandnd iincentivesncentives and incentives received for the 31 December 2015 was as follows:
Gain realised from writing-off of accounts payable 262 178 Foreign currency sale (loss)/income (51) 22 For thee year ended For the year ended Provision for doubtful debts and amounts written off (18 582) (40 156) NNote 31 December 2016 31 December 2015 Fines, penalties recognized (86) (901) Other income 1 895 (7 435) (17(17 1107)07) (116(116 4466)66) Amortization of deferred income on a)98 107 government grants 9898 107107 a) The above amount was a Finansova Iniciatyva Bank by insolvent (note 12). result of the categorisation of the National Bank of Ukraine as a) Partial compensation of 2004-2010 according to item in the consolidated complex agricultural equipment Ukrainian laws. The total amount statement of financial position. cost of compensations received for The deferred income is 29.Finance costs the above mentioned period is amortised over the estimate Enterprises of the Group UAH 60 608 thousand. Those useful life of the relevant asset Finance costs for the year ended 31 December 2016 and 31 December 2015 was as follows: received partial compensation grants were recognised as (generally 25 years) and the of complex agricultural deferred income and reflected amortisation is reflected in the For thee year endendeed For the year ended equipment cost during the years within the "Deferred income" above table.
31 December 2020116 31 December 2015
Interest payable on loans (7 945) (7 837) TotalTotal finnanceance eexpensesxpenses oonn lloansoans (7(7 9945)45) (7(7 8837)37) 331.21.2 IIncomencome ffromrom sspecialpecial VVATAT Finance expenses on finance lease (12) (19) treatmenttreatment Finance expenses on bonds (21 241) (20 110) Other finance expenses (2 082) (4 562) Income from special VAT sales not less than 75% for the financial institution and negative (31(31 2280)80) (32(32 5528)28) treatment received for the year previous 12 months) have a tax balance (negative difference ended 31 December 2016 and 31 benefit for VAT on agriculture between tax liability and tax December 2015 amounted to transactions. Positive VAT credit) is not subject to USD 5 376 thousand and USD 25 balance (positive difference budgetary refund and credited 098thousand respectively. between tax liability and tax to the tax credit for the next 30. Finance income credit) from agricultural reporting (tax) period. According to the Tax Code of transactions shall be recognized Finance income for the year interest income from VAT amounted to USD 2 825 Ukraine agricultural enterprises as government grants on special ended 31 December 2016 and 31 government bonds and thousand and USD 3 978 (those with a relative value of VAT treatment and transferred December 2015 includes the placement of deposits, thousand respectively. agricultural products in total to special current account in a
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 135 CONSOLIDATED FINANCIAL STATEMENTS | continued CONSOLIDATED FINANCIAL STATEMENTS | continued 136
32. Payroll and related taxes Outstanding amounts of the Group for transactions with related parties as at 31 December 2016 and 31 December 2015 were as follows:
For the year ended For the year ended Outstandin ng balances with related parties as at NNote 31 December 2016 31 December 2015 31 December 2016 31 December 2015
(4 882) (5 510) Salary (2 903) (3 277) PrepaymentsPrepayments aandnd ootherther ccurrenturrent aassets,ssets, nnetet Contributions to state funds (7(7 7785)85) (8(8 7787)87) C. Companies in which the Group's owners have an equity interest; - 1 D. Companies in which activities are significantly influenced by the 5 499 11 136 Payroll of production personnel and related taxes 25 (3 705) (5 173) Group's owners 5 449999 1111 137137 Salaries and wages of administrative personnel 26 (3 641) (3 180) Salaries and wages of distribution personnel 27 (439) (434) TTraderade aaccountsccounts rreceivableeceivable (7(7 7785)85) (8(8 7787)87) D. Companies in which activities are significantly influenced by the Group's owners 154 2 151 Average number of employees, persons 2 003636 1 778787 154154 2 151151 DDividendsividends ppayableayable D. Companies in which activities are significantly influenced by the Group's owners 22 892 22 892 2222 889292 2222 892892 33. Related party balances and LLong-termong-term finnanceance lleaseease transactions D. Companies in which activities are significantly influenced by the Group's owners 3 28 The Company is controlled by financial or operational B. Companies having the 3 2828 Oleg Bakhmatyuk, who directly decisions. In considering each same top management; CCurrenturrent pportionortion ooff nnon-currenton-current lliabilitiesiabilities or indirectly owns 77,5% of the possible related party D. Companies in which activities are significantly influenced by the Company’s share capital. The relationship, attention is C. Companies in which the Group's owners - 16 remaining 22,5% of the shares directed to the substance of the Group's owners have an equity - 1616 are widely owned. relationship, not merely the legal interest; TTraderade aaccountsccounts ppayableayable form. D. Companies in which activities are significantly influenced by the For the purposes of these D. Companies in which Group's owners - 2 consolidated financial statements, According to these criteria the activities are significantly influ- - 2 parties are considered to be related parties of the Group are enced by the Group's owners. OOtherther ccurrenturrent lliabilitiesiabilities related if one party has the divided into the following C. Companies in which the Group's owners have an equity interest; - 48 ability to control the other party, categories: Salary costs of key management D. Companies in which activities are significantly influenced by the is under common control, or can personnel for the year ended 31 Group's owners 2 5 exercise significant influence A. Key management December 2016 and 31 December 2 5353 over the other party in making personnel; 2015 were as follows:
On 2nd July 2013 UkrLandFarming From 2nd July 2013 therefafter Plc was decreased to 3,17% at 31 For the year ended For the year ended Plc acquired a direct shareholding the share capital of LLC December 2014. 31 December 2016 31 December 2015 percentage of 7,11% in the share Imperovo Foods was increased
Salary 919 808 capital of LLC Imperovo Foods through contributions from In 2015 the share capital of LLC Contributions to state funds 118 205 partially through contribution of other Group companies, Imperovo Foods was increased, 1 003737 1 001313 technological equipment for therefore the direct shareholding therefore the direct shareholding elevators. percentage of UkrLandFarming percentage of UkrLandFarming
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Plc at 31 December 2015 was of LLC Imperovo Foods in the ended 31 December 2016 and 31 34. Operating segments shell eggs - breeding of Management monitors the increased to 3,56%. amount ofUSD 3 069thousand December 2015 were as follows: industrial laying hens, operating results of each of the (31 December 2015: USD 6 269 A reportable segment is a production and sale of shell units separately for the As at 31 December 2016 thousand). separable component of a eggs; purposes of making decisions Prepayments and other current business entity that produces about resources allocation and assets, (net) include unpaid The Group's transactions with goods or provides services to poultry - incubation (production evaluation of operating results. contribution to the share capital related parties for the year individuals (or groups of related and sale of baby chicks), The results of segments' products or services) in a breeding of young birds for activities are measured on the particular economic environment sale, as well as sale of birds basis of operating profit or loss, Transactionso with related parties for the year ended that is subject to risks and for slaughter; its measurement is carried out 31 December 2016 31 December 2015 generate revenues other than accordingly to measurement of risks and income of those animal feed - production and operating profit or loss in the components that are peculiar to sale of feeds; consolidated financial statements. RevenueRevenue other reportable segments. D. Companies in which activities are significantly influenced by the egg products - processing Reportable segment information Group's owners 52 820 2 641 For the purpose of management, and sale of egg products; for the year ended 31 December 5252 882020 2 664141 the Group is divided into the 2016 was as follows: GGeneraleneral aadministrativedministrative eexpensesxpenses following reportable segments other activities - including sale D. Companies in which activities are significantly influenced by the on the basis of produced goods of goods and services, sale of Group's owners (12) (49) and rendered services, and poultry meat and by-products, (12)(12) (49)(49) consists of the following 5 sale of plant production, sale DDistributionistribution eexpensesxpenses reportable segments: of poultry manure etc. D. Companies in which activities are significantly influenced by the Group's owners (4 870) (4 425) Adjustments Sh ell Animal Egg Other (4(4 8870)70) (4(4 4425)25) Poultry and Total eggs feed pproducts activities OOtherther ooperatingperating iincome/(expenses),ncome/(expenses), nnetet elimination C. Companies in which the Group's owners have an equity interest; - (1) D. Companies in which activities are significantly influenced by the Sales revenue 191 954 26 145 83 361 50 291 52 063 - 403 814 Group's owners 938 (27 905) Intra-group elimination (112 172) (17 443) (81 614) - (1 281) - (212 510) 938938 (27(27 9906)06) Revenue from external buyers 7979 778282 8 770202 1 747747 5050 229191 5050 778383 - 191191 330404 FFinanceinance iincomencome Income from revaluation of biological (3 567) 1 335 - - - - (2 232) D. Companies in which activities are significantly influenced by the assets at fair value Group's owners - 29 Other operating expenses (13 905) (265) 1 503 (4 340) (100) - (17 107) - 2929 Income from government grants 96 2 - - - - 98 FFinanceinance ccostsosts and incentives D. Companies in which activities are significantly influenced by the OPERATINGOPERATING (LOSS)/PROFIT(LOSS)/PROFIT (12(12 3317)17) (403)(403) 372372 (1(1 6630)30) (902)(902) - (14(14 8880)80) Finance income 252 - - 2 536 37 - 2 825 Group's owners - (15) Finance costs, (148) - - (6 148) (24 984) - (31 280) - (15)(15) including: Interest payable on loans (148) - - (6 123) (1 674) - (7 945) Income tax (expense)/credit - - (136) 3 517 (60) - 3 321 For the year ended 31 December rent services were provided to thousand respectively. All those NETNET ((LOSS)/PROFITLOSS)/PROFIT FFOROR TTHEHE YYEAREAR (12(12 2216)16) (477)(477) 236236 (3(3 4414)14) (40(40 7765)65) - (56(56 6636)36) 2016 and 31 December 2015 the Group by related parties in goods and services were bought purchases of goods, the amount of USD 60 334 and provided on market terms. TOTALTOTAL AASSETSSSETS 2 009999 445959 135135 886565 269269 889595 738738 665959 848848 110909 (3(3 556262 4496)96) 529529 449191 transportation, slaughtering and thousand and USD 5 635 Capitalised expenses 11 631 3 86 168 3 771 - 15 659 Depreciation 9 975 2 335 568 462 2 317 - 15 657 TOTALTOTAL LLIABILITIESIABILITIES 1 557575 331616 7878 113333 301301 449595 544544 222828 350350 559191 (2(2 445959 0082)82) 390390 668181
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Reportable segment information for the year ended 31 December 2015 was as follows: 35. Loss per share
Adjustments BasicBasic llossoss pperer ssharehare Sh ell Animal Egg Other Poultry and Total eggs feed pproducts activities elimination The calculation of basic loss per 2015 was based on loss average number of ordinary share for the year ended 31 attributable to the owners of the shares as follows: Sales revenue 271 453 25 137 140 890 64 735 1 346 - 503 561 December 2016 and 31 December Company, and a weighted Intra-group elimination (115 664) (18 340) (138 977) - (656) - (273 638) Revenue from external buyers 155155 778989 6 779797 1 991313 6464 773535 689689 - 229229 924924 Income from revaluation of biological 1 154 238 - - - - 1 391 For thee year ended For the year ended
assets at fair value 31 December 2016 31 December 2015 Other operating expenses (40 535) (507) (39 201) (35 140) (1 084) - (116 466) Income from government grants 105 2 - - - - 107 and incentives Loss attributable to the owners of the Company: OOPERATINGPERATING ((LOSS)/PROFITLOSS)/PROFIT ((1010 5584)84) ((55 1162)62) ((4040 7715)15) ((2525 0002)02) ((55 6641)41) - ((8787 1104)04) (in USD thousands) Finance income 358 6 1 3 612 - - 3 977 Loss for the year attributable to the owners of the Company (56 978) (154 640) Finance costs, (176) - - (6 029) (26 322) - (32 528) including: Weighted average number of shares: Interest payable on loans (166) - - (6 028) (1 643) - (7 837) Weighted average number of ordinary shares at 31 December 6 387 185 6 387 185 Income tax (expense)/credit - - (86) 1 290 (325) - 880 NNETET ((LOSS)/PROFITLOSS)/PROFIT FFOROR TTHEHE YYEAREAR ((1010 3356)56) ((55 3389)89) ((4040 7799)99) ((3636 6602)02) ((6565 2242)42) - ((158158 3390)90) Loss per share (USD) (9) (24)
TOTALTOTAL AASSETSSSETS 2 335858 663333 9090 008989 220220 773232 614614 003939 (291(291 7735)35) ((22 336767 5587)87) 624624 117171 Capitalised expenses 23 009 2 325 (314) 230 11 814 - 37 064 Loss per share is the loss for the There are no options or the same. Depreciation 13 290 2 104 392 558 1 284 - 17 628 TOTALTOTAL LLIABILITIESIABILITIES 1 663737 770404 8 883636 254254 441111 514514 558686 345345 000606 (2(2 337171 4426)26) 389389 111616 year after taxation divided by instruments convertible into the weighted average number new shares and so basic and of shares in issue for each year. diluted earnings per share are
The Group’s revenue from external customers and information about its non-current assets by geographical location are presented as follows: 36. Contingent and contractual Revenue from externaal customers Non-current assets As at liabilities For the for the yeaar ended
31 December 2016 31 Decembere 2015 31 December 2016 31 December 2015 UkrainianUkrainian bbusinessusiness aandnd eeconomicconomic environmentenvironment Ukraine 79 439 135 110 383 462 430 357 Middle East and North Africa 33 835 47 354 - - Ukraine’s political and economic resulted in a significant con fl ict between supporters of Far East 37 144 23 196 - - situation has deteriorated deterioration of the relationship the self-declared republics of Central and West Africa 165 - - - significantly since 2014. between Ukraine and the the Donetsk and Lugansk Europe 34 716 24 264 - - Following political and social Russian Federation. Following regions and the Ukrainian forces, South Asia 6 005 - - - unrest in early 2014, in March the instability in Crimea, regional which continued throughout the TotalTotal 191191 304304 229229 992424 383383 446262 430430 335757 2014, various events in Crimea tensions have spread to the date of these financial statements. led to the accession of the Eastern regions of Ukraine, As a result of this conflict, part of Republic of Crimea to the primarily Donetsk and Lugansk the Donetsk and Lugansk Russian Federation, which was regions. In May 2014, protests in regions remains under control of not recognised by Ukraine and those regions escalated into the self-proclaimed republics, many other countries. This event military clashes and armed and Ukrainian authorities are not
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currently able to fully enforce Whilst, Group’s management judgment is required in officially published. In its entirety, the Pension Fund, Ukrainian 37. Financial risk management Ukrainian laws on this territory. considers that all necessary determining the provision for the Tax Code of Ukraine became state organization, in accordance actions are being performed to direct and indirect taxes. There effective on 1 January 2011, while with the regulations and laws of The Group has exposure to the Political and social unrest maintain financial stability of the are transactions and calculations some of its provisions took Ukraine. Group is obliged to following risks arising from the combined with the military Group in current circumstances. for which the ultimate tax effect later. Apart from changes deduct a certain percentage of use of financial instruments: conflict in the Donetsk and Continuation of the current determination is uncertain in CIT rates from 1 April 2011 and salaries to the Pension Fund to a) credit risk; Lugansk regions has deepened unstable business environment during the ordinary course of planned abandonment of VAT pay pensions. b) liquidity risk; the ongoing economic crisis, may adversely affect results and business. The Group recognises refunds for agricultural industry caused a fall in the country’s financial position of the Group, liabilities for anticipated tax from 1 January 2018, respectively, As at 31 December 2016 and 31 c) market risk; gross domestic product and in a manner not currently audit issues based on estimates the Tax Code also changes December 2015 the Group had d) livestock disease risk. foreign trade, deterioration in determinable. These consolidated of whether additional taxes will various other taxation rules. no liabilities for any supplemen- state finances, depletion of the financial statements reflect be due. Where the final tax tary pension payments, health RiskRisk managementmanagement frameworkframework National Bank of Ukraine’s current management estimation outcome of these matters is The Group considers that it care, insurance or other benefits foreign currency reserves, of Ukrainian business environment different from the amounts that operates in compliance with tax after retirement to their working The Company's Board of significant devaluation of the influence on the financial were initially recorded, such laws of Ukraine, although, a lot or former employees. Directors has overall national currency and a further position of the Group. Situation differences will impact the of new laws about taxes and responsibility for the downgrading of the Ukrainian development may differ from income tax and deferred tax transactions in foreign currency LLegalegal mmattersatters establishment and oversight of sovereign debt credit ratings. management expectations. provisions in the period in which have been adopted recently, the Group's risk management Following the devaluation of the These financial statements were such determination is made. and their interpretation is rather In the course of its economic framework. national currency, the National not adjusted to reflect events ambiguous. activities the Group is involved Bank of Ukraine introduced after the reporting period. The Group’s uncertain tax in legal proceedings with third The Group's risk management certain administrative restrictions positions are reassessed by From 1 January 2017 the special parties. In most cases, the policies are established to on currency conversion TTaxation a x ation Management at every reporting VAT regime for agricultural Group is the initiator of such identify and analyse the risks transactions, which among period. Liabilities are recorded producers was completely proceedings with the purpose of faced by the Group, to set others included restrictions on As a result of unstable economic for income tax positions that are cancelled. Thus all subjects of preventing from losses in the appropriate risk limits and purchases of foreign currency situation in Ukraine, tax determined by management as special VAT regime have economic sphere or minimize controls and to monitor risks by individuals and companies, authorities in Ukraine pay more more likely than not to result in switched to standard VAT them. and adherence to limits. Risk the requirement to convert 75% and more attention to the additional taxes being levied if terms. management policies and of foreign currency proceeds to business cycles. In connection the positions were to be The Group’s management systems are reviewed regularly local currency, a ban on with it, tax laws in Ukraine are challenged by the tax While the Group's management considers that as at the to re fl ect changes in market payment of dividends abroad, a subject to frequent changes. authorities. The assessment is believes the enactment of the reporting period, active legal conditions and the Group's ban on early repayment of Furthermore, there are cases of based on the interpretation of Tax Code of Ukraine will not proceedings on such matters activities. The Group, through its foreign loans and restrictions on their inconsistent application, tax laws that have been enacted have a significant negative will not have any significant training and management cash withdrawals from banks. interpretation and execution. or substantively enacted by the impact on the Group's financial influence on its financial standards and procedures, aims These events had a negative Non-compliance with laws and reporting period and any known results in the foreseeable future, position. to maintain a disciplined and effect on Ukrainian companies norms may lead to serious fines Court or other rulings on such as of the date these financial constructive control environment and banks, significantly limiting and penalties accruals. issues. Liabilities for penalties, statements were authorized for in which all employees their ability to obtain financing interest and taxes other than on issue management was in the understand their roles and on domestic and international The Company operates in the income are recognised based on process of assessing its effects obligations. markets. Cypriot tax jurisdiction and its management’s best estimate of of its adoption on the operations subsidiaries in the Ukrainian tax the expenditure required to of the Group. The Group is not a finance The final resolution and the effects jurisdiction. The Company’s settle the obligations at the company, thus it uses financial of the political and economic crisis management must interpret and reporting period. PPensionension aandnd ootherther lliabilitiesiabilities instruments as may be are difficult to predict but may apply existing legislation to necessary in order to obtain have further severe effects on the transactions with third parties In December 2010, the revised Most of the Group's employees finance for its activities, not for Ukrainian economy. and its own activities. Significant Tax Code of Ukraine was receive pension benefits from the purpose of receiving
AVANGARDCO IPL | ANNUAL REPORT 2016 AVANGARDCO IPL | ANNUAL REPORT 2016 143 CONSOLIDATED FINANCIAL STATEMENTS | continued CONSOLIDATED FINANCIAL STATEMENTS | continued 144
income. In the process of its information on finance information on significant receivable is primarily dependent Ukraine. The Management 17,8% from the Group’s revenue
activities the Group uses the income and costs is conditions of received bonds on specific characteristics of believes that unimpaired is refers to the sales transactions following financial instruments: disclosed in Notes 30, 31 (all is disclosed in Note 7; each client. The Group’s policy amounts are still collectible in carried out with one of the cash and cash equivalents, loans finance income and expenses for credit risk management full. Concentration of credit risk Group’s clients. As at 31 to and from related parties, are recognised as a part of a) Credit risk provides systematic work with on trade accounts receivable is December 2015 USD 11 353 accounts receivable, bonds, profit or loss for the debtors, which includes: analysis characterised by the following thousand or 20,3% of the total bank loans, finance leases and year, other than interest Credit risk is the risk of financial of solvency, determination of indicators: carrying value of trade accounts accounts payable. capitalised which is allocated loss to the Group in case of maximum amount of risk related receivable is due from the single to the cost of the relevant non-fulfillment of financial to one customer or a group of For the year ended 31 December most significant debtor. The Group is exposed to the asset); obligations by a client or customers and control over 2016 USD 45 119thousand or counterparty under the respective following risks resulting from timeliness of debt repayment. 23,6% from the Group’s revenue Trade receivables as at 31 information on cash is agreement. In the reporting Risk management framework use of financial instruments: The majority of Group’s clients refers to the sales transactions December 2016 and 31 disclosed in Note 12; period the Group’s financial assets credit risk, liquidity risk and are longstanding clients, there carried out with one of the December 2015 by dates of which are exposed to credit risk market risk (including foreign were no significant losses during Group’s clients. As at 31 origin were presented as information on trade and are represented as follows: cash currency risk and interest rate the year ended 31 December December 2016 USD 9 135 follows: other accounts receivable is and balances on bank accounts, risk of fair value). This 2016 and 2015 resulting from thousand or 22,5% of the total disclosed in Notes 10, 11; trade and other accounts explanation contains information non-fulfillment of obligations by carrying value of trade accounts receivable (except for receivables relating to the Group’s exposure clients. The Management is receivable is due from the single information on trade and that are not represented by to each of the risk types other accounts payable is financial assets), VAT government examining each individual most significant debtor. mentioned above, Group’s disclosed in Notes 20, 21; bonds, bank deposits. customer to provide extended objectives, its policy and credit terms in the light of the For the year ended 31 December procedures of these risks information on significant Exposure to credit risk economic environment in 2015 USD 40 886 thousand or measurement and management. terms of borrowings and
loans granting is disclosed in The carrying value of financial Additional disclosures of Notes 14, 16; assets represents the maximum over quantitative information are exposure to credit risk. Maximum 31 December 2016 0-30 days 31-60 days 61-90 days 91-120 days 121-180 days 181-365 days one year TOTAL presented in many other information on significant level of credit risk as at 31 sections of these consolidated conditions of issued bonds is December 2016 and 31 December Carrying value of 12 993 14 637 8 275 3 520 687 100 416 40 628 financial statements, including: disclosed in Note 15; 2015 was presented as follows: trade accounts
receivable
over
31 December 2015 0-30 days 31-60 days 61-90 days 91-120 days 121-180 days 181-365 days one year Financial assets 31 Dec cember 2016 31 December 2015 TOTAL
Carrying value of 15 447 13 072 10 227 5 961 6 017 5 855 86 56 665 trade accounts Cash and cash equivalents 12 570 31 301 receivable a), b) Held to maturity investments 9 532 13 599 Trade accounts receivable 40 628 56 665 TotalTotal 6262 773030 101101 556565 The amounts in column 0-30 reason to doubt the solvency of a),a), b) days represent the amounts not the debtor. past due nor impaired. The majority of the Group’s cash institutions in Ukraine which are credit rate of government of Related parties tend to be given and cash equivalents as at 31 either not rated or being placed Ukraine per Moody’s Rating The amounts due from related longer credit terms and the December 2016 are held with under liqudation (Note 12). Agency. parties are not generally older amounts generally relate banks which are rated A1 as per provided where there is no to these related parties. Moody’s Rating Agency and the The rate of held to maturity The Group’s exposure to credit minority is held with financial investments is Caa3 using the risk regarding trade accounts
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Movement in provision for doubtful debts c) Market risk i) Foreign currency risk for which currency of denomination will be more
For thee year endendeed For the year ended Market risk is the risk of negative Foreign currency risk which favourable for the Group during
31 December 2020116 31 December 2015 influence of changes in market represents a part of market risk the expected period until prices, such as foreign exchange is the risk of change in the value maturity. rates and interest rates, on of financial instruments due to AsAs aatt 1 JJanuaryanuary (42 273) (9 996) revenue position of the Group or changes in foreign exchange Exposure to foreign currency Change in provisions (17 279) (37 402) on the value of the Group’s rates. risk Write-offs - 2 754 available financial instruments. Effect of translation into presentation currency 6 149 2 371 Management does not use The Group’s exposure to foreign AsAs aatt 3311 DDecemberecember (53(53 4403)03) (42(42 2273)73) The objective of market risk derivative financial instruments currency risk and the amount in management provides control to hedge foreign currency risks functional currency (UAH) as at over the Group’s exposure to and does not follow the official 31 December 2016 based on Liquidity risk is the risk of the avoiding unacceptable losses or the Group, its working capital market risk, as well as keeping policy for distribution of risks carrying amounts was as Group’s failure to fulfill its the risk of damage to the needs are satisfied by cash flows its level within reasonable limits. between liabilities in one or follows: financial obligations at the date reputation of the Group. from operating activities, as well Description of the Group’s another currency. However, in of maturity. The Group’s as by use of loans if cash flows exposure to such market the period of receiving approach to liquidity The aim of the Group is the from operating activities are components as currency risk new borrowings and loans, management is to ensure, to the maintenance of balance insufficient for liabilities to be and interest rate risk, is given management uses its own extent possible, permanent between continuous financing settled. The table below below. estimates to take the decision as availability of sufficient liquidity and flexibility in usage of bank represents the expected maturity of the Group to fulfill its financial loans and settlements with of components of working obligations in due time (both in suppliers. capital:
normal conditions and in (in conversion to USD thousand) USD EUR TOTAL non-standard situations), by In accordance with the plans of
Trade payables 263 760 1 002323 Cash and cash equivalents (768) - (768)(768) Exposure to liquidity risk Trade accounts receivable (18 683) - (18(18 6683)83) Other payables 6 55 6161 NetNet eexposurexposure ttoo fforeignoreign ccurrencyurrency rriskisk (19(19 1182)82) 815815 (18(18 3367)67) Contractual Less than FFrom From 1 to 5 Over Non-derivative financial liabilities cash flows 3 months 3 months years 5 years too 1 year The Company’s exposure to foreign currency risk and the functional currency (EUR) as at 31 December 3311 DDECEMBERECEMBER 22016016 (167 824) - (38 288) (93 338) (36 199) 2016 based on carrying amounts was as follows: Bank loans (3) - - (3) - Finance lease (including VAT) (267 633) - (11 226) (256 407) - (in conversion to USD thousand) USD Long-term bond liabilities (3 062) (3 062) - - - Trade payables (29 542) - - (29 542) - Dividends payable (468(468 0064)64) ((33 0062)62) ((4949 5514)14) ((379379 2290)90) ((3636 1199)99) Long-term bond liabilities 219 014 Accounts payable for property, plant and equipment 101 3131 DDECEMBERECEMBER 22015015 (146 010) - (75 253) (55 619) (15 138) Dividends payable 29 542 Bank loans (44) - (16) (28) - Other accounts payable 110 Finance lease (including VAT) (272 880) - (5 247) (267 633) - Cash and cash equivalents (9 478) Long-term bond liabilities (3 375) (3 375) - - - Accrued coupon on bonds 1 919 Trade payables (29 542) - - (29 542) - NetNet eexposurexposure ttoo fforeignoreign ccurrencyurrency rriskisk 241241 220808 Dividends payable ((451451 8851)51) ((33 3375)75) ((8080 5516)16) ((352352 8822)22) ((1515 1138)38)
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The Group’s exposure to foreign currency risk and the amount in local currency as at 31 December 2015 ii) Interest rate risk approach to limitation of interest financial instruments of based on carrying amounts was as follows: interest rate risk consists of the Group, grouped according Interest rate risk is connected borrowings at fixed interest to the types of interest rates,
(in conversion to USD thousand) USD EUR TOTAL with a possibility of changes in rates. was presented as follows: value of financial instruments resulting from changes in Structure of interest rate risk Short-term bank loans (including overdrafts) 50 000 - 5050 000000 interest rates. Trade payables 269 782 1 005151 As at 31 December 2016 and 31 Cash and cash equivalents (469) - (469)(469) At present, the Group’s December 2015 the structure of Trade accounts receivable (24 274) - (24(24 2274)74) NetNet eexposurexposure toto fforeignoreign ccurrencyurrency rriskisk 2525 552626 782782 2626 330808
31 Dec cember 2016 31 December 2015 The Company’s exposure to foreign currency risk and the functional currency (EUR) as at 31 December 2015 based on carrying amounts was as follows: InstrumentsInstruments wwithith fixedxed iinterestnterest rrateate a), b) Financial assets 9 532 13 599 (in conversion to USD thousand) USD Financial liabilities (266 990) (253 784) InstrumentsInstruments wwithith vvariableariable iinterestnterest rrateate a), b) Long-term bond liabilities 202 871 Financial liabilities (76 756) (82 156) Accounts payable for property, plant and equipment 7 Dividends payable 29 542 Other accounts payable 110 Interest rate risk related to the value of the financial As at 31 December 2016 and 31 Cash and cash equivalents (23 341) liabilities with the floating instruments. For variable rate December 2015 the Group’s Accrued coupon on bonds 896 interest arises from the borrowings, interest is linked to sensitivity to changes of NetNet eexposurexposure toto fforeignoreign ccurrencyurrency rriskisk 210210 008585 possibility that changes in EURIBOR. EURIBOR by 5% was presented interest rates will affect the as follows:
Sensitivity analysis (foreign the Group before tax to the variables and interest rates in Incn rease/(decrease) Effect on profit currency risk) possible changes in foreign particular, remain unchanged. Effect in USD thousand of floating rate before tax currency rates. This analysis is Below there is a sensitivity conducted based on the 3311 DDecemberecember 22016016 analysis of income (or loss) of assumption that all other EURIBOR 5% 4 EURIBOR -5% (4)
Effect in USD thousand Increase in currenccy rate Effectc on profit Effect on against UAHH befe ore tax equity 3131 DDecemberecember 22015015 EURIBOR 5% (3) 3131 DDecemberecember 22016016 EURIBOR -5% 3 USD 20% 3 836 3 836 EUR 15% (122) (122) 3131 DDecemberecember 22016016 The effect of interest rate cash and cash equivalents, trade given below, since possible USD 5% (12 060) (12 060) sensitivity on owners’ equity is accounts receivable, financial effect of changes in interest rate 3311 DDecemberecember 22015015 equal to that on the consolidated assistance issued, interest risk (discount rates) under these USD 20% (5 105) (5 105) statement of comprehensive receivable for deposits, fi nancial instruments is not EUR 15% (117) (117) income. prepayment for bonds, other material. 3131 DDecemberecember 22015015 non trading accounts receivable USD 5% (10 504) (10 504) Such financial instruments as are not included in the table
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total amount of capital. Net debt debt is as above. EBITDA is an Capital management Carrying value is calculated as cumulative indicator of income before The Group’s management borrowings net of cash and cash taxes, interest depreciation and 31 Deccemberember 2016 31 December 2015 follows the policy of providing equivalents. Total amount of amortisation. It is useful for the
the firm capital base which capital is calculated as own Group’s financial analysis, since Retained earnings 864 457 921 435 allows supporting the trust of capital reflected in the statement the Group’s activity is connected Foreign currency translation reserve (1 053 923) (1 018 085) investors, creditors and market of financial position plus the with long-term investments in Non-controlling interests 10 418 13 847 and ensuring future business amount of net debt. property, plant and equipment. TotalTotal eequityquity 138138 881010 235235 005555 development. EBITDA does not include TotalTotal aamountmount ooff eequityquity aandnd nnetet ddebtebt 470470 331616 540540 110202 This ratio measures net debt as depreciation, so that in the FinancialFinancial lleverageeverage ccoefoefficcientient 70,5%70,5% 56,5%56,5% In relation to capital management a proportion of the capital of the Group’s opinion, it reflects the the Group’s objectives are as Group, i.e. it correlates the debt approximate cash flows deriving follows: maintaining the Group’s with total equity and shows from the Group’s income in a ability to adhere to the going whether the Group is able to pay more reliable way. concern principle in order to the amount of outstanding For the year ended 31 December 2016 and 31 December 2015 ratio of net debt to EBITDA amounted to: provide income for owners and debts. An increase in this coeffi- The ratio of net debt to EBITDA benefits to other interested cient indicates an increase in gives an indication of whether For thee year ended For the year ended
parties, and also maintaining the borrowings relative to the total income obtained from operating 31 December 2016 31 December 2015 optimal capital structure with amount of the Group’s capital. activities is sufficient to meet the the purpose of its cost Monitoring this indicator is Group’s liabilities. reduction. necessary to keep the optimal LOSSLOSS FFOROR TTHEHE YYEAREAR (56 636) (158 390) correlation between own funds As at 31 December 2016 and 31 Income tax credit (3 321) (880) To manage capital, the Group’s and borrowings of the Group in December 2015 the Group’s Finance income (2 825) (3 978) management, above all, uses the order to avoid problems from financial leverage coefficient Finance expenses 31 280 32 528 calculations of the financial over leverage. was 70,2% and 56,5% Impairment of current assets 709 39 869 leverage coefficient (ratio of respectively. Impairment of funds - 28 190 leverage ratio) and the ratio FinancialFinancial l leverageeverage r ratioatio Losses on exchange 16 622 43 616 between net debt and EBITDA. calculationcalculation EBITEBIT ((earningsearnings bbeforeefore iinterestnterest aandnd iincomencome ttax)ax) (14(14 1171)71) (19(19 045)045) Depreciation 15 657 17 628 Financial leverage is calculated For the ratio of net debt to EBITDAEBITDA ((earningsearnings bbeforeefore iinterest,nterest, iincomencome ttax,ax, ddepreciationepreciation aandnd aamortisation)mortisation) 1 448686 (1(1 4417)17) as a ratio between net debt and EBITDA, the calculation of net Net debt at the year end 331 506 305 047 NetNet ddebtebt aatt tthehe yyearear eendnd / EEBITDABITDA 223,09223,09 -215,28-215,28 Carrying value
31 December 2016 31 December 2015 During the year there were no outbreaks of various diseases. minimise and manage this risk. Short-term loans - 50 000 changes in the approach to The Group faces the risk of The Group's management is Long-term loans 93 924 64 423 capital management. The Group outbreaks of disease which are satisfied that its current existing Current portion of long-term loans 31 135 19 015 is not subject to external highly contagious and risk management and quality Long-term finance lease (including VAT) 3 45 regulatory requirements destructive to susceptible control processes are effective Bond liabilities 219 014 202 871 regarding capital. livestock, such as avian influenza and sufficient to prevent any TTotalotal bborrowingsorrowings 344344 007676 336336 335454 or bird flu for its poultry outbreak of livestock diseases Cash and cash equivalents (12 570) (31 307) d) Livestock diseases risk operations. These and other and related losses. NetNet ddebtebt 331331 550606 305305 004747 diseases could result in mortality Share capital 836 836 The Group's agro-industrial losses. Disease control measures Share premium 201 164 201 164 business is subject to risks of were adopted by the Group to Capital contribution reserve 115 858 115 858
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38. Fair values The higher the discount rate the unobservable inputs is not Sensitivity analysis of biological lower the fair value of biological considered to have a significant assets fair value to the possible The Group measures fair values Level 2: inputs other than or liability that are not based assets, and the higher the impact within the range of changes in foreign currency using the following fair value quoted prices included in on observable market data inflation rate the higher the fair reasonably possible alternative rates is disclosed in the table hierarchy that reflects the Level 1 that are observable (unobservable inputs). value of biological assets. Any assumptions. below: significance of the inputs used in interrelationship between the for the asset or liability, either The table below analyses financial making the measurements: directly (i.e. as prices) or instruments measured at fair indirectly (i.e. derived from Increase/ /decrease Effect on fair value Level 1: quoted prices value at the end of the reporting Effect in USD thousand prices). of rate of biological assets (unadjusted) in active period, by the level in the fair markets for identical assets value hierarchy into which the fair Level 3: inputs for the asset or liabilities. value measurement is categorized. 3311 DDecemberecember 22016016 Discount rate 2,50% (431) Discount rate -2,50% 442
Level 1 Level 2 Level 3 Total Inflation rate 1,75% 1 576 Inflation rate -1,75% (1 576)
3311 DDECEMBERECEMBER 22016016 3311 DDecemberecember 22015015 Biological Assets - - 22 028 22 028 Discount rate 2,50% (393) Discount rate -2,50% 400 3131 DDECEMBERECEMBER 22015015 Inflation rate 1,75% 2 950 Biological Assets - - 27 139 27 139 Inflation rate -1,75% (2 950)
There were no transfers to/from these consolidated financial (31 December 2016: Loss USD There were no transfers a valuation team that reports including the level in the fair Level 3 of the fair value statements. 2 232 thousand). between Level 1 and Level 2 of directly to the Chief Financial value hierarchy. Significant hierarchy during the year ended the fair value hierarchy during Officer, and has overall valuation issues are reported to 31 December 2016. Total gain or losses for the year The following table analyses the the year ended 31 December responsibility for fair value the Chief Financial Officer. as shown in the reconciliation fair values of financial 2016. measurement of biological The reconciliation from the (note 6) are presented on the instruments not measures at fair assets. The valuation requires beginning balances to the face of the consolidated value, by the level in the fair The fair value of biological management to make certain ending balances for the fair statement of profit or loss and value hierarchy into which each assets is determined as the The valuation team regularly assumptions about unobservable value measurements in Level 3 other comprehensive income as fair value measurement is discounted value of net cash reviews significant unobservable inputs to the model, of which the of the fair value hierarchy is “(Loss)/profit from revaluation categorized: flows expected from assets. inputs and valuation adjustments. significant unobservable inputs analyzed in note 6 of of biological assets at fair value” The valuation team assesses and are disclosed in the table below: The Group has an established documents the evidence Total Total Level 1 Level 2 Level 3 carrying control framework with respect obtained to support the fair value amount to the measurement of fair conclusion that the valuation values. This framework includes meets the requirements of IFRS, 3131 DDECEMBERECEMBER 22016016 Financial Assets Cash and cash equivalents - 12 570 - 12 570 12 570 As at Held to maturity investments 8 768 - - 8 768 9 532
31 Deccemberember 2016 31 December 2015 Trade and other receivables - - 40 628 40 628 40 628
Financial Liabilities Discount rate 26,13% 36,94% Trade payables - - 3 062 3 062 3 062 Inflation rate 112,40% 101,20% Bank loans - 124 732 - 124 732 124 732 Long-term bond liabilities 63 988 - - 63 988 219 014
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Total As at 31 December 2016 the fair put into conservation; other four Despite a difficult period in Total Level 1 Level 2 Level 3 carrying fair value value of the above financial companies, namely PJSC history of the Group we are amount instruments approximated to Ptakhohospodarstvo Chervonyi hoping for positive changes in their carrying amount besides Prapor, SC Ptakhofabryka the following years. Ukraine is 3131 DDECEMBERECEMBER 22015015 long-term bonds whose fair Chervonyi Prapor Poultry of currently in a process of “painful” Financial Assets value was USD 63 988 thousand PJSC Ptakhohospodarstvo but essential reforms which Cash and cash equivalents - 31 307 - 31 307 31 307 (short-term bonds 31 December Chervoniy Prapor, PSPC in fl uence all ministries and Held to maturity investments 14 916 - - 14 916 13 599 Trade and other receivables - - 56 665 56 665 56 665 2015: USD 102 114 thousand). Interbusiness and PJSC agencies. One of the most Vuhlehirskyi Eksperementalnyi noticeable reforms concerns Financial Liabilities Kombikormovyi Zavod, are bank sector. Tax legislation also Trade payables - - 3 375 3 375 3 375 located in the territory currently gradually changes. A very Bank loans - 133 438 - 133 438 133 438 39. Risks related to the controlled by the terrorists. The critical administrative reform Long-term bond liabilities 101 114 - - 101 114 202 871 Group’s operating environment Group has lost an ability to has started (power in Ukraine control those companies decentralization and influence therefore recognized an levers transfer to local Events that took place in impairment loss from the lost authorities). All reforms are Assumptions in assessing fair Cash and cash equivalents - the calculating carrying value of Ukraine in 2014 do directly or assets in the 3rd quarter of 2014. supported by a number of value of financial instruments fair value is estimated to be the short-term accounts receivable, indirectly influence any business Besides that, a portion of the international institutions e.g. and assessment of their same as the carrying value for interest free loans granted and activity in the country in 2015. market has been lost (Crimea IMF, World Bank and countries subsequent recognition these short-term financial received and accounts payable accounted for 5% of Ukrainian including Germany, Japan, USA instruments. does not significantly influence Ukraine is still in an armed consumer market and Donetsk and others. Government’s As no readily available market the relevant rates in the conflict with pro-Russian and Lugansk regions amounted political will to pursue exists for a large part of the Held to maturity investments - consolidated financial information terrorists and Russian military to 15% of the market). implementation of reforms, and Group's financial instruments, the fair value of held to maturity of the Group. forces. international support inspire judgment is necessary in arriving investments are measured using The Group is facing the con fi dence that Ukraine will be at fair value, based on current the available quoted market Short-term and long-term bank Until the conflict is resolved, following problems: able to overcome current economic conditions and prices. loans, finance lease liabilities, Ukraine will face the following economic crisis and will be specific risks attributable to the short-term bonds issued - the problems: inability to attract Increase in costs due to a victorious in a military conflict, instruments. The estimates Trade and other accounts fair value of short-term and significant part of import- investments, capital outflow, which undoubtedly will presented herein are not receivable, financial assistance long-term bank loans, finance containing consumables; negative trade balance and positively influence Group’s necessarily indicative of the issued - the fair value is lease liabilities, short-term hryvnia devaluation as a result operations. amounts the Group could realize reasonably estimated to be the bonds issued is estimated to Decrease in demand as a which inevitably leads to in a market exchange from the same as the carrying value, as approximate the total carrying result of diminishing lowering of living standards and sale of its full holding of a provision for doubtful debts is value as the nominal interest purchasing power and decrease in population particular instrument. reasonable estimation of rate of long-term bank loans is increased production of eggs purchasing power. discount needed for reflection approximately tied to the by households;
As at 31 December 2016, the of credit risk influence. market rate concerning bank Those events have influenced following methods and loans with similar credit risk rate Significant decrease in Group’s operations in 2014 and assumptions, which remained Trade and other accounts and repayment period at the marginality as cost level has are still influencing the Group in grown more than sales price the same as the prior year, were payable - the fair value is reporting period. the 2015. Three companies of due to domestic demand used by the Group to estimate estimated to be the same as the the Group, namely LLC decline. the fair value of each class of carrying value for trade and Bonds issued - the fair value of Yuzhnaya – Holding, SC financial instruments for which it other accounts payable. bonds issued is measured using Ptakhohospodarstvo Yuzhnaya If military conflict continues the is practicable to estimate such the available quoted market prices Holding of LLC Yuzhnaya Group will aim to preserve its value: Application of the effective from the relevant stock exchange Holding, PPB LLC Ptytsecompleks, assets and maintain current interest rate method for which the bonds are listed. in a Crimea region have been market position.
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40. Events after the reporting with the Russian Federation This inquiry by Sberbank, as well period and the imposition of CYSEC’s comments thereto, do reciprocal trade and other not constitute any risk for There were no material events sanctions and restrictions; Ukrlandfarming, and should be after the reporting period interpreted as part of the except for: challenging conditions for internal process of Sberbank to exports as a result of clarify legal procedures in a AAvangardcovangardco bbonds:onds: Avangardco continuing military/political foreign (Cypriot in this case) Investments Public Limited disruption in certain of the jurisdiction. (“AVG”) is engaged in Group’s key export markets discussions with an ad hoc in the Middle East; and These consolidated financial committee of bondholders statements were approved and its inability to refinance regarding a proposal in respect authorized for issue by the existing indebtedness as a of AVG’s U.S.$200,000,000 Board of Directors of Avangardco result of the continued 10.0 per cent. Notes due 2018 Investments Public Limited on weakness of the Ukrainian (ISIN: XS0553088708) which it 23 March 2017. banking system and the expects to share with holders of unavailability of international the Notes shortly. It is possible capital markets to Ukrainian that the Proposal will include a borrowers. request to restructure the interest payment and principle The decrease in the cash due under. outflow for the coupon payments will help the company The primary reason to request continue to maintain its assets changes in the structure of the and operations. Going forward coupon payments is driven by AVG is planning to concentrate shortage of liquidity, primarily as on operations while prudently a result of: managing liquidity and servicing existing debt portfolio. adverse trends in grain prices globally; SyndicationSyndication f facilityacility o off UkrlandfarmingUkrlandfarming PPlc:lc: Regarding weak micro-economic and the CYSEC disclosure, according macro-economic conditions to our information, Sberbank in Ukraine, the Group’s has contacted CYSEC in order primary jurisdiction of to investigate the peculiarities of operation and principal market, which adversely the legal process under Cypriot impact demand and prices legislation, requesting if a public for the Group’s products; offer was obligatory in the case of a change of share ownership the annexation of Crimea related to the shares of Avan- and the ongoing military gard. It appears that CYSEC has conflict in the Donetsk and confirmed to Sberbank that no Lugansk regions of Ukraine; public offer to Avangard shareholders is required under the deterioration of relations such hypothetical scenario.
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