Consolidated Financial Statements for 2015 and Auditors Report
Contents Auditors Report 3 Consolidated Statement of Financial Position 5 Consolidated Statement of Profit or Loss and Other Comprehensive Income 6 Consolidated Statement of Changes in Equity 7 Consolidated Statement of Cash Flows 8 Notes to the Consolidated Financial Statements 10
Consolidated Statement of Financial Position as at 2015 million RUB Note 2015 2014 ASSETS Property, plant and equipment 10 23,676 15,250 Biological assets 14 216 198 Other non-current assets 12 273 333 Non-current assets 24,165 15,781 Inventories 13 10,328 6,661 Biological assets 14 1,807 1,775 Trade and other receivables 15 1,002 2,168 Financial assets 11 3,341 271 Cash and cash equivalents 16 21 48 Current assets 16,499 10,923 Total assets 40,664 26,704 EQUITY AND RESERVES Share capital 17 10 10 Property, plant and equipment revaluation surplus 6,170 - Retained earnings 16,624 9,216 Equity attributable to owners of the Company 22,804 9,226 Total equity and reserves 22,804 9,226 LIABILITIES Loans and borrowings 19 6,810 7,563 Non-current liabilities 6,810 7,563 Bonds 19 3,091 2,228 Loans and borrowings 19 7,208 6,643 Trade and other payables 20 751 1,044 Current liabilities 11,050 9,915 Total liabilities 17,860 17,478 Total equity and liabilities 40,664 26,704 5 The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 10 to 44.
Consolidated Statement o f Profit or Loss and Other Comprehensive Income fo r 2015 million RUB Note 2015 2014 Revenue 4 11,504 8,372 Cost of sales (9,152) (7,394) Revaluation of biological assets 14 3,795 2,738 Gross profit 6,147 3,716 Distribution expenses (199) (109) Administrative expenses 5 (469) (486) Other expenses, net 6 (39) (152) Results from operating activities 5,440 2,969 Finance income 7 2,068 1,015 Finance costs 7 (2,086) (1,443) Net finance costs (18) (428) Gain on disposal of subsidiaries 3-1 Profit before income tax 5,422 2,542 Income tax expense 9 (3) (3) Profit for the year 5,419 2,539 Other comprehensive income Items that will never be reclassified to profit or loss Property, plant and equipment revaluation surplus 6,170 Other comprehensive income for the year 6,170 - Total comprehensive income for the year 11,589 2,539 Profit attributable to: owners of the Company 5,419 2,539 Profit for the year 5,419 2,539 Total comprehensive income attributable to: owners of the Company 11,589 2,539 Total comprehensive income for the year 11,589 2,539 These consolidated financial statements were appro v ed ^ management on 4 March 2016 and were signed on its behalf by: General Director orusc Avangard-Agro SC Avangard-Agro ' A.N. Kirkin The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 10 to 44.
Consolidated Statement of Changes in Equity for 2015 million RUB Note Share capital Retained earnings Property, plant and equipment revaluation surplus Total equity and reserves Balance at 1 January 2014 10 6,906-6,916 Profit for the year - 2,539-2,539 Total comprehensive income for the year - 2,539-2,539 Transactions with shareholders of the Company Distributions to shareholders 17 - (229) - (229) Total transactions with shareholders of the Company - (229) - (229) Balance at 2014 10 9,216-9,226 Balance at 1 January 2015 10 9,216-9,226 Profit for the year - 5,419-5,419 Other comprehensive income Revaluation of property, plant and equipment - - 6,170 6,170 Total other comprehensive income - - 6,170 6,170 Total comprehensive income for the year - 5,419 6,170 11,589 Transactions with shareholders of the Company Acquisition of business under common control 3-2,096-2,096 Distributions to shareholders 17 - (107) - (107) Total transactions with shareholders of the Company - 1,989-1,989 Balance at 2015 10 16,624 6,170 22,804 7 The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 10 to 44.
Consolidated Statement of Cash Flows for 2015 million RUB Note 2015 2014 Cash flows from operating activities Profit for the year 5,419 2,539 Adjustments for: Depreciation 10 1,334 1,098 Government grants (1,540) (984) Exchange differences 7 (798) (220) Other finance (income)/ costs 7 (38) 1 Interest expense 7 2,086 1,440 Gain on disposal of subsidiaries 3 - (1) Unrealised portion of revaluation of biological assets 14 (1,461) (438) (Reversal of write-off)/write-off of accounts receivable 6 (36) 38 Write-off of input VAT 6 30 29 Loss of crop, product deterioration, shortfalls identified during the stocktake 6 85 32 Other non-cash transactions 48 (35) Income tax expense 9 3 3 Cash flows from operating activities before changes in working capital 5,132 3,502 Changes in inventories (2,070) (1,655) Changes in biological assets 47 (304) Changes in trade and other receivables 1,388 (681) Changes in trade and other payables (256) 63 Cash flows from operations before income taxes and interest paid 4,241 925 Income tax paid (1) (5) Net cash from operating activities 4,240 920 Cash flows from investing activities Acquisition of property, plant and equipment (909) (3,354) Acquisition of land lease rights (41) (64) Proceeds from sale of property, plant and equipment 80 32 Disposal of investments in related party entities - 31 Promissory notes received (3,146) - Acquisition of business under common control 3 (471) - Net cash used in investing activities (4,487) (3,355) Cash flows from financing activities Government grants compensating interest expense 7 1,232 793 Interest paid (2,041) (1,412) Bond issue - 3,000 Proceeds from borrowings 11,731 8,725 Repayment of borrowings (10,596) (8,446) Distributions to shareholders (107) (229) Net cash from financing activities 219 2,431 8 The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 10 to 44.
Consolidated Statement of Cash Flows for 2015 million RUB Note 2015 2014 Net decrease in cash and cash equivalents (28) (4) Effect of movements in exchange rates on cash and cash equivalents 1 1 Cash and cash equivalents at the beginning of the year 16 48 51 Cash and cash equivalents at the end of the year 16 21 48 Non-cash transactions: Offsetting of own promissory notes issued and promissory notes acquired from related parties 551 438 Settlement of acquisition of business under common control by promissory notes received from related parties 187-9 The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 10 to 44.
Notes to the Consolidated Financial Statements for 2015 1 Reporting entity (a) (b) Organisation and operations Joint-Stock Company Avangard-Agro (the Company ) and its subsidiaries (the Group ) comprise Russian open joint stock companies and limited liability companies as defined in the Civil Code of the Russian Federation and companies located abroad. The Company is registered at the address: Russian Federation, 18, Ulitsa 8 Marta, Urban-Type Settlement of Zmievka, Orel Oblast 303320. The ultimate beneficiary of the Group is K.V. Minovalov. The Group s principal activities are production and sale of agricultural produce. The Group carries out its activities in Voronezh, Kursk, Orel, Belgorod, and Lipetsk. The Group s products are sold in the Russian Federation and abroad. The majority of the Group s funding is from loans provided by a related party bank with a B2 credit rating by Moody s. Further information about related party transactions is disclosed in note 25. Joint-Stock Company Avangard-Agro has been rated A+ by rating agency RAEX based on the results of 2014. The subsidiaries of the Group are: Ownership and voting rights Subsidiary Country of registration 2015 2014 LLC Avangard-Agro-Voronezh Russia 100% 100% LLC Avangard-Agro-Orel Russia 100% 100% LLC Avangard-Agro-Kursk Russia 100% 100% LLC Avangard-Agro-Belgorod Russia 100% 100% LLC Avangard-Agro-Lipetsk Russia 100% 100% LLC Avangard-Agro-Trade Russia 100% 100% LLC Avangard-Agro-Tula Russia 100% 100% Avangard Agro Trade AG Switzerland 100% 100% Business environment The Group s operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. The conflict in Ukraine and related events has increased the perceived risks of doing business in the Russian Federation. The imposition of economic sanctions on Russian individuals and legal entities by the European Union, the United States of America, Japan, Canada, Australia and others, as well as retaliatory sanctions imposed by the Russian government, has resulted in increased economic uncertainty including more volatile equity markets, a depreciation of the Russian Rouble, a reduction in both local and foreign direct investment inflows and a significant tightening in the availability of credit. In particular, some Russian entities may be experiencing difficulties in accessing international equity and debt markets and may become increasingly dependent on Russian state banks to finance their operations. The longer term effects of recently implemented sanctions, as well as the threat of additional future sanctions, are difficult to determine. 10
Notes to the Consolidated Financial Statements for 2015 The consolidated financial statements reflect management s assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management s assessment. 2 Basis of accounting (a) (b) (c) (d) Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRSs ). Functional and presentation currency The national currency of the Russian Federation is the Russian Rouble ( rouble or RUB ), which is the functional currency of the Company and all its subsidiaries and the currency in which these consolidated financial statements are presented. All financial information presented in roubles has been rounded to the nearest million unless otherwise stated. Use of estimates and judgments The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The most critical judgment formed by management in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements concerns the recognition of government grants based on actual amounts received rather than using an accrual basis; this choice is preconditioned by irregular payment of such grants by the state authorities. Critical accounting judgments applied by management in the course of preparing these consolidated financial statements are included in the following notes: Note 29(e)(iv) useful life of property, plant and equipment; Note 10(a) revaluation of land; Note 13 revaluation of agricultural produce; Note 14 revaluation of biological assets. Measurement of fair values A number of the Group s accounting policies and disclosures require the measurement of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and for disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values of an asset or a liability is disclosed in the notes specific to that asset or liability. (i) Land In 2015 the Group changed land accounting from cost model to revaluation model. This change was applied prospectively from the date of change in accounting policy. Presented below are major assumptions used by independent appraiser for determining the fair value of land: 11
Notes to the Consolidated Financial Statements for 2015 Public sources analogues were selected for each group of land based on following criteria: permitted use of land, location, size. Selected analogues were adjusted for measurement purposes taking into account a discount for bargaining (5%) and location (from -31% to 45%). (ii) Biological assets The fair value of biological assets is based on the market price of the estimated harvest, net of the estimated costs to manage the crop until harvest and harvesting costs and a reasonable profit margin based on the effort required to manage and harvest the crops. (iii) Equity and debt securities The fair value of equity and debt securities is determined by reference to their quoted closing bid price at the reporting date, or if unquoted, determined using a valuation technique. The valuation technique used includes analysis of market ratios (multiples) and discounting of expected future cash flows using a market-related discount rate. The fair value of held-to-maturity investments is determined for disclosure purposes only. (iv) Trade and other receivables The fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. The fair value is determined for disclosure purposes or when respective receivables are acquired in a business combination. (v) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. In respect of the liability component of convertible notes, the market rate of interest is determined by reference to similar liabilities that do not have a conversion option. For finance leases the market rate of interest is determined by reference to similar lease agreements. 3 Acquisition of business and disposal of subsidiary In July 2015 the Group acquired assets and operations comprising business for malt production from entity under common control for RUB 658 million. Gain on acquisition was recognized in equity as shareholder contribution according to the accounting policies (note 29). Fair value of the assets acquired was assessed by independent appraiser. The impact of this transaction on the consolidated financial statements is presented below: million RUB Note million RUB Land 10 9 Buildings and constructions 10 2,021 Machinery and equipment 10 724 Total identifiable assets 2,754 Consideration paid to a related party (658) The difference between fair value of identifiable assets and paid consideration measured as shareholder contribution 2,096 12
Notes to the Consolidated Financial Statements for 2015 On 30 September 2014 the Group sold its investments in LLC Korenevsky Malt Plant to a related party. Profit generated by this subsidiary and included in the net profit for the year amounted to RUB 1 million, including proceeds from its disposal in the amount of RUB 1 million. The disposal of the subsidiary had the following effect on the Group s assets and liabilities at the date of disposal: million RUB Note Carrying amount at date of disposal Non-current assets 46 Property, plant and equipment 10 46 Current assets 24 Trade and other receivables 15 24 Cash and cash equivalents 16 - Current liabilities 70 Trade and other payables 20 70 Net liabilities - Consideration received, satisfied in cash - Cash and cash equivalents disposed of - Net cash outflow - 4 Revenue million RUB 2015 2014 Revenue from sale of agricultural produce 11,489 8,362 Revenue from services rendered 15 10 11,504 8,372 5 Administrative expenses million RUB 2015 2014 Wages and salaries 238 324 Other taxes and duties 40 19 Legal, advisory and audit services 30 13 Software 29 23 Depreciation of property, plant and equipment 28 17 Other administrative expenses 104 90 469 486 13
Notes to the Consolidated Financial Statements for 2015 6 Other income and expenses million RUB 2015 2014 Insurance compensation from related parties 115 - Reversal of write-off of accounts receivable 36 - Reversal of obsolescence provision 9 - Reversal of provision for PPE impairment - 74 Other income 16 14 Total other income 176 88 Loss of crop, product deterioration, shortfalls identified during the stocktake (85) (32) Financial aid (62) (70) Write-off of VAT (30) (29) Net loss on disposal of other assets (20) (10) Write-off of accounts receivable - (38) Allowance for impairment of goods and materials - (22) Other costs (18) (39) Total other costs (215) (240) Total other costs, net (39) (152) Insurance compensations received by the Group under insurance contracts were accounted in other income with regard to land where reinoculation after loss of crop was impossible. Insurance compensations on land where it s possible to seed other cultures after loss of crop were recognized as decrease of cost of sales. These compensations amounted to RUB 545 million (2014: RUB 191 million). 7 Finance income and finance costs million RUB 2015 2014 Government grants 1,232 793 Foreign exchange gain 798 220 Interest income 38 2 Finance income 2,068 1,015 Interest expense (2,086) (1,440) Other finance costs - (3) Finance costs (2,086) (1,443) Net finance costs (18) (428) Government grants compensate the Group for interest expenses under bank loan agreements. Also in 2015 the Group received government grants totalling RUB 308 million (2014: RUB 191 million) to partially compensate for insurance premiums paid under agricultural insurance contracts and the provision of arm s-length support to crop farmers. Such government grants were recognised in the cost of sales. 14
Notes to the Consolidated Financial Statements for 2015 8 Employee benefit expenses million RUB 2015 2014 Production personnel wages and salaries including mandatory contributions to state pension fund 1,017 848 Administrative personnel wages and salaries including mandatory contributions to state pension fund 238 324 Distribution personnel wages and salaries including mandatory contributions to state pension fund 32 18 1,287 1,190 The Group s average number of employees during 2015 and 2014 was 4,154 employees and 4,127 employees, respectively. 9 Income taxes The Group s applicable tax rate is the corporate income tax rate of 0% for Russian companies involved in the production of agricultural produce. 10 Property, plant and equipment million RUB Land Buildings and constructions Machinery and equipment, vehicles Other fixed assets Under construction Historical cost Balance at 1 January 2014 5,206 3,299 5,908 35 920 15,368 Additions 876 62 1,893 1 499 3,331 Disposals (7) (1) (10) - (5) (23) Disposal of a subsidiary - (46) - - - (46) Transfers 11 858 - - (869) - Balance at 2014 6,086 4,172 7,791 36 545 18,630 Additions 190-607 - 75 872 Disposals (76) (6) (29) (16) (3) (130) Transfer from investing property - - 116 - - 116 Acquisition of business 9 2,021 724 - - 2,754 Revaluation 6,170 - - - - 6,170 Transfers 33 461 - - (494) - Balance at 2015 12,412 6,648 9,209 20 123 28,412 Depreciation Balance at 1 January 2014 - (160) (2,120) (4) - (2,284) Depreciation for the year - (137) (960) (1) - (1,098) Disposals - - 2 - - 2 Balance at 2014 - (297) (3,078) (5) - (3,380) Depreciation for the year - (208) (1,113) (13) - (1,334) Disposals - 3 27 - - 30 15 Total
Notes to the Consolidated Financial Statements for 2015 Transfer from investing property - - (52) - - (52) Balance at 2015 - (502) (4,216) (18) - (4,736) Carrying amount At 1 January 2014 5,206 3,139 3,788 31 920 13,084 At 2014 6,086 3,875 4,713 31 545 15,250 At 2015 12,412 6,146 4,993 2 123 23,676 In 2015 depreciation charge of RUB 1,306 million was included in the cost of sales (2014: RUB 1,064 million). At 2015 outstanding transactions on land acquisitions were included in property, plant and equipment under construction in the amount of RUB 37 million. ( 2014: RUB 70 million.). (a) Changes in the accounting policy and revaluation of land In 2015 the Group changed the accounting policy relating to land and took decision to account land at fair value on the basis of periodic valuation by external independent appraisers. As a result the management engaged the independent appraiser for fair value measurement of land as at 31 December 2015. The fair value of land was determined in the amount of RUB 12,412 million and represented market prices of recent transactions with analogues adjusted for discount for bargaining and location. (b) Acquisition of land In 2014 the Group acquired ownership of 27,434 ha of land and related real estate objects in Kamensky and Podgorensky districts of Voronezh Oblast from a Black Earth Farming group of companies. Consideration paid for the land acquired amounted to RUB 453 million, for buildings and constructions RUB 295 million (including VAT in the amount of RUB 45 million). In 2015 the Group acquired ownership of 2,633 ha of land in Buturlinovsky district of Voronezh Oblast from LLC Dolgorukovo-Agro. Consideration paid for the land acquired amounted to RUB 53 million. (c) Acquisition of business In July 2015 the Group acquired assets and operations comprising business for malt production from entity under common control. Fair value of the assets acquired was assessed by independent appraiser. (d) Security At 2015 items of property, plant and equipment with the carrying value of RUB 5,039 million ( 2014: RUB 4,844 million) and long-term lease rights for land plots of 116 thousand ha ( 2014: 116 thousand ha) were pledged to secure bank loans received by the Group (see note 19). (e) Leased property, plant and equipment The Group leases land plots under a number of lease agreements. Some of them provide the Group with a pre-emptive right to repurchase a respective land plot at a market price. Such transactions are recognised as operating leases based on the terms and conditions of the lease agreements. Lease liabilities are secured by leased land plots. 16
Notes to the Consolidated Financial Statements for 2015 11 Financial assets million RUB Current 2015 2014 Promissory notes acquired from related parties 3,341 271 3,341 271 Investments in equity instruments of related parties are measured at fair value which is based on the expected cost of subsequent sale. As at 2015 investments with the carrying value of RUB 3,341 million ( 2014: RUB 266 million) were pledged to secure bank loans (see note 19). Promissory notes profitability is 1-3%. Information about non-cash transactions involving investments of the Group is disclosed in the consolidated statement of cash flows. The Group s exposure to credit, currency and interest rate risks related to other investments is disclosed in note 21. 12 Other non-current assets million RUB 2015 2014 Land lease rights 256 254 Other non-current assets 17 79 273 333 13 Inventories million RUB 2015 2014 Agricultural produce 6,088 3,598 Processed agricultural produce 2,424 1,665 Fallow land and spring crop costs 1,103 799 Raw materials and consumables 713 599 10,328 6,661 In 2015 raw materials, consumables and movements in finished goods and work-in-progress which were recognised within the cost of production amounted to RUB 3,945 million (2014: RUB 2,487 million). In 2015 the reversal of the allowance for the write-down of inventories to net realisable value resulted in a decrease in the cost of sales and amounted to RUB 41 million (2014: RUB 379 million). Inventories with the carrying value of RUB 4,189 million at 2015 ( 2014: RUB 3,376 million) were pledged to secure bank loans (see note 19). As at 2015 fallow land and spring crop land plots amounted to 259,494 ha (31 December 2014: 214,026 ha). At the reporting dates the agricultural produce comprised the following: 17
Notes to the Consolidated Financial Statements for 2015 2015 2014 million RUB Tonnes million RUB Tonnes Wheat 3,381 370,733 1,717 234,518 Sunflower 1,369 65,747 525 38,011 Barley 964 131,516 985 169,003 Corn 309 41,232 235 36,862 Other 50 6,665 29 - Buckwheat 15 727 74 9,348 Pea - - 33 1,728 6,088 616,620 3,598 489,470 At the reporting dates the processed agricultural produce comprised the following: 2015 2014 million RUB tonnes million RUB tonnes Malt 1,406 136,800 957 99,159 Sugar 1,015 28,030 708 26,229 Other 3 292 - - 2,424 165,122 1,665 125,388 14 Biological assets At 2015 biological assets classified as non-current assets comprised oxen and milk cows (3,444 live animals) and had a fair value of RUB 216 million ( 2014: 3,113 live animals, fair value of RUB 198 million). At 2015 biological assets classified as current assets comprised winter wheat and had a fair value of RUB 1,807 million; the planting acreage was 106,503 ha ( 2014: RUB 1,775 million and 140,610 ha respectively). (a) (b) Movements in biological assets classified as non-current assets million RUB Livestock inventory Fair value million RUB Fair value less costs to sell at 1 January 2014 3,529 184 Natural increase 1,192 64 Growth due to asset acquisition 139 3 Decrease due to distemper (334) (15) Decrease due to disposal of assets (1,413) (38) Fair value less costs to sell at 2014 3,113 198 Natural increase 1,207 86 Growth due to asset acquisition 103 3 Decrease due to disposal of assets (650) (57) Decrease due to distemper (329) (14) Fair value less costs to sell at 2015 3,444 216 Movements in biological assets classified as current assets Presented in the table below are movements in the current value of biological assets classified as current assets during 2015 and 2014: 18
Notes to the Consolidated Financial Statements for 2015 2015 2014 Opening balance 1,775 937 Increase due to purchases 5,423 4,830 Net change in fair value less estimated costs to sell 3,795 2,738 Decrease due to harvest (9,186) (6,730) Closing balance 1,807 1,775 At 2015 an unrealised portion of revalued biological assets amounted to RUB 3,290 million ( 2014: RUB 1,829 million). (c) Fair value Biological assets classified as non-current assets Fair value of oxen and milk cows was calculated on the basis of simplified DCF model. Calculation of expected milk yield, milk and meat prices was based on actual data of companies for 2015. Calculated income and costs were discounted to the date of determining fair value depending on the period that they are originated. Discount rate as at 2015 was 15%. The rate was calculated on the ground of the market-based valuation of risks inherent in the activity of the Group at that date. Biological assets classified as current assets The fair value of biological assets as at 2015 and 2014 was determined using a DCF method. When determining the fair value, the following key assumptions were used: revenue is forecasted based on the estimated crops yield, which is determined based on such factors as location of farmland, natural environment and climate conditions, as well as price growth rates on the valuation date. Average crop yield for the areas was determined as 40 q/ha. data on grain harvest prices are obtained from the state statistical reporting or other public sources as at the end of the reporting period or from existing sale-and-purchase agreements as of the dates of their execution (if applicable). Planned selling price per ton of crop was determined in the range of RUB 12-14 thousand. cost of production and sales costs were forecast based on actual operating expenses; for the purpose of determining the fair value of biological assets at the reporting date a discount rate of 15% was applied ( 2014: 20%). The above rate was calculated based on the market rate which reflects the current market assessment of risks inherent in the activities of the Group; risks related to a biological transformation subsequent to the end of the reporting period. The above-mentioned main assumptions represent management s assessment of future trends in agriculture and are based on historical data from both external and internal sources. Based on management s assessment, reasonably possible changes to the key assumptions used to determine the fair value of biological assets would have affected the value of the Group s biological assets by the amounts shown below: 19
Notes to the Consolidated Financial Statements for 2015 2015 2014 1% increase in discount rate (in absolute terms) (14) (10) 1% decrease in discount rate by (in absolute terms) 14 10 10% increase in grain harvest prices 168 194 10% decrease in grain harvest prices (168) (194) (d) Harvest quantity (in tonnes) Annual harvest of agricultural produce (in tonnes) was as follows: 2015 2014 Sugar beet 450,076 466,006 Wheat 427,847 423,553 Barley 223,562 323,386 Sunflower 96,134 39,223 Corn 64,756 42,688 Buckwheat 11,449 4,074 Soya 3,986 1,301 Pea - 1,751 1,277,810 1,301,982 (e) Risk management in agribusiness The Group is exposed to a number of risks related to agricultural assets: Raw materials price risk The Group s operating results are particularly sensitive to fluctuations in prices on core raw materials, including seeds, fertilisers and agrochemicals. In order to manage this risk the Group takes measures aimed at optimising its consumption of fertilisers and agrochemicals, and in order to guarantee the best bid price the Group runs purchases on a tender basis. Soil and climatic risks Biological assets are exposed to a risk of deterioration caused by climatic conditions and changes to soil fertility of areas where the Group operates. The Group regularly monitors its exposure to these risks; measures taken include diversification of land masses in regions with varying soil and climatic characteristics, cultivation of spring and winter crops within the framework of a crop rotation link, and farming rotation of crops with varying sensitivity to soil fertility. 15 Trade and other receivables million RUB 2015 2014 Trade receivables 295 1,007 Other receivables 276 49 VAT receivable 219 799 Advances given 195 291 Prepayment of other taxes and duties 17 10 Insurance of future crop - 12 1,002 2,168 20
Notes to the Consolidated Financial Statements for 2015 (a) Overdue trade and other receivables The ageing analysis of accounts receivable is presented in the table below: million RUB 2015 2014 Not overdue 545 1,055 Past due not more than 30 days 22 - From 30 to 180 days 1 - From 180 to 360 days 1 1 Over 360 days 2-571 1,056 No provision for the impairment of receivables was accrued at 2015 and 2014. In 2015 reversal of receivables written off amounted to RUB 36 million (write off in 2014: RUB 38 million). The Group s exposure to credit and currency risks is disclosed in note 21. 16 Cash and cash equivalents million RUB Currency 2015 2014 Bank balances RUB 8 27 Bank balances USD 7 2 Bank balances EUR 5 18 Petty cash 1 1 21 48 As at 2015 cash balances at a related party bank with a B2 credit rating by Moody s amounted to RUB 19 million ( 2014: RUB 42 million) see note 25. The Group s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 21. 17 Equity and reserves (a) Share capital and additional paid-in capital Number of shares unless otherwise stated 2015 2014 Authorised shares 10,000 10,000 Par value RUB 1,000 RUB 1,000 Outstanding at the beginning of the year 10,000 10,000 Outstanding at the end of the year, fully paid 10,000 10,000 Ordinary shares The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the meetings of the Company. In respect of the Company s shares that are held by the Group companies, all rights are suspended until those shares are reissued. 21
Notes to the Consolidated Financial Statements for 2015 (b) Acquisitions from entities under common control In July 2015 the Group acquired assets and operations comprising business for malt production from entity under common control for RUB 658 million. Gain on acquisition of RUB 2,096 million was recognized in equity as shareholder contribution according to the accounting policies (note 29). (c) Revaluation of land In 2015 the Group changed the accounting policy relating to land and took decision to account land at fair value on the basis of periodic valuation by external independent appraisers. As a result of revaluation the value of land increased by RUB 6,170 million. This amount was recognized as revaluation surplus in other comprehensive income. (d) Dividends and other distributions to shareholders In accordance with the Russian legislation, the Company s distributable reserves are limited to the balance of retained earnings as recorded in the Company s statutory financial statements prepared in accordance with Russian Accounting Principles. The Company s shareholders decided not to pay dividends for 2015. However, in 2015 the shareholders received other distributions in the amount of RUB 107 million (2014: RUB 229 million). 18 Capital management The Group has no formal policy for capital management but management seeks to maintain a sufficient capital base for meeting the Group s operational and strategic needs, and to maintain confidence of market participants. This is achieved with efficient cash management, constant monitoring of the Group s revenues and profit, and long-term investment plans mainly financed by the Group s operating cash flows. With these measures the Group aims for steady profits growth. Management of the Group regularly assesses a EBITDA/total borrowed funds ratio. EBITDA is determined as profit for the period excluding depreciation and amortisation and net financial income/costs. Total borrowed funds are determined as the total of current and non-current loans and borrowings, bonds, trade and other payables. Provided that the method of calculating EBITDA and total borrowed funds is not prescribed by IFRS and there are no uniform rules for determining these indicators, other companies may calculate them differently. Year ended 2015 Year ended 2014 Profit for the year 5,419 2,539 Income tax expense 3 3 Net finance costs 18 428 Depreciation of property, plant and equipment 1,334 1,064 EBITDA 6,774 4,034 Total borrowed funds 17,860 17,478 Total borrowed funds/ebitda 2.64 4.33 22
Notes to the Consolidated Financial Statements for 2015 19 Loans and borrowings This note provides information about the contractual terms of the Group s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group s exposure to interest rate, currency and liquidity risks, refer to note 21. million RUB 2015 2014 Long-term Long-term bank loans from related parties 6,810 7,563 6,810 7,563 Short-term Short-term bank loans from related parties 7,207 4,735 Bonds 3,091 2,228 Short-term promissory notes issued to related parties - 369 Short-term promissory notes issued to other parties - 4 Short-term bank loans - 1,508 Short-term borrowings from related parties - 18 Short-term borrowings from other parties 1 9 10,299 8,871 17,109 16,434 In October 2014 in the course of a public subscription the Group placed 3,000,000 non-convertible bonds with the par value of RUB 1,000 each and the total nominal value of RUB 3,000 million maturing in 1,092 days after the placement date (October 2017). The bonds have 6 coupon periods of 182 days. The 3rd coupon rate is 14.0% per annum (1th and 2nd coupon rates are 12.0% per annum). Terms of issue do not provide for an early redemption. Given, however, that at the date of issue the Group declared rates only for the first 2 coupons, bond holders are entitled to bring these bonds for redemption within 5 working days of the last in series bond coupon, amount of which was determined by the Group. As a result, at 2015 and 2014 the Group has classified bond payables as short-term debt liability. In December 2014, 827,000 bonds were bought back by one of the Group s companies, LLC Avangard-Agro Trade. The total transaction value amounted to RUB 848 million, including an accumulated coupon yield of RUB 21 million. During 2015 bonds bought back were placed on the stock exchange again. (a) Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows: Nominal interest rate 2015 Year of maturity Face value Carrying amount million RUB Currency Secured bank loans from related parties RUB 7.75-17% 2016-2030 13,862 13,862 Unsecured bank loans from related parties RUB 8-17% 2016-2030 156 156 23
Notes to the Consolidated Financial Statements for 2015 Bonds RUB 12-14% 2017 (2016: an offer) 3,000 3,091 Total liabilities 17,018 17,109 Nominal interest rate 2014 Year of maturity Face value Carrying amount million RUB Currency Secured bank loans from related parties RUB 6% 13% 2014 2029 10,235 10,235 Unsecured bank loans from related parties RUB 6% 13% 2014 2029 2,063 2,063 Bonds RUB 12% 2017 (2015 an offer) 2,173 2,229 Unsecured bank loans RUB 11% 2015 1,500 1,508 Unsecured borrowings from other entities EUR 4% 2015 18 18 Unsecured borrowings from other entities RUB - 2015 9 9 Promissory notes issued to related parties RUB 0% 2015 369 369 Promissory notes issued to other parties RUB - 2015 3 3 Total liabilities 16,370 16,434 Bank loans are secured by the following assets: property, plant and equipment with the carrying value of RUB 5,039 million ( 2014: RUB 4,844 million) see note 10; long-term land lease rights for plots of 116 thousand ha ( 2014: 116 thousand ha) see note 10; inventories with the carrying value of RUB 4,189 million ( 2014: RUB 3,376 million) see note 13; investments with the carrying value of RUB 3,341 million ( 2014: RUB 266 million) see note 11. The above investments can be settled by offsetting against claim on bank loan if it is due or is payable on demand. (b) Breach of loan covenant As at 2015 and 2014 no additional terms (covenants) under loan agreements were applicable to the Group. 20 Trade and other payables million RUB 2015 2014 Trade payables 581 675 Other payables 95 100 Other taxes payable 43 43 Advances received 32 226 751 1,044 24
Notes to the Consolidated Financial Statements for 2015 As at 2015 trade and other payables to related parties amounted to RUB 237 million ( 2014: RUB 382 million) see note 25. The Group s exposure to currency and liquidity risks related to trade and other payables is disclosed in note 21. 21 Financial risk management (a) (b) (i) Overview The Group has exposure to the following risks from its use of financial instruments: credit risk; liquidity risk; market risks. This note presents information about the Group s exposure to each of the above risks and the Group s objectives, policies and processes for measuring and managing risk and the Group s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Group s risk management framework. The Group s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group s receivables from customers and investments in securities. Exposure to credit risk The carrying amount of financial assets represents the maximum credit risk exposure of the Group. The maximum exposure to credit risk at the reporting date was: million RUB 2015 2014 Promissory notes 3,341 271 Trade and other receivables 571 1,056 Cash and cash equivalents 21 48 3,933 1,375 At 2015 cash in the amount of RUB 19 million and promissory notes amounting to RUB 3,341 million were placed with a related party bank with a B2 credit rating by Moody s (31 December 2014: RUB 42 million and RUB 265 million respectively). 25
Notes to the Consolidated Financial Statements for 2015 (ii) (c) Trade and other receivables The Group s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group s customer base, including the default risk of the industry and country, in which customers operate, as these factors may have an influence on credit risk, particularly in the currently deteriorating economic environment. 11% of the Group s revenue for 2015 is attributable to sales transactions with one customer (2014: 19%). However, geographically there is no concentration of credit risk. The Group s products are sold to different categories of customers based on different terms: to customers in the RF on a prepayment basis; to customers outside the RF on a CAD basis (cash against documents) or based on a letter of credit. Credit terms for certain customers are approved by the Board of Directors. Sale limits are established for each such customer, and represent the maximum open amount without requiring an approval. These limits are reviewed quarterly. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are individual or legal entity, wholesale, retail or end-user customer, as well as their location, industry, agеing profile, maturity and existence of previous financial difficulties. Trade and other receivables relate only to the Group s wholesale customers. Customers that are graded as high risk are placed on a restricted customer list and monitored by the Board of Directors, and future sales are made on a prepayment basis with approval of the Board of Directors. Goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not require collateral in respect of trade and other receivables. No provision for the impairment of receivables was created at 2015 and 2014. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group s reputation. The Group has contractual commitments for the purchase of property, plant and equipment (see note 23). The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. 26
Notes to the Consolidated Financial Statements for 2015 million RUB Carrying amount Contractual cash flows On demand Less than 3 months 3 12 months 1 5 years More than 5 years 2015 Loans and borrowings 14,018 22,659-1,630 9,899 2,914 8,216 Bonds 3,091 3,432 - - 3,432 - - Trade and other payables 676 676 411 71 194 - - Balance at 2015 17,785 26,767 411 1,701 13,525 2,914 8,216 2014 Loans and borrowings 14,206 21,021 399 1,465 5,048 6,119 7,990 Bonds 2,228 2,228 - - 2,228 - - Trade and other payables 775 775 295 449 31 - - Balance at 2014 17,209 24,024 694 1,914 7,307 6,119 7,990 27
Notes to the consolidated financial statements for 2015 It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts. (d) (i) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on investments. Currency risk The Group generates foreign currency revenues from sales of agricultural produce at European markets. Net exchange gain for 2015 amounted to RUB 798 million (2014: RUB 220 million) (see note 7). In respect of other monetary assets and liabilities denominated in foreign currencies, the Group s policy is to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. Exposure to currency risk The Group s exposure to foreign currency risk, based on nominal values, was as follows: 2015 million RUB USDdenominated EURdenominated Promissory notes received 1,313 2,028 Trade and other receivables 155 7 Cash and cash equivalents 7 5 Trade and other payables - (1) 1,475 2,039 2014 million RUB USDdenominated EURdenominated Trade and other receivables 197 325 Cash and cash equivalents 2 18 Loans and borrowings - (18) Trade and other payables (3) (3) 196 322 The following significant exchange rates have been applied during the year: RUB Average exchange rate Reporting date spot rate 2015 2014 2015 2014 USD 1 60.96 38.60 72.88 56.26 EUR 1 67.78 50.99 79.70 68.34 Sensitivity analysis A reasonably possible strengthening (weakening) of the RUB, as indicated below, against all other currencies at 2015 would have increased (decreased) equity and profit or loss before taxes by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The 28
Notes to the consolidated financial statements for 2015 analysis assumes that all other variables, in particular interest rates, remain constant. Sensitivity analysis for 2014 was performed using the same principles although reasonably possible changes to foreign currency exchange rates were different (see below): million RUB Strengthening Weakening Equity Profit or (loss) Equity Profit or (loss) 2015 USD (10% movement) (147) (147) 147 147 EUR (10% movement) (204) (204) 204 204) Other (10% movement) (10) (10) (10) (10) 2014 USD (10% movement) (20) (20) 20 20 EUR (10% movement) (32) (32) 3 32 (ii) Interest rate risk Changes in interest rates impact primarily loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy of determining how much of the Group s exposure should be to fixed or variable rates. However, at the time of raising new loans or borrowings management uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable to the Group over the expected period until maturity. Exposure to interest rate risk At the reporting date the interest rate profile of the Group s interest-bearing financial instruments was as follows: million RUB Carrying amount 2015 2014 Fixed rate instruments Financial assets 3,341 271 Financial liabilities (17,109) (16,434) (13,768) (16,163) (iii) Other market price risk The Group does not enter into commodity contracts other than to meet the Group s expected usage and sale requirements; such contracts are not settled net. (e) Fair value of financial instruments Management of the Group believes that the carrying amounts of cash (see note 16), short-term receivables (see note 15) and payables (see note 20), short-term promissory notes acquired (see note 11) and long-term investments in equity instruments of related parties (see note 11), cost of which was determined based on the expected cost of subsequent sale, approximate their fair values. As at 2015 and 2014 fair values of current bank loans and short-term borrowings, promissory notes issued and bonds determined on the basis of the current value of future cash flows 29
Notes to the consolidated financial statements for 2015 using discount rates which present the best management assessment does not differ significantly from their carrying amounts. Financial instruments with carrying amounts different from their fair values are presented below (in million RUB): 2015 2014 Carrying amount Fair value Carrying amount Fair value Long-term bank loans from related parties 6,810 6,708 7,563 5,872 6,810 6,708 7,563 5,872 When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. At the reporting dates the fair value hierarchy of the Group s assets was as follows (in million RUB): 2015 Other assets measured at fair value Level 1 Level 2 Level 3 Land - - 12,409 Biological assets - - 2,023 Long-term financial liabilities measured at fair value Loans - 6,708-2014 Other assets measured at fair value Level 1 Level 2 Level 3 Biological assets - - 1,973 Long-term financial liabilities measured at fair value Loans - 5,872 - In order to determine the fair value of equity instruments, at the reporting dates management of the Group applied cost calculated based on the expected cost of subsequent sale. 22 Operating leases At, the lease payments under non-cancellable operating leases were payable as follows: 30