Russia Ukraine war, IAS 1 para 125, significant accounting estimates, assets held for sale

AB Linas Agro Group – Annual report – 30 June 2022

Industry: agriculture

Consolidated and Company‘s Financial Statements for the financial year 2021/22 ended 30 June 2022 (extract) (all amounts are in thousand euros unless otherwise stated)

2.27. Use of significant accounting judgments and estimates in the preparation of financial

Statements (extract)

Accounting estimates regarding war in Ukraine

Group operations in Belarus and Russian markets

The Group has operations in the Russian and Belarusian market (trade in grain, oilseeds, feed materials and feed additives). Consequently, the Group is exposed to the economic and financial markets of Russia and Belarus. In response to the Russian Federation’s hostile actions towards Ukraine, which have been supported by Belarus, several countries, including the United States of America, the United Kingdom and the European Union have imposed and/or expanded economic sanctions against a number of Russian and Belarusian individuals and legal entities. The sanctions include asset freezes, restrictions to payment systems, trade restrictions, and travel bans, among other things. Further restrictions are planned. The expanded sanctions have already had or are expected to have a further detrimental effect on economic uncertainty in Russia and Belarus, including more volatile equity markets, depreciation of the Russian and Belarus ruble, reduction in both local and foreign direct investment inflows, impact on trade flows and trade disruptions with the entities operating in the Russian Federation and Belarus, and a significant tightening in the availability of credit. As a result, some Russian and Belarus entities may experience difficulties accessing the international equity and debt markets and may become increasingly dependent on state support for their operations. Due to the ongoing war in Ukraine and the related suspension of Russian gas supplies to Europe, a significant increase in energy costs is expected. The growth of energy costs and possible alternatives were evaluated when preparing the budgets and operational strategy of the Group for the next financial year. The long-term effects of the imposed and possible additional sanctions are difficult to determine.

Sales revenues to customers from Russia for the year ended 30 June 2022 were EUR 117,522 thousand, from which EUR 108,862 thousand are sales revenue of subsidiaries registered in Russia and Belarus.

Sales revenues to customers from Belarus for the year ended 30 June 2022 were EUR 26,235 thousand, from which EUR 24,587 thousand are sales revenue of subsidiaries registered in Russia and Belarus.

Subsidiaries registered in Russia and Belarus controlled by the Group

The Group has operations in Russian and Belarussian markets through the subsidiaries OOO VitOMEK (entity code 1117746107291), OOO VitOMEK (entity code 1157746009398), IOOO Belfidagro (trade in feed additives) and OOO KLM (trade in feed materials and feed additives, supply of seeds, plant care products, fertilizers, provision of veterinary pharmaceutical services and trade in products). During the first quarter of 2022, the Group‘s management has made a decision to dispose of these entities in the next 12 months (after the date of these financial statements three of the entities were sold, refer to Note 34). All assets and liabilities related with these entities are reclassified as non-current assets held for sale and liabilities, related with non-current assets held for sale (Note 12).

Subsidiaries registered in Ukraine controlled by the Group and Group‘s operations in Ukrainian market

The Group conducts operations in the Ukrainian market through its subsidiary, LLC LINAS AGRO UKRAINE (representative office). Consequently, the Group is exposed to the economic and financial markets of Ukraine. In February 2022, following the recognition of self-proclaimed republics” of Donetsk and Lugansk by the Russian Federation and its subsequent invasion of Ukraine, the military conflict escalated and spread to other regions of that country. The current escalation of the military conflict is likely to have a detrimental impact on the political and business environment in Ukraine, including the ability of numerous entities to continue business as usual. In view of the above, as at the date these consolidated financial statements, the situation in Ukraine is extremely volatile and inherently uncertain. In the wake of the ongoing and dynamic nature of the military operations, the management has concluded that it is impossible to reliably estimate their financial impact.

As at 30 June 2022, the Group‘s property, plant and equipment, machinery, inventory, trade and other receivables, other assets, trade and other liabilities, related to subsidiary operating in Ukraine were not significant. Sales revenue for the financial year ended 30 June 2022 of the Group‘s subsidiary, operating in Ukraine was not significant.

In addition, the Group conducted direct sales to customers from Ukraine. These sales amounted to EUR 2,880 thousand for the financial year ended 30 June 2022.

The Group’s Management has evaluated the following key areas which could be affected by uncertainties caused by the war in Ukraine: going concern, impairment, residual value and useful life of property, plant and equipment, assessment of expected credit losses, impairment of goodwill, net realisable value of inventory, classification of financial instruments as current and non-current, lease contracts. Based on the assessment of the Group’s the effect of the war in Ukraine on financial statements was not significant; however, due to dynamics and volatility of the military operations in Ukraine it is difficult to reliably measure the ultimate financial impact.

12. Non-current assets held for sale

Assets with the value of EUR 22,958 thousand of the subsidiaries IOOO Belfidagro, OOO KLM, OOO VitOMEK (entity code 111774610729) and OOO VitOMEK (entity code 1157746009398), which is intended to be disposed by the Group, are included in the Group’s item related to assets to be disposed of. Liabilities of EUR 16,283 thousand being disposed along with these assets were reported under the item Liabilities related to non-current assets held for sale. Foreign currency translation reserve of EUR 3,592 thousand related to these non-current assets held for sale were accounted for in Amounts recognized directly in equity relating to non-current assets held for sale.

Assets owned by IOOO Belfidagro, OOO KLM, OOO VitOMEK (entity code 111774610729) and OOO VitOMEK (entity code 1157746009398) is reclassified to non-current assets held for sale, because all criteria under IFRS 5 related to reclassification to noncurrent assets held for sale were met as at 30 June 2022. At the issue date of these financial statements, three of the entities were sold (Note 34).

34. Subsequent events

On 5 July 2022, authorized capital of AB Linas Agro was increased by EUR 5,134,480 by non-monetary contribution of AB Kauno Grūdai.

On 22 July 2022, AB Linas Agro concluded a syndicated credit agreement with Credit Suisse AG, Swedbank AB and AB SEB Bankas for the amount of EUR 170,000 thousand.

On 25 August 2022, Agreements on sale of share in OOO VitOMEK (Moscow, the Russian Fedaration) and OOO VitOMEK (Tver, the Russian Federation), and also IOOO Belfidagro were concluded.

During July and September 2022, Luminor Bank AS Lithuania operating through the Lithuanian branch of Luminor Bank AS granted short-term loans for a total amount of EUR 118,000 thousand to twelve subsidiary companies of AB Linas Agro Group.