MHP SE - Financial Results for the First Quarter 2025

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period  ended 31 March 2025

(in millions of US dollars, unless otherwise indicated)

2.    Basis of preparation and accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the three-month period ended 31 March 2025 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union (EU). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual consolidated financial statements as of 31 December 2024, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113.

The interim condensed consolidated financial statements are presented in the US dollars (USD) and all values are rounded to the nearest million, except when otherwise indicated.

Going concern

In 2025, the Group has continued its operations in an environment severely affected by the Russian invasion of Ukraine since 24 February 2022. The Group concluded that the analysis of the observable impact of the War as described on pages 171 and 217-218 of the Annual Report, which is available at mhp.com.cy, continues to be relevant for these interim condensed consolidated financial statements. The updates in the economic environment conditions during January-March 2025 are presented in Note 12 Operating environment.

Management has prepared financial forecasts, including cash flow projections, covering the 2025-2026 budget cycle. These forecasts reflect expected economic conditions, considering anticipated changes in the operating environment, including the impact of the War and other relevant factors. The Group ensures financial stability by continuously monitoring its obligations under existing debt agreements and implementing necessary measures to meet its debt servicing requirements in full and on time.

These forecasts indicate that the Group has adequate resources to continue in operational existence for the foreseeable future. The Directors have therefore concluded that it is appropriate to apply the going concern basis of accounting in preparing these consolidated financial statements. However, due to the currently unpredictable effects of the ongoing War, the Directors have concluded that a material uncertainty exists, which may cast significant doubt on the Group's ability to continue as a going concern, in which case the Group may be unable to realize its assets and discharge its liabilities in the normal course of business.

Adoption of new and revised International Financial Reporting Standards

The adoption of the new or revised Standards did not have any effect on the financial position or performance of the Group and did not result in any changes to the Group's accounting policies and the amounts reported in the interim condensed consolidated financial statements of the Group.

Functional and presentation currencies

The functional currency of the Ukrainian companies of the Group is the Ukrainian Hryvnia ("UAH"); the functional currency of the Cyprus companies and Luxembourg company of the Group is the US Dollar ("USD"); the functional currency of the European companies of the Group is the Euro ("EUR"); the functional currency of the United Arab Emirates companies is the Dirham ("AED"); the functional currency of the UK company is the British Pound ("GBP"); the functional currency of the Saudi Arabia company is the Saudi Riyal ("SAR").

Transactions in currencies other than the functional currency of the entities concerned are treated as transactions in foreign currencies.

Such transactions are initially recorded at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at prevailing rates on the reporting date. All realized and unrealized gains and losses arising on exchange differences are recognized in the consolidated statement of profit or loss and other comprehensive income for the period.

These consolidated financial statements are presented in US Dollars ("USD"), the Group's presentation currency, and all values are rounded to the nearest million, except when otherwise indicated.

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

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period  ended 31 March 2025

(in millions of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies (continued)

Functional and presentation currencies (continued)

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

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

·      Exchange differences arising on translation for consolidation are recognised in other comprehensive income and presented as a separate equity component. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss;

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

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

The relevant exchange rates were:

Material accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2024.

Seasonality of operations

Poultry and related operations, European operating segment, and Vegetable oils operations segment are not significantly exposed to seasonal fluctuations.

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

3.    Changes in the group structure

Acquisition of  Ukrainskyi Miasnyi Khutir

On 24 January 2025, the Group obtained control over Ukrainskyi Miasnyi Khutir LLC, a Ukrainian meat processing company. The acquisition was carried out in stages: an initial 24.9% stake was acquired in April 2024, increased to 49% in August 2024, and completed with the acquisition of the remaining 51% in January 2025.

The total estimated consideration for this acquisition is USD 15.6 million. At the acquisition date, the fair value of the company's identifiable net assets was USD 6.3 million, primarily consisting of property, plant and equipment, inventories, trade and other accounts receivables and payables.

Goodwill of USD 9.3 million was recognized as part of the transaction, reflecting expected synergies from the enhanced market presence in the processed meat segment, access to established brands such as  

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2025

(in millions of US dollars, unless otherwise indicated)

3. Changes in the group structure (continued)

Acquisition of  Ukrainskyi Miasnyi Khutir (continued)

"Ukrainskyi Miasnyi Khutir" and "Parowki", and anticipated operational efficiencies from integrating support functions while maintaining the acquired company's autonomous operations.

From the date of acquisition, Ukrainskyi Miasnyi Khutir contributed revenue of USD 3 million to the Group`s results. Its contribution to net profit was not material.

As of the date of approval of these consolidated financial statements, the Group is in the process of completing the purchase price allocation for the business combination, which is expected to be finalized within twelve months from the acquisition date. In addition to goodwill, the allocation is likely to result in the recognition of other intangible assets, such as trademarks and customer relationships.

4.    Segment information

The reportable segment information for the three-month period ended 31 March 2025 comprised:

¹⁾ Includes finance income, finance costs, foreign exchange gain.

²⁾ Depreciation and amortization for the three-month period ended 31 March 2025 does not include unallocated depreciation and amortization in the amount of USD 1.5 million.

The reportable segment information for the three-month period ended 31 March 2024 comprised:

¹⁾ Includes finance income, finance costs, foreign exchange loss.

²⁾ Depreciation and amortization for the three-month period ended 31 March 2024 does not include unallocated depreciation and amortization in the amount of USD 0.8 million.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2025

(in millions of US dollars, unless otherwise indicated)

5.    Profit for the period

Gross profit decreased by 4% to USD 163 million for the three-month period ended 31 March 2025, down from USD 170 million for the same period in 2024. The decrease was largely attributable to diminished gross profits in the poultry and vegetable oil operations. However, improved performance in the agriculture segment helped to partially offset these losses.

Operating profit fell to USD 60 million for the three-month period ended 31 March 2025, down from USD 84 million for the same period in 2024. The decrease was driven by adverse changes in gross profit and  increased payroll expenses within the selling, general, and administrative functions along with additional war-related costs recorded under other operating expenses.

Profit for the three-month period ended 31 March 2025 was USD 32 million, up from USD 16 million for the same period in 2024. This increase was mainly attributable to the relative stabilization of Ukrainian Hryvnia against US Dollar and EURO, leading to a foreign exchange gain of USD 13 million for the three-month period ended 31 March 2025, compared to a loss of USD 40 million for the same period in 2024.

6.    Property, plant and equipment

During the three-month period  ended 31 March 2025, the Group's additions to property, plant and equipment amounted to USD 66 million (three-month period ended 31 March 2024: USD 59 million) mainly related to  maintenance and modernization of existing facilities.

There were no significant disposals of property, plant and equipment during the three-month period ended 31 March 2025.

7.    Inventories and agricultural produce

An increase in inventory balance as of 31 March 2025 compared to 31 December 2024 is mainly attributable to costs incurred by grain growing entities in preparation for the upcoming spring sowing campaign. Additionally, increased acquisitions of sunflower seeds intended for vegetable oil production have contributed to this uptick.

A decrease of agricultural produce for three-month period ended 31 March 2025 was mainly as a result of consumption of internally produced grains that was partially mitigated by increase of chicken meat stocks.

8.    Shareholders' equity

As of 31 March 2025 and 31 December 2024 the authorized, issued and fully paid share capital of MHP SE comprised the following number of shares:

The authorized share capital as of 31 March 2025 and 31 December 2024 was EUR 221,540 million represented by 110,770,000 shares with par value of EUR 2 each.

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

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2025

(in millions of US dollars, unless otherwise indicated)

9.    Bank borrowings

The following table summarizes bank borrowings and credit lines outstanding as of 31 March 2025 and 31 December 2024: