IAS 41 disclosures with IFRS 13 valuation disclosures, sugar, crops, cows and pigs

ROS AGRO PLC – Financial statements – 31 December 2021

Industry: agriculture

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

(IN THOUSANDS OF RUSSIAN ROUBLES, UNLESS NOTED OTHERWISE)

2.2 Critical Accounting Estimates and Judgements in Applying Accounting Policies (extract)

Fair value of livestock and agricultural produce

The fair value less estimated point-of-sale costs of livestock at the end of each reporting period is determined using the physiological characteristics of the animals, management expectations concerning

the potential productivity and market prices of animals with similar characteristics. The fair value of the Group’s bearer livestock is determined by using valuation techniques, as there were no observable market prices near the reporting date for pigs and cows of the same physical conditions, such as weight and age. The fair value of the bearer livestock was determined based on the expected quantity of remaining farrows and calves for pigs and cows, respectively, and the market prices of the young animals. The fair value of mature animals is determined based on the expected cash flow from the sale of the animals at the end of the production usage. The cash flow was calculated based on the actual prices of sales of culled animals from the Group’s entities to independent processing enterprises taking place near the reporting date, and the expected weight of the animals. Future cash flows were discounted to the reporting date at a current market-determined pre-tax rate. In the fair value calculation of the immature animals of bearer livestock management considered the expected culling rate.

Key inputs used in the fair value measurement of bearer livestock of the Group were as follows:

* Cows were bred for the purpose of production of milk and in 2021 were sold to external party.

Should the key assumptions used in determination of fair value of bearer livestock have been 10% higher/lower with all other variables held constant, the fair value of the bearer livestock as at the reporting dates would be higher or lower by the following amounts:

* Cows were bred for the purpose of production of milk and in 2021 were sold to external party.

The fair value of consumable livestock (pigs) is determined based on the market prices multiplied by the livestock weight at the end of each reporting period, adjusted for the expected culling rates.

The average market price of consumable pigs being the key input used in the fair value measurement was 101.7 Russian Roubles per kilogram, excluding VAT, as at 31 December 2021 (31 December 2020: 88.7 Russian Roubles per kilogram, excluding VAT).

Should the market prices used in determination of fair value of consumable livestock have been 10% higher/lower with all other variables held constant, the fair value of the consumable livestock as at 31 December 2021 would be higher/lower by RR 583,222 (31 December 2020: RR 465,891).

The fair value less estimated point-of-sale costs for agricultural produce at the time of harvesting was calculated based on quantities of crops harvested and the prices on deals that took place in the region of location on or about the moment of harvesting and was adjusted for estimated point-of-sale costs at the time of harvesting.

The average market prices (Russian Roubles/tonne, excluding VAT) used for fair value measurement of harvested crops were as follows:

Should the market prices used in determination of fair value of harvested crops have been 10% higher/lower with all other variables held constant, the fair value of the crops harvested in 2021 would be higher/lower by RR 4,041,059 (2020: RR 3,237,356).

The fair value less estimated point-of-sale costs for unharvested crops as at 31 December 2021 was calculated based on expected yield, degree of readiness for each crop and the forward market prices. As at 31 December 2020 unharvested crops were carried at the accumulated costs incurred, which approximated the fair value.

The average forward market prices (Russian Roubles/tonne, excluding VAT) used for fair value measurement of unharvested crops at 31 December 2021 were as follows:

Should the forward market prices used in determination of fair value of growing crops have been 10% higher/lower with all other variables held constant, the fair value of the crops as of 31 December 2021 would be higher/lower by RR 181,700.

2.7 Biological assets and agricultural produce

Biological assets of the Group consist of unharvested crops (grain crops, sugar beets and other plant crops) and pigs livestock.

Livestock is measured at their fair value less estimated point-of-sale costs. Fair value at initial recognition is assumed to be approximated by the purchase price incurred. Point-of-sale costs include all costs that would be necessary to sell the assets. All the gains or losses arising from initial recognition of biological assets and from changes in fair-value-less-cost-to-sell of biological assets less the amounts of these gains or losses related to the realised biological assets are included in a separate line “Net gain/ (loss) on revaluation of biological assets and agricultural produce” above the gross profit line.

At the year-end unharvested crops are measured at fair value less estimated point-of-sale costs. A gain or loss from the changes in the fair value less estimated point-of-sale costs of unharvested crops less the amount of such gain or loss related to the realisation of agricultural products is included as a separate line “Net gain/ (loss) on revaluation of biological assets and agricultural produce” above the gross profit line.

Upon harvest, grain crops, sugar beets and other plant crops are included into inventory for further processing or for sale and are initially measured at their fair value less estimated point-of-sale costs at the time of harvesting. A gain or loss arising on initial recognition of agricultural produce at fair value less estimated point-of-sale costs of unharvested crops less the amount of such gain or loss related to the realisation of agricultural products is recognised in profit or loss in the period in which it arises.

Bearer livestock is classified as non-current assets; consumable livestock and unharvested crops are classified as current assets in the consolidated statement of financial position.

9. Biological assets

The fair value of biological assets belongs to level 3 measurements in the fair value hierarchy. Pricing model is used as a valuation technique for biological assets fair value measurement. There were no changes in the valuation technique during the years ended 31 December 2021 and 2020. The reconciliation of changes in biological assets between the beginning and the end of the year can be presented as follows:

Short-term biological assets

Long-term biological assets

In 2021 the aggregate gain on initial recognition of agricultural produce and from the change in fair value less estimated point-of-sale costs of biological assets amounted to RR 21,835,425 (2020: RR 14,228,752).

Included in the above amounts there are gains related to realised biological assets and agricultural produce amounting to RR 18,426,116 (2020: RR 8,338,305).

Livestock population were as follows:

Cows were bred for the purpose of production of milk, in 2021 they were sold to external party. In 2021 the milk produced amounted to 3,569 tonnes (2020: 7,080 tonnes).

In 2021 total area of arable land amounted to 604 thousand ha (2020: 559 thousand ha).

The main crops of the Group’s agricultural production and output were as follows (in thousands of tonnes):

Key inputs in the fair value measurement of the livestock and the agricultural crops harvested together with sensitivity to reasonably possible changes in those inputs are disclosed in Note 2.2.

As at 31 December 2021 biological assets with a carrying value of RR 417,669 (2020: RR 1,397,922) were pledged as collateral for the Group’s borrowings (Note 15).

The Group is exposed to financial risks arising from changes in meat and crops prices. The Group does not anticipate that crops and meat prices will decline significantly in the foreseeable future except some seasonal fluctuations and, therefore, has not entered into derivative or other contracts to manage the risk of a decline in respective prices. The Group reviews its outlook for meat and crops prices regularly in considering the need for active financial risk management.

18. Government grants

During 2020-2021 the Group received government grants from the Tambov and Belgorod regional governments and the Federal government in form of partial compensation of the investments into acquisition of equipment for agricultural business and sugar processing and the investments into reconstruction and modernisation of the pig-breeding farms and the slaughter house. The receipts of these grants in 2021 amounted to RR 94,896 (2020: RR 291,966). These grants are deferred and amortised on a straight-line basis over the expected lives of the related assets.

In 2020-2021 the Group obtained government grants for reimbursement of interest expenses on bank loans received for construction of the pig-breeding farms in the Far East and Tambov. The government grants related to interest expenses capitalised into the carrying value of assets, were similarly deferred and amortised on a straight-line basis over the expected lives of the related assets. The deferred government grants, related to capitalised interest expense, amounted to RR 1,337,153 (2020: RR 995,874).

The movements in deferred government grants in the consolidated statement of financial position were as follows:

Other bank loan interests, which had been refunded by the state, were credited to the consolidated statement of profit or loss and other comprehensive income and netted with the interest expense (Note 24).

Other government grants received are included in Note 23.

23. Other operating income, net

Gain on other investments in 2021 is comprised out of dividends received from LLC GK Agro-Belogorie in the amount of RR 754,538 (2020: RR 560,568).

30. Financial risk management (extract)

Market risk (extract)

Sales price risk

Changes in white sugar prices are closely related to changes in world raw sugar prices. The storage facilities of own sugar plants permit to build up stocks of white sugar to defer sales to more favourable price periods.

The Group is exposed to financial risks arising from changes in meat and crops prices (Note 9).