Annual report
For the year ended 31 December 2021
Annual report 2021
2
CONTENTS
Single management report
Group overview
3
Financial and operational results
10
Alternative performance measures
16
Selected Financial Data
17
Risk management report
1 8
Corporate responsibility
2 3
War in Ukraine
33
Corporate governance statement
34
Consolidated financial statements
Management responsibility statement
39
Report of the réviseur d’entreprises agréé
40
Consolidated statement of comprehensive income
46
Consolidated statement of financial position
47
Consolidated statement of changes in equity
48
Consolidated statement of cash flows
49
Notes to the Consolidated financial statements
51
Annual report 2021
Single management report
Group overview
3
Single management report
Group overview
Who we are
IMC is an integrated agricultural business operating in Ukraine. In May 2011 IMC conducted IPO on Warsaw Stock Exchange.
The main areas of IMC’s activities are:
• cultivation of grain & oilseeds crops
• storage of grain & oilseeds crops
• dairy farming
IMC is among Ukraine’s top-10 agricultural companies.
Land bank location and infrastructure
• 120 ths hectares in prime fertile farming regions of Ukraine.
• High concentration of land plots within the clusters (average distance between fields up to 20 km).
• Developed and self-sufficient farming infrastructure:
- own storage capacities for grain and oilseeds
- logistic infrastructure
- own machinery park
Annual report 2021
Single management report
Group overview
4
IMC’s
Key facts 2021
120 ths.ha
554 ths.t
834 ths.t
Land bank
Grain & oilseeds storage capacities
Production of grain & oilseeds in 2021
4.2 ths.t
USD 181.7 mln
USD 110.4 mln
Production of milk in 2021
Revenue in 2021
Normalised EBITDA in 2021
Annual report 2021
Single management report
Group overview
5
IMC’s history
2018-2021
• IMC is focused on: operational efficiency improvement debt reduction payment of dividends to shareholders
2017
• Rebranding of the company - Industrial Milk Company S.A. officially changed its name to IMC S.A. • The first dividends in the history of the company were paid out.
2015-2016
• Improving of efficiency of business processes, introduction of a motivation system for the personnel based on KPIs, optimization of dairy farming.
• Obtained a loan in the sum of USD 20 million from the EBRD.
2013-2014
• Creation of a new cluster in Pryluky through the acquisition of agricultural company, leasing 16 ths.ha of land and prossessing grain and oilseed crops' storage capacities of 195 ths.t.
• A new modern elevator with capacity of 25 ths.t of grain of corn was built.
• Attraction of USD 30 million long-term loan from the IFC.
2012
• Expansion of the land bank under processing took place in the existing clusters in Poltava, Sumy and Chernihiv regions and creation of a new cluster in Nosivka. Increasing in land bank was from 59,64 ths.ha to 120,69 ths.ha and in storage capacities - from 211 ths.t to 338 ths.t. • The social program IMC.Aid to People was established. • Implementation of satellite management system based on spectral analusis of accurate satellite images of the fields.
2011
• Completed IPO on Warsaw Stock Exchange - USD 24,4 million was attracted to finance further development. • Establishing of new cluster in the Sumy region after acquisition of 6 agrarian companies - increasing in land bank by 10,2 ths.ha and in storage capacities by 34 ths.t. • Implementation of precision planting technology.
2010
• IMC's major crops yields are constantly 30-50%% higher than the Ukrainian average. The sufficient management system and usage of modern technologies and machinery enable to reduce the production costs by 44% as compared with the Ukrainian average.
2007-2009
• Acquisition of agricultural companies and storage facilities in Poltava and Chernihiv regions of Ukraine. • Development and implementation of modern management information systems and operational controls.
2007
• Establishment of IMC Group following acquisition of two agricultural companies in Poltava region.
Annual report 2021
Single management report
Group overview
6
Development track records
34
36
36
38
60
121
137
137
137
137
130
124
123
120
120
31.12.2007
31.12.2008
31.12.2009
31.12.2010
31.12.2011
31.12.2012
31.12.2013
31.12.2014
31.12.2015
31.12.2016
31.12.2017
31.12.2018
31.12.2019
31.12.2020
31.12.2021
Land bank, ths.ha
72
172
172
172
211
338
554
554
554
554
554
554
554
554
554
31.12.2007
31.12.2008
31.12.2009
31.12.2010
31.12.2011
31.12.2012
31.12.2013
31.12.2014
31.12.2015
31.12.2016
31.12.2017
31.12.2018
31.12.2019
31.12.2020
31.12.2021
Grain & oilseeds storage capacities, ths.t
24.9
20.2
34.8
29.1
75.2
114.8
138.31
140.4
124.7
126.8
131.6
169.9
161.4
181.7
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Revenue, mln. USD
4,0
9,0
19,5
25,7
32,0
49,5
57,4
66,5
59,0
39,1
50,8
39,3
71,8
110,4
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Normalised EBITDA, mln. USD
Annual report 2021
Single management report
Group overview
7
Business model
The idea of vertical integration is at the heart of the IMC business model. The vertically integrated business structure allows us to take advantage of diversification, guarantee the supply of raw materials with minimal transport costs and effectively manage all elements of the value chain.
A high level of vertical integration both within each business and between segments provides competitive advantages in the markets, high production efficiency and financial stability.
Annual report 2021
Single management report
Group overview
8
Business segments’ contribution
Strong export orientation in sales
Crop farming
Dairy farming
Elevators and warehouses
REVENUE BREAKDOWN, 2020 TOTAL: USD 161.4 MLN
Crop farming
Dairy farming
Elevators and warehouses
REVENUE BREAKDOWN, 2021 TOTAL: USD 181.7 MLN
Corn
Sunflower 20%
Wheat 14%
Other
Crop farming revenue breakdown, 2020 Total: USD 158.4 mln
Corn
Sunflower 25%
Wheat 15%
Crop farming revenue breakdown, 2021 Total: USD 179.2 mln
EXPORTED CROPS
Corn Wheat
EXPORT DESTINATIONS
Asia EU Northern Africa Middle East
SHARE OF EXPORT REVENUE
Annual report 2021
Single management report
Group overview
9
Key performance indicators
Key Ratios
2017
2018
2019
2020
2021
Current ratio
2,0
2,1
1,6
2,3
2,8
Net b orrowings/ Total e quity
0,6
0,5
0,3
0,1
0,0
Net b orrowings/EBITDA
1,5
1,1
1,1
0,2
0,0
Interest coverage
5,0
7,7
4,5
24,1
10 8 , 8
Total e quity/ Total a ssets
0,6
0,6
0,4
0,5
0,5
126.8
131.6
169.9
161.4
181.7
2017
2018
2019
2020
2021
Revenue, mln. USD
17,8
27,6
7,3
31,7
78,7
2017
2018
2019
2020
2021
Net profit, mln. USD
39,1
50,8
39,3
71,8
110,4
2017
2018
2019
2020
2021
Normalised EBITDA, mln. USD
64,5
58,8
47,0
33,2
32,8
2017
2018
2019
2020
2021
Debt, mln. USD
Annual report 2021
Single management report
Group overview / Financial and operational results
10
Strategic and forward-looking
Group strategy
The Company's strategy for the years 2021-2030 was approved by the Board of Directors of IMC S.A. at the Board meeting held on 27 April 2021:
For the next 10 years, IMC will remain a purely agricultural company engaged in the cultivation of highly profitable, export- oriented crops. The company will focus on operational efficiency and sustainable development in relation to people, land and the environment. The company's strategy provides for the annual payment of dividends to IMC shareholders.
Further likely development
Further likely development of the Group in 2022 will depend on the dynamics and scale of the war in Ukraine.
As of the time of issuing this report, we focus on the following tasks:
- Ensuring crop production on the entire war-free part of the IMC land up to approximately 100 thousand hectares;
- Focusing on three high-margin crops - corn, sunflower and wheat - area under these crops is planned as 58%, 22% and 18% of the total crop mix, respectively;
- Сompliance with safety rules and retention of IMC personnel.
Financial and operational results
World economy
CORN
According to United States Department of Agriculture (report “Grain: World Markets and Trade”, June 2022):
Ukraine is historically one of the major suppliers of corn to the world market. In 2020/21 MY Ukraine ranked as #4 corn exporter in the world (13% of world exports) and together with the United States, Argentina and Brazil accounted for 85% of world corn exports.
Ukraine is one of the main suppliers of corn to China. In 2020/21 (Oct-Sep), China imported nearly 30 million tonnes of corn; nearly 70 percent was imported from the United States and most of the remainder from Ukraine.
On February 24, 2022 Russia invaded Ukraine and has blockaded Ukrainian seaports in the Black Sea and the Azov Sea. This has almost fully constrained grain export from Ukraine.
Corn (in ths tonnes)
2020/21
2021/22
Y-o-Y,%
2022/2023 June
World Production
1 128 998
1 216 066
8%
1 185 806
World Consumption
1 143 221
1 198 392
5%
1 186 281
World Trade (export/import)
184 240
189 126
3%
183 197
World Ending Stocks
293 246
310 920
6%
310 445
Annual report 2021
Single management report
Financial and operational results
11
WHEAT
According to United States Department of Agriculture (report “Grain: World Markets and Trade”, June 2022):
In 2021/2022 MY Ukraine ranked as № 5 wheat exporter in the world with 9.4% of wheat world export. In 2022/2023 MY since the Russian invasion to Ukraine on February 24, 2022 and blockade of Ukrainian sea ports which traditionally accounted for the bulk of grain exports the role of Ukraine as a world wheat supplier is forecast to decrease to № 7 wheat exporter in the world with 4.9% of wheat world export.
The Russian Federation's blockade of wheat exports from Ukraine has already led to a significant increase in wheat prices on the world market and threatens a food crisis for many countries that have historically been importers of wheat from Ukraine.
Wheat (in ths tonnes)
2020/21
2021/22
Y-o-Y,%
2022/2023 June
World Production
775 708
779 032
0,4%
773 432
World Consumption
782 296
791 205
1%
785 985
World Trade (export/import)
199 443
201 196
1%
205 449
World Ending Stocks
291 573
279 400
-4%
266 847
Annual report 2021
Single management report
Financial and operational results
12
Ukrainian economy
The consumer inflation rate in Ukraine in 2021 amounted to 10% (5% in 2020 and 4.1% in 2019) according to the State Statistics Service.
According to the Ministry of Economy, Ukraine ended 2021 with a record GDP of almost $ 200 billion (+ 3.2% vs. 2020), more than $ 5 billion in foreign direct investment and export growth to $ 68.2 billion. And agricultural sector remained one of the key sectors in Ukraine's foreign economic activity.
According to the State Customs Service of Ukraine, in 2021 Ukraine exported $ 27.9 billion of agricultural products and food, which is 41% of all-Ukrainian exports. Compared to the previous year, the export of agricultural products and food increased by 25%. Crop products was the largest share in Ukrainian exports of agricultural products in 2021 (it accounted for $ 15.6 billion or 56% of total exports of agricultural products). This figure was achieved through export of grain. Crop products export is followed by fats and oils of vegetable and animal origin, which were exported for a total of $ 7.1 billion and account for 25% of Ukrainian exports of agricultural products and food in 2021. Sunflower oil was the most exported in this segment. Last year, $ 3.8 billion of finished agricultural products were exported, which is 14% of Ukraine's exports of agricultural products and food. Sunflower oilcake which is used as ready-made animal feed was the basis of exports in this segment. The lowest export revenue came from the livestock industry. Thus, in 2021, these products were exported in the amount of $ 1.4 billion, which is only 5% of total exports of agricultural products and food. Poultry became the basis of exports of livestock products.
The structure of exports of agricultural products from Ukraine by regions in 2021 was as follows:
- Asia - 49.1% ($ 13.7 billion, + 26% vs. 2020)
- EU - 30.1% ($ 8.4 billion, + 26% vs. 2020)
- Africa - 13.3% ($ 3.7 billion, + 28% vs. 2020)
- CIS - 5% ($ 1.4 billion, + 8% vs. 2020)
China, which for the first time in 2019 won the leadership in the top 10 largest importers of Ukrainian agricultural products, overtaking India, which for three consecutive years held the first place in the ranking, last year continued to strengthen its position as a major importer of agricultural products from Ukraine. If in 2019 the value of agricultural products export from Ukraine to China amounted to $ 1955 million, in 2020 they almost doubled (+82%) and amounted to $ 3554 million, and in 2021 increased to $ 4286 million (+ 21%). At the same time, China's share in Ukrainian agri-food exports was over 15% in 2021.
The main importers of Ukrainian agricultural products and food in 2021 were as follows:
- China - $ 4286 million
- India - $ 1954 million
- The Netherlands - $ 1767 million
- Egypt - $ 1601 million
- Turkey - $ 1465 million
- Spain - $ 1171 million
- Poland - $ 1073 million
- Germany - $ 851 million
- Indonesia - $ 761 million
- Italy - $ 748 million
Record exports of agricultural products from Ukraine were based on the record harvest of grain and oilseeds in 2021. According to the Ministry of Agrarian Policy and Food of Ukraine, in 2021 the harvest of cereals, legumes and oilseeds amounted to more than 106 million tonnes (including cereals and legumes - more than 84 million tonnes, oilseeds - 22.6 million tonnes). This is the absolute maximum in the history of Ukraine.
COVID-19 pandemic
The coronavirus pandemic, declared worldwide by the World Health Organization in March 2020, was not overcome in 2021 either.
The situation surrounding COVID-19 remains fluid, and we are actively managing our response in collaboration with customers, government officials, team members and business partners and assessing potential impacts to our financial position and operating results, as well as developments in our business.
The pandemic outbreak in Ukraine forced us to quickly adapt our operations and support healthcare system in regions of our operations.
Annual report 2021
Single management report
Financial and operational results
13
To prevent the spread of COVID-19 coronavirus, the company has taken proactive preventative measures in accordance with an approved program of action aimed primarily at protecting the health of its employees and their families, our suppliers and consumers.
The company's management created the opportunity to choose the way to work for administrative employees - it is possible to stay at a remote work and possibly return to the office. We successfully applied the work model, and all business processes have been properly transformed to reflect new realities.
Field sowing works were carried out with minimized number of employees involved, all of them were provided with protective equipment. In general, the sowing campaign runs as usual.
Group works with big suppliers and there was no significant disruption in the supplying of materials, which allowed us to complete the production process of growing, collecting and storing products as usual.
Our operations and logistics were running quite smoothly and without any disruptions.
Despite all concerns, the Group has fulfilled its obligations under all contracts.
Summing up all the results, we can say that fortunately IMC is one of the companies which did not suffer much from COVID- 19 pandemic.
We continue to closely monitor the impact of COVID-19 on our business and geographies, including how it is impacting our team members, customers, suppliers and business partners.
Financial and operational results
The following table sets forth the Company’s results of operations derived from the Consolidated financial statements:
(in thousand USD)
For the year ended 31 December 2021
For the year ended 31 December 2020
Changes, %
CONTINUING OPERATIONS
Revenue
181 693
161 387
13%
Gain from changes in fair value of biological assets and agricultural produce, net
113 184
77 022
47%
Cost of sales
(183 900)
(159 170)
16%
GROSS PROFIT
110 977
79 239
40%
Administrative expenses
(11 333)
(11 258)
1%
Selling and distribution expenses
(16 375)
(15 839)
3%
Other operating income
4 442
1 315
238%
Other operating expenses
(1 901)
(2 056)
-8%
Write-offs of property, plant and equipment
(251)
(82)
206%
Reversal of impairment of property, plant and equipment
-
120
-100%
Impairment of property, plant and equipment
-
(1 090)
-100%
OPERATING PROFIT
85 559
50 349
70%
Financial expenses, net
(789)
(2 137)
-63%
Effect of lease of right-of-use assets
(7 201)
(7 234)
0%
Effect of additional return
-
(872)
-100%
Foreign currency exchange (loss)/gain, net
2 255
(7 918)
-128%
PROFIT BEFORE TAX FROM CONTINUING OPERATIONS
79 824
32 188
148%
Income tax expenses, net
(1 114)
(483)
131%
NET PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS
78 710
31 705
148%
Normalised EBITDA
110 3 48
71 839
54%
Company’s Normalised EBITDA increased in Y2021 in comparison with Y2020 mainly due to higher crop prices, resulted in increase in revenue and gain from changes in fair value of biological assets and agricultural produce, net in Y2021.
Annual report 2021
Single management report
Financial and operational results
14
Revenue
The Company’s revenue from sales of finished products increased by 13% in Y2021 in comparison with previous period.
The following table sets forth the Company’s sales revenue by products indicated:
(in thousand USD)
For the year ended 31 December 2021
For the year ended 31 December 2020
Changes, %
Corn
107 271
103 678
3%
Sunflower
44 675
31 470
42%
Wheat
26 720
22 421
19%
Milk
1 431
1 304
10%
Soy beans
-
440
-100%
Cattle
177
288
-39%
Other
538
430
25%
180 812
160 031
13%
The most significant portion of the Company’s revenue comes from selling corn, which represented 59,3% in Y2021 and 64,8% in Y2020 of total revenue.
The following table sets forth the volume of the Company’s main crops and revenues generated from the sales of such crops:
(in thousand USD)
For the year ended 31 December 2021
For the year ended 31 December 2020
Corn
Sales of produced corn (in tonnes)
536 104
610 927
Realization price (U.S. $ per ton)
200
170
Revenue from produced corn (U.S. $ in thousands)
107 271
103 678
Sunflower
Sales of produced sunflower (in tonnes)
85 822
86 831
Realization price (U.S. $ per ton)
521
362
Revenue from produced sunflower (U.S. $ in thousands)
44 675
31 470
Wheat
Sales of produced wheat (in tonnes)
117 967
118 063
Realization price (U.S. $ per ton)
227
190
Revenue from produced wheat (U.S. $ in thousands)
26 720
22 421
Soy beans
Sales of produced soy beans (in tonnes)
-
1 308
Realization price (U.S. $ per ton)
-
337
Revenue from produced soy beans (U.S. $ in thousands)
-
440
Other (produced only)
Total sales volume (in tonnes)
3 513
5 698
Total revenues (U.S. $ in thousands)
538
428
Total sales volume (in tonnes)
743 406
822 827
Total revenue from sale of crops (U.S. $ in thousands)
179 204
158 437
Revenue relating to sales of corn increased by 3% to USD 107,3 million in current period from USD 103,7 million in previous period due to increase in prices in Y2021 offset the decline in sales volumes.
Increase in prices in 2021 has led to an increase in revenue relating to sales of sunflower by 42% and wheat by 19% in current year compared to last year.
Annual report 2021
Single management report
Financial and operational results
15
Cost of sales
The Company’s cost of sales changed to USD 183,9 million in current period from USD 159,2 million in previous period. The following table sets forth the principal components of the Company’s cost of sales for the periods indicated:
(in thousand USD)
For the year ended 31 December 2021
For the year ended 31 December 2020
Changes, %
Raw materials
(131 250)
(106 004)
24%
Change in inventories and work-in-progress
15 413
(4 705)
-428%
Depreciation and amortization
(23 211)
(18 973)
22%
Wages and salaries of operating personnel and related charges
(13 296)
(12 726)
4%
Fuel and energy supply
(20 012)
(7 642)
162%
Third parties' services
(6 623)
(5 040)
31%
Rent
(3 021)
(2 252)
34%
Repairs and maintenance
(708)
(1 020)
-31%
Taxes and other statutory charges
(1 075)
(682)
58%
Other expenses
(117)
(126)
-7%
(183 900)
(159 170)
16%
A 16% increase in cost of sales in Y2021 is consistent with an increase in prices almost for all for production components (raw materials, fuel and energy supply, etc.).
Gross profit
The Company’s gross profit increased to USD 1 11 million in current period from USD 79,2 million in previous period, an 40 % year-on-year increase. In relative terms, the gain from changes in fair value of biological assets and agricultural produce increased by 43%.
Foreign currency exchange, net
As at 31 December 2021 Ukrainian Hryvnia revaluated against the USD by 3,7% compared 31 December 2020 (16,2% of depreciation as at 31 December 2020 compared 31 December 2019), 1,2% of devaluation for the average rate 2021/2020 in comparison with 4,2% of devaluation for the average rate 2020/2019. As a result, during the Y2021 the Group recognised net foreign exchange gain in the amount of USD 2 255 thousand (USD 7 918 thousand of net loss for the Y2020) in the Consolidated statement of comprehensive income.
Cash flows
The following table sets out a summary of the Company’s cash flows for the periods indicated:
(in thousand USD)
For the year ended 31 December 2021
For the year ended 31 December 2020
Changes, %
Net cash flows from operating activities
67 077
59 963
12%
Net cash flows from investing activities
(6 157)
(5 736)
7%
Net cash flows from financing activities
(50 320)
(37 767)
33%
Net increase in cash and cash equivalents
10 600
16 460
-36%
The Company’s net cash inflow from operating activities increased to USD 67,1 million in current year from USD 60,0 million in previous year. The increase in 2021 was primarily attributable to increase in sales.
The Company’s net cash outflow from investing activities increased to USD 6,2 million in Y2021 from USD 5,7 million in Y2020 which is in line with the Group's CAPEX program.
Net cash outflow from financing activities increased to USD 50,3 million in current period from USD 37,8 million in previous period, reflecting the increase in payment of dividends.
Annual report 2021
Single management report
Alternative performance measures
16
Alternative performance measures
Certain measures were included in this report but they are not measures of performance under IFRS - Alternative performance measures (APM). Management believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group. APMs are used for performance analysis, planning, reporting.
Alternative performance measures are:
• Normalised EBITDA
• Debt
• Net Borrowings
• Current ratio
• Interest coverage
• Segment’s results
Normalised EBITDA
Earnings before interest, taxes, depreciation and amortisation (EBITDA) is calculated as revenue less expenses, the latter excluding tax, interest, depreciation and amortisation. Being a proxy to the operating cash flow before working capital changes, EBITDA is widely used as an indicator of a company's ability to generate cash flows, as well as its ability to service debt. Consequently, the management EBITDA serves as a measure to estimate financial stability of the Company. Besides, excluding the effect of depreciation and amortisation along with cost of capital and taxation provides to external users another measures comparable to similar companies regardless of varying tax environments, capital structures or accounting policies regarding depreciation and amortization.
The Company calculates Normalised EBITDA by adjusting Net profit for the expense items that are deemed to be substantially beyond the control of management, as well as items believed to be non-recurring. The Normalised EBITDA for the periods presented is calculated based on historical information derived from the Consolidated financial statements.
The reconciliation to Normalised EBITDA for the period (from continuing operations) is presented as follows:
(in thousand USD)
For the year ended 31 December 2021
For the year ended 31 December 2020
CONTINUING OPERATIONS
Net profit for the period
7 8 710
31 705
Financial expenses, net
789
2 137
Income tax expenses, net
1 114
483
Depreciation and amortization
24 538
20 438
Write-offs of property, plant and equipment
251
82
Reversal of impairment of property, plant and equipment
-
(120)
Impairment of property, plant and equipment
-
1 090
Effect of lease of right-of-use assets
7 201
7 234
Foreign currency exchange (loss)/gain, net
(2 255)
7 918
Non recurring items:
Effect of additional return
-
872
Normalised EBITDA
1 10 348
71 839
The Group believes that these measures better reflect the Group core operating activities and provide both management and investors with information regarding operating performance, which is more useful for evaluating the financial position of the Group than traditional measures, to the exclusion of external factors unrelated to their performance.
Debt
Debt is defined as bank borrowings. The Group believes that Debt is commonly used by securities analysts, investors and other interested parties in the evaluation of a company’s leverage.
Annual report 2021
Single management report
Alternative performance measures / Selected Financial Data
17
Net Borrowings
Net borrowings is defined as bank borrowings (Debt) less cash and cash equivalents. The Group believes that Net borrowings is usually used in conjunction with Debt when assessing a company's leverage.
Current ratio
The current ratio is a
liquidity ratio
that measures a company’s ability to pay short-term obligations. The ratio considers the weight of total
current assets
versus total
current liabilities
. It indicates the financial health of a company and how it can maximize the liquidity of its current assets to settle debt and payables.
Interest coverage
The interest coverage ratio measures the ability of a company to pay the interest on its outstanding debt. This measurement is used by creditors, lenders, and investors to determine the risk of lending funds to a company. The interest coverage ratio is calculated by dividing a company's
earnings before interest and taxes
(EBIT) by its interest expense during a given period.
Segment’s results
The Group uses as a key measures of segment operating performance Gross income of the segment. Expenses and incomes that are not included in gross income are not allocated to each segment and are presented separately as unallocated. Actually indicators Operating income, Profit before tax and Net profit of a segment are Gross income of the segment.
Selected Financial Data
(in thousand USD, unless otherwise stated)
For the year ended 31 December 2021
For the year ended 31 December 2020
I.
Revenue
181 693
161 387
II.
Operating profit/(loss)
8 5 559
50 349
III.
Profit/(loss) before income tax
7 9 824
32 188
IV.
Net profit/(loss)
7 8 710
31 705
V.
Net cash flow from operating activity
67 077
59 963
VI.
Net cash flow from investing activity
(6 157)
(5 736)
VII.
Net cash flow from financing activity
(50 320)
(37 767)
VIII.
Total net cash flow
10 600
16 460
IX.
Total assets
41 3 899
280 088
X.
Share capital
59
59
XI.
Total equity
1 90 916
138 427
XII.
Non-current liabilities
159 835
89 780
XIII.
Current liabilities
63 148
51 881
XIV.
Weighted average number of shares
33 178 000
33 178 000
XV.
Profit/(loss) per ordinary share (in USD)
2, 40
0,96
XVI.
Total equity per share (in USD)
5, 75
4,17
Annual report 2021
Single management report
Risk management report
18
Risk management report
Risk management at IMC
Risk management is the process of reducing the possibility of adverse consequences either by reducing the likelihood of an event or its impact or taking advantage of the upside risk. The goal of the risk management at IMC is to provide a reasonable assurance that Group’s business objectives will be achieved. This process encompasses such stages as risk identification, risk assessment, risk respond and risk mitigation, monitoring.
Risk identification. Managers of every department are responsible for tracking of potential risks concerning theirs functions. Risks must obviously be identified before they can be managed.
Risk assessment. List of risks should be prioritised according to the the likelihood of occurrence and impact on the organization (department) goals. The most essential risks need urgent attention.
Risk respond and risk mitigation. Management has to construct effective plan to deal with each significant risk identified. Tools aiming to mitigate risks are established at internal documents (instructions, rules, methods, etc.).
Monitoring. Risks are monitored on an ongoing basis. Where risks change or new risks are identified then those risks are added to the risk assessment for appropriate categorisation and action. Internal audit process is the main tool for risk monitoring.
IMC’s management is responsible for day-to-day monitoring, identification, assessment and planning mitigation activities concerning operational risks in the course of its ordinary performance. Internal controls at IMC are the main tools of operational risks mitigation process. Established internal policies and internal regulatory documents are the primary mediums of internal controls implementation.
The Board of Directors currently maintains responsibility for overseeing enterprise risk management process and strategic risks. Major risk exposures are regularly discussed at the board meetings.
IMC's accounting-related risk management system
IMC’s control system relies on daily resource planning analyses which are detailed by cost center and cost article, department, thus providing all the necessary information for controlling inventories and products.
IMC established internal controlling instruments to secure proper accounting in compliance with legal requirements.
IMC's accounting procedures are governed by standardized guidelines and rules as well as a clearly defined course of action in different situation. Therefore, standard account parameters and booking directions for various production operations were established. Another control tool is the clear allocation of functions regarding various accounting processes. For Group consolidation and accounting purposes all bookkeeping data of the consolidated companies may be accessed automatically.
The internal control system of IMC is based on the accounting database thus integrating all controlling processes. Accounting processes are carried out on a high-level basis and are monitored and adjusted by specialists.
IMC's accounting-related risk management system is set up in a way that the risk of misrepresentation could mainly ensue from new business processes or amendments to legal provisions. Risks are contained by transferring decisions on accounting-relevant data resulting from new business processes to the management level. Ongoing continuation training regarding the applicable accounting provisions from time to time is provided to the management.
The Group’s internal control and risk management system in relation to the process for preparing consolidated financial statements is closely related to control mechanisms of accounting procedures. Consolidated accountes are prepared on the basis of verified and approved accounting system data, which cannot be corrected. Consolidated accounts are carried out by specialists, the level of which is maintained annually by training. The accounts are verified by the management by comparing of control points with management reports.
The Internal Control and Risk Management Department
The Internal Control and Risk Management Department was established as the separate unit in a corporate governance structure of the Group.
The Department is created with the aim of the regular independent monitoring and estimation of effectiveness of the IMC corporate governance, efficiency of separate business processes at the level of group and separate structural subdivisions, assessing
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of adequacy of the risk management process, providing with recommendations and participation during an improvement process. The Department participates in improvement of internal control, risk management and governance processes.
The Department regularly provides the management of IMC and the Audit Committee with independent and objective valuations and consultations. This involves an objective analysis of actual data with the aim of estimation and expression of an opinion on reliability of systems, processes, operations.
IMC Corporate Misconduct Hotline
Corporate hotline was launched at IMC to prevent and inform possible breaches of internal regulations, such as cases of discrimination, dishonest conduct, harassment, thefts, any type of corruption and bribery, etc. The hotline encompasses several anonymous channels for whistleblowers – call-center, email box, web-interface. IMC guarantees anonymity and protection for all informants, if this does not contradict the current legislation. All reasonable masseges via hotline are processed and feedback is sent to whistleblowers. More information concerning the hotline for stakeholders is available via web-link
https://imc.ethicontrol.com/web/en/pages/about
.
Anti-corruption and bribery matters
It is the policy of the Group not to engage in bribery or corruption and comply with applicable anti-corruption laws.
We adhere to the UN Global Compact principles of bribery and anti-corruption:
- We shall work against corruption in all its forms, including extortion and bribery.
- Making, promising or offering any payments, gifts or inducements with the purpose of influencing someone (incl. government officials, suppliers, clients, etc.) to act improperly is strictly forbidden; the same applies to accepting payments, gifts or inducements.
- All payments should be reasonable and fall within the acceptable commercial practice.
- All such expenses have to be properly recorded in the accounts.
- We do not tolerate so-called facilitating payments (for example small unofficial payments to officials in order to speed up processes).
- The Group does not make political contributions.
- When engaging in business relationships the Group chooses its partners with the same zero tolerance approach to corruption and bribery.
- The Group appreciates the risk of corruption and bribery in the countries it operates and continues to take measures to minimize this risk.
- All funds received and paid by the Group and its subsidiaries during the course of business are strictly accounted and handled via bank transfers exclusively to minimize the possibilities of cash being taken in or out for the purposes of bribery. In 2021, the Group continued to ensure its adherence to such cash management.
Key risks faced by the Group
Risks relating to the Industry
• Grains prices volatility
Changes in market prices for grains can adversely influence on IMC’s earnings and financial results.
To decrease an influence of this risk the Group, on permanent basis, researches the international and Ukrainian agricultural markets, monitoring price fluctuations and factors affecting these fluctuations (stocks, production, consumption, export, import, forecasts). Based on an analysis of the above-mentioned information, the management of the Group makes decisions regarding crop rotation structure and production plans.
Sound control over the grains production costs at IMC allows the Group to ensure sufficient level of marginality regardless of price fluctuations. The Group cooperates with large grain traders, which allows to sell large quantities of grain at the most favorable prices of the export market.
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Operational risks
• Adverse weather conditions
Poor and unexpected weather conditions may disrupt the Group’s production of crops.
The land cultivated by the Group is spread between different climate zones of Ukraine. This allows to reduce the possible negative impact of adverse weather conditions. Additionally, to mitigate an influence of this risk IMC uses the following practices:
- On the fields of IMC the system of different depth soil cultivation is applied: deep ripping, ploughing, disking, and cultivation. Rotation of these cultivation methods allows creating the optimal conditions for growth and development of agricultural crops;
- Cultivation of relatively small share (10%) of winter crops in the general crop rotation structure enables to decrease the risk of disruption of a general production of crops during unfavorable winter conditions.
• Increase of input costs
The Group’s operating costs could increase and adversely affect IMC’s financial performance. The risk of the Group’s operating costs increase is basically connected to a possible price growth for fuel, seeds, fertilizers and crop protection materials.
To reduce the risks mentioned above the Group:
- has implemented the fuel consumption and machinery usage controlling systems using GPS-trackers;
- follows the land bank development strategy based on principle of fields’ close proximity to each other that allows to reduce fuel consumption;
- is focused on limited number of crops that allows to use and purchase seeds, fertilizers and crop protection materials more efficiently;
- has built long-term and mutually benefitted relationships with suppliers of seeds, fertilizers and crop protection materials.
• Customer concentration risk
Focusing on large wholesale world traders, the Group has a small pool of customers and could be influenced by customer concentration risk. But the work of the Group with a small number of customers is not due to the lack of other customers or the impossibility of entering new markets, but to the selected sales strategy - the best conditions for selling are ensured by relations with large traders. To control the risk before each sale, a tender is held among buyers to determine the best conditions of the transaction. Making a choice in the direction of the buyer, management understand the level of supply and demand for the products on the market with other participants and Group’s capabilities in the event of a change of buyer.
• Credit risk
Counterparties involved in transactions with IMC may fail to make scheduled payments, resulting in financial losses to IMC.
To decrease an influence of this risk the Group has implemented credit policy and monitoring practices. Police and operating guidelines include limits in respect of counterparties to ensure that there is no significant concentration of credit risk. Credit risks are managed by legal activities which include security paragraphs into agreements with customers. Also the financial department of the Group constantly carries out monitoring over payment terms deadlines according to goods selling contracts.
• Risk of key personnel shortage
A lack of key personnel can threaten the overall performance of IMC.
The Group conducts series of activities to mitigate this risk. IMC offers competitive working conditions for potential employees. Performance related remuneration scheme exists to motivate and retain key staff. IMC cooperates with a number of Ukrainian educational institutions for selection and hiring talented students. Educational and professional trainings are regularly held for personnel at IMC.
• Risk of land loss
Land is a key resourse in agricultural production and termination of essential number of land lease agreements can cause significant damage for the Group.
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To mitigate this risk, the Group holds a number of social events for the local communities to make IMC’s presence beneficial for Company’s land lessors. The terms of land lease agreements have been revised and re-signed in the best interest of counterparties. As at 31 December 2021 92% of land lease agreement are valid for a period over 5 years and 75% of contracts are valid for a period of more than 10 years (as at 31 December 2020 91% and 21% correspondingly).
• Risk of cybersecurity incidents
IMC's corporate information system can be corrupted by virus attack or external intrusion.
Operations of the Group are highly dependent on corporate IT system in all aspects. In 2017 companies of the Group have experienced a cybersecurity attack which has not had a material impact on our business. To prevent and mitigate this risk a series of actions has been done. The infrastructure of IMC’s intranet has been improved in order to mitigate the risk of unauthorized external intrusion. A backup process was reconstructed to ensure a maximum possible safety of corporate business data. The riskiest points of unauthorized external intrusion have been isolated outside IMC’s intranet.
Risks from the war
On 24 February 2022 Russian troops invaded Ukraine and Russia has started a full-scale war against Ukraine.
Management has identified the following specific risks to the Group's activities due to the war:
- Destruction of fixed assets;
- Loss of stocks of inventories;
- Loss of access to the assets in case of occupation of territories;
- Employee-related risks ;
- Disruption of logistics routes in Ukraine;
- Inability to conduct export activities;
- Potential cyber attack.
The Group has no influence on most factors, but the Management has taken possible precautionary measures:
- Part of the mobile machineries was moved from the northern branches to other regions of the Group, as there is a risk of re-occupation.
- Training work was carried out with the staff on behavior and personal safety in wartime, certain work processes were reconfigured to ensure the safety of employees in the performance of their duties, the number of fire protection equipment and first aid kits at workplaces was increased.
- Cyber attack response plans have been developed.
Financial risks
• Risk of capital deficiency
Failure to generate or raise sufficient capital may restrict the Group’s development strategy
To decrease an influence of this risk the Group works on several sources of financing: bank crediting, financing by international financial organizations.
• Risk of liquidity
It exists the risk of inability to meet financial obligations of the Group in due time.
To minimize such risk IMC maintains efficient budgeting and cash management processes to ensure that adequate funds are available to meet business requirements. IMC adopts a flexible CAPEX program enabling capital projects to be deferred if necessary.
• Risk of interest rate volatility
Fluctuations of interest rates influence on the cost of IMC’s borrowings.
The Group utilizes balancing strategy to mitigate interest rate risk and, whenever possible, always strives to obtain loans with a fix interest rate. The portfolio of IMC’s borrowings consists of 100% of fixed rate debt as at 31 December 2021 and 31 December 2020.
IMC’s creditors are well-known banks with a foreign capital or international financial institutions. As result, the cost of IMC’s financial resources is lower than the market average.
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• Fluctuation in currency exchange rates
Unfavorable movements of currency exchange rates can lead to deteriorating of company’s financial results.
The main functional currencies for IMC are Ukrainian hryvnia and US dollar. Since the Group is export oriented, most of regular financial planning cash inflows are matched in US dollar, when outflows are matched both in US dollar and Ukrainian hryvnia. Stable revenue in US dollar limits the risk resulting from national currency devaluation. In 2021, the Ukrainian hryvnia revaluated against the US dollar from the beginning to the end of the year, which was reflected on the one hand, in a decrease in the Group’s financial result for the year (due to the fact that the revenue was formed at a lower rate than the cost), on the other hand, net assets of the Group at the end of the year increased in US dollar terms.
Legal and regulatory risks
• Risk of non-compliance
The Group’s business is influenced by regulatory rules of each country where IMC operates. A breach of these rules can cause legal proceedings and additional costs for the Company.
The monitoring of legislation changes is constantly conducted by the Legal Department at IMC. Employees regularly visit specialized events on legal issues. Group’s business operations are conducted in accordance with current legislation taking into account possible future regulatory development.
Risk of COVID-19 pandemic
• Risk of personnel shortage
To prevent the spread of COVID-19 coronavirus, the company has taken proactive preventative measures in accordance with an approved program of action aimed primarily at protecting the health of its employees and their families, our suppliers and consumers.
The company has taken the following actions:
- trainings for the company employees to prevent spreading of the coronavirus by restricting movement, traveling abroad, visiting social gathering places and maintaining personal hygiene during the epidemic;
- organizing for all company employees the ability to work remotely (a remote access) using work computers and other technical devices (server equipment, etc.);
- developing of a control mechanism and establishing of a communication system in case the remote work of employees;
- the following preventive measures have been taken in premises and offices: disinfectants have been installed in sanitary areas and at entrances to office premises; daily wet cleaning with the use of disinfectants; hourly ventilated office space; dishwashing occurs only in the dishwasher with hot steam disinfection.
- to perform production tasks related with economic activities of the company (field works, loading-unloading works, etc.) - to attract only the minimum number of workers providing them with appropriate personal protective equipment;
- restrict business trips to the regions and to carry out them only in case of urgent necessity with the permission of the director;
- conduct conferences and meetings online;
- cancel all corporate events.
• Risk of violation of obligations by suppliers
Due to strict quarantine restrictions in the country, contractual obligations of suppliers may be violated, which may affect the smoothness of the company's operating process.
To ensure a smooth production process, the company's management revised the delivery time for materials (seeds, fertilizers, protective materials) in order to ensure a certain reserve of them in the company's warehouses before the start of field work. Ongoing negotiations are underway with suppliers to track operational information across supply chains and prevent operational disruptions. Company chooses big suppliers to prevent significant disruption in the supplying of materials.
To ensure a smooth logistics process, the carriage is booked in advance. Alternative service providers and delivery routes are also being explored.
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• Risk of underfunding
Within the framework of the pandemic, the risk of access to available sources of financing of working capital increases and, as a consequence, the risk of an increase in the cost of financing due to the general decline in the economy.
To prevent such situation, negotiations are being held with existing lenders on the terms of access to credit opportunities, new sources of additional financing are monitored, and cash flows are being adjusted depending on the current financing situation.
Corporate responsibility
Personnel
In 2016 IMC implemented crucial policies that are extremely important for staff to understand that the company they work in is respectful to its employees and human rights. IMC employs people based on principles of equal opportunity, without distinction to race, color, gender, sexual orientation, religion, descent or origin.
IMC standards related to employees and human rights are declared in the following documents:
- Non-discrimination and equal opportunities in employment Policy
- Non-discrimination on grounds of sexual orientation and gender identity Policy
- Policy of collective bargaining
- Policy on freedom for workers to form or join trade unions
- Policy of nursing and expectant mothers
- Policy on working hours and overtime
- Employment of young person under the age of 18 Policy.
Policies are freely available to all employees and guests of IMC. The company policy prohibited discrimination based on color, ethnic or social origin, sex, pregnancy, civil, family status or status of a person caring for, language, religion or other opinion, political or other opinion, national or social origin, citizenship, economic status, association with a national minority, gender identity, age, disability, state of health, genetic characteristics of a person, and other signs or combinations of any of these attributes, actual or imaginary, as well as prohibited discrimination on the basis of association for any of the above listed features.
IMC adheres to 10 Rules of IMC, according to which the following is banned in the company: discrimination of employees in any form; lies and dishonesty in the relations between colleagues; dishonesty, indiff erence, negligence and irresponsibility; harassment and other behaviour that can off end or suppress another; theft, excessive usage and waste of the Company resources and working time; any types of corruption. In 2019, IMC established the IMC Corporate Misconduct Hotline based on Ethicontrol platform, which main idea of the tool is to set up and adjust the channels of two-way communication with IMC stakeholders, both internal and external, as well as to create the logic mechanism for consideration and registration of complaints and reports.
In 2021, the IMC enterprises applied the following principal policies related to the personnel:
- On Forbidding Consumption of Alcohol Drinks, Narcotic or Toxic Substances at Work;
- On Forbidding Discrimination Based on Sexual Orientation and Gender Identity;
- On Collective Bargaining Agreements;
- On Employment of the Minors;
- On the Working Hours and Overtime Work;
- On the Freedom of Association, Membership with Trade Unions;
- On Labour Relations with Pregnant Women and Women with the Children under Three;
- On Equality (Non-Discrimination Policy);
- On Considering Complaints and Proposals;
- On Providing Accommodation to the Employees;
- On the Target Aid to the Employees.
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The first of the ten rules of the IMC is «People and their life and health are the greatest value of IMC». Against the background of COVID-19 pandemic spreading, the company tried to retain its team and all the financial support and training programmes, salary guarantees, bonus system and motivation events.
IMC implements Policy on the Targeted Aid to the Employees, which enabled the employees to receive the fixed financial aid in case of hardships, birth of children, marriage, and compensation for expenses for the treatment of the employees and their closest relatives. This Policy was one of the most important in Coronavirus crisis. In 2021, the IMC spent UAH 1,23 million on financial support to employees (UAH 1,1 million in Y2020), including UAH 806 thousand for the treatment of the employees, their closest relatives and compensation for test of coronavirus SARS-CoV-2.
IMC holds motivational events for staff, 153 employees of the enterprises of the IMC participated in motivational trips in 2021 (132 employees in 2020).
The Regulations on Training of the Employees establish the procedures for planning, introduction, administration and evaluation of the success of training pursuant to the strategic objectives and values (expertise, responsibility, teamwork, performance, proactivity, honesty, and respect). In total, 244 employees of the company were trained in 2021 (402 employees in 2020). In 2021, the traditional training of IMC’s production departments, including precision farming technologies and R&D specialists, was not conducted due to the real danger of spread COVID-19. The maximum number of training events was conducted online. The company spent about UAH 0,8 million in 2021 for the training of personnel (UAH 0,53 million in 2020).
All corporate internship and employment programs for young people without work experience are united under the common name "Start with IMC" and date back to 2015. The conditions of practice have changed and improved from year to year, but the main features have remained unchanged to 2021:
• It is a production-practical orientation, namely the company has always focused on production specialties (agronomy, engineering, tractor-mechanics, etc.).
• Career development after an internship is possible only at regional IMC enterprises.
• The company always officially employs and pays for the intern's work, provides him/her with housing and everything necessary for the entire internship, and guarantees flexibility and understanding on the part of management during the combination of practice/work and study in higher or professional educational institutions.
• In the end, the company teaches, shows, gives a chance to work on modern technology and get into the team of one of the largest and most innovative agricultural companies in Ukraine.
128 students have completed internships at IMC for 7 years of the program, 34 have received jobs in the company as a result of successful internships, 12 specialists from former interns continue to work and build their careers at IMC enterprises today.
The IMC proud of its stable and well-coordinated team of professionals, which has proven its resilience before the 2021 year.
2
3.2
0.6
1.4
2020
2021
Motivational trips abroad
Corporate events and Christmas gifts for children of employees
Motivation expenses, UAH mln.
402
157
245
244
89
155
Total number of trained employees of IMC, persons
Production personnel, persons
Non-production personnel, persons
2020
2021
Total number of trained employees of IMC, persons
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Key facts on personnel
Diversity policy applied in relation to management
The Company believes in the benefits diversity can bring to its workforce and tends to maintain a workforce comprised of talented and dedicated individuals whose skills and backgrounds reflect the nature of the agricultural business environment. The Company’s workforce is intended to reflect a diverse mix of skills, experience, knowledge and backgrounds. The Company is fully committed to being an equal opportunities employer and is opposed to all forms of unlawful and unfair discrimination. All employees, whether part time, full time or temporary, being treated fairly and equally and with respect. Selection for employment, promotion, training or any other practice being made on criteria free from unlawful bias.
1979
1404
555
18
2
1898
1341
537
18
2
Total number of employees
Operating personnel
Administrative personnel
Sales personnel
Non-operating personnel
2020
2021
Personnel structure
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Health, Safety and Environment (HSE) management system
Based on the experience of the world's leading companies, in 2016 IMC has started formation of the Health, Safety and Environment (HSE) management system. HSE department was formed at IMC’s headquarter, designed to assist top-management of IMC in development and implementation of the company's strategy in these areas.
At all IMC’s enterprises carry out on Monitoring in the areas: natural resource use and environmental legislation, occupational safety at production (compliance review of ІMС HSE principles against the requirements of Ukrainian regulatory documents).
IMC is committed to involving all employees in the management for issues of Environment, Health & Safety and Social Aspects at IMC and its subsidiaries.
IMC’s enterprises annually implement a set of measures, where, along with traditional safety briefing instructions and control measures, the following are applied:
- Improvement of labor conditions;
- Identification and elimination of industrial hazards;
- Health and safety management systems improvement;
- Health and safety trainings in partnership with the leading training institutions;
- Provision of modern and high quality personal and mass protective equipment;
- Raising employee awareness and safe work methods promotion;
- Improvement of health care services for the employees;
- Work with contractor organizations.
All IMC’s enterprises have the Emergency Preparedness and Response plans (EPRP) for localization and liquidation of emergencies and accidents. The availability of such plans is obligatory in Ukraine and is regulated by legal requirements & local legislation.
The focus of the work of IMC enterprises in 2021 was aimed at maintaining and implementing legislative requirements in the field of Health, Safety and Environment and introducing uniform corporate standards for IMC as well as prevention of hazards and risks associated with the consequences COVID-19.
Realising the risks and the hazards associated with COVID-19 both world- and Ukraine-wide, IMC Group cannot remain aloof from what is happening around. We understand that clear and thought-through actions on the part of large business are important as never before to show maximum care for our employees and help out the people in the cities where we operate. Therefore, we believe it is our primary objective to prepare for potential consequences of the virus spread. We intend to use all of the available resources to safeguard our enterprises that they can continue operate without interruptions while securing jobs. Health and safety of employees is the unconditional priority of the company.
During 2021, in order to strengthen the control over the observance of quarantine restrictions, organizational measures (orders) from the IMC Central Office were additionally applied for implementation through orders and instructions at the enterprises of the IMC Group. Effective measures were taken against the spread of COVID -19 at our enterprises:
- providing clusters with personal protective equipment (reusable protective masks, protective suits, antiseptics for hand treatment, disinfectants for treatment of premises and vehicles).
- campaigning for compliance with quarantine measures during the COVID-19 pandemic (briefings, newsletters, etc.).
- preparation of IMC teams for vaccination. Vaccination was carried out by local health care facilities on a visit to IMC companies. Vaccination was performed with Pfizer and Moderna vaccines. As at 31 December 2021, the rate of vaccinated IMC workers (2 doses) was 55%.
Throughout 2021, the implementation of the Corporate Standard “Safety Analysis of Work Execution” and “Corporate Transport Security Standard” were continued. Safety Analysis of Work Execution (SAWE) is a mandatory sequence of actions that is performed by an employee (group of employees) independently or with the participation of a manager before starting and periodically during the execution of work. The purpose of the SAWE is to analyze the possibility of safely performing/continuing work and taking the necessary measures to protect people and nature. The “Corporate Transport Security Standard” describes the minimum requirements for the safe use, operation, maintenance and repair of vehicles at enterprises and describes the requirements for personnel, the implementation of a program to improve the culture of driving and driving skills, and also regulates the procedure for periodically conducting targeted safety audits using checklists on 2 topics: “Requirements for the technical condition of vehicles” and “Safety requirements for repairs and technical vehicle maintenance”. The implementation of the requirements of this Standard will reduce potential risks during the transport of people and dangerous goods and as a result, reduce the number of accidents, the severity of their consequences, as well as improve the material and technical resources of enterprises.
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The objectives of the implementation of the Safety Analysis of Work Execution are the following:
- Regulation of the actions of each employee (group of employees) before and during the execution of work.
- Developing the skills of employees to regularly assess existing sources of danger and apply adequate measures of protection against dangerous and harmful factors.
- Developing skills for elementary risk assessment in the workplace.
- Education in employees of a serious attitude to sources of danger, maintaining the level of attention before starting and in the process of performing work.
- Algorithmization of the process; application of protective measures: Source of danger - Possible consequences - Necessary protective measures.
- Education of workers in the discipline of the application of protective measures based on a constant awareness of the possibility of negative consequences for health, life and the environment.
“Safety Audits” Standard have been introduced at all the siloses belonging to IMC since 2016 according to which managers of all levels including top management of the headquarters of IMC and managers of regional branch offices attend regularly appropriate production areas in order to supervise conduction of the works and labour conditions. Despite the limitations associated with COVID-19 and realizing the importance and significance of safety audits, we did not cancel the safety audit process at enterprises even during a pandemic.
In 2021, the following was done in this direction:
• 398 behavioural safety audits were conducted by managers of all levels at the siloses belonging to IMC within those over 541 conversations were conducted related to hazardous situations; moreover, 234 of hazardous situations were eliminated during appropriate audit itself, but for the rest of them managers were filling “Lists for recording LS measures” (these should be filled at IMC’s internal web portal in order to develop corrective and preventive measures term of implementation of those exceeds 3 days).
• 434 target safety audits at the siloses belonging to IMC; number of non-conformities revealed at the time of their conduction was 315. Corrective and preventive measures were developed for each of the non-conformities revealed.
Environmental & climate related matters
Environmental policy
Operations and products of farming and grain storage have inherent elements that interact with the natural environment. The company's goal in the direction of environmental protection - keeping the integrity of the ecosystems the Company operates in, and minimization of the environmental footprint.
Maintaining this interaction in a way that prevents material harm to the atmosphere, water, land, biodiversity and climate is essential for Group’s ability to operate in a long-term perspective. Therefore, IMC chooses a proactive approach to managing its environmental aspects.
We aim to efficiently produce best quality products with the lowest possible consumption of resources and in strict compliance with regulatory, safety and product quality standards, thus minimizing our environmental footprint. As one of the largest crop producers in Ukraine, we follow the best sustainable long-term agronomy practices.
Ecological aspects and risk assessment
Starting from 2016 a methodological basis for the activities related to lowering risks and ecological aspects has been functioning in IMC; moreover, united «Guide for ecological risks assessment of the enterprises» was introduced in the same year. The registers are updated annually at each IMC enterprise, which enables prompt identification and prevention of potential threats of environmental impact and timely assessment of the existing risks.
In order to ensure compliance with the requirements of environmental legislation of Ukraine «Guide for the arrangement of works purposed at obtaining of proper licensing documents in the field of environmental protection» has been adopted at the enterprises of IMC since 2016, this document establishes unite requirements as to arrangement of the work aimed at obtaining licensing documents in the field of environmental protection such as licenses for special use of water resources, emission of pollutants into the air and so on. Thus, database of licensing documents was created; this database contains data of all the enterprises of IMC, moreover, regular monitoring of their well-timed obtaining, period of validity and conditions established by these documents is conducted.
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Environmental monitoring
Environmental monitoring is the main tool used to determine the condition of the environment and an integral element of the assessment of the impact of IMC enterprises’ operations upon the environment. Certified laboratories annually control adherence to the maximum permitted concentrations of atmospheric emissions of contaminants at the company’s elevators. Moreover, there is an annual study of the quality of underground water from Artesian wells that are used by IMC enterprises.
Emissions to the atmosphere
Operations of IMC enterprises result in the emission of contaminants into the atmosphere, in particular, such greenhouse gases as carbon dioxide (CO2) and methane (CH4). IMC enterprises are responsibly aware of the importance of this problem and keep looking for ways to reduce impact upon the atmosphere. The company uses optimisation of production processes and equipment upgrade to facilitate an annual decrease in emissions of greenhouse gases.
Moreover, by introducing new technologies, IMC enterprises try to engage as many recycled resources as possible into the repeated production cycle. Thus, there has been a programme for use of the alternative type of fuel, namely the company’s own waste grains, in boilers since 2016. The outcome has exceeded the expectations, and we have managed to obtain a significant environmental and economic effect.
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Sustainable use of water resources
Water supply at IMC enterprises is carried out mostly from one of the underground sources. Also, water from the local municipal water supply systems is used for household and domestic needs. Our task is sustainable use of water resources in the production processes. In 2019, IMC enterprises approved and brought into force the Procedures for Use and Protection of Water Resources. These Procedures introduced the uniform requirements for the processes associated with the collection, use and protection of water resources used for the production and household needs. They are binding for units and officers of IMC enterprises.
Waste management
The main tasks of the waste management system at IMC enterprises is to reduce the volume of the waste generated, to fully collect it, to store it safely, and to increase the recycling volume.
IMC enterprises have the uniform Procedures for Collection, Temporary Storage and Transfer of Wastes for Disposal (Treatment, Removal, Decontamination) for each class and type of waste generated as a result of the enterprises’ operations. These corporate Procedures introduce the uniform systemic and efficient approach to waste management.
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Energy efficiency and power saving
IMC is reducing the consumption of power resources and organising power-efficient production.
IMC does its best to improve ecological indicators at the enterprises in order to mitigate the negative impact upon the environment.
Social policy
IMC’s enterprises have been adhering to approved social policy.
Main principals are the following:
- The key target audience for social activities is a resident of a village living in the regions where IMC operates;
- Realization of social policy is carried out only according to certain priority directions;
- Financing of social activities is carried out exclusively within the framework of the annual budget approved;
- IMC does not provide assistance to religious organizations and political parties.
Priority directions of social policy:
- Targeted assistance to landlords of IMC’s enterprises;
- Rural development and consumer services;
- Assistance to school and pre-school institutions;
- Health care, assistance in medical care of peasants (realization of medical projects);
- Assistance in the developments of the culture;
- Help in the development of sport in the countryside.
Annual report 2021
Single management report
Corporate responsibility
31
All investments and initiatives in social projects including personalized support and projects of local infrastructure maintenance and development (roads, water supply, public lighting, schools, kindergartens, FAPs and medical points etc.) that IMC conducts within the villages it operates are conducted on the principles of «IMC. Aid to People» program. The Program includes obligatory social consultations and PR efforts for all significant investments. Local communities are involved in projects prioritization, budgeting and planning of necessary actions.
Innovative technologies and R&D
In 2017 the Precision Farming department and Research and development department were formed.
Innovative technologies used in operating activities:
• Autopilot systems with RTK accuracy - allows to increase efficiency of carrying out of any field operations by 6-8% and corresponding saving of fuel.
• Section control systems on sowing and spraying - a technology that allows to switch off sections at overlaps and save significantly on chemicals, seed and fertilizers.
• Row Sense system and Row Vision system on spraying machines - technology that avoids trampling plants when spraying industrial crops.
• Monitoring the quality of field operations - each seeder and sprayer machine has a controller, which records the actual work done.
• Wialon GPS monitoring system - a software product that is used to organize the traffic control of machines, control fuel and record of work done.
• Satellite monitoring - periodically, during the year, satellite monitoring of all crops in the fields of the IMC is carried out to identify deviations in the growing of crops.
• Carrying aerial photography by drones - each of our enterprises is equipped with drones, which provides detailed aerial survey of fields, allowing quickly identification of the nature of heterogeneity and react to any deviations in the vegetation of plants.
• Yield sensors systems on each combine for yield mapping of each field.
• Implementation of Precision Planting equipment into sowing process – extremely increases quality of sowing.
• NFC field data transmition between trucks & weighing system on each grain cart – to control grain movement from field to storage.
• Agrogeoportal - PreAgri - it acts as the only platform for collecting, storing, processing and visualizing all geospatial data from fields.
• Meteo stations network within our fields.
• Permanent field rout optimization and boundaries actualization with digital GIS tools.
To improve the qualitative and quantitative characteristics of the activity, IMC conducts research on new technologies and products.
19,00
2,50
0,40
0,70
1,80
1,00
12,20
0,70
2,70
1,70
1,00
0,30
Targeted assistance to landlords
Rural development
Road repair
Cultural & Sport events sponsorship
Sponsorship of school and preschool institutions
Providing assistance to hospitals to combat coronavirus disease
2020
2021
The investments and initiatives for social projects 2021 UAH 18,6 mln (2020 – UAH 25,4 mln)
Annual report 2021
Single management report
Corporate responsibility
32
The elements of precision farming are tested and introduced by R&D department: systems for GPS-monitoring of the machinery, auto-piloting, satellite monitoring, variable rate for seeding and fertilization. Main types of experiments are connected with hybrids and varieties (seeding materials), plant protection products, plant fertilizer systems, precision farming systems, soil tillage systems, testing of agricultural equipment (drillers, planters, sprayers etc.).
The results of the work of R&D department:
- Testing of optimal seeding rate (different from the recommendations of the seed manufacturer) and selecting of optimal protection products was carried out. The results of the experiments were applied in practice, which allows saving materials while maintaining the qualitative and quantitative characteristics of the future crop.
- Precision planting equipment was tested and introduced to large scale production.
- R&D department created separate trial fields (Agropolygons) with small plots in all clusters of IMC. This approach helps us to concentrate big amount of trials in one location and to analyze the results of trials in equal conditions in more scientific way than previously.
- R&D department has successfully implemented the new approach to accounting trials using GIS technologies (joined project with OneSoil and ClimateFieldview), as a resul—creation of small plot trials.
There were no development costs capitalized in the accounts, the research is done internally and is consequently captured mainly in the costs of personnel and amounted USD 115 thousand for Y2021 (USD 166 thousand for Y2020).
Annual report 2021
Single management report
War in Ukraine
33
War in Ukraine
On 24 February 2022 Russian troops invaded Ukraine and peaceful Ukrainian cities were shelled by missiles. Russia has started a full-scale war against Ukraine.
Production sites and lands cultivated by enterprises of IMC S.A. are located in Chernihiv, Sumy and Poltava regions of Ukraine, where active hostilities were underway. Part of Chernihiv and Sumy regions were occupied, but the Armed Forces of Ukraine managed to liberate these regions. As of the date of publication of the Annual report all the Group's assets are located in the de-occupied territories.
As a result, the Group's business activities have been affected as follows:
• None of the Group's critical facilities or infrastructure has suffered any significant damage.
• All of the Group’s inventories are in good condition and are in safe storage.
• As of today all the Group's assets are located in the de-occupied territories.
• T he G roup does not have a labor shortage and has managed to retain its staff. The Group’s key personnel and top managers continue working but remotely. Most of the staff at the enterprises returned to work in the office or in production.
• The Group's companies continue to pay all taxes required by law and to comply with all business rules, regardless of martial law.
• The Group provides comprehensive assistance and support in the fight against the occupier. IMC provides all available material resources of the company, which are necessary for the protection of our Motherland and the people of Ukraine. Hundreds of our employees are fighting in the Armed Forces of Ukraine and the Territorial Defense.
• Black Sea ports in Ukraine remain blocked for export activities. Alternative logistics chains for grain exports through seaports of other neighboring countries were developed by IMC team. The first shipments were made in the middle of May 2022.
• On 15 May 2022 the most difficult spring sowing in the entire 15-year history of IMC company was completed. A total of 19.2 thousand hectares of sunflower and 50.2 thousand hectares of corn were sown. Given the 18.4 thousand hectares of winter wheat sown in the fall of 2021, as of today 73% of the Company's land bank is sown. The rest of the lands in the Chernihiv region were under active hostilities, so the area is currently being inspected for explosives (mines, blind artillery and mortar shells, missile remnants, etc) and we plan to return them to production in the fall.
Management has identified the following specific risks to the Group's activities due to the war:
- Destruction of fixed assets;
- Loss of stocks of inventories;
- Loss of access to the assets in case of occupation of territories;
- Employee-related risks ;
- Disruption of logistics routes in Ukraine;
- Inability to conduct export activities;
- Potential cyber attack.
The Group has no influence on most factors, but the Management has taken possible precautionary measures:
- Part of the mobile machineries was moved from the northern branches to other regions of the Group, as there is a risk of re-occupation.
- Training work was carried out with the staff on behavior and personal safety in wartime, certain work processes were reconfigured to ensure the safety of employees in the performance of their duties, the number of fire protection equipment and first aid kits at workplaces was increased.
- Cyber attack response plans have been developed.
Annual report 2021
Corporate governance statement
34
Corporate governance statement
Corporate governance
Corporate governance within the Company is based on the Luxembourg law and the listing requirements of the Warsaw Stock exchange where the trading in the Company shares takes place. The Company follows Code of Best Practices for WSE Listed Companies that entered into force on 1 January 2016 (the “2016 WSE Code”, as amended on 13 October 2015). New Code of Best Practices for WSE Listed Companies entered into force on 1 July 2021 (the “2021 WSE Code”, as amended on 29 March 2021). Currently, the Company is moving to the new Code and is preparing a report on this. Until the report is issued, the requirements of the previous Code apply.
The Company's corporate governance rules are based on the Company's Articles of Association (the “Articles”), and the corporate governance charter (the “Corporate Governance Charter”), and the Company's internal regulations.
Board of Directors
According to the Articles of Association, the Company shall be managed by the Board of Directors composed of at least five members, their number being determined by the general meeting of shareholders. Directors need not be shareholders of the Company. The Board of Directors is composed of executive and non-executive directors. At least two directors shall be independent non-executive directors.
The directors shall be elected by the general meeting of shareholders for a period not exceeding six (6) years and until their successors are elected, provided, however, that any director may be removed at any time by a resolution taken by the general meeting of shareholders. The directors shall be eligible for reappointment.
In the event of vacancy in the office of a director because of death, resignation or otherwise, the remaining directors elected by the general meeting of shareholders may elect a director to fill such vacancy until the next general meeting of shareholders.
Directors
Name
Initial date of appointment
End of mandate
1. Mr. Alex Lissitsa, Executive Director, CEO
29 March 2012
2022
2. Mr. Dmytro Martyniuk, Executive Director, CFO
09 March 2011
2022
3. Mr. Oleksandr Petrov, Executive Director, Chairman
09 March 2011
2022
4. Mr. Oleksandr Verzhykhovskyi, Executive Director, COO
10 January, 2020
2022
5. Mrs. Krysenko Olena, Executive Director, Commercial Director
10 January, 2020
2022
6. Mr. Sergii Klimishyn, Executive Director, Legal Director
10 January, 2020
2022
7. Mr. Alfons Balman, Non-executive Director
10 September 2013
2022
8. Mr. Kamil Jan Gaworecki, Non-executive Director
01 June 2016
2022
With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association and with regards to Luxembourg Companies Law 1915. The Articles of Association may be amended from time to time by a general meeting of the shareholders under the quorum and majority requirement provided for by the law of 10 August 1915 on commercial companies in Luxembourg, as amended.
The present Board is composed of two independent directors and six directors who either are employed by subsidiaries of the Company or hold over 5% of votes in the Company.
Independence is assessed taking into consideration the criterias stated in Annex II of the European Commission Recommendation of 15 February 2005.
Annual report 2021
Corporate governance statement
35
Powers of Directors
The Board is responsible for managing the business affairs of the Company within the clauses of the Article of Association. The directors may only act at duly convened meetings of the Board of Directors or by written consent in accordance with article 12 of Articles of Association.
The Board of Directors is vested with the broadest powers to act on behalf of the Company and to perform or authorize all acts of administrative or disposal nature, necessary or useful for accomplishing the Company's object. All powers, not expressly reserved by the Law to the sole shareholder or, as the case may be, to the general meeting of shareholders, fall within the competence of the Board of Directors.
Meetings of the Board of Directors
The Board of Directors meets upon notice given by the Chairman. A meeting of the Board of Directors must be convened if any two directors so require. The Chairman presides at all meetings of the Board of Directors. In case of chairman’s absence, the Board of Directors may appoint another director as chairman pro tempore by vote of the majority present or represented at such meeting. Except in cases of urgency or with the prior consent of all those entitled to attend, there should be given a written notice of at least twenty-four hours before the meeting of the Board of Directors. Any such notice shall specify the place, the date, time and agenda of the meeting. The notice may be waived by unanimous written consent by all the directors at the meeting or otherwise. No separate notice is required for meetings held at times and places specified in a time schedule previously adopted by resolution of the Board of Directors.
Every board meeting shall be held in Luxembourg or at such other place indicated in the notice.
Decisions will be taken by a majority of the votes of the directors, present or represented at the relevant meeting. Each director has one vote. In case of a tied vote, the Chairman has a casting vote.
One or more directors may participate in a meeting by means of a conference call, by video conference or by any similar means of communication enabling several persons participating therein to simultaneously communicate with each other. Such methods of participation are to be considered equivalent to a physical presence at the meeting.
A written decision passed by circular means and transmitted by cable, facsimile or any other similar means of communication, signed by all the directors, is proper and valid as though it had been adopted at a meeting of the Board of Directors, which was duly convened and held. Such a decision can be documented in a single document or in several separate documents having the same content and each of them signed by one or several directors. Except as far as a written decision passed by circular means is concerned, the minutes of the meeting of the Board of Directors shall be signed by the Chairman of the relevant meeting or any two directors or as resolved at the relevant board meeting or a subsequent board meeting. Any proxies will remain attached thereto.
The Board has established processes regarding internal control and risk management systems to ensure its effective oversight of the financial reporting process. These include appointing an independent administrator (the “Administrator”) to maintain the accounting records of the Company independent of IMC S.A. The Administrator has a duty of care to maintain proper books and records and prepare for review and approval by the Board the annual accounts intended to give a true and fair view. The Board has appointed LGL Corporate Services (Luxembourg) S.A. as Administrator. (previously known as Totalserve Management (Luxembourg) S.à.r.l.).
Committees
Audit Committee
The Audit committee has been established by the Board to assist the Board of directors with independent verifying and safeguard of the integrity of the company’s financial reporting; and oversee the independence of the external auditors
The Committee has responsibility for the following:
(a) Monitoring the establishment of an appropriate internal control framework;
(b) Monitoring corporate risk assessment and compliance with internal controls;
(c) Overseeing business continuity planning and risk mitigation arrangements;
(d) Reviewing reports on any material defalcations, frauds and thefts from the Group;
Annual report 2021
Corporate governance statement
36
(e) Monitoring compliance with relevant legislative and regulatory requirements (including continuous disclosure obligations) and declarations by the Secretary in relation to those requirements;
(f) Reviewing the nomination, performance and independence of the external auditors;
(g) Liaising with the external auditors and ensuring that the annual audit is conducted in an effective manner that is consistent with Committee members’ information and knowledge and is adequate for shareholder needs;
(h) Reviewing management processes supporting external reporting;
(i) Reviewing annual accounts and consolidated financial statements and other financial information distributed externally; and
(j) Reviewing external audit reports to ensure that, where major deficiencies or breakdowns in controls or procedures have been identified, appropriate and prompt remedial action is taken by management.
The Committee has an advisory role, consistent with its purpose of assisting the Board in relation to the matters with which it is charged with responsibility, and does not have any power to commit the Board to any recommendation or decision made by it except for matters relating to the appointment, oversight, remuneration and replacement of the external auditors.
The Committee has unrestricted access to management and the external auditors as it may consider appropriate for the proper performance of its function.
The Board of Directors shall appoint the chairman and members of the Audit Committee from among the non-executive directors and external members which must be independent. The Audit Committee will comprise a minimum of two members. In any case the chairman of the Audit Committee must be appointed from among non-executive directors.
As of 31 December 2021 Audit committee consisted of two members, Alfons Balmann (chairman), a non-executive director and Kamil Jan Gaworecki (member), non-executive director. In the year 2021 the work of the Audit Committee was confined to reviewing the interim consolidated financial statements and interim accounts and reports issued in relation with the payment of the interim dividends thereon, the consolidated financial statements and annual accounts and audit reports thereon and appointment of external auditor. In addition, Audit Committee had held meetings as it is determined in the Corporate governance chart.
Remuneration Committee
The role of the Committee is to advise on remuneration and issues relevant to remuneration policies and practices for senior management.
The Responsibility of the Remuneration Committee includes issues regarding salaries, bonus programs and other employments terms of the CEO and senior management in conjunction with the Board.
Notably, the Remuneration Committee is responsible for:
- submitting proposals to the Board regarding the remuneration of directors and managers, ensuring that these proposals are in accordance with the remuneration policy adopted by the Company (not adopted yet)
- discussing with the chief executive officer the performance of executive management and of the individual executives at least once a year based on evaluation criteria clearly defined. The chief executive officer should not be present at the discussion of his own evaluation;
- ensuring that the remuneration of non-executive directors is proportional to their responsibilities and the time devoted to their functions.
The Board of Directors shall appoint the chairman and members of the Remuneration Committee from among the non-executive directors and external members which must be independent. The Remuneration Committee will comprise a minimum of two members. In any case the chairman of the Remuneration Committee must be appointed from among non-executive directors.
Annual report 2021
Corporate governance statement
37
Personnel
IMC employs people based on principles of equal opportunity, without distinction to race, color, gender, sexual orientation, religion, descent or origin. IMC standards related to employees and human rights are declared in the following documents:
- Non-discrimination and equal opportunities in employment Policy
- Non-discrimination on grounds of sexual orientation and gender identity Policy
- Policy of collective bargaining
- Policy on freedom for workers to form or join trade unions
- Policy of nursing and expectant mothers
- Policy on working hours and overtime
- Employment of young person under the age of 18 Policy.
Policies are freely available to all employees and guests of IMC. The company’s policy prohibits discrimination based on color, ethnic or social origin, sex, pregnancy, civil, family status or status of a person caring for, language, religion or other opinion, political or other opinion, national or social origin, citizenship, economic status, association with a national minority, gender identity, age, disability, state of health, genetic characteristics of a person, and other signs or combinations of any of these attributes, actual or imaginary, as well as prohibits discrimination on the basis of association for any of the above listed features.
Internal control and risk management
The Company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of financial records that, in reasonable detail, accurately and fairly reflect the transactions and disposals of the assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of annual accounts and consolidated financial statements. In accordance with Luxembourg legal and regulatory requirements, that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposals of the Company’s assets that could have a material effect on the financial statements.
External audit
In accordance with the Luxembourg law on commercial companies, an external auditor appointed by the annual general meeting of shareholders certifies the Company’s annual and consolidated accounts.
The external audit functions for consolidated financial statements for Y2021 and Y2020 were carried by BDO Audit S.A.
Takeover bids Law statement
• The structure of the capital of the Company is represented in Note 28. The Company is a publicly listed company whose shares are owned primarily by investors and Agrovalley Limited whose beneficial owner is Mr. Oleksandr Petrov, chairman of the Board of Directors. As of 31 December 2021, Mr. Oleksandr Petrov held 26 945 415 shares in the Company, what is equal to 81,21%;
• The Company has no securities which are not admitted to trading on a regulated market;
• The Company has no restrictions on the transfer of securities, such as limitations on the holding of securities or the need to obtain the approval of the company or other holders of securities, without prejudice to article 46 of Directive 2001/34/EC;
• The details of those shareholders with an interest of 5% or more in the issued share capital of the Company, as notified to the Company, are set out in Note 28. The Company has no other significant direct or/and indirect shareholdings (including indirect shareholdings through pyramid structures and cross-shareholdings);
• The Company has no holders of any securities with special control rights. Transfer of shares is governing by the Articles of Association of the Company;
• The Company has no adopted system of control of any employee share scheme where the control rights are not exercised directly by the employees;
Annual report 2021
Corporate governance statement
38
• The Company has no adopted restrictions on voting rights, such as limitations of the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the company’s cooperation, the financial rights attaching to securities are separated from the holding of securities;
• All of the issued and outstanding shares in the Company have equal voting rights and there are no special control rights attaching to the shares;
• The Company didn’t receive the information about existence of any agreements between shareholders that may result any restrictions within the meaning of Directive 2001/34/EC;
• The Company has no any agreements to which the company is a party and which take effect, alter or terminate upon a change of control of the company following a takeover bid, and the effects thereof, except where their nature is such that their disclosure would be seriously prejudicial to the Company;
• The Company grants non-availability of any agreements between the company and its board members or/and employees providing for compensation if they resign or are made redundant without valid reason or if their employment ceases because of a takeover bid.
Insider Dealing
The Company follows Luxembourg Stock Exchange, Warsaw Stock Exchange and insider trading policy rules in regards to the disclosure of insider dealing, which require all Board Members to notify the Company with regards to all transactions in the shares in the Company. Following the rules of the notification, the Company notifies both stock exchanges via appropriate regulatory filings.
On behalf of the Board of Directors:
Chief Executive Officer ALEX LISSITSA ______ signed ________
Chief Financial Officer DMYTRO MARTYNIUK ______ signed ________
Annual report 2021
Consolidated financial statements
Management responsibility statement
39
Management Responsibility Statement
This statement is provided to confirm that, to the best of our knowledge, the Consolidated financial statements for the year ended 31 December 2021, and the comparable information, have been prepared in compliance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union and give a true and fair view of the Group’s assets, liabilities, financial position and profit or loss of IMC S.A Group and the undertakings included in the consolidation taken as a whole and that the single management report includes a fair review of the development and performance of the business and the position of IMC S.A Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board of Directors:
Chief Executive Officer ALEX LISSITSA ______ signed ________
Chief Financial Officer DMYTRO MARTYNIUK ______ signed ________
Annual report 2021
Report of the Réviseur d’entreprises agréé
40
Annual report 2021
Report of the Réviseur d’entreprises agréé
41
Annual report 2021
Report of the Réviseur d’entreprises agréé
42
Annual report 2021
Report of the Réviseur d’entreprises agréé
43
Annual report 2021
Report of the Réviseur d’entreprises agréé
44
Annual report 2021
Report of the Réviseur d’entreprises agréé
45
Annual report 2021
Consolidated financial statements
Consolidated statement of comprehensive income
46
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
(in thousand USD, unless otherwise stated)
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
CONTINUING OPERATIONS
Revenue
6
181 693
161 387
Gain from changes in fair value of biological assets and agricultural produce, net
7
113 184
77 022
Cost of sales
8
( 183 900 )
( 159 170 )
GROSS PROFIT
110 977
79 239
Administrative expenses
9
( 11 333 )
( 11 258 )
Selling and distribution expenses
10
( 16 375 )
( 15 839 )
Other operating income
11
4 442
1 315
Other operating expenses
12
( 1 901 )
( 2 056 )
Write-offs of property, plant and equipment
( 251 )
( 82 )
Reversal of impairment of property, plant and equipment
-
120
Impairment of property, plant and equipment
-
( 1 090 )
OPERATING PROFIT
85 559
50 349
Financial expenses, net
15
( 789 )
( 2 137 )
Effect of lease of right-of-use assets
19
( 7 201 )
( 7 234 )
Effect of additional return
29
-
( 872 )
Foreign currency exchange (loss)/gain, net
16
2 255
( 7 918 )
PROFIT BEFORE TAX FROM CONTINUING OPERATIONS
79 824
32 188
Income tax expenses, net
17
( 1 114 )
( 483 )
NET PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS
78 710
31 705
Net profit/(loss) for the period attributable to:
Owners of the parent company
79 512
31 788
Non-controlling interests
( 802 )
( 83 )
Weighted average number of shares
33 178 000
33 178 000
Basic profit per ordinary share (in USD)
40
2.40
0.96
OTHER COMPREHENSIVE INCOME/(LOSS)
Items that may be reclassified to profit or loss:
Effect of foreign currency translation
4 423
( 24 208 )
Items that will not be reclassified to profit or loss:
Revaluation of property, plant and equipment
-
5 265
Deferred tax charged directly to revaluation of property, plant and equipment
-
( 628 )
Deferred tax charged directly to amortization of revaluation reserve
445
140
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS)
4 868
( 19 431 )
TOTAL COMPREHENSIVE PROFIT
83 578
12 274
Comprehensive income/(loss) attributable to:
Owners of the parent company
84 373
12 405
Non-controlling interests
( 795 )
( 131 )
__________ signed ____________
Alex Lissitsa
__________ signed ____________
Dmytro Martyniuk
Chief Executive Officer
Chief Financial Officer
Annual report 2021
Consolidated financial statements
Consolidated statement of financial position
47
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
(in thousand USD, unless otherwise stated)
Note
31 December 2021
31 December 2020
ASSETS
Non-current assets
Property, plant and equipment
18
64 128
65 881
Right-of-use assets
19
168 614
93 963
Intangible assets
20
900
1 230
Non-current biological assets
21
1 769
2 027
Prepayments for property, plant and equipment
154
159
Total non-current assets
235 565
163 260
Current assets
Inventories
22
121 104
81 978
Current biological assets
23
16 784
11 269
Trade accounts receivable, net
24
281
202
Prepayments and other current assets, net
25
11 305
5 389
Prepayments for income tax
30
-
Cash and cash equivalents
27
28 830
17 990
Total current assets
178 334
116 828
TOTAL ASSETS
413 899
280 088
LIABILITIES AND EQUITY
Equity attributable to the owners of parent company
Share capital
28
59
59
Share premium
28
29 512
29 512
Revaluation reserve
28
35 207
40 151
Retained earnings
255 785
201 973
Effect of foreign currency translation
( 129 042 )
( 133 458 )
Total equity attributable to the owners of parent company
191 521
138 237
Non-controlling interests
( 605 )
190
Total equity
190 916
138 427
Non-current liabilities
Deferred tax liabilities
17
2 895
3 177
Long-term loans and borrowings
30
4 524
4 207
Long-term lease liabilities as to right-of-use assets
19
152 416
82 396
Total non-current liabilities
159 835
89 780
Current liabilities
Current portion of long-term borrowings
30
2 247
3 023
Current portion of long-term lease liabilities as to right-of-use assets
19
18 568
16 765
Short-term loans and borrowings
31
26 000
26 000
Trade accounts payable
32
3 222
963
Other current liabilities and accrued expenses
33
13 111
5 116
Income tax liabilities
-
14
Total current liabilities
63 148
51 881
Total liabilities
222 983
141 661
TOTAL LIABILITIES AND EQUITY
413 899
280 088
__________ signed ____________
Alex Lissitsa
__________ signed ____________
Dmytro Martyniuk
Chief Executive Officer
Chief Financial Officer
Annual report 2021
Consolidated financial statements
Consolidated statement of changes in equity
48
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
(in thousand USD, unless otherwise stated)
Share capital
Share premium
Revaluation reserve
Retained earnings
Effect of foreign currency translation
Total
Non- controlling interests
Total equity
31 December 2019
59
29 512
39 654
172 945
( 109 298 )
132 872
321
133 193
С omprehensive income/(loss) for the period
Profit/(loss) for the period
-
-
-
31 788
-
31 788
( 83 )
31 705
Amortization of revaluation reserve
-
-
( 4 280 )
4 280
-
-
-
-
Deferred tax charged directly to amortization of revaluation reserve
-
-
140
-
-
140
-
140
Revaluation of property, plant and equipment
-
-
5 265
-
-
5 265
-
5 265
Deferred tax charged directly to revaluation of property, plant and equipment
-
-
( 628 )
-
-
( 628 )
-
( 628 )
Other comprehensive income
-
-
-
-
( 24 160 )
( 24 160 )
( 48 )
( 24 208 )
Total comprehensive profit/(loss)
-
-
497
36 068
( 24 160 )
12 405
( 131 )
12 274
Contributions by and distributions to owners
Distribution of dividends
-
-
-
( 7 040 )
-
( 7 040 )
-
( 7 040 )
31 December 2020
59
29 512
40 151
201 973
( 133 458 )
138 237
190
138 427
31 December 2020
59
29 512
40 151
201 973
( 133 458 )
138 237
190
138 427
С omprehensive income/(loss) for the period
Profit/(loss) for the period
-
-
-
79 512
-
79 512
( 802 )
78 710
Amortization of revaluation reserve
-
-
( 5 389 )
5 389
-
-
-
-
Deferred tax charged directly to amortization of revaluation reserve
-
-
445
-
-
445
-
445
Other comprehensive income
-
-
-
-
4 416
4 416
7
4 423
Total comprehensive profit/(loss)
-
-
( 4 944 )
84 901
4 416
84 373
( 795 )
83 578
Contributions by and distributions to owners
Distribution of dividends
-
-
-
( 31 089 )
-
( 31 089 )
-
( 31 089 )
31 December 2021
59
29 512
35 207
255 785
( 129 042 )
191 521
( 605 )
190 916
__________ signed ____________
Alex Lissitsa
__________ signed ____________
Dmytro Martyniuk
Chief Executive Officer
Chief Financial Officer
Annual report 2021
Consolidated financial statements
Consolidated statement of cash flows
49
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
(in thousand USD, unless otherwise stated)
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit before tax from continuing operations
79 824
32 188
Adjusted to reconcile profit before tax with net cash used in operating activities:
Gain from changes in fair value of biological assets and agricultural produce, net
7
( 113 184 )
( 77 022 )
Disposal of revaluation of biological assets and agricultural produce in the cost of sales, net
8
92 666
67 260
Depreciation and amortization
13
24 538
20 438
Effect of lease of right-of-use assets
19
7 201
7 234
Interest expenses and other financial expenses
15
1 501
2 731
Foreign currency exchange loss/(gain), net
16
( 2 406 )
8 139
Loss/(gain) on disposal of property, plant and equipment
11 , 12
50
( 209 )
Effect of additional return
29
-
872
Deferred expenses on options
-
851
Write-offs of property, plant and equipment
251
82
Gain on recovery of assets previously written off
11
( 133 )
( 233 )
Interest income
15
( 712 )
( 594 )
Accruals for unused vacations
1 475
1 629
Accruals for audi t services
52
101
Write-offs of VAT
12
63
71
Shortages and losses due to impairment of inventories
12
16
82
Income from write-offs of accounts payable
11
( 162 )
( 339 )
Gain on disposal of inventories
11
( 41 )
11
Allowance for doubtful accounts receivable
12
179
52
Effect of modification of right-of-use assets
11
( 3 681 )
-
Government grants recognised as income
11
-
( 34 )
Reversal of impairment of property, plant and equipment
-
( 120 )
Impairment of property, plant and equipment
-
1 090
Cash flows from operating activities before changes in working capital
87 497
64 280
Changes in trade accounts receivable
( 204 )
391
Changes in prepayments and other current assets
( 5 069 )
632
Changes in inventories
( 19 575 )
4 441
Changes in current biological assets
( 645 )
99
Changes in trade accounts payable
2 233
( 1 495 )
Changes in other current liabilities and accrued expenses
6 165
( 4 257 )
Cash flows from operations
70 402
64 091
Interest paid on loans and borrowings
( 1 348 )
( 2 597 )
Interest paid on lease liabilities as to right-of-use assets
( 866 )
( 1 035 )
Income tax paid
( 1 111 )
( 496 )
Net cash flows from operating activities
67 077
59 963
__________ signed ____________
Alex Lissitsa
__________ signed ____________
Dmytro Martyniuk
Chief Executive Officer
Chief Financial Officer
Annual report 2021
Consolidated financial statements
Consolidated statement of cash flows
50
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
For the year ended 31 December 2021
(in thousand USD, unless otherwise stated)
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment
( 6 818 )
( 7 126 )
Purchase of intangible assets
-
( 34 )
Proceeds from disposal of property, plant and equipment
661
1 390
Proceeds from government grants
-
34
Net cash flows from investing activities
( 6 157 )
( 5 736 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term and short-term borrowings
14 949
25 417
Repayment of long-term and short-term borrowings
( 15 408 )
( 40 094 )
Repayment of long-term and short-term lease liabilities as to right-of-use assets
( 18 772 )
( 16 050 )
P ayment of dividends
( 31 089 )
( 7 040 )
Net cash flows from financing activities
( 50 320 )
( 37 767 )
NET CASH FLOWS
10 600
16 460
Cash and cash equivalents as at the beginning of the period
27
17 990
5 182
Effect of translation into presentation currency
240
( 3 652 )
Cash and cash equivalents as at the end of the period
27
28 830
17 990
__________ signed ____________
Alex Lissitsa
__________ signed ____________
Dmytro Martyniuk
Chief Executive Officer
Chief Financial Officer
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
51
1
Description of formation and business
IMC S.A. (the “Parent company”) is a limited liability company registered under the laws of Luxembourg on 28 December 2010 for an unlimited period of time. IMC S.A. was formed to serve as the ultimate holding company of Unigrain Holding Limited and its subsidiaries. The registered address of IMC S.A. is L-1468, 16 rue Erasme, Luxembourg, Grand Duchy Luxembourg , its register number within the Registre de Commerce et des Sociétés du Luxembourg is RCS B157843.
IMC S.A. and its subsidiaries (the “Group” or the “IMC”) is an integrated agricultural company in Ukraine.
The main areas of the Group’s activities are:
- cultivation of grain and oilseeds crops, potato production;
- dairy farming;
- storage and processing of grain and oilseeds crops.
The Group is among Ukraine’s top-10 industrial milk producers. The grain and oilseeds crops produced by the Group are sold in both the Ukrainian and export markets.
All companies comprising the Group were under the control of the same beneficial owner Mr. Petrov O.L. as at all the reporting dates and have effectively operated as an operating group under common management.
The principal activities of the companies comprising the Group are as follows:
Cumulative ownership ratio, %
Operating entity
Principal activity
Registered office
Year established/ acquired
31 December 2021
31 December 2020
IMC S.A.
Holding company
Luxembourg
28.12.2010
100
100
Burat-Agro Ltd.
Agricultural production
Ukraine
31.12.2007
100
100
Burat Ltd.
Grain elevator
Ukraine
31.12.2007
100
100
Chernihiv Industrial Milk Company Ltd.
Agricultural and farming production
Ukraine
31.12.2007
100
100
PrJSC Poltava Kombilormoviy Zavod
Granting of PPE into finance lease
Ukraine
31.12.2007
-
87,58
PrJSC Mlibor
Grain elevator
Ukraine
31.05.2008
74,41
74,28
Unigrain Holding Limited
Subholding company
Cyprus
02.06.2009
100
100
Aristo Eurotrading Limited
Trading company
British Virgin Islands
30.08.2011
100
100
PrJSC “Vyryvske HPP”
Grain elevator
Ukraine
28.12.2011
80,61
80,61
PAC Slobozhanschina Agro
Agricultural production
Ukraine
26.06.2012
100
100
Agroprogress PE
Agricultural production
Ukraine
28.12.2012
100
100
Bobrovitsky Hlebzavod Ltd
Bakery production
Ukraine
28.12.2012
100
100
PrJSC “Bobrovitske HPP”
Grain elevator
Ukraine
28.12.2012
92,83
92,83
Nosovsky Saharny Zavod Ltd
Storage facilities
Ukraine
28.12.2012
100
99,9
Negoce Agricole S.a r.l.
Trading company
Luxembourg
19.11.2013
100
100
AgroKIM Ltd.
Agricultural production, grain elevator
Ukraine
30.12.2013
100
100
Aristo Eurotrading HK Limited
Trading company
Hong Kong
21.06.2019
100
100
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
52
Today IMC is the vertically integrated and high-technology group of companies operating in Sumy, Poltava and Chernihiv region (northern and central Ukraine).
The Group controls 120,3 thousand ha (120,0 thousand ha under processing of high quality arable land). As at 31 December 2021 the Group operates in three segments: crop farming, dairy farming, elevators and warehouses.
The financial year of the Group begins on 01 January of each year and terminates on 31 December of each year.
The Group’s Consolidated financial statements are public and available at:
http://www.imcagro.com.ua/en/investor-relations/financial-reports
.
Stock information about the Company (company code name on WSE: IMCOMPANY (LU0607203980)):
https://www.gpw.pl/company-factsheet?isin=LU0607203980
Statement of compliance
These Consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European Union.
These Consolidated financial statements are based on principal accounting policies and critical accounting estimates and judgments that are set out below. These accounting policies and assumptions have been applied consistently to all periods presented in these Consolidated financial statements.
Companies comprising the Group which are incorporated in Ukraine maintain their accounting records in accordance with Ukrainian regulations. Ukrainian statutory accounting principles and procedures differ from those generally accepted under IFRS. Accordingly, the Consolidated financial statements, which have been prepared from the Ukrainian statutory accounting records for the entities of the Group domiciled in Ukraine, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS.
These Consolidated financial statements as at 31 December 2021 prepared in compliance with IFRS as approved by the European Union are approved on behalf of the Group’s Board of Directors on 15 May 2022.
Going concern
These Consolidated financial statements have been prepared on a going concern basis, which contemplates the disposal of assets and the settlement of liabilities in the normal course of business. The recoverability of Group’s assets, as well as the future operations of the Group, may be significantly affected by the current and future economic environment. Management believes that Group has reliable access to sources of financing capable to support appropriate operating activity of Group entities. These Consolidated financial statements do not include any adjustments should the Group be unable to continue as going concern. For further information, relating to the impact on going concern of the post balance sheet event “War in Ukraine,” see pages 66 and 101.
Basis of measurement
The Consolidated financial statements are prepared under historical cost basis except for the revalued amounts of property, plant and equipment, fair values of biological assets and agricultural produce.
Use of estimates
The preparation of these Consolidated financial statements involves the use of reasonable accounting estimates and requires the Management to make judgments in applying the Group's accounting policies. These estimates and assumptions are based on
2
Basis of preparation of the financial statements
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
53
Management’s best knowledge of current events, historical experience and other factors that are believed to be reasonable. Note 4 contains areas, related to a high degree of importance or complexity in decision-making, or areas where assumptions and estimates are important for amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the end of the reporting period.
Foreign currency translation
The Group’s management has decided to present and measure these Consolidated financial statements in United States Dollars (“USD”) for the purposes of convenience of users of these financial statements.
Functional and presentation currency
Items included in the financial statements of each of the Group's companies are measured using the currency of the primary economic environment in which the company operates (“the functional currency”). For the companies of the Group operating in Ukraine the Ukrainian Hryvna (“UAH”) is the functional currency. For the companies operating in Cyprus and Luxembourg the functional currency is Euro (“EUR”).
These Consolidated financial statements are presented in the thousands of United States Dollars (“USD”), unless otherwise indicated.
Foreign currency transactions and balances
Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
The principal exchange rates used in the preparation of these Consolidated financial statements are as follows:
Translation into presentation currency
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
- assets and liabilities for each balance sheet presented are translated at the official rate at the date of the balance sheet;
- income and expenses are translated at average exchange rate for the period, unless fluctuations in exchange rates during that period are significant, in which case income and expenses are translated at the rate on the dates of the transactions;
- all the equity and provision items are translated at the rate on the dates of the transactions;
- all resulting exchange differences are recognized as a separate component of other comprehensive income;
- in the consolidated statement of cash flows cash balances at the beginning and end of each presented period are translated at rates prevailing at corresponding dates. All cash flows are translated at average exchange rates for the periods presented. Exchange differences arising from the translation are presented as the effect of translation into presentation currency.
Principles of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are
Currency
31 December 2021
Average for the 2021
31 December 2020
Average for the 2020
31 December 2019
UAH/USD
27,2782
27,28346
28,2746
26,9639
23,6862
EUR/USD
1,13
1,18
1,23
1,14
1,12
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
54
fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries. The consideration transferred is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of acquisition, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the consideration transferred is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of comprehensive income.
Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Financial statements of parent company and its subsidiaries, which are used while preparing the Consolidated financial statements, should be prepared as at the same date on the basis of consistent application of accounting policy for all companies of the Group.
3
Summary of significant accounting policies
Property, plant and equipment
Property, plant and equipment are stated at their revalued amounts that are the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Any accumulated depreciation at the date of revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.
If there is no data about the market value of property, plant and equipment due to the nature of highly specialized machinery and equipment, such objects are evaluated according to acquisition expenses under present-day conditions, adjusted by an ageing percentage.
Property, plant and equipment of acquired subsidiaries are initially recognised at their fair value which is based on valuations performed by independent professionally appraisers.
Valuations are performed frequently enough to ensure that the fair value of a remeasured asset does not differ materially from its carrying amount as at reporting date.
Increases in the carrying amount arising on revaluation of property, plant and equipment are recognised in other comprehensive income and accumulated in equity under the line Revaluation reserve. Decreases in the carrying amount as a result of a revaluation are in profit or loss. However, the increase is recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. Decrease related to previous increase of the same asset is recognized against other reserves directly in equity.
The revaluation surplus included in equity in respect of an item of property, plant and equipment is transferred directly to retained earnings as the asset is used by an entity (in the amount that is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost) and when the asset is derecognized (in the full amount).
Subsequent major costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that these replacements will materially extend the life of property, plant and equipment or result in future economic benefits. The carrying amount of the replaced part is derecognized. All other day-to-day repairs and maintenance are charged to the consolidated statement of comprehensive income during the financial period in which they are incurred.
Property, plant and equipment or their essential component are written-off in a case of their disposal or if future economic benefits from use or disposal of such asset are not expected. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the other incomes (expenses) in the consolidated statement of comprehensive income when the asset is derecognized.
Depreciation of an asset begins when it is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by Management. Depreciation of an asset ceases when the asset is derecognized.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
55
Depreciation does not cease when the asset becomes idle or is retired from active use and held for disposal unless the asset is fully depreciated.
Depreciation on assets is calculated using the straight-line method to allocate their revalued amounts to their residual values over their estimated useful lives, as follows:
- Buildings 15-55 years
- Machinery 5-30 years
- Motor vehicles 5-20 years
- Other assets 5-20 years
The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date.
Land is not depreciated.
Construction in progress comprises costs directly related to the construction of property, plant and equipment, as well as the relevant variable and fixed overhead costs related to the construction. These assets are depreciated from the moment when they are ready for operation.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of comprehensive income in other income (expenses) when the asset is derecognized.
The Group determines whether the useful life of an intangible asset is finite or indefinite.
Useful life of intangible assets is indefinite if the Group suggests that the period during which it is expected that the object of intangible assets will generate net cash inflows to the organization has no foreseeable limit. Intangible assets with indefinite useful lives are not amortized, but reviewed for impairment.
Amortisation of intangible assets is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use. The following estimated useful lives, which are re-assessed annually, have been determined for classes of finite-lived intangible assets:
- Land lease rights 5-15 years
- Computer software 5 years
Impairment of property, plant and equipment and intangible assets
The carrying amounts of property, plant and equipment and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated in order to determine the extent of the impairment loss, if any. Where it is impossible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of a cash-generating unit to which the asset belongs.
The recoverable amount is the higher of the fair value of an asset less costs to sell and its value in use. Value in use is the net present value of expected future cash flows, discounted on a pre-tax basis, using a rate that reflects current market assessments of the time value of money.
An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the consolidated statement of comprehensive income.
A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of comprehensive income unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
56
Biological assets
The biological assets are classified as non-current and current depending on the expected pattern of consumption of the economic benefits embodied in the biological assets.
The following categories of biological assets are distinguished by the Group:
- Non-current biological assets of plant-breeding;
- Non-current biological assets of cattle-breeding;
- Current biological assets of plant-breeding;
- Current biological assets of cattle-breeding.
The Group assesses a biological asset at initial recognition and at each balance sheet date at fair value less costs to sell, except for the cases where the fair value cannot be determined with reasonable assurance.
Gains or losses from movements in the fair value of biological assets less estimated selling and distribution expenses of the Group are recorded in the period they are incurred in the consolidated statement of comprehensive income as Gain (loss) from changes in fair value of biological assets and agricultural produce, net.
The Group capitalizes expenses between the reporting dates into the cost of biological assets.
- Biological assets of plant-breeding
The capitalized expenses include all the direct costs and overhead costs related to the farming division. Such costs may include the following costs: raw materials (seeds, mineral fertilizers, fuel and other materials), wages and salaries expenses of production personnel and related charges, amortization and depreciation, land lease expenses and other taxes, third parties’ services and other expenses related to the cultivation and harvesting of biological assets of plant-breeding.
- Biological assets of animal-breeding
The capitalized expenses include all the direct costs and overhead costs related to the livestock breeding. The types of costs that are capitalized in the current biological assets of animal breeding are the following: fodder, means of protection of animals and artificial insemination, fuel and other materials, wages and salaries expenses of production personnel and related charges, amortization and depreciation, third parties’ services and other expenses related to the current biological assets of animal breeding.
All expenses related to the non-current biological assets of cattle breeding are included into the cost of milk. Respectively the Note of non-current biological assets does not include any capitalized costs.
The expenses on works connected with preparation of the lands for future harvest are included into the Inventories as work-in- progress. After works on seeding on these lands the cost of field preparation is reclassified to biological assets held at fair value.
Agricultural produce
The Group classifies the harvested product of the biological assets as agricultural produce. Agricultural produce is measured at its fair value less costs to sell at the point of harvest. The difference between the cost and fair value less costs to sell at the point of harvest of harvested agricultural produce is recognized in the consolidated statement of comprehensive income as Gain (loss) from changes in fair value of biological assets and agricultural produce, net.
After the initial recognising as at the date of harvesting agricultural produce is treated as inventories. Agricultural produce measurement as at the date of harvest becomes inventories' cost to account.
Inventories
Inventories are measured at the lower of cost and net realizable value.
The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
The cost of agriculture produce is its fair value less costs to sell at the point of harvesting.
The cost of work in progress and finished goods includes costs of direct materials and labor and other direct productions costs and related production overheads (based on normal operating capacity). Costs are capitalized in work in progress for preparing and treating land prior to seeding in the next period. Work in progress is transferred to biological assets once the land is seeded.
The cost of inventories is assigned by using FIFO method.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
57
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
The Group periodically analyses inventories to determine whether they are damaged, obsolete or slow-moving or if their net realizable value has declined, and makes an allowance for such inventories. If such situation occurred, the sum remissive the cost of inventories should be reflected as a part of other expenses in consolidated statement of comprehensive income.
Financial instruments
Financial assets and financial liabilities are regognised in the Group’s consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets or financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition for the items not measured at Fair Value through Profit or Loss (FVTPL). Transaction costs that are directly attributable to the acquisition or issue of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
Financial assets
All regular way purchases or sales of financial assets are recognized on a trade date basis.
All recognized financial assets are measured subsequently in their entirety at their amortised cost or fair value, depending on the classification of the financial assets.
The Group's financial assets include cash and cash equivalents, trade receivables and other receivables and are classified as Financial assets at amortised cost.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any different between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.
The Group recognises a loss allowance for expected credit losses on financial assets and updates the allowance at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The expected credit losses are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. The expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate.
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration receives and receivable is recognised in consolidated statement of comprehensive income.
Financial liabilities
All financial liabilities are measures subsequently at amortised cost using the effective interest method or at fair value through profit or loss.
The Group’s financial liabilities include trade payables and other payables, loans and borrowings, which are classified as Financial liabilities at amortised cost.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expenses over the relevant period. The effective interest rate is the rate that exactly discount estimated future cash payments (including all fees and points or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
58
The Group derecognises a financial liability only when the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the sum of the consideration paid and payable is recognised in consolidated statement of comprehensive income.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in consolidated statement of comprehensive income.
Prepayments and other non-financial assets
Prepayments are reflected at nominal value less VAT and accumulated impairment losses, other non-financial assets are reflected at nominal value less accumulated impairment losses.
Prepayments are classified as non-current assets when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition.
An option on Management Incentive Plan is classified as deferred expenses in the amount of exceeding of quoted share price under subscription price with impact on share premium in equity. The deferred expenses are recognized as expenses of the period in the line Wages and salaries of administrative personnel and related charges during the term of exercising of the option.
If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised as a part of other expenses in statement of comprehensive income.
Cash and cash equivalents
Cash and cash equivalents include cash in bank and cash in hand, call deposits.
Leases
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low- value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
• Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.
Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
• Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
59
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
• Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of property, plant and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Taxation
• Income tax
Income tax expense represents the amount of the tax currently payable and deferred tax.
Income tax expenses are recorded as expenses or income in the consolidated statement of comprehensive income, except when they relate to items directly attributable to other comprehensive income (in which case the amount of tax is taken to other comprehensive income), or when they arise at initial recognition of company acquisition.
i. Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates taxable income.
ii. Deferred income tax
Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
- where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
- in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except:
- where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
- in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
60
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
• Single tax 4 th group (previously Fixed agricultural tax)
According to effective legislation, the Ukrainian consolidated companies of the Group involved in production, processing and sale of agricultural products may opt for paying single tax 4 th group in lieu of income tax, land tax and some other local taxes if the revenues from sale of their own agricultural products constitute not less than 75% of their total (gross) revenues. The single tax 4 th group is assessed at 0,95% on the deemed value of the land plots owned or leased by the entity (0,95% in 2020). As at 31 December 2021, 5 of the companies comprising the Group were elected to pay single tax 4 th group (2020: 5).
• Value added tax (VAT)
VAT output equals to the total amount of VAT collected within a reporting period, and arises on the earlier of the date of shipping goods to a customer or the date of receiving payment from the customer. VAT input is the amount that a taxpayer is entitled to offset against his VAT liability in a reporting period. Rights to VAT input arise on the earlier of the date of payment to the supplier or the date goods are received.
Revenue, expenses and assets are recognized less VAT amount, except cases, when VAT arising on purchases of assets or services, is not recoverable by tax authority; in this case VAT is recognized as part of purchase costs or part of item of expenses respectively. Net amount of VAT, recoverable by tax authority or paid, is included into accounts receivable and payable, reflected in consolidated statement of financial position.
• Other taxes payable
Other taxes payable comprise liabilities for taxes other than above, accrued in accordance with legislation enacted or substantively enacted by the end of the reporting period.
Revenue recognition
Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. A five-step model is established to account for revenue from contracts with customers.
The Group performed an analysis of five-step model as follows:
- the Group concludes contract with the customers in written form, where the parties and each party’s rights are mentioned, all conditions relating goods or services, payments and delivery are described.
- the Group is in the business of crops cultivation, dairy farming and providing storage and processing services. Crops and services are sold on their own in separate identified contracts with customers. So the sale of crops and dairy farming products or providing of services is the only performance obligation in contracts with customers.
- the Group receives only short-term advances from its clients and they are presented as a part of Other current liabilities and accrued expenses. The contracts do not contain any variable considerations or warranty obligations. The transaction price is clearly stated in the contract.
- finished products and services transferred to customers at a point in time.
Therefore, the Group recognizes revenue as follows:
• Sales of goods
Revenue from sales of goods is recognised when a performance obligation is satisfied or when the customer obtains control of the goods. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. The Group uses standardised INCOTERMS which define the point of risks and reward transfers.
• Rendering of services
Revenue from rendering services is recognized at the moment of transfer to the customer control over the product or service.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
61
Government grants
The Ukrainian legislation provides various benefits and grants for companies engaged in agriculture. Such benefits and grants are approved by the Supreme Council of Ukraine, the Ministry of Agrarian Policy, Ministry of Finance and local authorities. The Group recognizes this type of benefits upon the receipt of funds as other operating income in the consolidated statement of comprehensive income.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Contingent assets and liabilities
Contingent liabilities are not recognized in the consolidated financial statements. The Group discloses information about contingent liabilities in the Notes to the consolidated financial statements if any, except for the cases where fulfillment of contingent liabilities is unlikely; because of the remoteness of the event (possible repayment period is more than 12 months).
The Group constantly analyzes contingent liabilities to determine the possibility of their repayment. If the repayment of a liability, which was previously characterized as contingent, becomes probable, the Group records the provision for the period in which repayment of the obligation has become probable.
Contingent assets are not recognized in the consolidated financial statements, but disclosed in the Notes where there is a reasonable possibility of future economic benefits.
Share capital
Ordinary shares issued are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction. Any excess of the fair value of consideration received over the par value of shares issued is presented in consolidated financial statements as Share premium.
Dividends
Dividends are recognized as a liability and deducted from shareholders’ equity at the balance sheet date only if they are declared before or on the balance sheet date. Dividends are disclosed when they are proposed before the balance sheet date or proposed or declared after the balance sheet date but before the Consolidated financial statements are authorized for issue.
Share based payment
Management Incentive Plan defined an option for a Management to purchase the Group’s new shares under the subscription price. The issue of these new shares has an impact on Equity – it increases the line Share capital in the amount of subscription and the line Share premium in the amount that quoted share price exceeds subscription price. At the same time the deferred expenses were recognized in the amount of share premium. The deferred expenses are recognized as expenses of the period in the line Wages and salaries of administrative personnel and related charges during the term of exercising of the option.
Earnings per share
Earnings per share are determined by dividing the net profit or loss attributable to the owners of Parent company by the weighted average number of shares outstanding during the reporting period.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
62
Income from the exchange of property certificates
When the items of property, plant and equipment are acquired in exchange for non-cash asset (property certificate), the initial value of such assets is estimated at fair value. The difference between the price paid for property certificates and the fair value of received items of property, plant and equipment is recognized as income in the period of the exchange operation.
Borrowing costs
Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. Investment income resulting from temporary investment of received borrowing costs, until their expensing for the purchase of capital construction objects, shall be deducted from the cost of raising borrowing costs that may be capitalized.
All other borrowing costs are expensed in the period they occur.
4
Critical accounting estimates and judgments
The preparation of the Group’s Consolidated financial statements requires Management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
Used estimates and assumptions are reviewed by the Management of the Group on a continuous basis, by reference to past experiences, current trends and all available information that is relevant at the time of preparation of consolidated financial statements. Adjustments to accounting estimates are recognized in the period in which the estimate is revised if the change affects only that period or in the period of the revision and subsequent periods, if both periods are affected.
In the process of applying the Group’s accounting policies, Management has made the following judgments, estimates and assumptions which have the most significant effect on the amounts reflected in the consolidated financial statements.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Group.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
63
Fair value of property, plant and equipment
The Group engages an independent appraiser to determine the fair value of property, plant and equipment on a regular basis.
The assessment is conducted in accordance with International Valuation Standards for property. The assessment procedure is carried out for all groups of property, plant and equipment. The fair value of items of property, plant and equipment is estimated on the basis of comparative and cost plus approaches.
The comparative approach is based on an analysis of sales prices and offers of similar items of property, plant and equipment, taking into account the appropriate adjustments for differences between the objects of comparison and assessment item. Based on the application of this approach, the fair value of property, plant and equipment is determined on the basis of their market value.
The cost approach involves the definition of present value of costs of reconstruction or replacement of the assessment item with their further adjustment by the depreciation (impairment) amount. Based on the application of this approach, the fair value of certain items of property, plant and equipment is determined in the amount of the replacement of these items. The cost plus method is adjusted by the income method data, which is based on the discounted cash flow model.
This model is most sensitive to the discount rate, as well as to the expected cash flows and growth rates used for the extrapolation purposes. Judgments of the Group in determining the indices used in the appraisers' calculations may have a significant effect on the determination of fair value of property, plant and equipment, and hence on their carrying amount.
The fair value of property, plant and equipment of all the Group's companies has been measured as at 31 December 2020 by an independent appraiser LLC “Asset Expertise” (ODS Certificate No.905/19 as of 28 November 2019 issued by State Property Fund of Ukraine).
Fair value of biological assets
Due to an absence of an active market for non-current biological assets for cattle-breeding and biological assets of plants-breeding in Ukraine, to determine the fair value of these biological assets, the Group used the discounted value of net cash flows expected from assets as at reporting date. Discounted value of net cash flows is estimated at year-end based on the planted hectares and various assumptions, including estimated market price at the time of harvest, yield, costs to complete, costs to sell and discount rate.
The fair value of current biological assets of cattle-breeding is measured using market prices as at reporting date. The fair value is determined based on market prices of milk, milk yields and discount rate.
Fair value of agricultural produce
The Group estimates the fair value of agricultural produce at the date of harvesting using the prices observed on the market from an independent source. Costs to sell at the point of harvest are estimated based on expected future selling costs that depend on conditions of sales agreements. The fair value less costs to sell becomes the carrying value of inventories at the date of harvesting.
Fair value of financial instruments
The fair value of financial assets and liabilities is determined by applying various valuation methodologies. Management uses its judgment to make assumptions based on market conditions existing at each balance sheet date. Where the fair values of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. Management uses discounted cash flow analysis for various loans and receivables as well as debt instruments that are not traded in active markets. The effective interest rate is determined by reference to the interest rates of instruments available to the Group in active markets. In the absence of such instruments, the effective interest rate is determined by reference to the interest rates of active market instruments available adjusted for the Group’s specific risk premium estimated by management.
Useful lives of property, plant and equipment
Items of property, plant and equipment owned by the Group are depreciated using the straight-line method over their useful lives, which are calculated in accordance with business plans and operating calculations of the Group's Management with respect to those assets.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
64
The estimated useful life and residual value of non-current assets are influenced by the rate of exploitation of assets, servicing technologies, changes in legislation, unforeseen operational circumstances. The Group's management periodically reviews the applicable useful lives. This analysis is based on the current technical condition of assets and the expected period in which they will generate economic benefits to the Group.
Any of the above factors may affect the future rates of depreciation, as well as carrying and residual value of property, plant and equipment.
There were no changes in accounting estimates of remaining useful lives of items of property, plant and equipment during Y2021.
Impairment of property, plant and equipment and intangible assets
The Group carries out revaluations on a regular basis and conducts a full valuation exercise if there is an indication of impairment. An impairment review is conducted at the balance sheet date. To test property, plant and equipment and intangible assets for impairment, the Group’s business is treated as three cash generating units: farming division, livestock breeding and storage and processing. The recoverable amount of the cash-generating unit is determined on the basis of value in use. The amount of value in use for the cash-generating unit is determined on the basis of the most recent budget estimates prepared by management and application of the income approach of valuation.
Inventories
As at the reporting date the Group assesses the need to reduce the carrying amount of inventories to their net realizable value. The measurement of impairment is based on the analysis of market prices for similar inventories existing at the reporting date and published in official sources. Such assessments can have a significant impact on the carrying amount of inventories.
Besides, at each balance sheet date, the Group assesses inventories for surplus and obsolescence and determines the allowance for obsolete and slow moving inventories. Changes in assessment can influence the amount of required allowance for obsolete and slow moving inventories either positively or negatively.
At the reporting date the item Work-in-progress includes expenses on works connected with preparation of the lands for the future harvest obtained from the biological assets of plant growing. The cost of work in progress includes costs of direct materials and labor and other direct productions costs and related production overheads (based on normal operating capacity). Costs allocation to Work-in-progress includes a number of judgments of management based on the recommendations of scientific sources and agronomic calculations of the internal services of the Group.
Inventories as at the year-end are an estimate resulting in a surplus/decrease in inventories when stock take is performed in subsequent year.
Inventory balances at the reporting dates are confirmed by inventories. But the amount of grain at the elevators and the method of its storage do not allow weighing of the whole grain at the time of the inventory. Therefore, enterprises use other methods for determining the amount of grain at the elevator.
The method consists in the following:
- there is passport data of the volume of silo storage tanks
- the commission inventories each tank and determines the volume filled with grain
- there is an indicator "nature of grain", i.e. its weight in 1l
- the volume of grain is multiplied by its nature and the amount of grain in kg is obtained
But in fact, deviations are possible due to permissible errors in grain moisture, which resulting in a surplus/decrease in inventories when stock take is performed in subsequent year during the cleaning the elevator.
Provision for expected credit losses
The Group uses a provision matrix to calculate expected credit losses for financial assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns. The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward- looking estimates are analysed.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
65
Impairment of non-financial assets
Management assesses whether there are any indicators of possible impairment of non-financial assets at each reporting date. If any events or changes in circumstances indicate that the current value of the assets may not be recoverable or the assets, goods or services relating to a prepayment will not be received, the Group estimates the recoverable amount of assets. If there is objective evidence that the Group is not able to collect all amounts due to the original terms of the agreement, the corresponding amount of the asset is reduced directly by the impairment loss in the consolidated statement of comprehensive income. Subsequent and unforeseen changes in assumptions and estimates used in testing for impairment may lead to the result different from the one presented in the consolidated financial statements.
Taxation
The Group mostly operates in the Ukrainian tax jurisdiction. The Group’s management must interpret and apply existing legislation to transactions with third parties and its own activities. Significant judgment is required in determining the provision for direct and indirect taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will affect the income tax and deferred tax provisions in the period in which such determination is made.
As a result of unstable economic situation in Ukraine, tax authorities in Ukraine pay more and more attention to the business cycles. In connection with it, tax laws in Ukraine are subject to frequent changes. Furthermore, there are cases of their inconsistent application, interpretation and execution. Non-compliance with laws and norms may lead to serious fines and penalties accruals.
Management at every reporting period reassessed the Group’s uncertain tax positions. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the reporting period and any known Court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the reporting period.
The Group considers that it operates in compliance with tax laws of Ukraine.
Legal proceedings
The Group's Management makes significant assumptions in estimation and reflection of the risk of exposure to contingent liabilities related to current legal proceedings and other unliquidated claims, as well as other contingent liabilities. Management's judgments are required in assessing the possibility of a secured claim against the Group or material obligations, as well as in determining probable amounts of final payment or obligations. Due to the uncertainties inherent in the evaluation process, actual expenses may differ from the initial calculations.
These preliminary estimates are subject to changes as new information becomes available from the Group's internal specialists, if any, or from third parties, such as lawyers. Revisions of such estimates may have a significant impact on future operating results.
Operating environment
Operating environment
The Group conducts its operations in Ukraine. The Ukrainian economy is open, non-diversified and deemed to be of market status with certain characteristics of an emerging market, and it has critical dependence on world commodity prices and low liquidity in the international capital market. The Ukrainian economy is showing signs of stabilization after many years of political and economic tensions.
The impact of Russian military aggression against Ukraine in some areas of Lugansk and Donetsk regions that started in spring 2014 is still in progress; parts of Lugansk and Donetsk regions remain under control of self-proclaimed republics and Ukrainian government is not able to enforce the law of Ukraine on those territories. In March 2014 the series of events led to annexing the Crimea to the Russian Federation, which was not recognized either by Ukraine or many other countries. The Group does not have assets in Crimea, Donetsk and Lugansk regions.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
66
COVID-19 outbreak
On 11 March 2020, the WHO declared the COVID-19 outbreak to be a pandemic. During 2021 COVID-19 pandemic continued to have a significant impact on the economy of Ukraine. However, against the background of the implementation of the vaccination plan and the abolition of a significant number of restrictions related to COVID-19 and a global economic recession caused by the COVID-19 pandemic, there is a recovery of Ukraine's economy.
The Management assessed the impact of COVID-19 on its Group’s assets impairment, its revenues and its ability to generate sufficient cash flow to settle its liabilities when they are due and to maintain its operations in the foreseeable future. As of the date of the issue of these consolidated financial statements, the Group’s operations have not been significantly impacted. Management will continue to monitor the situation closely and will reassess it in case the period of disruption becomes prolonged.
Threat of invasion
In March-April and October-November 2021, Russian Federation started to mass thousands of military personnel and equipment near its border with Ukraine, representing the highest force mobilization since the country's annexation of Crimea in 2014. By December 2021, more than an estimated 100 thousand of Russian troops were stationed near the border with Ukraine. Many Western governments have called on their citizens to leave Ukraine. At the same time, the government of Russia has repeatedly denied that it has any plans to invade Ukraine. Management is monitoring the developments in the current environment and taking actions, where appropriate, to minimize any negative effects to the extent possible. The further adverse developments of these events are described in Note 41 Subsequent events.
Going concern
The Group has further detailed in note 41 Subsequent events the impact of the invasion of Ukraine by the Russian troops.In this context, and to ensure the necessary financing of the Group, the management is actively negotiating with banks. As a result, the term of renewal of the short-term credit line was extended and payments on investment loans were postponed. Also, credit limits on existing short-term credit lines have not yet been fully reached . The Group participated in the state program of preferential lending to agricultural companies and received a loan of UAH 50 mln (about USD 1,7 mln). To provide Ukrainian companies with working capital, the authorized capital of the two companies was increased in the total amount of about USD 5.5 mln.
Management prepared its budget for the next 12 months based on the known facts and events, but there is a significant uncertainty over the future development of military invasion, its duration and impact on the Group. The following key assumptions were used for the forecasts: no further significant progression of Russian troops into the territory of Ukraine that could severely affect the Group's assets; no critical assets preventing the Group to continue operations are damaged or located in the uncontrolled territories; remaining logistic routes will continue to be available; maintain minimum sales level to cover minimum operational expenses level and debt servicing; ability to run harvesting campaign.
Based on these forecasts, Management concluded that it is appropriate to prepare the consolidated financial statements on a going concern basis. However, due to the currently unpredictable effects of the ongoing War on the significant assumptions underlying forecasts, Management concluded that a material uncertainty exists, which may cast significant doubt about the Group’s ability to continue as a going concern and, therefore, the Group may be unable to realize its assets and discharge its liabilities in the normal course of business.
5
New and amended standards and interpretations
Applying of new standards
Amendments to IFRS 9, IAS 39 and IFRS 17: Interest Rate Benchmark Reform – Phase 2
The amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments have no impact on the consolidated financial statements of the Group as it does not have any interest rate hedge relationships.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
67
Amendments to IFRS 16 Covid-19 Related Rent Concessions
On 28 May 2020, the IASB issued Covid-19-Related Rent Concessions - amendment to IFRS 16 Leases The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from a lessor is a lease modification. The amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted. This amendment had no impact on the consolidated financial statements of the Group.
Issued but not yet effective standards
At the date of authorization of these Consolidated financial statements the following interpretations and amendments to the Standards, were in issue but not yet effective:
Standards and Interpretations
Effective for annual period beginning on or after
Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and Classification of Liabilities as Current or Non-current - Deferral of Effective Date (issued on 23 January 2020 and 15 July 2020 respectively)
1 January 2023 (Not yet endorsed by EU)
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021)
1 January 2023 (Endorsed by EU on 2 March 2022)
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021)
1 January 2023 (Endorsed by EU on 2 March 2022)
Amendments to: IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; Annual Improvements 2018-2020 (All issued 14 May 2020)
1 January 2022 (Endorsed by EU on 28 June 2021)
The management does not expect that the adoption of the Standards listed above will have a material impact on the consolidated financial statements of the Group in future periods.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
68
6
Revenue
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Revenue from sales of finished products
a
180 812
160 031
Revenue from services rendered
b
881
1 356
181 693
161 387
Disaggregation of revenue from contracts with customers
The Group presented disaggregated revenue based on the type of finished products (a) and services provided to customers (b), the type of customers (c) and the timing of transfer of goods and services (d).
a) Revenue from sales of finished products was as follows:
For the year ended 31 December 2021
For the year ended 31 December 2020
Corn
107 271
103 678
Sunflower
44 675
31 470
Wheat
26 720
22 421
Milk
1 431
1 304
Soy beans
-
440
Cattle
177
288
Other
538
430
180 812
160 031
b) Revenue from services rendered was as follows:
For the year ended 31 December 2021
For the year ended 31 December 2020
Transport
369
612
Storage
204
471
Drying
2
122
Processing
2
91
Other
304
60
881
1 356
c) Revenue by the type of customers was as follows:
For the year ended 31 December 2021
For the year ended 31 December 2020
Export
133 843
126 088
Domestic
47 850
35 299
181 693
161 387
d) Finished products and services transferred to customers at a point in time.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
69
7
Gain from changes in fair value of biological assets and agricultural produce, net
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Agricultural produce
10 1 587
75 900
Current biological assets
23
- Animal-breeding
314
790
- Plant-breeding
11 722
651
Non-current biological assets
21
- Animal-breeding
(439)
(319)
113 184
77 022
8
Cost of sales
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Raw materials
a
(131 250)
(106 004)
Change in inventories and work-in-progress
b
15 413
(4 705)
Depreciation and amortization
13
(23 211)
(18 973)
Wages and salaries of operating personnel and related charges
14
(13 296)
(12 726)
Fuel and energy supply
(20 012)
(7 642)
Third parties' services
(6 623)
(5 040)
Rent
(3 021)
(2 252)
Repairs and maintenance
(708)
(1 020)
Taxes and other statutory charges
(1 075)
(682)
Other expenses
(117)
(126)
(183 900)
(159 170)
a) Raw materials for the year ended 31 December 2021 includes disposal of the gain recorded on initial recognition of realized agriculture produce and biological assets (both of current and non-current) in the amount of USD 92 666 thousand (USD 67 260 thousand for the year ended 31 December 2020).
b) Change in inventories and work-in-progress comprises changes in work-in-progress, agricultural produce and current biological assets.
9
Administrative expenses
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Wages and salaries of administrative personnel and related charges
14
(8 603)
(8 963)
Depreciation and amortisation
13
(598)
(483)
Professional services
a
(449)
(417)
Third parties' services
(418)
(367)
Bank services
(384)
(313)
Repairs and maintenance
(154)
(189)
Transport expenses
(223)
(171)
Other expenses
(504)
(355)
(11 333)
(11 258)
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
70
a) Professional services include the following audit and related fees:
Fees billed by Luxembourg approved audit firm (BDO Audit SA)
Other fees billed by BDO Luxembourg (BDO)
Fees billed by other audit firms
For the year ended 31 December 2021
For the year ended 31 December 2020
For the year ended 31 December 2021
For the year ended 31 December 2020
For the year ended 31 December 2021
For the year ended 31 December 2020
Audit fees
68
56
-
-
-
-
Audit related fees
27
27
-
-
40
40
Tax fees
-
-
3
3
-
-
95
83
3
3
40
40
10
Selling and distribution expenses
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Forwarding services
(15 074)
(14 544)
Delivery costs
( 542 )
(585)
Wages and salaries of sales personnel and related charges
14
(246)
(216)
Depreciation
13
(203)
(95)
Other expenses
( 310 )
(399)
(16 375)
(15 839)
1 1
Other operating income
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Income from write-offs of accounts payable
162
339
Gain on recovery of assets previously written off
133
233
Gain on disposal of PPE
-
209
Government grants recognised as income
-
34
Gain on disposal of inventories
41
-
Effect of modification of right-of-use assets
a
3 681
320
Other income
425
180
4 442
1 315
a) Effect of modification of right-of-use assets increased significantly in Y2021 due to the massive conclusion of contracts on new terms.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
71
12
Other operating expenses
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Depreciation
13
(526)
(887)
Charity
(679)
(526)
Wages and salaries of non-operating personnel and related charges
14
(5)
(143)
Shortages and losses due to impairment of inventories
(16)
(82)
Write-offs of VAT
(63)
(71)
Allowance for doubtful accounts receivable
26
(179)
(52)
Loss on disposal of inventories
-
(11)
Loss on disposal of PPE
(50)
-
Other expenses
(383)
(284)
(1 901)
(2 056)
13
Depreciation and amortisation
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Depreciation
Cost of sales
8
( 22 848 )
( 18 541 )
Other operating expenses
12
(526)
(887)
Administrative expenses
9
(436)
(340)
Selling and distribution expenses
10
(203)
(95)
( 24 013 )
(19 863 )
Amortisation
Cost of sales
8
( 363 )
( 432 )
Administrative expenses
9
(162)
(143)
( 525 )
( 575 )
(24 538)
(20 438)
14
Wages and salaries expenses
For the year ended 31 December 2021
For the year ended 31 December 2020
Wages and salaries
(18 548)
(18 684)
Related charges
(3 602)
(3 364)
(22 150)
(22 048)
The average number of employees, persons
1 898
1 979
Remuneration of management
1 413
2 068
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
72
The distribution of wages and salaries and related charges was as follows:
For the year ended 31 December 2021
For the year ended 31 December 2020
Note
Wages and salaries and related charges, thousand USD
Average number of employees, persons
Wages and salaries and related charges, thousand USD
Average number of employees, persons
Operating personnel
8
(13 296)
1 341
(12 726)
1 404
Administrative personnel
9
(8 603)
537
(8 963)
555
Sales personnel
10
(246)
18
(216)
18
Non-operating personnel
12
(5)
2
(143)
2
(22 150)
1 898
(22 048)
1 979
15
Financial expenses, net
For the year ended 31 December 2021
For the year ended 31 December 2020
Interest income on bank deposits
712
594
Interest expenses on loans and borrowings
(1 321)
(2 584)
Other expenses
(180)
(147)
(789)
(2 137)
16
Foreign currency exchange gain/(loss), net
As at 31 December 2021 Ukrainian Hryvnia revaluated against the USD by 3,7% compared 31 December 2020 (16,2% of depreciation as at 31 December 2020 compared 31 December 2019), 1,2% of devaluation for the average rate 2021/2020 in comparison with 4,2% of devaluation for the average rate 2020/2019. As a result, during the Y2021 the Group recognised net foreign exchange gain in the amount of USD 2 255 thousand (USD 7 918 thousand of net loss for the Y2020) in the Consolidated statement of comprehensive income.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
73
17
Income tax expenses and deferred tax liabilities
The corporate income tax rate for the year ended 31 December 2021 was: 18% in Ukraine, 12,5% in Cyprus, 24,94% in Luxemburg.
The components of income tax expenses were as follows:
For the year ended 31 December 2021
For the year ended 31 December 2020
Current income tax
(1 066)
(497)
Deferred tax
(48)
14
(1 114)
(483)
Consolidated statement of other comprehensive income
Deferred tax related to item charged or credit directly to other comprehensive income during year:
Net gain on revaluation of property, plant and equipment
445
(488)
The deferred tax liabilities were as follows:
Property, plant and equipment
31 December 2019
(3 218)
Income tax benefit (expenses) for the period recognized in profit or loss
14
Income tax benefit (expenses) for the period recognized in other comprehensive income
(488)
Effect of foreign currency translation
515
31 December 2020
(3 177)
31 December 2020
(3 177)
Income tax benefit (expenses) for the period recognized in profit or loss
(48)
Income tax benefit (expenses) for the period recognized in other comprehensive income
445
Effect of foreign currency translation
(115)
31 December 2021
(2 895)
No deferred tax asset has been set up on loss carry forwards of some enetities of the Group, as there are not sufficient profits foreseen on these entities to justify the set up of deferred tax assets.
Reconciliation between tax expenses and the accounting value multiplied by tax rate was as follows:
For the year ended 31 December 2021
For the year ended 31 December 2020
Profit before tax from continuing operations
7 9 824
32 188
Income tax expenses at Ukrainian statutory tax rate
(1 4 368 )
(5 794)
Effect of income tax that exempt from taxation (companies non- payers of income tax)
1 3 181
3 767
Effect of different tax rates of foreign jurisdictions
2 320
2 865
Non-taxable (expense)/income, net
(1 2 09 )
(866)
Withholding tax
(1 038)
(456)
Income tax
(1 114)
(483)
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
74
18
Property, plant and equipment (PPE)
Land and buildings
Machinery
Motor vehicles
Other
Construction in progress
Total
INITIAL COST
31 December 2019
62 305
44 929
26 809
312
93
134 448
Additions
1 430
3 756
1 876
49
82
7 193
Disposals
(765)
(5 058)
(4 540)
(123)
(32)
(10 518)
Transfer
-
43
-
1
(44)
-
Revaluation
1 973
2 279
1 013
-
-
5 265
Reversal of impairment
81
38
1
-
-
120
Impairment
(702)
(316)
(72)
-
-
(1 090)
Elimination of depreciation
2 033
874
1 751
-
-
4 658
Effect from translation into presentation currency
(10 105)
(7 220)
(4 224)
(47)
(15)
(21 611)
31 December 2020
56 250
39 325
22 614
192
84
118 465
31 December 2020
56 250
39 325
22 614
192
84
118 465
Additions
1 675
3 203
1 645
134
132
6 789
Disposals
(961)
(1 980)
(4 128)
(22)
-
(7 091)
Transfer
77
1
-
-
(78)
-
Effect from translation into presentation currency
2 055
1 438
826
7
2
4 328
31 December 2021
59 096
41 987
20 957
311
140
122 491
ACCUMULATED DEPRECIATION
31 December 2019
(16 988)
(24 504)
(16 806)
(200)
-
(58 498)
Depreciation for the period
(2 253)
(3 594)
(2 230)
(17)
-
(8 094)
Disposals
721
4 233
4 158
114
-
9 226
Elimination of depreciation
(2 033)
(874)
(1 751)
-
-
(4 658)
Effect from translation into presentation currency
2 829
3 946
2 637
28
-
9 440
31 December 2020
(17 724)
(20 793)
(13 992)
(75)
-
(52 584)
31 December 2020
(17 724)
(20 793)
(13 992)
(75)
-
(52 584)
Depreciation for the period
(2 433)
(4 868)
(2 644)
(35)
-
(9 980)
Disposals
796
1 710
3 602
20
-
6 128
Effect from translation into presentation currency
(651)
(762)
(511)
(3)
-
(1 927)
31 December 2021
(20 012)
(24 713)
(13 545)
(93)
-
(58 363)
Net book value
31 December 2019
45 317
20 425
10 003
112
93
75 950
31 December 2020
38 526
18 532
8 622
117
84
65 881
31 December 2021
39 084
17 274
7 412
218
140
64 128
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
75
As at 31 December 2020 an independent valuation of the Group’s land, buildings, Machinery and vehicles was performed in accordance with International Valuation Standards by an independent appraiser LLC “Asset Expertise” (ODS Certificate No.905/19 as of 28 November 2019 issued by State Property Fund of Ukraine).
Most buildings and constructions were valued using cost approach. Other items of PPE were valued using the market approach. Market approach uses prices and other relevant information generated by market transactions involving identical or comparable (i.e. similar) assets.
Cost approach either determines the cost to construct the assets in their present state and considers their remaining useful life or identifies fair value as a depreciated replacement cost. Cost approach was used only in the cases where there was no possibility to use market approach.
The following factors were considered in determining the fair values of buildings under the depreciated replacement cost approach:
• the cost to construct the asset is based on the cost of the necessary materials and construction work as at the date of valuation;
• expected usage of the asset is assessed by reference to the asset’s expected capacity or physical output;
• technical or commercial obsolescence arising from changes or improvements in production for the product or service output of the asset as well as physical deterioration.
Impairment test
As at 31 December 2021 and 31 December 2020 an impairment tests were conducted, according to the results of the tests impairment of PPE was not identified.
As at 31 December 2021 an impairment review was conducted by the management of the Group.
As at 31 December 2020, impairment test was performed by an independent appraiser, since impairment test is an integral part of valuation of property, plant and equipment wherein used the depreciated replacement cost method.
For the purpose of impairment testing, the Group identified 3 cash-generating units (CGUs) related to crop farming, dairy farming and elevators and warehouses.
Impairment testing was performed based on value in-use calculation using the DCF method. Cash flow projection is based on the long-term budget approved by management of the Group.
The key assumptions used for impairment testing are: discount rates, selling prices, amounts of revenue, cost of production, expenses, production and sales volumes. Discount rates were estimated based on weighted average cost of capital and comprised 21,6%.
Production volume was estimated based on current production level; potential increase in land, crop yields, number of cows or milk yields is not taken into account. Cost of production was estimated based on current actual cost of production inflated by expected level of inflation, taking into account higher inflation levels for costs directly or indirectly pegged to USD (such as gas). When determining selling prices, the Group analyzed available forecasts for export and domestic markets, including forecasted supply and demand.
If PPE were measured at cost their book value would be the following:
Land and buildings
Machinery
Motor vehicles
Other
Construction in progress
Total
Net book value
31 December 2019
9 008
15 197
7 899
143
93
32 340
31 December 2020
8 397
13 666
6 981
117
84
29 245
31 December 2021
10 144
13 561
6 762
218
140
30 825
Capitalized cost
There were no borrowing costs capitalized as a part of costs of property, plant and equipment during the year ended 31 December 2021 and 2020.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
76
Assets under construction
Included in property, plant and equipment as at 31 December 2021 was an amount of USD 139 thousand (USD 55 thousand as at 31 December 2020) relating to expenditure for property, plant and equipment in the course of construction.
Pledged PPE
The amount of property, plant and equipment pledged to secure bank loans was as follows:
31 December 2021
31 December 2020
Land and buildings
22 960
24 377
Machinery
7 935
10 726
Motor vehicles
3 622
4 462
Other
8
9
34 525
39 574
Capital commitments
As at 31 December 2021 the Group had capital commitments in the amount of USD 917 thousand (USD 1 553 thousand as at 31 December 2020).
19
Right-of-use assets
Amounts recognised in the consolidated statements of financial position:
31 December 2021
31 December 2020
Right-of-use assets
Land
161 906
85 082
Office
335
34
Machinery
6 373
8 847
168 614
93 963
Lease liabilities as to right-of-use assets
Long-term
152 416
82 396
Current portion
18 568
16 765
170 984
99 161
Amounts recognised in the consolidated statements of comprehensive income:
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
Depreciation of right-of-use assets
Land
8
(11 237)
(9 254)
Office
9
(151)
(132)
Machinery
8
(2 796)
(2 515)
(14 184)
(11 901)
Effect of lease of right-of-use assets
(7 201)
(7 234)
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
77
Following changes took place in the right-of-use assets:
Land
Office
Machinery
Total
Net book value as at 31 December 2019
94 775
172
6 256
101 203
Cost as at 31 December 2019
104 042
309
7 150
111 501
Accumulated depreciation as at 31 December 2019
(9 267)
(137)
(894)
(10 298)
Additions
20 730
17
6 296
27 043
Depreciation
(9 254)
(132)
(2 515)
(11 901)
Disposals
(5 512)
-
-
(5 512)
Cost disposals
(6 522)
-
-
(6 522)
Accumulated depreciation disposals
1 010
-
-
1 010
Effect from translation into presentation currency
(15 657)
(22)
(1 191)
(16 870)
Cost as at 31 December 2020
100 707
275
11 994
112 976
Accumulated depreciation as at 31 December 2020
(15 625)
(241)
(3 147)
(19 013)
Net book value as at 31 December 2020
85 082
34
8 847
93 963
Net book value as at 31 December 2020
85 082
34
8 847
93 963
Cost as at 31 December 2020
100 707
275
11 994
112 976
Accumulated depreciation as at 31 December 2020
(15 625)
(241)
(3 147)
(19 013)
Additions
137 156
451
-
137 607
Depreciation
(11 237)
(151)
(2 796)
(14 184)
Disposals
(52 218)
-
-
(52 218)
Cost disposals
(64 201)
(285)
-
(64 486)
Accumulated depreciation disposals
11 984
285
-
12 269
Effect from translation into presentation currency
3 122
1
323
3 446
Cost as at 31 December 2021
177 355
451
12 432
190 238
Accumulated depreciation as at 31 December 2021
(15 449)
(116)
(6 059)
(21 624)
Net book value as at 31 December 2021
161 906
335
6 373
168 614
There was a significant increase in right-of-use assets in 2021, due to the massive re-signing of land lease agreements, which includes both an increase in the term of contracts and the amount of rent.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
78
20
Intangible assets
Computer software
Property certificates
Land lease rights
Total
INITIAL COST
31 December 2019
58
259
10 887
11 204
Additions
33
-
-
33
Effect from translation into presentation currency
(10)
(42)
(1 768)
(1 820)
31 December 2020
81
217
9 119
9 417
31 December 2020
81
217
9 119
9 417
Disposals
(2)
-
-
(2)
Effect from translation into presentation currency
3
8
332
343
31 December 2021
82
225
9 451
9 758
ACCUMULATED DEPRECIATION
31 December 2019
(18)
(3)
(9 249)
(9 270)
Amortisation for the period
(10)
(1)
(432)
(443)
Effect from translation into presentation currency
-
1
1 525
1 526
31 December 2020
(28)
(3)
(8 156)
(8 187)
31 December 2020
(28)
(3)
(8 156)
(8 187)
Amortisation for the period
(11)
(1)
(362)
(374)
Disposals
2
-
-
2
Effect from translation into presentation currency
(1)
-
(298)
(299)
31 December 2021
(38)
(4)
(8 816)
(8 858)
NET BOOK VALUE
31 December 2019
40
256
1 638
1 934
31 December 2020
53
214
963
1 230
31 December 2021
44
221
635
900
Property certificates represent deeds supporting ownership right for property units of members of agricultural entity, which are intended for exchange by the Group companies on the property objects of this agricultural entity.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
79
21
Non-current biological assets
31 December 2021
31 December 2020
Animal-breeding
Units
Book value
Units
Book value
Cattle
615
1 755
654
1 983
Plant-breeding
Area, ha
Book value
Area, ha
Book value
Perennial grasses
175
1 4
305
44
Total non-current biological assets
-
1 769
-
2 027
Following changes took place in the non-current biological assets of animal-breeding:
Cattle
31 December 2019
2 528
Transfer (from (to) current biological assets)
176
Change in fair value
(319)
Effect from translation into presentation currency
(402)
31 December 2020
1 983
31 December 2020
1 983
Transfer (from (to) current biological assets)
136
Change in fair value
(439)
Effect from translation into presentation currency
75
31 December 2021
1 755
Following changes took place in the non-current biological assets of plant-breeding:
Perennial grasses
31 December 2019
62
Capitalized expenses
4
Effect from translation into presentation currency
(22)
31 December 2020
44
31 December 2020
44
Capitalized expenses
8
Effect from translation into presentation currency
(3 8 )
31 December 2021
1 4
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
80
22
Inventories
Note
31 December 2021
31 December 2020
Agricultural produce
a
98 176
68 177
Work-in-progress
b
12 472
9 185
Agricultural materials
8 595
3 393
Spare parts
468
429
Fuel
946
431
Raw materials
326
263
Other inventories
121
100
121 104
81 978
As at 31 December 2021 cost value of inventories amounts to USD 74 756 thousand (USD 52 179 thousand as at 31 December 2020).
a) As at the reporting dates agricultural produce was presented as follows:
31 December 2021
31 December 2020
Corn
97 624
67 834
Wheat
131
90
Sunflower
47
63
Other
374
190
98 176
68 177
The fair value of agricultural produce was estimated based on market price as at date of harvest and is within level 2 of the fair value hierarchy.
b) Work-in-progress includes expenses on works connected with preparation of the lands for the future harvest obtained from the biological assets of plant growing. The cost of work in progress includes costs of direct materials and labor and other direct productions costs and related production overheads (based on normal operating capacity).
As at the reporting dates loans and borrowings were secured by agricultural produce:
31 December 2021
31 December 2020
Corn
9 007
8 311
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
81
23
Current biological assets
31 December 2021
31 December 2020
Animal-breeding
Units
Book value
Units
Book value
Cattle
399
997
371
1 075
Other
3
2
3
1
Plant-breeding
Area, ha
Book value
Area, ha
Book value
Wheat
18 340
15 785
21 441
10 193
Total current biological assets
16 784
-
11 269
Following changes took place in the current biological assets of animal-breeding:
Cattle
Other
Total
31 December 2019
1 276
1
1 277
Capitalized expenses
395
-
395
Transfer (from (to) non-current biological assets)
(176)
-
(176)
Sale
(982)
-
(982)
Slaughter
(19)
-
(19)
Change in fair value
790
-
790
Effect from translation into presentation currency
(209)
-
(209)
31 December 2020
1 075
1
1 076
31 December 2020
1 075
1
1 076
Capitalized expenses
370
1
371
Transfer (from (to) non-current biological assets)
(136)
-
(136)
Sale
(664)
-
(664)
Change in fair value
314
-
314
Effect from translation into presentation currency
38
-
38
31 December 2021
997
2
999
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
82
Following changes took place in the current biological assets of plant-breeding:
Wheat
Corn
Sunflower
Grasses
Total
31 December 2019
11 947
-
-
-
11 947
Capitalized expenses (harvest 2020)
8 189
50 881
15 708
140
74 918
Revaluation at fair value at the date of harvest (harvest 2020)
8 035
52 755
15 110
-
75 900
Harvesting (harvest 2020)
(20 394)
(103 636)
(30 818)
(167)
(155 015)
Capitalized expenses (harvest 2021)
3 773
-
-
-
3 773
Revalued at fair value (harvest 2021)
651
-
-
-
651
Effect from translation into presentation currency
(2 008)
-
-
27
(1 981)
31 December 2020
10 193
-
-
-
10 193
31 December 2020
10 193
-
-
-
10 193
Capitalized expenses (harvest 2021)
9 523
53 994
17 237
185
80 939
Revaluation at fair value at the date of harvest (harvest 2021)
4 275
70 783
26 529
-
10 1 587
Harvesting (harvest 2021)
(24 350)
(124 685)
(43 742)
(210)
(192 987)
Capitalized expenses (harvest 2022)
4 061
-
-
-
4 061
Revalued at fair value (harvest 2022)
11 722
-
-
-
11 722
Effect from translation into presentation currency
36 3
(92)
(24)
25
27 2
31 December 2021
15 785
-
-
-
15 785
As at 31 December 2021 and as at 31 December 2020 there were no pledged biological assets.
Due to the absence of an active market, the fair value of biological assets is estimated by present valuing the net cash flows expected to be generated from the assets discounted at a current market-determined rate. The fair value of biological assets is determined by the Group’s own agricultural and IFRS experts. The forecast indicators of crop yields used in assessing crops are determined on the basis of the current history of crop yields. The indicators of past periods are taken as a basis and are adjusted taking into account the state of crops, climatic conditions, varietal characteristics of the crop, soil fertility, the application of new technologies.
Biological assets of the Group are measured at fair value within Level 3 of the fair value hierarchy. There were no transfers between any levels during the Y2021.
Description
Fair value as at 31 December 2021
Valuation technique
Unobservable inputs
Range of unobservable inputs
Relationship of unobservable inputs to fair value
Milk yield - kg per cow
7 600 per year
The higher the milk yield, the higher the fair value
Milk price
USD 0,37 per liter
The higher the market price, the higher the fair value
Cattle
2 751
Discounted cash flows
Discount rate
18,30%
The higher the discount rate, the lower the fair value
Crops yield - tonnes per hectare
5,8
The higher the crops yield, the higher the fair value
Crops price less VAT and costs to sell
USD 2 5 7 per ton
The higher the market price, the higher the fair value
Discount rate
18,30%
The higher the discount rate, the lower the fair value
Crops in fields - Wheat
15 785
Discounted cash flows
Future production cost
USD 541 per ha
The higher the future production cost, the lower the fair value
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
83
Changes in key assumptions used to estimate biological assets fair value would have the following effect on the fair value of biological assets:
Increase/decrease in assumption, %
Effect on fair value of biological assets, th USD
10
274
Milk yield
(10)
(274)
10
1 127
Milk price
(10)
(1 127)
1
(17)
Discount rate (cattle)
(1)
17
10
2 480
Crops yield
(10)
(2 480 )
10
2 480
Crops price
(10)
(2 480 )
1
(13)
Discount rate (wheat)
(1)
13
10
(901)
Future production cost
(10)
901
24
Trade accounts receivable, net
Note
31 December 2021
31 December 2020
Trade accounts receivable
336
213
Allowances for accounts receivable
26
(55)
(11)
281
202
As at 31 December 2021 an amount of USD 242 thousand or 82% of the total amount of trade accounts receivable is due from the 10 most significant counterparties (as at 31 December 2020 – USD 193 thousand or 91%).
Distribution of trade accounts receivable on time frames is the following:
Past due, not impaired
Total
Neither past due nor impaired
Within 90 days
From 90 to 360 days
More than 1 year
31 December 2021
281
256
25
-
-
31 December 2020
202
192
10
-
-
On the basis of analysis of payments for the current period Financial Department of the Group considers that there is no need to form provision for overdue, but not impaired trade accounts receivable.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
84
25
Prepayments and other current assets, net
Note
31 December 2021
31 December 2020
Prepayments and other non-financial assets:
VAT for reimbursement
7 254
2 558
Advances to suppliers
3 297
2 298
Allowances for advances to suppliers
26
(61)
(15)
10 490
4 841
Other financial assets:
Non-bank accommodations interest free
494
301
Allowances for non-bank accommodations interest free
26
(6)
-
Other accounts receivable
394
284
Allowances for other accounts receivable
26
(67)
(37)
815
548
11 305
5 389
As at 31 December 2021 an amount of USD 3 000 thousand or 91% of the total amount of advances to suppliers is due from the 10 most significant counterparties (as at 31 December 2020 – USD 1 942 thousand or 85%).
As at 31 December 2021 an amount of USD 487 thousand or 99% of the total amount of non-bank accommodations interest free is due from the 10 most significant counterparties (as at 31 December 2020 – USD 294 thousand or 98%).
26
Changes in allowances made
Note
31 December 2021
31 December 2020
Allowances for trade accounts receivable
24
(55)
(11)
Allowances for advances to suppliers
25
(61)
(15)
Allowances for non-bank accommodations interest free
25
(6)
-
Allowances for other accounts receivable
25
(67)
(37)
Allowances for prepayments for property, plant and equipment
(16)
(205)
(63)
The movements of the allowances were as follows:
Note
For the year ended 31 December 2021
For the year ended 31 December 2020
As at the beginning of the period
(63)
(58)
Accrual
12
(179)
(52)
Use of allowances
41
36
Reverse of allowances
-
1
Effect from translation into presentation currency
(4)
10
As at the end of the period
(205)
(63)
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
85
27
Cash and cash equivalents
Currency
31 December 2021
31 December 2020
Cash in bank and hand
USD
5 438
2 614
Cash in bank and hand
UAH
23 291
15 065
Cash in bank and hand
EUR
88
302
Cash in bank and hand
PLN
13
9
28 830
17 990
There were no restrictions on the use of cash and cash equivalents during the reporting periods.
28
Equity
Share capital
IMC S.A. has one class of ordinary shares. The number of authorized, issued and fully paid shares as at 31December 2021 is 33 178 000 (as at 31 December 2020 – 33 178 000). All shares have equal voting rights. Par value of one share is USD 0,0018 (EUR 0,0018).
31 December 2021
31 December 2020
%
Amount
%
Amount
AGROVALLEY LIMITED
81
48
80
47
Other shareholders (each one less than 5% of the share capital)
19
11
20
12
100
59
100
59
A reconciliation of the number of shares outstanding at the beginning and at the end of the period:
Number of authorized, issued and fully paid shares
For the year ended 31 December 2021
For the year ended 31 December 2020
As at the beginning of the period
33 178 000
33 178 000
Changes for the period
-
-
As at the end of the period
33 178 000
33 178 000
Share premium
In 2011 IMC S.A. completed initial public offering of own shares on Warsaw Stock Exchange. Issue of share capital of IMC S.A. brought to the increase of share capital equaling to USD 10 thousand (EUR 8 thousand) and share premium in amount of USD 24 387 thousand (EUR 17 823 thousand).
In 2017 Management Incentive Plan was realized. Issue of new shares of IMC S.A. brought to the increase of share capital equaling to USD 3 thousand (EUR 3 thousand) and share premium in amount of USD 5 125 thousand (EUR 4 294 thousand).
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
86
Revaluation reserve
The fair value of Group’s property, plant and equipment has been measured as at 31 December 2020, 2017, 2015, 2010, 2009 by an independent appraiser. The related revaluation surplus was recognized in equity:
- as at 31 December 2009 USD 14 766 thousand (EUR 10 299 thousand) was initially recognized in equity;
- as at 31 December 2010 USD 4 326 thousand (EUR 3 258 thousand) was additionally recognized as increase in revaluation reserve;
- as at 31 December 2015 USD 40 390 thousand (EUR 36 967 thousand) was additionally recognized as increase in revaluation reserve;
- as at 31 December 2017 USD 22 659 thousand (EUR 18 987 thousand) was additionally recognized as increase in revaluation reserve;
- as at 31 December 2020 USD 5 265 thousand (EUR 4 285 thousand) was additionally recognized as increase in revaluation reserve.
The revaluation surplus included in equity in respect of an item of property, plant and equipment is transferred directly to retained earnings as the asset is used by an entity (in the amount that is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost) and when the asset is derecognized (in the full amount).
Effect of foreign currency translation
Effect of foreign currency translation comprises all foreign exchange differences arising from the translation of the financial statements into presentation currency.
Dividend policy
On 8 July 2016 the Board of Directors of IMC S.A. published its Dividend Policy: The Company intends to pay annual dividends starting from FY 2016 results provided that the Company succeeds to receive dividend payment waivers from its creditors.
On 27 September 2017 the Company paid the interim dividend to the Company’s shareholders for an aggregate amount of EUR 1 658 900 (EUR 0.05 per share).
On 14 September 2018 the Company paid the interim dividend to the Company’s shareholders for an aggregate amount of EUR 11 280 520 (EUR 0.34 per share).
On 29 August 2019 the Company paid the interim dividend to the Company’s shareholders for an aggregate amount of EUR 14 930 100 (EUR 0.45 per share).
On 28 August 2020 the Company paid the interim dividend to the Company’s shareholders for an aggregate amount of EUR 5 972 040 (EUR 0.18 per share).
On 03 June 2021 the Company paid the interim dividend to the Company’s shareholders for an aggregate amount of EUR 20 570 360 (EUR 0.62 per share).
On 30 November 2021 the Company paid the interim dividend to the Company’s shareholders for an aggregate amount of EUR 5 308 480 (EUR 0.16 per share).
Legal reserve
From the annual net profits of the Parent company, 5% have to be allocated to the legal reserve. This allocation shall cease to be required as soon and as long as such surplus reserve amounts to 10% of the capital. This reserve may not be distributed to the shareholders.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
87
29
Share purchase warrant
According to the Warrant Agreement entered into between the Group and International Finance Corporation (IFC) as at 20 December 2013, IFC had the right to purchase up to 3 098 700 shares of IMC S.A. (representing equivalent of 9,90% of issued share capital) for a total amount up to USD 20 000 thousand. The warrant was exercisable at any time up to 19 December 2018.
But according to the IFC Loan agreement dated 19 December 2013 if all of the warrants have not been exercised by 19 December 2018, and if only some of the warrants have been issued, the portion of the Additional return which shall be payable shall be calculated by multiplying USD 21 000 thousand by a fraction the numerator of which is equal to the number of warrant shares not subscribed for pursuant to IFC loan agreement during the exercise period and the denominator of which is equal to the total number of warrant shares. This obligation to pay the additional return is an unconditional and independent debt obligation according to the IFC loan agreement.
As at 30 June 2016 According to the Amendment to Loan agreement between IMC S.A. and International Financial Corporation the Additional Return had to be paid by IMC S.A. to International Financial Corporation. Amount of Additional Return had to be paid in a lump sum payment not later than 19 December 2018 in an amount USD 21 000 thousand or in two instalments as follows: USD 11 000 thousand on 19 December 2018 and USD 11 800 thousand on 19 December 2019. All the warrants according to the Warrant agreement dated 20 December 2013 were cancelled on 22 December 2016.
In its treatment until 2015 year-end, the Group determined fair value of the share purchase warrant by applying Black-Scholes model to determine its value as an option to purchase shares, embedded in the loan with the non-resident bank IFC of USD 30 000 thousand. The Group also treated this value separately from the host instrument, recognizing a separate loss in the amount of initial fair value of the option, and thereafter recognizing changes in that fair value at a fair value through profit and loss. At the same time, the Group considered the obligation to pay the additional return of USD 21 000 thousand, included in the Warrant Agreement, as a contingent liability since it expected the IFC to exercise its warrants to buy shares. This judgment represented an error. In its corrected treatment at year end 2016, the Group considers the additional return of USD 21 000 thousand as an obligation associated with the IFC loan. Accordingly, it has included it as an expected cash flow in calculation of the effective interest rate implicit in the loan, used in determining the amortized value of the loan instrument regarded as a whole. The effective interest rate thus determined is 17,46%.
In September 2017 new terms of payment of additional return were agreed. In accordance with new terms the amount of additional return is USD 19 742 708 and should be paid in 5 portions starting September 2017 till June 2020. The amortized value of the loan instrument was regarded with effective interest rate of 20,76% (in 2019 – 20,76%).
As at 31 December 2020 the IFC loan and related additional return are fully repaid.
30
Long-term loans and borrowings
Currency
31 December 2021
31 December 2020
Secured
Long-term bank loans
USD
6 771
7 230
Current portion of long-term bank loans
USD
(2 247)
(3 023)
Total long-term loans and borrowings
4 524
4 207
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
88
Essential terms of credit contracts
31 December 2021
Creditor
Year of maturity
Currency
Nominal interest rate
Long-term liabilities
Including current portion
Ukrainian bank
2023
USD
5,00%
610
407
Ukrainian bank
2024
USD
4,90%
915
392
Ukrainian bank
2026
USD
4,98%
2 683
833
Ukrainian bank
2026
USD
3,70%
2 563
615
6 771
2 247
31 December 2020
Creditor
Year of maturity
Currency
Nominal interest rate
Long-term liabilities
Including current portion
Ukrainian bank
2021
USD
6,00%
264
264
Ukrainian bank
2021
USD
4,75%
1 000
1 000
Ukrainian bank
2023
USD
5,00%
1 162
552
Ukrainian bank
2024
USD
4,90%
1 307
392
Ukrainian bank
2026
USD
4,98%
3 497
815
7 230
3 023
Long-term loans outstanding were repayable as follows:
31 December 2021
31 December 2020
Within one year
2 247
3 023
In the second to fifth year inclusive
4 524
4 207
6 771
7 230
The Group has committed to comply with loans covenants.
As at 31 December 2021 and 31 December 2020 the Group was in compliance with all loans covenants.
31
Short-term loans and borrowings
Currency
31 December 2021
31 December 2020
Secured
Short-term bank loans
USD
26 000
26 000
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
89
Essential terms of credit contracts
Creditor
Currency
Nominal interest rate
31 December 2021
Ukrainian bank
USD
2,75%
10 000
Ukrainian bank
USD
2,70%
5 000
Ukrainian bank
USD
2,70%
5 000
Ukrainian bank
USD
2,90%
5 000
Ukrainian bank
USD
2,90%
1 000
26 000
Creditor
Currency
Nominal interest rate
31 December 2020
Ukrainian bank
USD
3,85%
10 000
Ukrainian bank
USD
3,90%
5 000
Ukrainian bank
USD
3,90%
5 000
Ukrainian bank
USD
3,80%
4 100
Ukrainian bank
USD
3,80%
1 900
26 000
Loans and borrowings from Ukrainian banks are secured with property, plant and equipment in the amount USD 34 525 thousand (Note 18) and inventories in the amount USD 9 007 thousand (Note 22).
32
Trade accounts payable
31 December 2021
31 December 2020
Trade accounts payable
3 222
963
As at 31 December 2021 an amount of USD 2 767 thousand or 86% of the total amount of trade accounts payable is due to the 10 most significant counterparties (as at 31 December 2020 – USD 704 thousand or 73%).
The table below summarizes the maturity profile of Group’s liabilities on contractual payments on trade accounts payable:
On demand
Within 30 days
From 30 to 90 days
From 90 to 180 days
From 180 to 360 days
From 1 to 5 years
Total
31 December 2021
-
1 560
226
-
1 436
-
3 222
31 December 2020
-
692
81
7
183
-
963
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
90
33
Other current liabilities and accrued expenses
31 December 2021
31 December 2020
Other liabilities:
Advances from clients
10 487
2 582
Other accounts payable:
Wages, salaries and related charges payable
1 052
1 029
Accruals for unused vacations
1 095
943
Interest payable on bank loans
73
91
Accounts payable for non-current tangible assets
254
271
Accruals for audit services
52
101
Taxes payable
66
78
Other accounts payable
32
21
2 624
2 534
Total other current liabilities and accrued expenses
13 111
5 116
As at 31 December 2021 an amount of USD 10 484 thousand or 99% of the total amount of advances from clients is due from the 10 most significant counterparties (as at 31 December 2020 – USD 2 576 thousand or 99%).
Distribution of other current liabilities and accrued expenses on time frames is the following:
On demand
Within 30 days
From 30 to 90 days
From 90 to 180 days
From 180 to 360 days
From 1 to 5 years
Total
31 December 2021
1 095
11 964
-
52
-
-
13 111
31 December 2020
943
4 072
-
101
-
-
5 116
34
Related party disclosures
According to existing criteria of determination of related parties, the related parties of the Group are divided into the following categories:
a) Entities - related parties under common control with the Companies of the Group;
b) Key management personnel.
The Group performs transactions with related parties in the ordinary course of business. During the reporting period the Group did not perform any related parties’ transactions, except with key management personnel.
Remuneration of key management personnel was as follows:
For the year ended 31 December 2021
For the year ended 31 December 2020
Wages and salaries
949
1 513
Directors fees
420
520
Related charges
44
35
1 413
2 068
The average number of employees, persons
6
6
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
91
35
Information on segments
A business segment is a separable component of a business entity that produces goods or provides services to individuals (or groups of related products or services) in a particular economic environment that is subject to risks and generates revenues other than risks and income of those components that are peculiar to other business segments.
For the purpose of Management, the Group is divided into the following business segments on the basis of produced goods and rendered services, and consists of the following 3 operating segments:
• Crop farming - a segment, which deals with cultivation and sale of such basic agricultural crops as corn and wheat;
• Dairy farming - a segment which deals with breeding and sale of biological assets and agricultural products of live farming. Basic agricultural product of live farming for sale in this segment is milk;
• Elevators and warehouses - a segment which deals with storage and processing of agricultural produce.
Information on business segments for the year ended 31 December 2021 was as follows:
Crop farming
Dairy farming
Elevators and warehouses
Unallocated
Total
Revenue
301 028
1 607
10 526
-
31 3 161
Intra-group elimination
(121 823)
-
(9 645 )
-
(131 468 )
Revenue from external buyers
179 205
1 607
881
-
181 693
Gain from changes in fair value of biological assets and agricultural produce, net
1 13 309
(125)
-
-
113 184
Cost of sales
(181 456)
(1 008)
(1 436)
-
(183 900)
Gross income
111 058
474
(555)
-
110 977
Administrative expenses
-
-
-
(11 333)
(11 333)
Selling and distribution expenses
-
-
-
(16 375)
(16 375)
Other operating income
-
-
-
4 442
4 442
Other operating expenses
-
-
-
(1 901)
(1 901)
Write-offs of property, plant and equipment
-
-
-
(251)
(251)
Operating income of a segment
111 058
474
(555)
(25 418)
85 559
Financial expenses, net
-
-
-
(789)
(789)
Effect of lease of right-of-use assets
-
-
-
(7 201)
(7 201)
Foreign currency exchange (loss)/gain, net
-
-
-
2 255
2 255
Profit before tax
111 058
474
(555)
(31 153)
79 824
Income tax expenses, net
-
-
-
(1 114)
(1 114)
Net profit
111 058
474
(555)
(32 267)
78 710
Other segment information:
Depreciation and amortisation
21 169
139
3 230
-
24 538
Additions to non-current assets:
Property, plant and equipment
4 464
-
2 325
-
6 789
Right-of-use assets
137 607
-
-
-
137 607
Intangible assets
-
-
-
-
-
Total assets as at 31 December 2021
375 938
4 152
33 809
-
413 899
Total liabilities as at 31 December 2021
186 758
-
3 108
33 116
222 982
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
92
Revenues from the 10 most significant counterparties for the year ended 31 December 2021 were as follows:
Business segment
% of revenue
Non-residental buyer
Crop farming
35,4%
Ukrainian buyer
Crop farming
16,6%
Non-residental buyer
Crop farming
16,3%
Non-residental buyer
Crop farming
13,5%
Non-residental buyer
Crop farming
4,3%
Ukrainian buyer
Crop farming
4,3%
Ukrainian buyer
Crop farming
4,0%
Non-residental buyer
Crop farming
2,5%
Non-residental buyer
Crop farming
1,4%
Ukrainian buyer
Dairy farming
0,8%
99,1%
Information on business segments for the year ended 31 December 2020 was as follows:
Crop farming
Dairy farming
Elevators and warehouses
Unallocated
Total
Revenue
269 768
1 592
8 044
-
279 404
Intra-group elimination
(111 329)
-
(6 688)
-
(118 017)
Revenue from external buyers
158 439
1 592
1 356
-
161 387
Gain from changes in fair value of biological assets and agricultural produce, net
76 551
471
-
-
77 022
Cost of sales
(155 436)
(1 229)
(2 505)
-
(159 170)
Gross income
79 554
834
(1 149)
-
79 239
Administrative expenses
-
-
-
(11 258)
(11 258)
Selling and distribution expenses
-
-
-
(15 839)
(15 839)
Other operating income
-
-
-
1 315
1 315
Other operating expenses
-
-
-
(2 056)
(2 056)
Write-offs of property, plant and equipment
-
-
-
(82)
(82)
Reversal of impairment of property, plant and equipment
-
-
-
120
120
Imparment of property, plant and equipment
-
-
-
(1 090)
(1 090)
Operating income of a segment
79 554
834
(1 149)
(28 890)
50 349
Financial expenses, net
-
-
-
(2 137)
(2 137)
Effect of lease of right-of-use assets
-
-
-
(7 234)
(7 234)
Effect of additional return
-
-
-
(872)
(872)
Foreign currency exchange (loss)/gain, net
-
-
-
(7 918)
(7 918)
Profit before tax
79 554
834
(1 149)
(47 051)
32 188
Income tax expenses, net
-
-
-
(483)
(483)
Net profit
79 554
834
(1 149)
(47 534)
31 705
Other segment information:
Depreciation and amortisation
18 383
127
1 928
-
20 438
Additions to non-current assets:
Property, plant and equipment
5 868
6
1 319
-
7 193
Right-of-use assets
27 043
-
-
-
27 043
Intangible assets
33
-
-
-
33
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
93
Total assets and total liabilities for the segments for Y2020 are not disclosed as is the case for Y2021.
Revenues from the 10 most significant counterparties for the year ended 31 December 2020 were as follows:
Business segment
% of revenue
Non-residental buyer
Crop farming
57,9%
Residental buyer
Crop farming
13,0%
Non-residental buyer
Crop farming
7,2%
Residental buyer
Crop farming
6,6%
Non-residental buyer
Crop farming
5,0%
Non-residental buyer
Crop farming
4,4%
Non-residental buyer
Crop farming
3,7%
Residental buyer
Dairy farming
0,7%
Residental buyer
Elevators and warehouses
0,3%
Residental buyer
Dairy farming
0,1%
98,9%
36
Lease of land
The Group leases land for agricultural purposes from private individuals. Lease payments are calculated on the basis of monetary valuation of the land considering the inflation factor. The average interest rate for lease of land of the Group is 5-13% in 2021 (5-13% in 2020) and depends on validity of the contract.
Areas of operating leased land were as follows:
31 December 2021
31 December 2020
Hectare
Hectare
Location of land
Poltava region
Land under processing
19 824
19 824
Land for grazing, construction, other
140
140
Chernihiv region
Land under processing
76 829
76 829
Land for grazing, construction, other
130
130
Sumy region
Land under processing
23 371
23 371
Land for grazing, construction, other
7
7
120 301
120 301
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
94
37
Financial instruments
Financial instruments as at 31 December 2021 were represented by the following categories:
Financial instrument
Category
Measurement
Financial assets
Accounts receivable
Financial assets at amortised cost
Amortised cost
Other financial assets
Financial assets at amortised cost
Amortised cost
Cash and cash equivalents
Financial assets at amortised cost
Amortised cost
Financial liabilities
Loans and borrowings
Financial liabilities at amortised cost
Amortised cost
Lease liabilities as to right-of-use assets
Financial liabilities at amortised cost
Amortised cost
Accounts payable
Financial liabilities at amortised cost
Amortised cost
Other financial liabilities
Financial liabilities at amortised cost
Amortised cost
The fair values of the Group’s financial assets and financial liabilities listed hereinbefore reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date. The fair values are based on inputs other than quoted prices that are observable for the asset or liability. These inputs include foreign currency exchange rates and interest rates. The financial assets and financial liabilities are primarily valued using standard calculations/models that use as their basis readily observable market parameters. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and currency rates, with resulting valuations periodically validated through third party or counterparty quotes.
The Group’s non-derivative financial instruments included cash and cash equivalents, trade accounts receivable, other financial assets, trade accounts payable, other accounts payable, loans and borrowings. As at 31 December 2021 and 2020, the carrying value of these financial instruments, excluding long-term debt, approximates fair value because of the short-term maturities of these instruments. Loans and borrowings have fixed interest rates but they are corresponded to the market rate level.
38
Management of financial risks
One of the principal responsibilities of the Financial Department of the Group is to manage the financial risks arising from the Group’s underlying operations. On an annual basis, the Financial Department approves a strategic plan that takes into account the opportunities and major risks of our business and mitigation factors to reduce these risks. The Financial Department also reviews risk management policies and procedures on an annual basis and sets upper limits on the transactional exposure to be managed and the time periods over which exposures may be managed. The objective of the policy is to reduce volatility in cash flow and earnings. Risks managed include:
Type of risk
Affected by
Risk management policies
Credit risk
Ability of counterparties to financial instrument to fulfill their contractual obligations
Credit approval and monitoring practices; counterparties policies
Liquidity risk
Balance of cash flow
Preparation of detailed forecasts of cash flow
Market risk
- Market prices on products sold, materials and services for production
- Changes in interest rates
- Fluctuation of foreign currency exchange rates
- Long-term cooperation with reliable suppliers
- Maintaining a combination of fixed and floating interest rates
- Ensuring a sufficient level of USD revenues
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
95
Depending on the type of risks faced by the Group, it is possible to use a single or several methods of minimizing or levelling their negative impact on Group.
The use of the following risk management methods is possible at the Group's companies:
1) risk pooling is a method aimed at reducing the risk by transferring accidental losses into the relatively small fixed expenses (this method is a basis for insurance);
2) limitation is a method in volving the development of detailed strategic documentation, which sets the boundary level of risk in each area of the company's activities, as well as clear allocation of functions and responsibilities of personnel;
3) diversification is a method of risk control through the selection of assets, profit on which slightly correlates, if possible;
4) hedging is a balancing transaction, minimizing the negative impact of risk (e.g., selection of assets and liabilities by timing, by currency).
Credit risk
Credit risk is a risk of financial loss to the Group, which results from failure of a buyer or a contractor under the financial instrument to fulfill its contractual obligations. The risk is primarily related to the Group's accounts receivable, cash and cash equivalent.
Book value of financial assets reflects maximal extent that is subject to credit risk of the Group. Maximal level of credit risk is the following:
31 December 2021
31 December 2020
Trade accounts receivable, net
281
202
Other financial assets:
Non-bank accomodations interest free
488
301
Other accounts receivable, net
327
247
Cash and cash equivalents
28 830
17 990
29 926
18 740
Fitch credit ratings of the banks with which the Group had the accounts opened as of 31 December 2021 were as follows:
31 December 2021
International banks with A rating
1 142
International banks with B rating
4 396
Subsidiaries of international banks with A rating
8 622
Ukrainian banks with B rating
14 670
28 830
The Group manages credit risk through rigorous credit approval and monitoring practices. Financial and Economic Department has developed the credit policy. In accordance with it, all contractors are subjected to careful analysis on ability to pay before the Group offers its standard terms of payment and delivery. If the Group sells goods to a contractor it has never dealt before, transactions are performed on terms of prepayment. Deferred payment is offered only to contractors with work experience with the Group more than 1 year without delays in payment terms established in sale contracts.
Group’s management believes that companies comprising the Group are free in their choice of the customers, have close contacts with the leading global and Ukrainian traders, and may switch without risk to other customer offering better conditions of collaboration.
The Financial Directorate of the Group constantly carries out monitoring over payment terms deadlines according to goods selling contracts. In case of delay in payment, the personnel of the commercial department deals up with the customer and the decision whether to apply penalties or slightly extend the terms (within 90 days) is taken.
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
96
The Group forms estimated provision for trade and other accounts receivable. It corresponds with estimation of amount of already suffered credit losses. The main element of the provision is an element of certain loss, determined for assets considering already suffered but not fixed losses. Estimated amount of losses is determined on the basis of statistical data for previous periods for similar financial assets.
Distribution of trade accounts receivable on time-frames is the following:
Past due, not impaired
Total
Neither past due nor impaired
Within 90 days
From 90 to 360 days
More than 1 year
31 December 2021
281
256
25
-
-
31 December 2020
202
192
10
-
-
On the basis of analysis of payments for the current period Financial Director of the Group considers that there is no need to form provision for overdue, but not impaired trade accounts receivable.
Liquidity risk
Risk of liquidity - is the risk of inability to meet financial obligations of the Group in due time.
The way the Group manages the liquidity lies in providing the Group with constant availability of liquid facilities, enough to meet the obligation in due time, avoiding unforeseen losses and not to expose the reputation of the Group to risk.
There is system of management accounting and budgeting, which allows to plan and control covering all the expenses from operating activity and related with its financial expenses by means of profit.
The table below summarizes the maturity profile of Group’s financial liabilities based on contractual payments as at 31 December 2021:
On demand
Within 30 days
From 30 to 90 days
From 90 to 180 days
From 180 to 360 days
From 1 to 5 years
Over 5 years
Total
Bank loans and interest payable on bank loans
-
447
6 749
10 000
11 123
4 525
-
32 844
Lease liabilities as to right-of- use assets
-
207
412
2 366
15 583
58 573
93 843
170 984
Trade accounts payable
-
1 560
226
-
1 436
-
-
3 222
Other current liabilities and accrued expenses
1 095
11 964
-
52
-
-
-
13 111
1 095
14 178
7 387
12 418
28 142
63 098
93 843
220 161
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
97
The table below summarizes the maturity profile of Group’s financial liabilities based on contractual payments as at 31 December 2020:
On demand
Within 30 days
From 30 to 90 days
From 90 to 180 days
From 180 to 360 days
From 1 to 5 years
Over 5 years
Total
Bank loans and interest payable on bank loans
-
641
6 927
10 0 86
11 487
4 207
-
3 3 321
Lease liabilities as to right-of- use assets
-
211
408
2 491
13 655
46 238
36 158
99 161
Trade accounts payable
-
692
81
7
183
-
-
963
Other current liabilities and accrued expenses
943
4 072
-
101
-
-
-
5 116
943
5 589
7 416
12 685
25 325
50 445
36 158
138 561
The Group’s target is to maintain its current ratio, defined as the proportion of current assets to current liabilities, at the level of not less than 1.2. As of 31 December 2021 and 2020, the current ratio was as follows:
31 December 2021
31 December 2020
Current assets
175 501
116 828
Current liabilities
63 148
51 881
Current ratio
2,8
2,3
Market risk
Market risk arises from fluctuations in market factors, including exchange rates, interest rates and commodity prices. Movements in these factors may affect the Group’s income and expenses, or the value of its financial instruments. The objective of the Group’s management of market risk is to maintain this risk within acceptable parameters, whilst optimizing returns.
Market risk is comprised of:
• Commodity price risk
Risk of changes in market prices of products for sale
The Group Sales Department makes continuous monitoring of market prices of products sold in order to manage exposure to changes in market prices for the products. According to the results of this analysis and subsequent prediction of prices for products, management pricing policy depending on the dynamics of market prices is formed.
• Risk of changes in prices of materials and services
The Group is exposed to changes in prices of materials and services that are used in the process of production. The Group manages these risks by working with reliable suppliers, business relationships with whom had developed over a long time, and the search for new, more affordable supply of resources.
Currency risk
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
98
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense are denominated in a different currency from the Group’s functional currency) and the Group’s net investments in foreign subsidiaries.
The Group's companies manage their foreign currency risk by comparing the volumes of export revenues by currencies and loan portfolio by currencies. The Group avoids borrowing and production sales for export in any currency except for USD. The comparison is carried out as a part of the annual planning and budgeting.
When the amount of the expected export revenue is below the level of USD borrowing for the financial year, the decrease in foreign currency borrowings by repayment of such loans or conversion of foreign currency loans into national currency is performed.
Group avoided realization of risk transactions that are subject to foreign currency risk.
The table below summarizes the Group’s exposure to foreign currency risk as at 31 December 2021:
Note
UAH
USD
EUR
PLN
Total
Trade accounts receivable
24
256
25
-
-
281
Cash and cash equivalents
27
23 291
5 438
88
13
28 830
Loans and borrowings
30, 31
-
32 771
-
-
32 771
Lease liabilities as to right-of-use assets
19
163 609
333
7 042
-
170 984
Other current liabilities and accrued expenses
33
2 521
10 590
-
-
13 111
189 677
49 1 57
7 130
13
245 977
The Group's exposure to foreign currency risk, based on book value, as at 31 December 2021 was as follows:
31 December 2021
Increase/decrease in USD exchange rate, %
Effect on profit before tax
10
3
Trade accounts receivable
25
(10)
(3)
10
544
Cash and cash equivalents
5 438
(10)
(544)
10
( 3 277 )
Loans and borrowings
32 771
(10)
3 277
10
( 33 )
Lease liabilities as to right-of-use assets
333
(10)
33
10
( 7 )
Other current liabilities and accrued expenses
73
(10)
7
10
(2 770)
General effect
-
(10)
2 770
31 December 2021
Increase/decrease in EUR exchange rate, %
Effect on profit before tax
10
( 704 )
Lease liabilities as to right-of-use assets
7 042
(10)
704
The table below summarizes the Group’s exposure to foreign currency risk as at 31 December 2020:
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
99
Note
UAH
USD
EUR
PLN
Total
Cash and cash equivalents
27
15 065
2 614
302
9
17 990
Loans and borrowings
30, 31
-
33 230
-
-
33 230
Lease liabilities as to right-of-use assets
19
89 502
40
9 619
-
99 161
Other current liabilities and accrued expenses
33
2 341
2 775
-
-
5 116
106 908
38 659
9 921
9
155 497
The Group's exposure to foreign currency risk, based on book value, as at 31 December 2020 was as follows:
31 December 202 0
Increase/decrease in USD exchange rate, %
Effect on profit before tax
10
(3 323)
Loans and borrowings
33 230
(10)
3 323
10
(4)
Lease liabilities as to right-of-use assets
40
(10)
4
10
(19)
Other current liabilities and accrued expenses
193
(10)
19
10
(3 346)
General effect
-
(10)
3 346
31 December 2020
Increase/decrease in EUR exchange rate, %
Effect on profit before tax
10
(962)
Lease liabilities as to right-of-use assets
9 619
(10)
962
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Change in interest rates influences the involved loans and borrowings and finance lease transactions. Management of the Group doesn’t have formalized policy respecting proportion of interest risk’s allocation between the loans with fixed interest rate and floating interest rate. However, when attracting new loans and borrowings, management solves the problem respecting which interest rate, fixed or floating, will be more profitable for the Group during the expected period till the maturity date, based on own professional judgments.
The Group's interest-bearing financial instruments were formed as follows:
31 December 2021
31 December 2020
Loans and borrowings
Fixed rate instruments
32 771
33 230
Variable rate instruments
-
-
32 771
33 230
Agro-industrial risks
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
100
Agro-industrial business is subject to risks of outbreaks of various diseases of cattle or crops. These diseases could result in losses. Disease control measures were adopted by the Group to minimise and manage this risk. The Group’s management is satisfied that its current existing risk management and quality control processes are effective and sufficient to prevent any diseases and related losses.
Customer concentration risk
Focusing on large wholesale world traders, the Group has a small pool of customers and could be influenced by customer concentration risk. But the work of the Group with a small number of customers is not due to the lack of other customers or the impossibility of entering new markets, but to the selected sales strategy - the best conditions for selling are ensured by relations with large traders. To control the risk before each sale, a tender is held among buyers to determine the best conditions of the transaction. Making a choice in the direction of the buyer, management understand the level of supply and demand for the products on the market with other participants and Group’s capabilities in the event of a change of buyer.
39
Capital management
The Group’s objectives in the process of capital management are maintaining the Group’s ability to follow the going concern principle to provide benefits to interested parties, and also maintaining the optimal structure of involved and own funds.
The management of the Group regularly analyzes the structure of its capital. On basis of results of this analysis the Group takes measures, which are aimed at maintenance of total structure of the capital balance.
The main financial liabilities of the Group are long-term loans and borrowings, current portion of long-term borrowings, short- term loans and borrowings, trade accounts payable, other current liabilities and accrued expenses. The main purpose of these financial instruments is to raise funds for the activities of the Group.
The Group’s gearing ratio was as follows:
Note
31 December 2021
31 December 2020
Long-term loans and borrowings
30
(4 524)
(4 207)
Long-term lease liabilities as to right-of-use assets
19
(152 416)
(82 396)
Current portion of long-term borrowings
30
(2 247)
(3 023)
Current portion of long-term lease liabilities as to right-of-use assets
19
(18 568)
(16 765)
Short-term loans and borrowings
31
(26 000)
(26 000)
Trade accounts payable
32
(3 222)
(963)
Other current liabilities and accrued expenses
33
(13 111)
(5 116)
Cash and cash equivalents
27
28 830
17 990
Net debt
(191 258)
(120 480)
Total equity
(1 90 916 )
(138 427)
Total net debt and equity
(3 82 174 )
(258 907)
Gearing ratio
50%
47%
The capital structure of the Group is based on management’s judgments of the appropriate balancing of all key elements of its financial strategy in order to meet its strategic and day-to-day needs. The Management of the Group considers the amount of capital in proportion to risk and manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. The Group will take appropriate steps in order to maintain, or if necessary adjust, the capital structure.
40
Earnings per Share
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
101
The earnings and weighted average number of ordinary shares used in calculation of earnings per share are as follows:
For the year ended 31 December 2021
For the year ended 31 December 2020
FROM CONTINUED OPERATIONS
Net profit for the period attributable to owners of the parent company
79 512
31 788
Weighted average number of shares outstanding
33 178 000
33 178 000
Basic profit per ordinary share (in USD)
2 . 40
0 . 96
Basic earnings per share from continuing operations are computed by dividing net income from continuing operations available to ordinary shareholders by the weighted-average number of ordinary shares outstanding, excluding any dilutive effects of stock options. The Group has neither potentially dilutive ordinary shares nor other dilutive instruments; therefore, the diluted earnings per share equal basic earnings per share.
41
Subsequent events
Conducting its normal operating activity, the Group considers important to highlight the following:
Loans and borrowings and interests are repaid in the amount of USD 906 thousand.
Loans and borrowings are received in the amount of USD 6 426 thousand.
VAT for reimbursement is received in the amount of USD 5 192 thousand.
War in Ukraine
On 24 February 2022 Russian troops invaded Ukraine and peaceful Ukrainian cities were shelled by missiles. Russia has started a full-scale war against Ukraine. As a result of military actions certain areas in Ukraine became unsuitable for agricultural use. Due to the Russian Federation's blockade of Ukraine's seaports in the Black Sea, grain exports through them are currently impossible. Transportation of goods is performed by railway and trucks.
The government has implemented appropriate emergency measures to stabilize markets and the economy. As of 15 March 2022, the Verkhovna Rada of Ukraine approved a set of taxation amendments to support Ukrainian businesses under war conditions. The law establishes a special economic regime during the period of martial law. Further economic growth depends upon the resolving the Russia invasion of Ukraine and upon success of the Ukrainian government in realization of new reforms and recovery strategy after stopping the invasion, cooperation with the international funds.
From the first days of the vile invasion of the Russian Federation into the territory of Ukraine, the Group provides comprehensive assistance and support in the fight against the occupier. IMC provides all available material resources of the company, which are necessary for the protection of our Motherland and the people of Ukraine. Hundreds of our employees are fighting in the Armed Forces of Ukraine and the Territorial Defense.
The main priority for the company has been and remains to save the lives of our employees. The Group coordinated the evacuation of employees from regions engaged in active military action and provided additional assistance needed. The business processes have been reorganised to adjust to the existing challenges and to provide continuity to the Group’s activities. The Group’s key personnel and top managers continue working but remotely.
Production sites and lands cultivated by enterprises of IMC S.A. are located in Chernihiv, Sumy and Poltava regions of Ukraine, where active hostilities were underway. Part of Chernihiv and Sumy regions were occupied, but the Armed Forces of Ukraine managed to liberate these regions. As of the date of publication of the Annual report all the Group's assets are located in the deoccupied territories.
As a result of active hostilities around Chernihiv city in February-March 2022, the company's grain elevator was partially damaged. Damage is not critical and it is planned to complete the repair work in the shortest time. Most of the mobile machineries w ere
Annual report 2021
Consolidated financial statements
Notes to the Consolidated financial statements
(in thousand USD, unless otherwise stated)
102
transferred from Chernihiv city to other companies of the Group. None of the Group's critical facilities or infrastructure has suffered any significant damage. All of the Group’s inventories are in good condition and are in safe storage.
At the end of the April 2022 the Group has started a spring sowing campaign. The company was provided with all necessary agricultural machinery and inputs (seeds, fertilizers, plant protection products, fuel) for the projected sown areas. On 15 May 2022 the most difficult spring sowing in the entire 15-year history of IMC company was completed. A total of 19.2 thousand hectares of sunflower and 50.2 thousand hectares of corn were sown. Given the 18.4 thousand hectares of winter wheat sown in the fall of 2021, as of today 73% of the Company's land bank is sown. The rest of the lands in the Chernihiv region were under active hostilities, so the area is currently being inspected for explosives (mines, blind artillery and mortar shells, missile remnants, etc) and we plan to return them to production in the fall. IMC enterprises have started preparations for the winter wheat harvesting, which will take place in the summer of 2022. We are repairing and preparing the relevant agricultural machinery for field works and preparing elevators for the grain harvest of 2022.
The company together with its customers (international grain traders) and with the support of the Government of Ukraine is trying to develop alternative logistics chains for grain exports through seaports of other neighboring countries. Through the efforts of the IMC team grain export is gradually resuming and the first shipments were made in the middle of May 2022.
There were no other material events after the end of the reporting date, which have a bearing on the understanding of the consolidated financial statements.
103
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