TABLE OF CONTENTS
Chairman and Chief Executive Statement..................................................................3
Financial Highlights 2010..........................................................................................5
Ukrproduct at a Glance..............................................................................................7
Financial Review........................................................................................................8
The Board of Directors ............................................................................................10
Directors’ Report.....................................................................................................11
Remuneration Committee Report ...........................................................................13
Corporate Governance Report.................................................................................15
Corporate Social Responsibility Report...................................................................17
Statement of Directors’ Responsibility ....................................................................19
Independent Auditors' Report .................................................................................21
Consolidated Income Statement .............................................................................23
Consolidated Statement of Comprehensive Income................................................24
Consolidated Statement of Financial Position .........................................................25
Consolidated Statement of Changes In Equity.........................................................26
Consolidated Statement of Cash Flows ...................................................................27
Notes to Consolidated financial statements ............................................................28
Corporate Advisors .................................................................................................71
Shareholder Information .........................................................................................72
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
C H A I R M A N A N D C H I E F E X E C U T I V E S T A T E M E N T
Over the year, gross profit in branded goods held
steady at 6.55 million, up 1.1% on 2009
“I’am delighted to present you with our
Annual Report providing an overview
of Ukrproduct Group’s operating and
financial performance in 2010”
Jack Rowell
Chairman
“In 2010 Ukrproduct achieved a posi-
tive result with revenue growth of
4.3% and net profit growth of 5.1%”
3
CHAIRMAN AND CHIEF EXECUTIVE STATEMENT
Market environment
Ukrproduct continued to face a challenging external environment in 2010. The purchasing
power of Ukrainian consumers was squeezed by low real wage growth and high inflation. The
Ukrainian economy grew 4.2% following a contraction of over 15% in 2009.
Raw milk prices were on average double their 2009 levels. The Russian government continued
to impose restrictions on imports of dairy products from Ukraine, which resulted in overstock-
ing by Ukrainian producers and intense competitive pressure in the domestic market.
Overview
Against this challenging backdrop, Ukrproduct achieved a positive result with revenue growth
of 4.3% and net profit growth of 5.1%.
There was a strong contrast between the first and second halves of the year. The first half (H1
2010) saw profits of branded products suffering in the face of intense domestic competition,
whilst SMP was strong on the back of favourable world prices. In the second half (H2 2010),
sales and profits of branded products rebounded thanks to a successful realignment of the
product mix and strong marketing activity. Over the year, gross profit in branded goods held
steady at £6.55 million, up 1.1% on 2009.
Given the current market conditions, Ukrproduct’s strategy is to adjust the product offering to
match shifting consumer preferences into cheaper goods, whilst maintaining a robust presence
in the medium and premium segments as well as keeping a keen eye on costs. The Group max-
imised the profitability of its milk protein supplies, alternating between SMP and hard cheese
production as relative prices shifted over the course of the year. Ukrproduct also leveraged its
distribution network by expanding distribution of the third party products.
The more stringent tax regime meant the Group’s tax burden increased in 2010. This will con-
tinue in 2011.
Branded Products
In 2010, Ukrproduct maintained its market leadership in packaged butter, which accounts for
over half of all branded products sales. Average raw milk prices were double their 2009 levels,
which eroded profit margins on packaged butter in the first half of 2010 particularly. In the sec-
ond half (H2), the Company was able to raise packaged butter prices above the rate of inflation
in Ukraine along with the world trend and thus recover some profitability.
Ukrproduct faced extreme competitive pressure in the mass market processed cheese segment
this year. Although market share declined in the first half (H1), the Group responded swiftly
with a strong marketing drive and regained most of the lost market share by the year end.
Sales of hard cheese in 2010 were below 2009 levels, but profitability improved significantly.
The Group adjusted its hard cheese product mix to create a more sustainable business model
for this sector area going forward.
Ukrproduct launched an aggressive marketing campaign for the middle market ‘Our Dairyman’
brand in the fourth Quarter of 2010 (Q4 2010), including strong in-store marketing. The effort
was highly effective – sales were up between 100% and 400% on ‘Our Dairyman’ products
during the campaign.
Sergey Evlanchik
Chief Executive Officer
Skimmed Milk Powder (SMP)
SMP contributed strongly to both revenue and gross profit in H1 as the Company benefited
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
4
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
from high world SMP prices. H2 was a different story: world SMP prices fell in response to
falling milk consumption and rising exports from the European Union (EU); rising domestic raw
milk prices eroded the international competitiveness of Ukrainian SMP; and the government
rattled exporters by complicating the VAT refund system. The Company therefore redirected
milk protein supplies to the production of hard cheese, which was more profitable than SMP
export. Overall, gross profits from SMP grew more than two fold y-o-y, despite a 27.9% fall in
revenue.
Third Party Distribution
Ukrproduct further leveraged its nationwide distribution network by distributing third-party
products. In 2010, the Company started distributing kvass (a traditional fermented drink) and
imported frozen fish products to leading Ukrainian retailers. Gross profit from third party distri-
bution grew more than two fold in 2010. The Company expects further strong growth in this
segment in 2011, though it will be concentrated in Q2 and Q3 as distribution is seasonal.
Management and Staff
In 2010, Ukrproduct significantly strengthened its senior management team by appointing
highly experienced professionals to the roles of Chief Financial Officer, Director of Sales and
Director of Marketing. We have every confidence that the new team will drive forward
Ukrproduct’s strategy to increase sales and improve profitability. On behalf of the Board, we
would like to thank all the staff of Ukrproduct for their commitment and hard work in what con-
tinues to be a challenging economic environment.
Post-balance sheet events
Early in 2011 the Group sold the assets of the previously mothballed Zhmerynka Plant. The
proceeds from the sale were directed to the working capital.
Outlook and Strategy
Looking forward, we see a period of relative stability and modest growth in Ukraine thanks to
political stability and improving public finances. Nevertheless, it is anticipated that, consumers’
budgets will remain tight.
The Group will therefore continue to realign the product mix to take advantage of the shift of
consumer demand towards more affordable products. It will reinforce the new offering with
strong sales and marketing activity. Ukrproduct will also seek to boost sales in the profitable
premium segment, including a re-launch of its “Molendam” branded products.
Ukrproduct will continue to pursue cost reductions in order to improve profitability. The Group
also plans significant capital expenditure projects to upgrade equipment and streamline pro-
duction processes.
Ukrproduct will continue to seek opportunities to leverage its Ukraine-wide distribution net-
work by distributing third-party goods.
The Group will also continue to export SMP when market conditions are favourable, and will
seek to expand exports of branded goods into neighbouring countries.
The Group continues to look for appropriate acquisition targets and keeps potential opportuni-
ties under ongoing review.
Jack Rowell
Chairman
Sergey Evlanchik
CEO
5
FINANCIAL HIGHLIGHTS 2010
The Ukrainian economy limped to a weak recovery in 2010:
• Real GDP rose 4.2% in 2010 following a 15% contraction in 2009. However, consumer
disposable incomes continued to be squeezed.
Despite these difficult economic conditions, Ukrproduct managed to grow its business:
• Revenue grew 4.3% to £45.02 million
• Gross Profit grew 10.7% to £7.67 million
• Net Profit grew 5.1% to £1.094 million
The second half (H2 2010) was particularly strong, compared to the first half (H1 2010) which
bodes well for a sustained recovery in 2011:
• Gross profit was up 40.9% in H2 compared to H1
• Gross profit in Branded Goods – which accounts for over 70% of Group revenues – was
up 92% in H2 compared to H1
• Profitability improved significantly, from 15.4% in H1 2010 to 18.4% in H2 2010.
The Group ended the year in a strong financial position:
• Positive cash flow with year-end cash balance of GBP £0.676 million (2009: GBP £ 0.236
million)
• Ukrproduct has access to additional banking facilities if required
Sergey Evlanchik
Chief Executive Officer
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
U K R P R O D U C T A T A G L A N C E
In 2010 Ukrproduct Group delivered positive
performance with the revenue increasing by 4.3%
year on year to GBP 45 million
7
UKRPRODUCT AT A GLANCE
KEY FIGURES
Year ended 31 December 2010
% change from 2009
Revenue
Gross Profit
Net Profit
£45.020 million
£7.671 million
£1.094 million
Earnings per share
2.7p
+ 4.3%
+ 10.7%
+ 5.1%
8.0%
PRODUCTS & SERVICES
Contribution to Group Revenue
Branded
Goods
71%
Others
10%
Skimmed
Milk Powder
19%
Contribution to Group Gross Profit
C
Others
6%
SMP
9%
PRODUCTION & DISTRIBUTION
Two major manufacturing plants are
•
ISO-certified
• Annual production capacity of 70,000
tonnes of dairy products
• Ukraine-wide distribution network
• Provides distribution and logistics
services to third parties
Ukraine
Distribution Centre
Manufacturing Plant
MARKET POSITION
Packaged Butter
Market Share: 22.0% (1st place)*
Ukrproduct is the market leader for packaged butter in Ukraine.
Processed Cheese
Market Share: 15.6% (2nd place)**
Branded
Goods
85%
Ukrproduct offers a range of processed cheese products under well-recognised brands which
focus on the mass, middle and premium markets.
Spreads
Market Share: 2.1% (7th place)**
The Group sells butter-oil mix spreads under the “Farmers” and “People’s Product” brands.
* Expert estimates
** State Statistics Committee
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
8
FINANCIAL REVIEW
In 2010 Ukrproduct Group delivered positive performance with the revenue increasing by 4.3%
year on year to GBP 45 million (2009: GBP 43.2 million). The Group continued to derive the
majority of its revenue from the branded products segment which accounted for 70.7% of its
total sales. Branded products segment revenues increased by 6.6% year on year and con-
tributed GBP 31.8 million (2009: GBP 29.9 million) to Group’s results. Skimmed milk powder
revenues declined by 27.9% as a result of decreased profitability in the second half following
the correction in global prices and contributed GBP 8.7 million (2009: GBP 12.0 million).
Sales Share in Sales
2010
2010
£ `000
Sales Share in Sales
2009
2009
£ `000
Gross Profit Gross margin
2010
2010
£ `000
Gross Profit
2009
£ `000
Gross margin
2009
Branded
31,828
SMP
Other
Total
8,669
4,523
45,02
70.7%
19.3%
10.0%
100.0%
29,864
12,026
1,277
43,167
69.2%
27.9%
2.9%
6,549
20.6%
703
418
8.1%
9.2%
6,48
267
182
100.0 %
7,671
17.0%
6,929
21.7%
2.2%
14.2%
16.1%
Gross Profit and Selling, Distribution & Administrative expenses (SG&A)
The Group’s gross profit increased by 10.7% year on year in 2010 with gross profit margin of
17.0% compared to 16.1% in 2009. The gross profit in branded products segment in 2010 was
20.6% compared to 21.7% in 2009 as result of margin pressure in the processed cheese seg-
ment. SMP gross profit margin increased to 8.1% compared to 2.2% in 2009 as the Group
benefited from favourable pricing environment in skimmed milk powder in the first half of
2010.
The Group’s Administrative, Selling and Distribution expenses increased by 8.1% to GBP 5.6
million (2009: GBP 5.2 million) in line with the inflation but the proportion of these expenses to
total expenses remained constant at the level of 6% compared to the prior year.
EBITDA and Profit after tax
Group EBITDA declined by 17.0% year on year in 2010. Depreciation and amortisation ex-
penses declined by 24.1% year on year from GBP 1.4 million in 2009 to GBP 1.1 million in
2010 following a change of depreciation method for some items of plant and equipment. Profit
after tax increased by 5.09% year on year in 2010.
In 2010 the group showed the signs of growth as the increase rate of the revenue was lower
than the increase rate in net income and higher than increase rate in total assets.
Average
Total Assets
Revenue
Net Income
Rate of Increase 2010/2009
2.4%
<
4.3%
<
5.1%
Earnings per share and dividends
The Group’s basic earnings per share (EPS) and the diluted earnings per share increased 8%
year on year from 2.5 pence in 2009 to 2.7 pence in 2010.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
9
“The Group continued to derive the
majority of its revenue from the
branded products segment which ac-
counted for 70.7% of its total sales”
The Board of Directors has proposed to pay a final dividend of 0.50 pence per ordinary share
for 2010, resulting in the total dividend payment of 0.50 pence per ordinary share for the full
year 2010 (0.4 pence). The final dividend is expected to be paid on June 24, 2011 to
shareholders of record as at May 20, 2011, subject to the approval by the shareholders at the
Annual General Meeting (AGM).
Cash flow
Net cash generated by the operating activity totalled GBP 465 k in 2010 (GBP 2.2 million). Net
cash used in investing activities totalled GBP 0.72 million in 2010 (GBP 0.1 million). During the
year, Ukrproduct invested in maintaining its production capacities and purchase of property,
plant and equipment.
Net cash used in financing activities amounted to GBP 0.79 million in 2010 compared to GBP
2.35 million used in 2009.
The Group’s cash balance stood at GBP 0.68 million as at 31 December 2010 compared to GBP
0.24 million as at 31 December 2009. The Group’s cash level is sufficient to meet current debt
obligations in the short and medium term.
Further information is disclosed in note 6.
Bank facilities
The Group maintained a working capital facility in Ukrainian Hryvnia with OTP Bank equivalent
to up to GBP 3.3 million. As at 31 December 2010 the Group has drawn down GBP 2.9 million
(2009: GBP 1.6 million) of the available facility. Ukrproduct also has available additional over-
draft facilities for up to GBP 0.6 million.
Financial reporting
The financial statements included in this report were prepared in accordance with International
Financial Reporting Standards as adopted by the European Union (‘‘IFRS’’).
Olena Yakovenko
Chief Financial Officer
5 April 2011
Olena Yakovenko
Chief Financial Officer
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
10
THE BOARD OF DIRECTORS
As of the date of the 2010 Annual Report approval, the Board members are as follows:
Position
Date appointed
Non-executive Chairman
November 2004
April 2008
September 2010
November 2004
Name
Jack Rowell
Sergey Evlanchik
Olena Yakovenko
CEO
CFO
Alexander Slipchuk
Executive Director
Jack Rowell (73)
Non-executive Chairman
Dr. Rowell has acted as Chairman of a number of companies in the public and private sector,
mainly within the food production industry. He was previously an executive director on the
board of Dalgety plc responsible for the consumer foods division. Jack also served as Chair-
man of Celsis plc. He has also been Manager of Bath Rugby, then the Champions of England
and the English national team. Prior to this, Dr. Rowell was CEO of Golden Wonder Ltd. and
Lucas Food Ingredients (also part of the Dalgety Food Group). He was educated at Oxford Uni-
versity and is a Chartered Accountant.
Sergey Evlanchik (35)
Chief Executive Officer
Sergey Evlanchik is responsible for the Group’s overall performance and strategy implementa-
tion and is a founder of Ukrproduct Group. He studied at Vladivostok State University of Eco-
nomics & Service in the Russian Federation and at Oxford University in the UK, where he
received his MBA degree. Together with Alexander Slipchuk, he established the equity trading
company, Alfa-Broker in 1994 in the Far East of the Russian Federation. After the recess of the
Russian and Ukrainian equity markets in 1998, Mr Evlanchik refocused his activities on busi-
ness development in the industrial sector of Ukraine, particularly within the dairy industry,
where he joined the companies that would subsequently form Ukrproduct Group in 2004.
Sergey then led the Group to its successful listing on AIM market of the London Stock Ex-
change in 2005.
Olena Yakovenko (49)
Chief Financial Officer
Olena Yakovenko was appointed Chief Financial Officer in September 2010. She rejoined the
Company in August 2009 as Head of Controlling and Risks Analysis Department, having pre-
viously served as Head of Finance of the Group between 2001 and 2004. From February 2008
to July 2009, she was an Executive Director and Deputy General Director in charge of Finance
of ViDi Group Limited, a diversified Ukrainian holding company. Prior to that, she held senior
management positions at ViDi Group Limited between July 2006 and February 2008, and
served as Finance Director at UTL-COM Limited between 2005 and 2006 and as Deputy Finan-
cial Director of Ukrtechnoprom, one of the leading suppliers of heating equipment in Ukraine,
between 2004 and 2005. Olena is a graduate of Donetsk National University with a degree in
Economics.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
11
Alexander Slipchuk (45)
Executive Director
Alexander Slipchuk studied at Far-Eastern High Engineering Marine School in Russia and gra-
duated as a maritime navigator in 1989. Together with his partner Sergey Evlanchik, Alexander
established the securities house Alfa-Broker in 1994, developed the equity trading business in
the far east of the Russian Federation, and acquired initial stakes in the companies that later
became part of Ukrproduct Group. Later in 1998, Alexander took on the executive positions at
the Molochnik and the Starakonstantinovskiy Dairy plants, Ukrproduct’s two main operating as-
sets. He serves as the Group’s Executive Director in an advisory capacity.
DIRECTORS’ REPORT
The Directors present their report and the audited consolidated financial statements of
Ukrproduct Group Ltd for the year ended 31 December 2010.
Principal Activities and business review
Ukrproduct Group Ltd (the Company) is a holding company for a group of dairy based FMCG
(fast moving consumer goods) businesses located in Ukraine. The principal activities of
Ukrproduct Group are the production and distribution of highly branded dairy foods in Ukraine
and the export of milk powder. The Group is one of the leading branded food producers in
Ukraine with its own nationwide distribution network. More detailed commentary on the
Group’s activities during the year, its financial performance, future plans, and prospects are
outlined in the Chairman and Chief Executive Statement and in the Financial Review.
Results and Dividends
The results of the Group for the period are set out on page 23 and show a profit for the period
of 1,094 million (2009: GBP 1,041 million).
Based on the Group’s financial performance in 2010, the Group did not pay any interim divi-
dend. The Board of Directors proposed to pay a final dividend of 0.5 pence per ordinary share
for 2010, which would lead to 0.5 pence per ordinary share for the full year (2009: 0.40 pence).
The final dividends will be paid on June 24, 2011 to shareholders on the register as at May 20,
2011, subject to shareholders’ approval at the 2011 Annual General Meeting.
Directors
Details of members of the Board of Directors are shown on page 10
The Directors’ interests in the share capital of the Company as at 31 December 2010 and 31
December 2009 are shown below:
Shares
2010
2009
Share options
2010
2009
Executive
Sergey Evlanchik
14,422,383
14,422,383
Alexander Slipchuk
14,487,383
14,487,383
-
-
-
-
Non-executive
Dr Jack Rowell
38,690
38,690
130,290
130,290
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
12
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
Powers of the Directors
Subject to the Company’s Memorandum and Articles of Association, the Law and any direc-
tions given by special resolution, the business of the Company shall be managed by the Direc-
tors who may pay all expenses incurred in setting up and registering the Company and who
may exercise all such powers of the Company. The rules in relation to the appointment and re-
placement of Directors are set out in the Company’s Articles of Association.
Financial Risks Facing the Group
The principal risks of the business are credit risk, liquidity risk and market risk, including fair
value or cash flow interest-rate risk and foreign exchange risk. The main purpose of the
Group's risk management programme is to evaluate, monitor and manage these risks and to
minimise potential adverse effects on the Group's financial performance and shareholders. The
Chief Financial Officer of the Group is in charge of risk management and introduction of all
policies as approved by the Board of Directors.
For further details of the Group’s risk management please see note 5 on page 46
Employees
The Group is committed to ensuring provision of equal opportunities for all employees, which
is reflected by its selection, recruitment and training policies. The Group considers its emplo-
yees to be one of its most valuable assets and rewards high performance through competitive
remuneration and incentive schemes. The Directors also consider it a priority to give emplo-
yees the opportunity to communicate their ideas and opinions to all levels of management,
both directly and through various surveys. The average number of employees totalled 1,857 in
2010 (2009: 1,925).
Payment Policy
The Group has a general set of guidelines for paying its suppliers based on specific criteria.
However, it is normal practice to agree payment terms with a specific supplier when entering
into a purchase contract. The Group seeks to abide by the payment terms agreed whenever it is
satisfied that the goods or services have been provided in accordance with the agreed terms
and conditions.
Going concern
Following a review of the Group’s financial position and its budgets and plans, the directors
have concluded that the Group has sufficient financial resources to meet working capital re-
quirements for a period of up to 12 month from the date of these financial statements.
Annual General Meeting
Ukrproduct’s AGM will be held on 9 June, 2011. The Notice of AGM and agenda will be sent to
shareholders no less than 23 days prior to the date of the meeting.
Auditors
Baker Tilly Channel Islands Limited was re-appointed as the Group’s auditors for the 2010 fi-
nancial year by the resolution of the Annual General Meeting of Shareholders held on June 24,
2010.
Statement as to disclosure of information to the auditor
All of the current Directors have taken the necessary steps to make themselves aware of any
information needed by the Company's auditors for the purposes of their audit and to establish
that the auditors are aware of that information. The directors are not aware of any relevant
audit information of which the auditors are unaware.
Jack Rowell
Chairman
5 April 2011
13
REMUNERATION COMMITTEE REPORT
This report is prepared by the Remuneration Committee of the Board and sets out the Group’s
policy on the remuneration of the Directors, with a description of service agreements and re-
muneration packages for each Director.
Remuneration Committee
The Remuneration Committee comprises one non-executive Director, Jack Rowell. This Com-
mittee is scheduled to meet at least twice per annum to advise the Board on the Group’s remu-
neration strategy and to determine the terms of employment and total remuneration of the
respective Executive Directors of the Group and of its subsidiary companies, including the
granting of share options. Among others, the objective of this Committee is to attract, retain
and motivate Executives capable of delivering the Group’s objectives. The Remuneration Com-
mittee is also responsible for the evaluation of the performance of Executive Directors.
The Remuneration Committee held two meetings during 2010.
Remuneration Policy
The Company’s remuneration policy is to provide remuneration packages which:
•
•
•
•
•
are designed to attract, motivate and retain high calibre Executives;
are competitive and in line with comparable businesses;
are rooted in practices exercised in countries where the Group operates;
intend to align the interests of the Executives with those of the shareholders by means of
fixed and performance related remuneration; and
set challenging performance targets and motivate Executives to achieve those targets both
in the short and long-term.
Base salary
The Committee on an annual basis reviews base salaries of the respective Executive Directors
of Group and its subsidiary companies, taking into account job responsibilities, competitive
market rates and the performance of the Executive concerned. Consideration is also given to
the cost of living and the Director’s professional experience. While determining the base
salaries, the Committee also considers general aspects of the employment terms and condi-
tions of employees elsewhere in the Group.
Incentive bonus plans and equity arrangements
The Committee plans to consider developing long-term equity incentive arrangements to make
the overall Executive Remuneration structure more performance-related, more competitive and
aligned with shareholders’ interests.
Service contracts
The appointments of the respective Executive Directors of the Group and its subsidiary compa-
nies are valid for an indefinite period and may be terminated with three months notice given by
either party at any time. The Group or subsidiary company’s provision for compensation for
loss of office is to provide compensation which reflects the Group or that subsidiary company’s
contractual obligations.
Bonus Scheme
The Committee has established a cash bonus scheme for Executive Directors based on the
overall performance of the Group and/or respective subsidiary company and attainment of the
operating profit targets.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
14
Non-executive directors
The appointments of non-executive Directors are valid for an indefinite period and may be ter-
minated with three months notice given by either party at any time. The decision to re-appoint,
as well as the determination of the fees of the non-executive Directors, rests with the Board.
The non-executive Directors may accept appointments with other companies, although any
such appointment is subject to the Board’s approval and terms and conditions of Service
Agreements.
Directors’ remuneration
Details of the Directors’ cash remuneration are outlined below:
GBP
Annual Salary/fee
2009
2010
£ ‘000
£ ‘000
Bonus
Non-cash compensation
Total cash remuneration
2010
£ ‘000
2009
£ ‘000
2010
£ ‘000
2009
£ ‘000
2010
£ ‘000
2009
£ ‘000
Executive
Roman Prannychuk (resigned)
Olena Yakovenko
Alexander Slipchuk
Sergey Evlanchik
Non-executive
Dr Jack Rowell
30
10
70
90
45
40
-
70
90
45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
10
70
90
45
40
-
70
90
45
Share based payments
In 2009 the Company granted share options to Jack Rowell, the Chairman. Details of the op-
tions outstanding at 31 December 2010 are shown below. The Directors’ Remuneration dis-
closed above does not include any amounts for the value of options to acquire shares of the
Company.
Directors
Share Options
Exercise Price, pence
Exercise Period
Jack Rowell
130,290
12.8
to 06/07/2013
As at the year end date, these options were not exercised.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
15
CORPORATE GOVERNANCE REPORT
Corporate Governance Policy
Effective corporate governance is a priority of the Board and outlined below are details of how
the Company has applied the principles set out in The Combined Code on Corporate Gover-
nance (the “Code”) revised in July 2006 by the Financial Reporting Council. Under the rules of
AIM, a market operated by the London Stock Exchange, the Company is not required to comply
with the Code and the Board considered that the size of the Group does not warrant compliance
with all of the Code’s requirements. The Board fully supports the principles on which the Code
is based and seeks to comply with best practice in such respects as they consider appropriate
for a Group of its size and nature. The Board has a wide range of experience directly relevant to
the Group and its activities and its structure ensures that no one individual or Group dominates
the decision making process.
The Board
The Board consists of one non-executive and three Executive Directors. The roles of the Chair-
man of the Board and the Chief Executive of the Group are held separately with a clear division
of responsibility between them. The Chairman of the Board is an independent non-executive Di-
rector.
Within the scope of the corporate governance procedures, the Board meets regularly to con-
sider the financial results, budgets, and major items of capital expenditure of all the Group’s
companies. This body is also responsible for formulating, reviewing and approving the Group’s
strategy and the phases of its development.
The Board met five times during 2010 and all the directors attended all meetings, with the ex-
ception of Mr Alexander Slipchuk, who attended four of five meetings, missing one by prior
arrangement.
Board Committees
The Board is assisted by the Audit and Remuneration Committees.
Audit Committee
The Audit Committee consists of one non-executive Director, Jack Rowell. The member of the
Audit Committee has relevant financial experience. This Committee, inter alia, is responsible
for reviewing the Annual and Interim financial statements, in addition to the systems of internal
control and risk management, and also for ensuring the integrity of the financial information re-
ported to the shareholders.
The Audit Committee met twice during 2010.
Remuneration Committee
The Remuneration Committee comprises one non-executive Director, Jack Rowell. This Com-
mittee is scheduled to meet at least twice per annum to advise the Board on the Group’s remu-
neration strategy and to determine the terms of employment and total remuneration of the
Executive Directors, including the granting of share options. Among others, the objective of
this Committee is to attract, retain and motivate Executives capable of delivering the Group’s
objectives. The Remuneration Committee is also responsible for the evaluation of the perfor-
mance of Executive Directors.
The Remuneration Committee held two meetings during 2010.
Relations with shareholders
The Group maintains regular contact with its institutional and private shareholders, fund
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
managers, financial analysts and brokers through a series of presentations, conference calls
and meetings. All corporate materials, including annual reports, financial results statements
and other information, are available on the Group’s website www.ukrproduct.com
The Chief Executive Officer and Chief Financial Officer hold conference calls and meetings with
major shareholders on a regular basis. The Board believes that it is essential to discuss with its
major shareholders and keep them updated with regards to the Group’s financial performance,
strategy and business developments. The Chairman is also accessible to major shareholders, if
such meetings are required.
The Board invites all shareholders to attend the Company’s Annual General Meeting and en-
courages them to exercise their voting right and participate with questions.
Internal Control
The Group adheres to comprehensive and strictly regulated budgeting and reporting proce-
dures that are aimed at more efficient internal control and risk management. The Board is re-
sponsible for the Group’s system of internal control and for reviewing its effectiveness,
however, it is recognised that any control system can only provide reasonable and not absolute
assurance against material misstatement or loss.
The principal elements of the internal control system are as follows:
•
•
•
•
documented policies, procedures and authorisation levels;
clearly defined lines of responsibility in the organisational structure of the Group;
a management structure which facilitates ease of communication both vertically and hori-
zontally;
annual budgeting and monthly reporting procedures.
The annual budgets consist of monthly budgets, which are updated each month once actual
figures become available. Due to the dynamic development of the macroeconomic environment
of the country the Group operates in, variances in actual figures for sales, prices and other
underlying assumptions from those forecasted may occur. Hence, the budget is flexed to better
reflect the future of the Group. Such variances by each company within the Group are disco-
vered and recommendations for further actions are formulated.
The internal control system is further enforced by the Group’s internal audit department. The
main objectives of the internal audit function are to ensure the safety of the Company’s assets
and the reliability of accounting records. The internal audit department is responsible for audi-
ting the financial statements and accounting procedures of the companies within the Group, as
well as for disclosing and reducing various types of risks related to Group operations. Each
company within the Group has a designated auditor, who systematically performs the audits.
The Group’s controlling and risks analysis department is responsible for identifying the
possible issues in the Group’s processes, the ongoing optimization of operations and risk
management.
16
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
17
CORPORATE SOCIAL RESPONSIBILITY REPORT
Corporate Social Responsibility
The Board is committed to developing and implementing corporate social responsibility (CSR)
policies aimed at:
Ensuring safe working conditions
• Promoting equality and fairness among employees, partners and suppliers
•
• Maintaining the Group’s corporate reputation and dedication to business ethics
• Supporting the communities in which the Group operates
•
Establishing long-term and healthy relationships with the Group’s partners, customers and
other affiliated parties.
The main elements of the Group’s approach towards fulfilling the above objectives are as fol-
lows:
Employees
The Group is committed to ensuring equal opportunities to all its employees, both current and
prospective. Each employee’s efforts are highly valued and the Board believes that a diverse
mix of the workforce facilitates innovation, efficiency and teamwork. As a matter of corporate
policy, regular training and development workshops are conducted for Ukrproduct’s staff.
These are aimed at all employee groups, including managerial, technical and production per-
sonnel. The training programmes encourage staff to progress up the career ladder and are cen-
tral to the Group’s continuing growth and success.
Health and safety
Management at business units within the Group are responsible for developing and maintaining
the underlying practices that provide for a safe working environment. Special attention is given
to the production facilities, where the equipment, including lighting, air conditioning, work-
space and other constituents, undergo constant reviews and improvements. Regular monitor-
ing is carried out to ensure that the required standards are met and that employees use the
provided communication channels to further improve their surrounding working conditions.
Customers
Customer satisfaction is at the core of the Group’s business model. Therefore, the Board is
keen to continue supplying the customers with high quality, affordable products required by
current market demands. The Group’s segmentation practices are aimed at segregating various
customer groups in order to meet their respective needs with maximum efficiency. In addition,
regular market research and surveys are conducted to ensure maximum value is consistently
offered to customers.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
Environment
The Group recognises the importance of good environmental practices and seeks to minimise
a negative impact that its operations or products might have on the production sites and sur-
rounding areas. The Group adopted the environmental laws and regulations of Ukraine to re-
duce, control and eliminate various types of pollution and to protect natural resources.
Ukrproduct monitors and controls all its production facilities regularly in order to ensure that
air quality is not adversely impacted by its operations. The Group focuses on cutting water and
energy consumption, as well as reducing the volumes of waste. Collection and processing of
waste have been organised through the local waste collection plants. The Group’s development
programme of 2008-2012 puts specific emphasis on acquiring and installing only the most ad-
vanced and environmentally-friendly production and auxiliary equipment.
Food safety
Food safety is one of key priorities for the Group. Ukrproduct is committed to produce high
quality and safe food and ensures that high standards are maintained within its supplier base.
The certified food safety management system in compliance with ISO 22000:2005 was imple-
mented by the Group. This system provides the possibility to fully monitor all production
stages – from forage control and sound health of the cattle to the final product distribution.
Community support
The Group is keen to further enhance and maintain its partnership with local communities by
supporting their initiatives and charitable events. The Group contributes cash donations and
gifts, as well as employee time, by encouraging staff to participate as volunteers.
18
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
19
STATEMENT OF DIRECTORS RESPONSIBILITIES FOR
THE PREPARATION AND APPROVAL OF THE CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEARS ENDED
31 DECEMBER 2010
The directors are responsible for the preparation of the consolidated financial statements in ac-
cordance with applicable Jersey law and other regulations and enactments in force at the time.
The Companies (Jersey) Law 1991, as amended requires the directors to prepare financial
statements for each year in accordance with General Accepted Accounting Principles. Under
that law, the directors have elected to prepare the consolidated financial statements in accor-
dance with International Financial Reporting Standards (IFRS) as adopted by the European
Union. Under company Law, the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs of the Group and of its
profit or loss for the period ended.
In preparing these consolidated financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgments and estimates that are reasonable and prudent;
•
state that the financial information comply with IFRS, subject to any material departures
disclosed and explained in the financial information;
prepare the financial information on the going concern basis unless it is inappropriate to
presume that the Group will continue in business.
•
The Board of Directors confirms that the Group has complied with the above mentioned re-
quirements in preparing its Consolidated financial statements.
The directors are also responsible for:
•
•
•
•
implementing and maintaining an efficient and reliable system of internal controls in the
Group;
keeping proper accounting records that disclose with reasonable accuracy at any time the
financial position of the Group;
taking reasonable steps to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities;
and the maintenance and integrity of the Group's website.
Jack Rowell
Chairman Ukrproduct Group Ltd
5 April 2011
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
We have audited the consolidated financial
statements of Ukrproduct Group Limited for the
year ended 31 December 2010 which comprise the
consolidated income statement, consolidated
statement of comprehensive income, consolidated
statement of financial position, consolidated
statement of changes in equity, consolidated
statement of cash flows and the related notes
21
INDEPENDENT AUDITORS’ REPORT
We have audited the consolidated financial statements of Ukrproduct Group Limited for the
year ended 31 December 2010 which comprise the consolidated income statement, consoli-
dated statement of comprehensive income, consolidated statement of financial position, con-
solidated statement of changes in equity, consolidated statement of cash flows and the related
notes (the financial statements). The financial reporting framework that has been applied in
their preparation is applicable Jersey law and International Financial Reporting Standards
(IFRS) as adopted by the European Union.
This report is made solely to the company's members, as a body, in accordance with Article
113A of the Companies (Jersey) law 1991, as amended. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors' Responsibilities, the directors are re-
sponsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial state-
ments sufficient to give reasonable assurance that the financial statements are free from mate-
rial misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the company’s circumstances and have been consis-
tently applied and adequately disclosed; the reasonableness of significant accounting estimates
made by the directors; and the overall presentation of the financial statements.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
22
Opinion on the financial statements
In our opinion the financial statements:
•
•
•
give a true and fair view of the state of the Group’s affairs as at 31 December 2010 and of
its profit for the year then ended;
have been properly prepared in accordance with IFRS as adopted by the European Union;
and
have been prepared in accordance with the requirements of the Companies (Jersey) Law,
1991 as amended.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Jersey)
Law 1991 requires us to report to you if, in our opinion:
•
•
•
proper accounting records have not been kept; or
proper returns adequate for our audit have not been received from branches not visited by
us; or
the financial statements are not in agreement with the accounting records and returns.
Ewan John Spraggon
For and on behalf of Baker Tilly Channel Islands Limited
Chartered Accountants
St Helier, Jersey
5 April 2011
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
23
CONSOLIDATED INCOME STATEMENT
Note
year ended
31 December 2010
£ ‘000
year ended
31 December 2009
£ ‘000
Revenue
Cost of sales
GROSS PROFIT
Administrative expenses
Selling and distribution expenses
Other operating income expenses
PROFIT FROM OPERATIONS
Finance income / (expenses), net
Effect of foreign currency translation
PROFIT BEFORE TAXATION
Income tax expenses
PROFIT FOR THE YEAR
Attributable to:
Owners of the Parent
Non-controlling interests
Earnings per share:
Basic
Diluted
8
9
9
9
9
10
13
45,020
(37,349)
7,671
(2,899)
(2,701)
(502)
1,569
(367)
(5)
1,197
(103)
1,094
1,104
(10)
2.69
2.69
43,167
(36,238)
6,929
(2,578)
(2,601)
20
1,770
(426)
(249)
1,095
(54)
1,041
1,064
(23)
2.50
2.50
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
24
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
PROFIT FOR THE YEAR
OTHER COMPREHENSIVE INCOME:
Exchange differences on translation to the presentation currency
Gain on revaluation of property, plant and equipment
Tax on revaluation gains
OTHER COMPREHENSIVE INCOME, NET OF TAX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Attributable to:
Total for owners of the Parent
Total non-controlling interests
year ended
31 December 2010
£ ‘000
year ended
31 December 2009
£ ‘000
1,094
1,041
351
4,112
(1,028)
3,435
4 529
4,539
(10)
(1,954)
-
-
(1,954)
(913)
(890)
(23)
Notes on pages 28-69 are an integral part of these consolidated financial statements.
The independent auditors' report is presented on page 21-22.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
25
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Available for sale investments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Other reserves
Retained earnings
Non-controlling interests
Non-Current Liabilities
Deferred tax liabilities
Current liabilities
Bank loans and overdrafts
Trade and other payables
Taxes payable
Current income tax liabilities
TOTAL EQUITY AND LIABILITIES
Note
14
15
16
17
18
19
20
21
22
23
24
16
25
26
As at
As at
31 December 2010 31 December 2009
£ ‘000
£ ‘000
12,263
1,000
89
248
13,600
3,985
5 605
1,094
220
676
11,580
25,180
4,082
2,068
12,817
18,967
20
18,987
1,434
1,434
2,938
1,715
38
68
4,759
25,180
8,534
1,065
86
63
9,748
2,445
4,738
1,031
79
236
8,529
18,277
4,107
(1,283)
11,744
14,568
30
14,598
459
459
1,581
1,575
32
32
3,220
18,277
These financial statements were approved and authorized for issue by the Board of Directors on
1 April 2011 and were signed on its behalf by:
Olena Yakovenko
Chief Financial Officer
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
26
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent
Share
capital
£ ‘000
Share
premium Options
£ ‘000
£ ‘000
Merger Revaluation Retained Translation
reserve
reserve earnings
reserve
£ ‘001
£ ‘000 £ ‘000
£ ‘000
Total
£ ‘000
Non-
Total
controlling
interests
Equity
£ ‘000 £ ‘000
As at 1 January 2009
4,282
4,621
24
(1,427)
1,428 10,814
(3,823)
15,919
82 16,001
Profit for the year
Other comprehensive income
1,064
1,064
(23)
1,041
(1,954)
(1,954)
(1,954)
Total comprehensive income
-
-
-
-
-
1,064
(1,954)
(890)
(23)
(913)
Depreciation on revaluation
Dividends paid
Acquiring of shares (Note 22)
(175)
(33)
(95)
95
(253)
Decrease
of Non-controlling interests
Reduction of options reserve
(Note 23)
(24)
24
-
(253)
(208)
-
-
-
-
(253)
-
(208)
(29)
(29)
-
-
As at 31 December 2009
4,107
4,588
-
(1,427)
1,333 11,744
(5,777)
14,568
30 14,598
Profit for the year
Other comprehensive income
1,104
3,084
Total comprehensive income
-
-
-
-
3,084
1,104
1,104
3,435
4,539
351
351
(10)
1,094
-
3,435
(10)
4,529
Depreciation on revaluation
of property, plant and equipment
Reduction of revaluation reserve
Dividends paid (Note 28)
Acquiring of shares (Note 22)
(25)
(33)
(50)
50
(1)
1
(82)
-
-
(82)
(58)
-
-
(82)
(58)
-
-
-
As at 31 December 2010
4,082
4,555
-
(1,427)
4,366 12,817
(5,426)
18,967
20 18,987
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
27
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Profit for the year
Adjustments for:
Exchange difference
Depreciation and amortization
Loss/(profit) of disposal of property, plant and equipment
Impairment of trade receivables
Interest income
Interest expense
Income tax expense
(Increase) / decrease in inventories
Increase in trade and other receivables
(Increase) / decrease in trade and other payables
Cash generated from operations
Interest received
Income tax paid
Net cash generated by operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of available for sale investments
Puchase / sale of investments
Repayments of loans issued
Net cash used in investing activities
Cash flows from financing activities
Own shares acquisition
Dividends paid
Interest paid
Note
11
13
22, 23
28
10
Increase / (decrease) in short term borrowing
Net cash used in financing activities
Net increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
21
year ended
year ended
31 December 2010 31 December 2009
£ ‘000
£ ‘000
1,094
-
5
1,068
74
129
(20)
387
103
(1,468)
(1,082)
492
783
20
(338)
465
-
(357)
16
(203)
(24)
(139)
(707)
(58)
(82)
(387)
1,312
785
543
(103)
236
676
1,041
-
249
1,405
(7)
-
(1)
427
54
667
(1,290)
(194)
2,351
1
(150)
2,202
-
(616)
96
-
492
(50)
(78)
(210)
(253)
(427)
(1,461)
(2,351)
(227)
(228)
691
236
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
28
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GROUP AND PRINCIPAL ACTIVITIES
The Company is a public limited liability entity registered in Jersey with a registered office at 26
New Street, St Helier, Jersey, JE2 3RA, Channel Islands.
The Group's overall management and production facilities are based in Ukraine, with the HQ in
Kyiv. The Group commands leading positions in the Ukrainian processed cheese and packaged
butter markets and owns a range of widely recognisable trademarks in Ukraine, including
“Nash Molochnik” (translated as Our Dairyman), “Narodniy Product” (People’s Product)
“Molendam” and “Vershkova Dolina” (Creamy Valley). The average number of employees of the
Group during the year ended 31 December 2010 was 1,857 (2009: 1,925).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1. Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for
property, plant and equipment, derivative financial instruments and available-for-sale financial
assets that have been measured at fair value. The consolidated financial statements are pre-
sented in British pounds sterling and all values are rounded to the nearest thousand (£000) ex-
cept where otherwise indicated. Accounts have been prepared on a going concern basis.
(а) Statement of compliance
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards, International Accounting Standards and Interpretations (collec-
tively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the
European Union.
The majority of companies making up the Group maintain their accounting records in accor-
dance with Ukrainian regulations. The financial information has been prepared from those ac-
counting records and adjusted as considered necessary in order to comply with IFRS.
Accounting records of the Operating Group are maintained in Ukrainian Hryvnia ("UAH"). The
Hryvnia is the functional currency for the purpose of the consolidated financial statements.
Since the Ukrainian Hryvnia is not a major convertible or recognisable currency outside of
Ukraine, and also because the Group’s public shareholder base has been located mostly in the
UK, the financial information has been translated into British pounds sterling (hereinafter
“GBP” or £) as the Group’s presentational currency. The preparation of financial statements in
conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Group’s accounting poli-
cies.
(b) Consolidation principles
The consolidated financial statements comprise the financial statements of Ukrproduct Group
Limited and its subsidiaries as at 31 December 2010.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group
obtains control, and continue to be consolidated until the date that such control ceases. The fi-
29
nancial statements of subsidiaries are prepared for the same reporting period as the parent
company, using consistent accounting policies.
All intra-group balances, income and expenses and unrealised gains and losses resulting from
intra-group transactions are eliminated in full on consolidation. A change in the ownership in-
terest of a subsidiary, without a change of control, is accounted for as an equity transaction.
Losses incurred by the Group were attributed to the non-controlling interests. Any further ex-
cess losses were attributable to the parent, unless the non-controlling interests had a binding
obligation to cover these. Upon loss of control, the Group accounted for the investment re-
tained at its proportionate share of net asset value at the date control was lost.
If the Group loses control over a subsidiary, it:
• Derecognises the assets (including goodwill) and liabilities of the subsidiary
• Derecognises the carrying amount of any non-controlling interests
• Derecognises the cumulative translation differences, recorded in equity
• Recognises the fair value of the consideration received
• Recognises the fair value of any investment retained
• Recognises any surplus or deficit in profit or loss
• Reclassifies the parent’s share of components previously recognised in other comprehen-
sive income to profit or loss.
Consolidated financial statements of the Group include following companies:
Effective ownership ratio*
Country
of incorporation
As at 31 December Principal
2009
2010
Consolidation
activities
method
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
97.6%
97. 6%
Production
Acquisition
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
-
-
Production
Acquisition
Production
Acquisition
Owner of property &
equipment
Acquisition
Production
Acquisition
Production
Acquisition
Production
Acquisition
To be constructed
Acquisition
Owner of equipment
Acquisition
Owner of equipment
Acquisition
Owner of equipment
Acquisition
100% Owner of fleet of vehicles
Acquisition
100% Owner of fleet of vehicles
Acquisition
100%
100%
100%
100%
100%
100%
Owner of property &
equipment
Acquisition
Export operations
Acquisition
Export operations
Acquisition
Logistics
Acquisition
Former Distribution
Acquisition
Former Distribution
Acquisition
Continued on page 30
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
Group's company
Molochnik OJSC*
Molochnik LLC*
Starokonstantinovskiy Molochniy Zavod SC*
Starkon-Moloko LLC*
Krasilovsky Molochny Zavod Private Enterprise SC*
Zhmerinsky Maslosyrzavod Private Enterprise SC *
Letichivsky Maslozavod Private Enterprise SC*
Teofipolskiy Dairy Plant Private Enterprise SC*
Milk investments Private Enterprise SC*
Invest Garantiya Private Enterprise*
Favorit-Konsulting Private Enterprise*
Avtopark Starokonstantinov LLS**
ATP Centr LLC**
Tekhnomolprom Private Enterprise SC**
Ukrprodexpo SC*
Ukrprodexport Private Enterprise SC*
Ukrproduct-Logistic LLC *
Agrospetsresursy LLC*
Nash Molochnik Private Enterprise SC***
30
Group's company
Ukreuroprodukt SC***
Agrospetsresursy Dnipro SC***
Torgoviy Dom Maslayana SC***
Torgoviy Dom Milko SC***
Agrospetsresursy Lviv SC***
Ukrproduct - Kharkov SC***
Effective ownership ratio*
Country
of incorporation
As at 31 December Principal
2009
2010
Consolidation
activities
method
Beginning on page 29
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
100%
100%
Former Distribution
Acquisition
-
-
-
-
-
100%
100%
100%
100%
100%
Former Distribution
Acquisition
Former Distribution
Acquisition
Former Distribution
Acquisition
Former Distribution
Acquisition
Former Distribution
Acquisition
Premierproduct-Donetsk Private Enterprise SC****
Ukraine
100%
100%
Sales&Distribution
Acquisition
Premierproduct-Mikolaiv Private Enterprise SC****
Ukraine
100%
100%
Sales&Distribution
Acquisition
Premierproduct-Dnipro Private Enterprise SC****
Ukraine
100%
100%
Sales&Distribution
Acquisition
Premierproduct-Jitomir Private Enterprise SC****
Ukraine
100%
100%
Sales&Distribution
Acquisition
Premierproduct-Lviv Private Enterprise SC****
Premierproduct-Harkiv Private Enterprise SC****
Premierproduct-Centr Private Enterprise SC****
Ukrproduct Group CJSC
Ukraine
Ukraine
Ukraine
Ukraine
100%
100%
Sales&Distribution
Acquisition
100%
100%
Sales&Distribution
Acquisition
100%
100%
Sales&Distribution
Acquisition
100%
100%
Holder of some assets
and operating companies
Merger
Merger
LinkStar Limited
Cyprus
100%
100%
Holder of Group's
trademarks and assets
Dairy Trading Corporation Limited
St. Invest Holding LTD
Ukrproduct Group LTD
BVI
BVI
Jersey
100%
100%
Export operations
Merger
100%
100%
Holder of
distribution network
Acquisition
Listed on LSE
Parent
* The companies are held through Ukrproduct Group CJSC which is a 100%-owned
subsidiary of the Company.
** The companies are held through LinkStar Limited which is a 100%-owned subsidiary
of the Company.
*** Subsidiaries of Agrospetsresursy LLC.
**** Subsidiaries of St. Invest Holding LTD, the Group's specialised distribution compa-
nies.
***** The company is held through Starkon-Moloko LLC which is a 100%-owned sub-
sidiary of the Company.
(c) Reorganisation
Ukrproduct Group CJSC was renamed Ukrproduct Group PJSC in compliance with Ukrainian
legislation.
A reorganisation of the Group’s legal structure took place in 2010 and resulted in:
•
following the transfer of principal business and assets to the subsidiaries of St. Invest
Holding LTD, the Group’s new specialized distribution companies, the subsidiaries of
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
31
Agrospetsresursy LLC (the Group's former specialized distribution companies) were ex-
cluded from the Group; the new distribution companies were created to replace the former
ones in line with the Group’s marketing strategy aimed at better recognition of the brand
through the names of the subsidiaries;
new subsidiaries of Ukrproduct Group PJSC and LinkStar Limited were established and
these became the owners of the Group’s production assets.
•
(d) 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 con-
vertible are considered when assessing whether the Group controls another entity.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by
the Group. The cost of an acquisition is measured as the fair value of the assets given, shares
issued or liabilities undertaken at the acquisition date, and any costs directly related to the
acquisition of the company are expensed.
(e) Non-controlling interests
Non-controlling interests represent a portion of profits or losses and net assets not owned by
the Group. Non-controlling interests are presented separately from parent share capital in
equity in the Consolidated statement of financial position.
(f) Change in accounting estimate
Starting from 01 January 2010 the Group applied production method of depreciation for some
items of cheese-making equipment. Management believes this method reflects more reliable
information on consumption of economic benefits of these facilities as they are not operational
at full capacity and are not influenced by moral depreciation. Change of the accounting esti-
mate is applied prospectively. The effect resulted in a decrease of depreciation charge of GBP
313.958 for the year.
(d) Comparative information
Certain information in the consolidated statement of changes in equity, consolidated statement
of comprehensive income, the consolidated statement of financial position and in the
underlying notes has been reclassified to conform with the presentation format adopted in the
current year. The restatement has no effect on the financial results or financial position of the
Group.
(h) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to
the chief operating decision-maker. The chief operating decision maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified
as the board of directors.
2.2. Significant accounting policies
Significant accounting policies given below have been consistently applied by the Group in the
preparation of these financial statements.
2.2.1. Foreign currency transactions
(а) Functional and presentation currency
Management has considered what would be the most appropriate functional and presentational
currencies for these financial statements. As a result of this review management has concluded
that:
UKRPRODUCT GROUP LTD
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32
UKRPRODUCT GROUP LTD
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•
•
the Ukrainian Hryvnia is the currency of the primary economic environment in which the
Group operates. Consequently the Ukrainian Hryvnia is the most appropriate functional
currency for the Group;
the Group should use British pounds sterling as the presentational currency for its consoli-
dated IFRS financial statements.
Transactions in currencies that differ from the Group's functional currency are considered to be
foreign currency transactions.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange
rates prevailing at the dates of the transactions or valuation where items are re-measured.
Foreign exchange gains or losses resulting from the settlement of such transactions and from
the translation at the year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the statement of comprehensive income, except when de-
ferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Foreign
exchange gains and losses are presented in the income statement within "Finance income and
expenses, net".
Financial results and financial position of the Group's companies are translated into the presen-
tation currency as follows:
•
•
•
For current year, all assets and liabilities are translated at the rate effective at the reporting
date. Income and expense items are translated at rates approximating to those ruling when
the transactions took place.
Equity items are translated into the presentation currency using the historical rate.
For comparative figures, all assets and liabilities are translated at the closing rate existing
at the relevant reporting date. Income and expense items are translated at rates approxi-
mating to those ruling when the transactions took place.
•
• All exchange differences resulting from the application of the translation methods de-
scribed above are recognised directly in equity as a separate component of equity.
Income and expenses for each income statement are translated at average exchange rates
(unless this average is not a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and expenses are translated at
the rate on the dates of the transactions); and
• All resulting exchange differences are recognised as a separate component of equity
within "Translation reserve".
The principal UAH exchange rates used in the preparation of Consolidated financial statements
are as follows:
Currency
UAH/GBP
UAH/USD
31 December Average exchange
rate for 2010
2010
31 December
2009
Average exchange
rate for 2009
12.29
7.96
12.26
7.93
12.66
7.99
12.23
7.80
•
Foreign currency can be freely converted within Ukraine at a rate close to the rate of the
National Bank of Ukraine. At present, the UAH is not a freely convertible currency outside
Ukraine.
2.2.2. Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other
short-term highly liquid investments with original maturities of three months or less. Bank
33
overdrafts are included in current liabilities in the statement of financial position.
2.2.3. Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the
weighted average method. Net realizable value is the estimated selling price in the ordinary
course of business less applicable variable selling expenses.
The Group identifies the following types of inventories:
raw and other materials (including main and auxiliary operating supply and materials);
•
• work in progress (including semi-finished products);
•
•
finished goods;
other inventories (including fuel, packaging, building materials, spare parts, other materi-
als, goods of little value and high wear goods).
The cost of finished goods and semi-finished products comprises raw materials, direct labor,
other direct costs and related production overheads (based on normal operating capacity) but
excludes borrowing costs. The cost of raw materials and other inventories comprises all costs
of purchase, costs of conversion and other costs incurred in bringing the inventories to their
present location and condition.
At each reporting date the Group analyses inventories to determine whether they are damaged,
obsolete or slow-moving or whether their net realizable value has declined. If such situation oc-
curred, the sum lessening the cost of inventories is reflected in the Consolidated income state-
ment within item "Other income/(expenses), net".
2.2.4. Property, plant and equipment
(а) Recognition and measurement of property, plant and equipment
The cost of an item of property, plant and equipment shall be recognized as an asset only if: it
is probable that future economic benefits associated with the item will flow to the Group and
the cost of the item can be measured reliably and entity expects to use items during more than
one period (more than 12 months).
The Group adopted the revaluation model (as defined in IAS 16: Property, Plant and Equip-
ment) for all classes of assets, except office equipment which is carried at cost. Management
believe that this policy provides more reliable and relevant financial information because it bet-
ter reflects the value in use of such assets to the Group. In accordance with the provisions of
that standard, the revaluation model has not been applied retrospectively.
All significant categories of property, plant and equipment are subsequently carried at fair value
at the date of revaluation, less any subsequent accumulated depreciation and subsequent accu-
mulated impairment losses. Changes in fair value are recognised in equity (the "revaluation re-
serve"). An appropriate transfer is made from the revaluation reserve to the retained earnings
when assets are expensed through the income statement (e.g. through depreciation, impair-
ment or sale).
Subsequent costs that increase future economic benefits of the item of property, plant and
equipment also increase its carrying amount. Otherwise, the Group recognizes subsequent
costs as expenses of the period in which they were incurred. The Group classifies costs, asso-
ciated with property, plant and equipment, for the following categories: repairs and mainte-
nance; capital repairs, including modernization.
(b) Impairment of property, plant and equipment
At each reporting date the Group assesses the carrying value of its property, plant and equip-
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
34
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
ment to determine whether there is any evidence that the assets have lost part of their value as
a result of impairment. If such evidence exists, the expected recoverable amount of such an
asset is calculated to determine the amount of impairment loss, if any, In case it is not practi-
cable to determine the expected recoverable amount of a separate asset, the Group determines
the expected recoverable amount of a cash generating unit, to which the asset belongs.
When, according to estimates, the expected recoverable amount of an asset (or a cash generat-
ing unit) is lower than its carrying value, the carrying value of an asset (or a cash generating
unit) is reduced to its expected recoverable amount. Impairment losses are immediately recog-
nized as expenses, except when the asset is carried at revalued price. In such cases, the im-
pairment loss is considered as a decrease in the revaluation reserve. If the impairment loss is
subsequently reversed, the asset’s carrying value (or a cash generating unit) is increased to the
revised estimate of its expected recoverable amount. In such a case, the increased carrying
value should not exceed the carrying value that could be determined in case if the impairment
loss for an asset (or a cash generating unit) was not recognized in previous years. The reversal
of the impairment loss is immediately recognized as income.
Gains and losses on disposals are determined by comparing proceeds with the carrying
amount and are included in operating profit.
(c) Depreciation and useful life
Depreciation of asset begins when it becomes available for use. Depreciation of an asset termi-
nates with the termination of its recognition. Depreciation does not terminate when an asset is
idle or if it is removed from active use and is intended for disposal, unless it is already fully de-
preciated.
Depreciation is applied to all items of property, plant and equipment with the exception of land.
Until December 31, 2009 the Group calculated the depreciation using the declining-balance
method to allocate their cost or revalued amounts to their residual values over their estimated
useful lives. As of January 1, 2010 the Group separated the Plant and machinery used for pro-
duction of hard and processed cheese into a separate group and applied to it the production
method of depreciation. The useful live of property, plant and equipment is as follows:
Terms of useful lives by groups of property, plant and equipment (except for those depreciated
under production method) are listed below:
Group of property, plant and equipment
Buildings and constructions
Plant and machinery
Equipment and motor vehicles
Useful life
20 - 40 years
7 - 15 years
3 - 10 years
The assets’ residual values, useful lives and methods of depreciation are reviewed at each fi-
nancial year end and adjusted prospectively, if appropriate.
2.2.5. Assets under construction
Assets under construction are reported at their cost of construction including costs charged by
third parties and the capitalisation of the Group's material costs incurred. No depreciation is
charged on assets during construction. Upon the completion, the Group assess whether there
is any indication that an asset may be impaired. If any such indication exists, the Group per-
forms impairment testing as described in note 2.2.20. In case no indication exists that the
asset may be impaired, all accumulated costs of the asset are transferred to the relevant fixed
asset category and depreciated at applicable rates from the time the asset is completed and
ready for use.
35
2.2.6. Intangible assets
(а) Recognition and measurement of intangible assets
Intangible assets are accounted at for historical cost less accumulated amortization and accu-
mulated impairment losses, except the customer list which is initially carried at fair value and
subsequently ammortised.
The Group recognizes an item as an intangible asset, if it meets the following criteria for recog-
nition: it is probable that the Group will receive future economic benefits associated with the
asset and costs of the asset can be reasonably estimated.
The Group identifies the following types of intangible assets:
• Computer software licenses;
•
•
Trademarks;
The Customer list.
Acquired computer software licenses are capitalised on the basis of the costs incurred to
acquire and bring to use the specialised software.
Trademarks are shown at historical cost.
The Customer list was initially measured at fair value at the date of revaluation obtained by
using the estimates of the independent valuers.
An intangible asset is derecognized at disposal, or when the Group no longer expects receipt
from this asset of any economic benefits. The profit from cancellation or disposal is defined by
the difference between net proceeds on the sale and the carrying value of intangible assets. If
the intangible asset is exchanged for a similar asset, the value of the acquired asset is equal to
the value of the disposed asset.
(b) Amortization and useful life
Costs of computer software licenses are amortized over their estimated useful lives using the
straight-line method (7 years). The amortization expense is included within Administrative ex-
penses in the Consolidated Income Statement.
Trademarks have finite useful lives and are carried at cost less accumulated amortization.
Amortization is calculated using the straight-line method to allocate the cost of trademarks
over their estimated useful lives (20 years). The amortization expense is included within Selling
& Distribution expenses in the Consolidated Income Statement.
Amortization is calculated using the straight-line method to allocate the cost of the customer
list over its estimated useful lives (20 years). The amortization expense is included in Other
operating expenses in the Consolidated Income Statement.
(c) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an
acquisition is measured as the aggregate of the consideration transferred, measured at
acquisition date fair value and the amount of any non-controlling interests in the acquiree. For
each business combination, the acquirer measures the non-controlling interest in the acquiree
either at fair value or at the proportionate share of the acquirer's identifiable net assets.
Acquisition costs incurred are expensed.
When the Group acquires a business, it assesses the financial assets and liabilities assumed
for appropriate classification and designation in accordance with the contractual terms, eco-
UKRPRODUCT GROUP LTD
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36
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
nomic circumstances and pertinent conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts by the acquire.
If the business combination is achieved in stages, the acquisition date fair value of the ac-
quirer’s previously held equity interest in the acquire is remeasured to fair value as at the
acquisition date through profit and loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration
which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 “Fi-
nancial Instruments: Recognition and Measurement: Eligible Hedged Items” either in profit or
loss or as change to other comprehensive income. If the contingent consideration is classified
as equity, it shall not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the consideration transferred over the
Group’s net identifiable assets acquired and liabilities assumed. If this consideration is lower
than the fair value of the net assets of the subsidiary acquired, the difference is recognised in
profit or loss.
Goodwill is not amortized but is subject to testing for impairment as at the reporting date or
more frequently, if events or changes in circumstances indicate the possibility of reducing its
usefulness. At the acquisition date, goodwill is allocated to each asset or group of assets that
generate cash, and benefits from which are expected to be received upon Consolidation. The
amount of impairment is determined by assessing the recoverable amount, which may be ob-
tained for a cash generating asset (group of cash generating assets) to which goodwill relates.
Where the recoverable amount is less than the book value of cash generating asset (group of
cash generating assets), impairment is recognized.
2.2.7. Financial assets
The Group classifies its financial assets as: financial assets at fair value through profit or loss,
loans and receivables, held-to-maturity investments, available for-sale financial assets.
Management determines the classification of financial assets at initial recognition and re-
evaluates this designation at every reporting date.
(і) Financial assets at fair value through profit or loss
This category comprises only “in-the-money” derivatives. They are carried at the reporting date
at fair value with changes in fair value recognised in the income statement. The Group does not
have any assets held for trading nor does it voluntarily classify any financial assets as being at
fair value through profit or loss.
(іі) Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. They arise principally through the provision of goods and ser-
vices to customers (trade receivables), but also incorporate other types of contractual mone-
tary asset. They are carried at amortized cost using the effective interest method less any
impairment.
From time to time, the Group may renegotiate the terms of trade receivables due from cus-
tomers with which it has previously had a good trading history. Such renegotiations will lead to
changes in the timing of payments rather than changes to the amounts owed and, in conse-
quence, the new expected cash flows are discounted at the original effective interest rate.
The Group has not classified any of its financial assets as held to maturity.
37
(iii) Available-for-sale financial assets
"Non-derivative financial assets not included in the above categories are classified as available-
for-sale and comprise principally the Group's investments in entities not qualifying as sub-
sidiaries as well as investment certificates. They are carried at fair value with changes in fair
value recognised directly in a separate component of equity (available-for-sale reserve). Where
there is a significant or prolonged decline in the fair value of an available for sale financial asset
(which constitutes objective evidence of impairment), the full amount of the impairment, in-
cluding any amount previously charged to equity, is recognised in the profit or loss.
(а) Initial recognition
Financial assets at fair value through profit and loss are initially recorded at fair value. All other
financial assets are initially recorded at fair value plus transaction costs. Fair value at initial
recognition is best evidenced by the transaction price. A gain or loss on initial recognition is
only recorded if there is a difference between fair value and transaction price which can be evi-
denced by other observable current market transactions in the same instrument or by a valua-
tion technique whose inputs include only data from observable markets.
All purchases and sales of financial instruments that require delivery within the time frame es-
tablished by regulation or market convention (“regular way” purchases and sales) are recorded
at trade date, which is the date that the Group commits to deliver a financial instrument. All
other purchases and sales are recognized on the settlement date with the change in value be-
tween the commitment date and settlement date not recognized for assets carried at cost or
amortized cost; recognized in the income statement for trading investments; and recognized in
equity for assets classified as available-for-sale.
(b) Fair value estimation principles
Fair value of financial instruments is based at their market value, established at the reporting
date, less transaction costs. If market value is not available, fair value of the instrument is de-
termined by means of pricing and discounted cash flow models use.
If a discounted cash flow model is applied, the determination of future cash flows is based on
optimal management estimations and discounting rate is market rate for similar financial in-
struments predominated as at reporting date. If the price model is used entering figures are
based on average market data predominated as at reporting date.
(c) Subsequent measurement
Subsequent to initial recognition all financial assets at fair value through profit or loss and all
available-for-sale instruments are measured at fair value, except that any instrument that does
not have a quoted market price in an active market and whose fair value cannot be reliably
measured is stated at cost, including transaction costs, less impairment losses.
Loans and receivables are measured at amortized cost less impairment losses. Amortized cost
is calculated using the effective interest rate method. Premiums and discounts, including initial
transaction costs, are included in the carrying amount of the related instrument and amortized
based on the effective interest rate of the instrument.
(d) Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a finan-
cial asset or a group of financial assets is impaired. A financial asset or a group of financial as-
sets is deemed to be impaired if, and only if, there is objective evidence of impairment as a
result of one or more events that has occurred after the initial recognition of the asset (an in-
curred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the
financial asset or the group of financial assets that can be reliably estimated. Evidence of im-
pairment may include indications that the debtors or a group of debtors is experiencing signifi-
cant financial difficulty, default or delinquency in interest or principal payments, the probability
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
38
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
that they will enter bankruptcy or other financial reorganization and where observable data indi-
cate that there is a measurable decrease in the estimated future cash flows, such as changes in
arrears or economic conditions that correlate with defaults.
(e) Derecognition
Financial assets are derecognized when the rights to receive cash flows from the financial as-
sets have expired or where the Group has transferred substantially all risks and rewards of
ownership.
2.2.8. Financial liabilities
The Group classifies its financial liabilities into categories depending on the purpose for which
the liability was acquired. The Group has not classified any of its liabilities at fair value through
profit and loss.
Financial liabilities held at amortized cost include the following items:
Trade payables and other short-term monetary liabilities, which are recognised at amortized
cost.
Bank borrowings, overdrafts, promissory notes and bonds issued by the Group are initially car-
ried at fair value, being the amount advanced net of any transaction costs directly attributable
to the issue of the instrument. Such interest bearing liabilities are subsequently measured at
amortised cost using the effective interest rate method, which ensures that any interest ex-
pense over the period to repayment is at a constant rate on the balance of the liability carried in
the balance sheet. "Interest expense" in this context includes initial transaction costs and inter-
est payable on redemption, as well as any interest or coupon payable while the liability is out-
standing.
(а) Initial recognition
Financial liabilities are initially recognized at fair value, adjusted in case of borrowings for di-
rectly attributable transaction expenses.
(b) Subsequent measurement
Trade and other accounts payable initially recognized at fair value, are subsequently accounted
for at amortized cost at effective interest rate method.
Borrowings, liabilities initially recognized at fair value less transaction costs, are subsequently
measured at amortized cost; any difference between amount of received resources and sum of
repayment is represented as interest cost the effective interest rate method during the period,
when borrowings were received.
(c) Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or can-
celled or expires.
2.2.9. Share capital
Ordinary shares are classified as share capital. The difference between fair value of considera-
tion received and nominal value of issued share capital is charged to share premium.
2.2.10. Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to
the Group and the revenue can be reliably measured. Revenue is measured simultaneously with
an increase in asset or decrease in liabilities, which causes the increase in shareholders' equity
39
(excluding the capital increase through contributions from members of the enterprise), pro-
vided that the amount of income can be reasonably estimated. Revenue reflected in the amount
of the fair value of assets received.
Revenue is the amount of cash or cash equivalents received or receivable. However, in case of
delay in receipt of cash or cash equivalents, the fair value of the consideration may be less than
received or expected to be received nominal amount of cash. When the arrangement effectively
constitutes a financing transaction, the fair value of the consideration is determined by dis-
counting all future receipts using an imputed rate of interest. Revenue (proceeds) from sale of
products (goods, works and services) is not corrected by an amount of related doubtful and
uncollectible receivables. The amount of such debt is recognized as expenses of the Group.
Revenue comprises the invoiced value of sales of goods and services net of value added tax,
rebates and discounts after eliminating sales within the Group. Revenues and expenses are
recognised on an accruals basis. The income is recognized when cash compensations are
eliminated and paid to distributed after the goods sold.
(а) Revenue from sale of goods (products)
Revenue from the sale of goods (products) is recognized when all the following conditions are
satisfied:
•
•
•
•
•
The significant risks and rewards of ownership of the goods have passed to the buyer;
The Group is no longer involved in the management to the extent that is usually associated
with ownership, and has no control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the
Group;
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
(b) Revenue from rendering of services
The revenue from rendering of services is recognized when all the following conditions are sat-
isfied:
•
•
•
•
the amount of revenue can be reliably measured;
inflow of economic benefits related to the transaction is possible;
reliable measurement of stage of transaction completeness at the balance sheet is
possible;
there is a possibility for reliable measuring of cost, applied for transaction carrying out and
cost, which are required for its completing.
2.2.11. Expenses recognition
Expenses are recognized by the Group when the following conditions are met: the amount of
expenses can be reliably measured, it is probable that future economic benefits, relating to
asset decrease or liability increase.
Expenses which can not be related directly to gain of a certain period, are shown as a part of
expenses of the period they were incurred in.
If an asset provides economic benefits receiving during several reporting periods, expenses are
calculated by allocating its value on a systematic basis over respective reporting periods.
Writing off of deferred expenses is made on a straight-line basis within periods, which they ac-
cordingly relate to, during which the receipt of economic benefits receiving is expected.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
40
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
Expenses which were incurred in the reporting period but relate to production of semi-finished
products which will be further processed to finished goods and sold in future reporting
periods, are accounted for in the current period in the item "Work-in-progress", included within
"Inventories" of the Consolidated statement of financial position.
2.2.12. Financial expenses
Interest expenses and other costs on borrowings to finance construction or production of qual-
ifying assets are capitalized, during the period of time that is required to complete and prepare
the asset for its intended use. All other borrowing costs are expensed. Net financial expenses
are recorded in the Consolidated statement of comprehensive income as a separate line item
"Financial income/(expenses), net."
2.2.13. Value added tax
VAT is levied at two rates: 20% on Ukrainian domestic sales and imports of goods, works and
services and 0% on export of goods and provision of works or services to be used outside
Ukraine.
VAT output equals 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 liabil-
ity in the reporting period. Rights to VAT input arise on the earlier of the date of payment to the
supplier or the date goods are received.
2.2.14. Tax
Taxation has been provided for in the financial statements in accordance with relevant legisla-
tion currently in force. The charge for taxation in the Income Statement for the year comprises
current tax and changes in deferred tax.
Current tax is the amount of income tax payable (recoverable) in respect of taxable profit (tax
loss) for the period determined in accordance with rules established by the tax authorities in
respect of which income tax shall be paid (refundable).
Current tax liabilities and assets are measured at the amount expected to be paid to or recov-
ered from the taxation authorities, using the tax rates and laws that have been enacted, or sub-
stantively enacted, by the reporting date.
Deferred tax assets and liabilities are calculated in respect of temporary differences using the
liability method. Deferred income taxes are provided on all temporary differences arising be-
tween the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes, except in situations where the deferred tax arising on initial recognition of goodwill
or of an asset or liability in a transaction that is not a deal to merge companies and which, at
the time of its commission, has no effect on accounting or taxable profit or loss.
Assessment of deferred tax liabilities and deferred tax assets reflects the tax consequences that
would arise depending on the ways in which the Group assumes the reporting date of realiza-
tion or settlement of the carrying value of its assets or liabilities.
A deferred tax asset is recognized only to the extent to which there is a substantial probability
that future taxable profit, which may be reduced by the amount of deductible temporary differ-
ences, will be received. Deferred tax assets and liabilities are measured at tax rates, the use of
which is expected in the period of the asset or liability is settled, based on the provisions of the
legislation enacted, or declared (and practically adopted) at that date.
41
Deferred income taxes are recognized for all temporary differences associated with invest-
ments in subsidiaries and associated companies and joint activities, except in cases where the
Group controls the timing of the reversal of temporary differences, and where there is a signifi-
cant probability that the temporary difference will not will be reduced in the foreseeable future.
The Group reviews the carrying amount of deferred tax assets at each reporting date and re-
duces it to the extent to which it is no longer the probability that it will be sufficient taxable
profits, which allows to realize the benefits of part or all of this deferred tax asset. Any such re-
duction is restored to the extent to which there is the likelihood that sufficient taxable profit.
Deferred tax assets and liabilities are not discounted.
2.2.15. Share-based payments
Where share options are awarded to employees, the fair value of the options at the date of
grant is charged to the income statement over the vesting period. Where the terms and condi-
tions of options are modified before they vest, the increase in the fair value of the options,
measured immediately before and after the modification, is also charged to the income state-
ment over the remaining vesting period. Where equity instruments are granted to persons
other than employees, the income statement is charged with the fair value of goods and ser-
vices received. Where fair value of goods and services received from persons other than
employees is difficult to identify, the fair value of the instruments granted is charged to the in-
come statement over the vesting period. The fair value of options to be expensed is determined
on the basis of adjusted Black-Scholes model as set out in note 29.
2.2.16. Short-term employee benefits
Short-term employee benefits are recognised in the period in which an employee has rendered
service to the Group. The Group recognises the undiscounted amount of short-term employee
benefits a liability (accrued expense), after deducting any amount already paid.
2.2.17. Pension costs
The Group contributes to the Ukrainian mandatory state pension scheme, social insurance and
employment funds in respect of its employees. The Group's pension scheme contributions are
expensed as incurred and are included in staff costs. The Group doesn’t operate any other pen-
sion schemes.
2.2.18. Share issue costs
All qualifying transaction costs in respect of the issue of shares are accounted for as a deduc-
tion from share premium, net of any related tax deduction. Qualifying transaction costs include
costs of preparing the prospectus, accounting, tax and legal expenses, underwriting fees and
valuation fees in respect of the shares and of other assets.
2.2.19. Leases
Lease is classified as a finance lease if it transfers substantially all the risks and rewards inci-
dental to ownership. Leases other than finance leases are classified as operating leases.
(а) Group as a lessee
Operating lease expenses are recognized as expenses of the period to which they relate, on a
straight‐line basis over the lease period.
(b) Group as a lessor
Operating lease income is recognized in "Revenue" as income of the period to which it relates,
over the lease term on a systematic and rational basis.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
42
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
2.2.20. Impairment of assets
In respect of all assets, except for inventories, assets resulting from fees to employees, finan-
cial assets, assets held for trading, the Group conducts the following procedures ensuring ac-
counting for these assets at the amount, not exceeding their recoverable amount:
•
•
at each reporting date the condition of these assets is analyzed for impairment.
in case any impairment indicators exist, the amount of expected recovery of such asset is
calculated to determine the amount of losses from impairment, if any. If it is impossible to
determine the amount of losses from impairment of a separate asset, the Group deter-
mines the amount of estimated impairment of the cash-generating unit, to which the asset
belongs.
The amount of expected recovery is the higher of two estimates: net selling price and value in
use of asset. In estimating value in use of asset, estimated future cash flows are discounted to
their current value using a pre-tax discount rate that reflects current market estimates of time
value of money and risks related to the asset.
If according to estimates the amount of expected recovery of assets (or a cash-generating unit)
is less than its book value, the book value of asset (or a cash-generating unit) is reduced to the
amount of expected recovery. Losses from impairment are recognized as expenses directly in
the Consolidated statement of comprehensive income.
2.2.21. Contingent liabilities and assets
Contingent liabilities are potential liabilities of the Group arising from past events the existence
of which will be confirmed only by the occurrence or non-occurrence of one or more future
events, which are not under the complete control of the Group, or current obligations resulting
from past events are not recognized in the financial reporting in connection with the fact that
the Group does not consider an outflow of resources embodying economic benefits, and re-
quired to settle liabilities as probable, or the value of liabilities can not be reliably determined.
The Group does not recognize contingent liabilities in the financial statements. The Group dis-
closes information about contingent liabilities in the notes to the financial statements except
when the probability of outflow of resources required to settle the obligation, is unlikely.
Contingent assets are not recognized in the Consolidated financial statements, but disclosed in
the Notes where there is a sufficient probability of future economic benefits.
2.2.22. Related parties
For the purposes of these financial statements according to IFRS, parties are considered to be
related if one of parties has a possibility to control or considerably influence the operational
and financial decisions of another company, which is defined in IAS 24 "Related Party Disclo-
sures".
While considering any relationship which can be defined as related party transactions it is ne-
cessary to take into consideration the substance of the operation not only its legal form.
The Group classifies the related parties according to existing criteria in the following cate-
gories:
а) companies that directly or indirectly through one or more intermediaries, exercise control
over the Group, are controlled by it, or together with it are under common control (this in-
cludes holding companies, subsidiaries and fellow subsidiaries of the parent company);
b) associates are companies whose activities are significantly influenced by the Group, but
43
are neither subsidiaries, nor joint ventures of the investor;
c) individuals, directly or indirectly holding ordinary shares that give them a possibility to sig-
nificantly influence the Group's activities;
d) key management personnel are persons having authority and responsibility for planning,
managing and controlling the activities of the Group, including directors and senior offi-
cials (as well as the non-executive director and close relatives of these individuals);
e) companies, large blocks of shares with voting rights of which are owned directly or indi-
rectly by any person described in paragraphs (c) or (d), or a person influenced signifi-
cantly by such persons. This includes enterprises owned by directors or major
shareholders of the Group, and companies which have a common key management mem-
ber with the Group.
2.2.23. Dividends
Equity dividends are recognised in the Consolidated financial statements when they become
legally payable. In the case of interim dividends are recognised when they are paid. In the case
of final dividends, this is when approved by the shareholders at the AGM.
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES
AND ASSUMPTIONS
The preparation of the Group's Consolidated financial statements requires management to
make judgments, estimates and assumptions that affect the reported amounts of revenues, ex-
penses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the re-
porting 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 af-
fected in future periods.
In the process of applying the Group's accounting policies, management has made the follow-
ing judgments, which have the most significant effect on the amounts recognised in the finan-
cial statements:
(а) Estimates of fair value of property, plant and equipment based on revaluation
The Group is required, periodically as determined by the directors, to conduct revaluations of
its property, plant and equipment. Such revaluations are conducted by independent valuers
who employ the valuation methods in accordance with International Valuation Standards such
as cost method, comparison (market) method and revenue (income) method.
(b) Useful lives of intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are amortized or depreciated over their
useful lives. Useful lives are based on the management’s estimates of the period that the assets
will generate revenue, which are periodically reviewed for continued appropriateness. Due to
the long life of certain assets, changes to the estimates used can result in significant variations
in the carrying value. Further information is contained in notes 14 and 15.
(c) Impairment of goodwill
The Group is required to test, on an annual basis, whether goodwill has suffered any impair-
ment. The recoverable amount is determined based on value in use calculations. The use of
this method requires the estimation of future cash flows and the choice of a discount rate in
order to calculate the present value of the cash flows. Actual outcomes may vary. Further infor-
mation is contained in note 15.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
44
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
(d) Inventory
The Group reviews the net realisable value of, and demand for, its inventory on a quarterly
basis to ensure recorded inventory is stated at the lower of cost or net realisable value. Factors
that could impact estimated demand and selling prices are the timing and success of future
technological innovations, competitor actions, supplier prices and economic trends. Further in-
formation is contained in note 17.
(e) Legal proceedings
In accordance with IFRS the Group only recognises a provision where there is a present obliga-
tion from a past event, a transfer of economic benefits is probable and the amount of costs of
the transfer can be estimated reliably. In instances where the criteria are not met, a contingent
liability may be disclosed in the notes to the financial statements. Realisation of any contingent
liabilities not currently recognised or disclosed in the financial statements could have a material
effect on the Group’s financial position. Application of these accounting principles to legal
cases requires the Group’s management to make determinations about various factual and
legal matters beyond its control. The Group reviews outstanding legal cases following develop-
ments in the legal proceedings and at each reporting date, in order to assess the need for pro-
visions in its financial statements. Among the factors considered in making decisions on
provisions are the nature of litigation, claim or assessment, the legal process and potential
level of damages in the jurisdiction in which the litigation, claim or assessment has been
brought, the progress of the case (including the progress after the date of the financial state-
ments but before those statements are issued), the opinions or views of legal advisers, experi-
ence on similar cases and any decision of the Group’s management as to how it will respond to
the litigation, claim or assessment.
(f) Income taxes
The Group is subject to income tax in several jurisdictions and significant judgment is required
in determining the provision for income taxes. During the ordinary course of business, there
are many transactions and calculations for which the ultimate tax determination is uncertain.
As a result, the company recognises tax liabilities based on estimates of whether additional
taxes and interest will be due. These tax liabilities are recognised when, despite the company’s
belief that its tax return positions are supportable, the company believes that certain positions
are likely to be challenged and may not be fully sustained upon review by tax authorities. The
company believes that its accruals for tax liabilities are adequate for all open audit years based
on its assessment of many factors including past experience and interpretations of tax law.
This assessment relies on estimates and assumptions and may involve a series of complex
judgments about future events. To the extent that the final tax outcome of these matters is dif-
ferent than the amounts recorded, such differences will impact income tax expense in the pe-
riod in which such determination is made. Further information is contained in notes 13 and 16.
(g) Quality cla ims
The Group supplies the consumers and industrial customers in Ukraine with dairy products
manufactured in accordance with the current laws, food safety standards and technical require-
ments of the relevant Ukrainian authorities. The Group voluntarily applies non-domestic stan-
dards – ISO and HASSP – to some of the Group’s operations. For the industrial customers both
domestically and outside of Ukraine, the food products are manufactured to the technical spec-
ifications agreed with the buyers in advance of the sale. In instances where the quality criteria
and/or technical specifications are not met or the delivery of products are made close to expiry
date, a quality claim may arise and the corresponding contingent liability may be disclosed in
the notes to the financial statements. Realisation of any such contingent liabilities not currently
recognised or disclosed in the financial statements could have a material effect on the Group’s
financial position. Application of these accounting principles to quality claims requires the
Group’s management to make determinations about the future matters that may, at the time of
determination, be beyond management’s control. Among the factors considered in making de-
cisions on quality claims provisions are: the nature of the claim, the quantifiable variances in
45
quality giving rise to a claim, the potential loss from satisfying the claim and any decision of
the Group’s management as to how it will respond to the claim.
4. ADOPTION OF NEW AND REVISED IFRS
4.1. Standards and Interpretations adopted by the EU
(a) New and amended standard and interpretations mandatory for the first time for the finan-
cial year beginning 1 January 2010 but not currently relevant to the Group (although they
may affect the accounting for future transactions and events).
Amendments to IAS 32 ''Classification of rights issues'' (effective for annual periods beginning
on or after 1 February 2010).
Amendment to IAS39 ''Financial Instruments: Recognition and Measurement: Eligible Hedged
Items'' (effective for annual periods beginning on or after 1 July 2009).
Amendment to IFRIC 9 and IAS 39 regarding embedded derivatives (effective for annual
periods beginning on or after 30 June 2009).
Improvements to IFRSs 2008 - Amendments to IFRS 5 ''Non-current assets held for sale and
discontinued operations (effective for annual periods beginning on or after 1 July 2009).
IFRIC 12: ''Service Concession Arrangements'' (effective for annual periods beginning on or
after 1 January 2008, (EU: 30 March 2009)).
IFRIC 15, Agreements for the Construction of Real Estate (effective for annual periods begin-
ning on or after 1 January 2009).
IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective for annual periods on or
after 1 October 2008, (EU: 30 June 2009)).
IFRIC 17:''Distributions of Non Cash Assets to Owners'' (effective for annual periods beginning
on or after 1 July 2009).
IFRIC 18 ''Transfers of Assets from Customers'' (effective for annual periods beginning on or
after 1 July 2009).
4.2. Standards and Interpretations not adopted by the EU
Improvements to IFRSs (effective for annual periods beginning on or after 1 July 2009 or 1
January 2010).
4.3. Standards and Interpretations not yet effective and not yet adop-
ted by the EU
Improvements to IFRS (IFRS 3, IFRS 7, IAS 1, IAS 34, IFRIC 13) (effective date 1 January 2011)
IFRS 7: Financial Instruments: Disclosures-Amendments, Disclosures-Transfers of Financial As-
sets (effective 1 July 2011)
IAS 12: Income Taxes- Amendment; Deferred Tax; Recovery of Underlying Assets (effective 1
January 2012)
IFRS 9: Financial Instruments (effective 1 January 2013)
The Group has not yet completed the expected impact of applying these standards and amend-
ments.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
46
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
5. FINANCIAL RISK MANAGEMENT
The principal risks facing the Group’s business are credit risk, liquidity risk and market risk, in-
cluding fair value or cash flow interest-rate risk and foreign exchange risk. The main purpose
of the Group's risk management programme is to evaluate, monitor and manage these risks
and to minimise potential adverse effects on the Group's financial performance and
shareholders. The Chief Financial Officer of the Group is in charge of risk management and in-
troduction of all policies as approved by the Board of Directors. The Group’s budget for 2011
incorporates the forecasted inflation rates. The Group considers that there are no material risks
related to the inflation.
(а) Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk
arises, are as follows:
•
•
•
•
•
•
•
trade and other receivables
Investments in unquoted equity securities in Ukraine
loans issued
cash and cash equivalents
bank overdrafts
promissory notes
trade and other payables
The principal financial instruments are as follows:
year ended
31 December 2010
£ ‘000
year ended
31 December 2009
£ ‘000
Financial assets
Loans and receivables:
- trade and other receivables (excluding non-financial assets)
- cash and cash equivalents
- loans issued
Available for sale investments
- unquoted investments
Financial liabilities
Held at amortised cost:
- bank loans
- overdrafts
- trade and other payables (excluding non-financial liabilities)
4,874
676
220
89
5,859
2,842
96
1,079
4,017
4,264
236
79
86
4,665
1,574
7
1,475
3,056
(b) General objectives, policies and processes
The Group's overall risk management programme recognises the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Group's financial performance.
Risk management is carried out by the Group Chief Financial Officer (CFO) under policies ap-
proved by the Board of Directors. The Group CFO identifies and evaluates financial risks in
close co-operation with the Group's operating units. The management board provides broad
guidance and operating principles for overall risk management, as well as written policies
covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk, and invest-
ing excess liquidity.
The Board has overall responsibility for the determination of the Group’s risk management ob-
jectives and polices and, whilst retaining ultimate responsibility for them, it has delegated the
47
authority for designing and operating processes that ensure the effective implementation of the
objectives and policies to the group’s finance function. The Board receives monthly updates
from the Group CFO and Head of Internal Audit through which it reviews the effectiveness of
the processes put in place and the appropriateness of the objectives and policies it sets. The
Group’s internal operating auditors review the risk management policies and processes and re-
port their findings to CEO and the Audit Committee, if and when necessary. The overall objec-
tive of the Board is to set polices that seek to reduce risk as far as possible without unduly
affecting the Group’s competitiveness and flexibility. Further details regarding these policies
are laid out below.
(c) Credit risk
Credit risk is the risk that a counterparty will not be able to meet its obligations in full when
due. Ukrproduct Group is mainly exposed to credit risk from credit sales to the customers in
Ukraine. The Group manages its credit risk through the Group’s risk assessment policy by
evaluating each new customer before signing a contract using the following criteria: trading
history and the strength of own balance sheet. The Group attempts to reduce credit risk by
conducting periodic review which includes obtaining external ratings and in certain cases bank
references.
According to the Group’s risk assessment policy, implemented locally, every new customer is
appraised before entering contracts; trading history and the strength of the own balance sheet
being the main indicators of creditworthiness. While starting the commercial relationship with
the Group, a new customer is offered the terms that are substantially tighter than those for the
existing customers and stipulate, as a rule, the cash-on-delivery payments terms and no-re-
turns policy (quality-related claims exempted). If the relationship progresses successfully, the
terms are gradually relaxed to fall in line with the Group’s normal business practices and local
specifics as required by the market. The Group’s periodic review includes external ratings,
when available, and in some cases bank references. Purchase limits are established for each
customer, which represents the maximum open amount without requiring approval from the
CEO. These limits are reviewed quarterly. Customers that fail to meet the Group’s benchmark
creditworthiness may transact with the Group on a prepayment basis only.
Quantitative disclosures of the credit risk exposure in relation to Trade and other receivables,
which are neither past due nor impaired, are made in note 18. The Group does not rate trade
receivables by category or recoverability as the Group’s historical default rates have been negli-
gible in the past (less than 0.01%); essentially all trade receivables due to the Group had been
recovered. In the future, the default rate on trade receivables overdue is expected to remain
stable or even fall because in Ukraine the Group deals increasingly with the modern-format re-
tailers whose creditworthiness is conducive to the payment discipline required by the Group.
Maximum exposure to the Trade and other receivables component of credit risk at the reporting
date is the fair value of Trade and other receivables. There is no collateral held as security or
other credit enhancements.
The Group’s credit controllers monitor the utilisation of the credit limits on a daily basis by cus-
tomer and apply the delivery stop orders immediately if the individual limits are exceeded. The
Group’s procedure for recovery of the trade receivables past due includes the following steps:
•
•
•
identification of the date and exact amount of the receivable past due, termination of all
further deliveries and forwarding to the customer of the details of the amount due and the
notice of the failure to pay - 3 days after the past due date
delivery to the customer of the formal claim for the amount overdue and the visit of the
representative of the commercial credit control department to the customer premises- 2
weeks thereafter
filing a claim to the commercial court for repayment of the amount overdue and late pay-
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
48
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
•
ment fees - 2 weeks thereafter
obtaining a court order for repayment of the amount due and collaboration with bailiff - 2
weeks thereafter.
As a result of the credit control and risk assessment procedures, the Group does not expect
any significant losses from non-performance by the counterparties at the reporting date from
any of the financial instruments currently employed in the business.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial in-
stitutions. The Group reviews the banks and financial institutions it deals with to ensure that
standards of credit worthiness are maintained.
Maximum exposure to the cash and cash equivalents and deposits with banks and financial in-
stitutions component of credit risk at the reporting date is the fair value of the cash balances
due from such banks and financial institutions. There is no collateral held as security or other
credit enhancements.
The Group does not enter into derivatives to manage credit risk, although in certain isolated
cases may take steps to mitigate such risks if it is sufficiently concentrated.
(d) Liquidity risk
Liquidity risk is a function of the possible difficulty to be encountered in raising funds to meet
financial obligations. The Group’s policy is to ensure that it will always have sufficient cash to
enable it to meet its obligations as they fall due by maintaining the minimum cash balances and
agreed overdraft facilities. The Group also seeks to reduce liquidity risk by fixing interest rates
and hence cash flows on substantially all of its borrowings.
The Group’s operating divisions (plants) have different liquidity requirement profiles. As the
Group’s products have short- and long-cycled production, the liquidity risk of each plant is
monitored and managed centrally by the Group Treasury function. Each plant has a cash facility
based on cash budgets with the Group Treasury. The cash budgets are set locally and agreed
by the CFO in advance. The main element of the Group’s liquidity management is to reduce
liquidity risk by fixing interest rates and hence cash flows on substantially all of its long-term
borrowings
The CEO (and the Board, if requested) receives rolling quarterly cash flow projections on a
monthly basis as well as information regarding the daily cash balances at each plant and over-
all. In the ordinary course of business, the Group relies on a combination of the available over-
draft facilities and cash balances to fund the on-going liquidity needs. Capital expenditures are
usually funded though longer-term bank loans. In case of the inadequate cash balances and the
overdraft facilities close to the agreed ceilings, the Group is expected to revert to the emer-
gency funding made available through temporary freeze to the current portion of capital spend-
ing, immediate operating cost reductions, postponement of payments to the third parties, and
expansion of the overdraft ceilings. Although undesirable and never occurring in the past, such
emergency funding is the last resort on which the Group may have to draw while ensuring the
ongoing continuity of the business.
Maturities of the Group’s financial instruments are disclosed further in the notes 18, 20, 21, 25
of these financial statements.
(e) Market risk
Market risk may arise from the Group’s use of interest bearing, tradable and foreign currency
financial instruments. Market risk comprises fair value interest rate risk, foreign exchange risk
and commodity price risk and is further assessed below:
49
(i) Cash flow and fair value interest-rate risk
As the Group has no significant interest-bearing assets, the Group's income and operating cash
flows are substantially independent of changes in market interest rates. The Group's interest-
rate risk arises only from overdrafts, and is considered to be insignificant. The Group analyses
the interest rate exposure on a monthly basis.
A sensitivity analysis is performed by applying various interest rate scenarios to the borrowings
at fixed rates. Various methods and assumptions are used in the analysis, in particular the like-
lihood of the change in interest rates, supplementary (alternative) funding and the cost of ar-
ranging the back-up funding facilities (As at 31 December 2010 the maximum exposure
(impact on profit or loss and net assets) of a 700 basis-point shift (being the maximum reason-
ably possible expectation of changes in interest rates) would be an increase of GBP 200,000 or
a decrease of GBP 200,000 ).
(ii) Foreign exchange risk
All of the Group’s production facilities are located in Ukraine and the Board believes that the
foreign exchange risk is minimal. The Group's international operations consist primarily of the
export of milk powders to the various markets around the world. The primary currency for ex-
port sales is the US Dollar. The Group's established corporate policy towards minimising the
potential foreign exchange risk is to require the customers to pay for the export shipments of
the skimmed milk powders in full and in advance. The Group’s purchases of the raw milk,
semi-processed materials and other components of the manufacturing cost are made in
Ukraine and are entirely Hryvnia-denominated. All outstanding balances of trade payable by the
Group are in Hryvnias. Currency analysis is provided in note 30
Management believes that foreign exchange risk is immaterial at present and is likely to remain
so in the future. No sensitivity analysis is required under circumstances.
(iii) Commodity price risk
The Ukraine economy has been characterized by high rates of inflation. The Group tends to ex-
perience inflation-driven increase in certain of its costs, including salaries and rents, fuel costs
which are sensitive to rises in the general price level in Ukraine. In this situation, due to com-
petitive pressures, it may not able to raise the prices charged for products and services suffi-
ciently to preserve operating margins. Accordingly, high rates of inflation in Ukraine could
increase the Group's cost and decrease its operating margins.
The Group controls the prices for branded products through timely changes of sales prices ac-
cording to the market development and competition.
The Group is also exposed to commodity price risk for skimmed milk powder. The price for
this product is predominately determined by the world market and the activities of large inter-
national trading companies in this market. Ukrproduct benefited from a favourable pricing envi-
ronment in skimmed milk powder (“SMP”) in the first half of 2010, however the profitability of
this segment has significantly deteriorated in the second half due to the correction in global
prices of dairy commodities.
A 10% change in the SMP prices would lead to the change in Gross Profit of GBP 500,000.
However the Group’s management will not allow the loss-making as it has alternative ways of
realizing the proteins such as sale of skimmed milk and production of hard cheese. The Group
took measures in order to reduce its dependence on volatile commodity prices by increasing
production of other products, which were more stable.
(f) Operational risk
Operational risk is a risk arising from systems failure, human error, fraud or external events.
When controls fail to perform, operational risks can damage goodwill, have legal consequences
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
50
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
or lead to financial losses. The Group can not expect that all operational risks have been elimi-
nated, but with the help of control system and by monitoring the reaction to potential risks, the
Group may manage such risks. The control system provides an effective separation of duties,
access rights, approval and verification, personnel training, and valuation procedures.
6. CAPITAL MANAGEMENT POLICIES
The Group’s definition of the capital is ordinary share capital, share premium, accumulated re-
tained earnings and other equity reserves. The Directors view their role as that of corporate
guardians responsible for preservation and growth of the capital, as well as for generation of
the adequate returns to shareholders.
The Group’s objectives when maintaining and growing capital are:
•
•
•
to safeguard the Group's ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders,
to identify the appropriate mix of debt, equity and partner sharing opportunities in order to
balance the highest returns to shareholders overall with the most advantageous timing of
investment flows,
to provide an adequate return to shareholders by delivering the products in demand by the
customers at prices commensurate with the level of risk and expectations of shareholders.
The Group sets the amount of capital it requires in proportion to risk. The Group manages its
capital structure and makes adjustments to it in the light of changes in economic conditions
and the risk characteristics of the current trading environment. The Group’s core assets consist
predominantly of the property, plant and equipment – the resources that have proven their abil-
ity to withstand the competitive erosion and inflationary pressure.
In order to maintain or adjust the capital structure, the Group may issue new shares, adjust the
amount of dividends paid to shareholders, repay the debt, return capital to shareholders or sell
assets to improve the cash position. Historically, the first three methods were used to achieve
and support the desired capital structure. The Group monitors capital on the basis of the net
debt to equity ratio (D/E ratio). This ratio is calculated as net debt to shareholder equity. Net
debt is calculated as total debt (as shown in the balance sheet) less cash and cash equivalents.
Traditionally, the Group’s conservative strategy was to maintain the D/E ratio at 0.6 (60%) max-
imum. In 2010, as well as in the prior years, the D/E ratio did not exceed this level. The Direc-
tors believe that for the Group, as an operating company and a public entity, the maintenance
of the prudent debt policy is crucial in preserving the capital of the business. Excessive lever-
age – defined by the Group as D/E ratio in excess of 0.6 – could be justified only under excep-
tional circumstances and requires the full Board’s consent.
The D/E ratios at 31 December 2010 and at 31 December 2009 were as follows.
Total debt
Less: Cash and cash equivalents
Net debt
Total equity
D/E ratio
year ended
31 December 2010
£ ‘000
2,938
676
2,262
18,987
11.9%
year ended
31 December 2009
£ ‘000
1,581
236
1,345
14,598
9.2%
51
7. SEGMENT INFORMATION
At 31 December 2010, the Group was organised internationally into three main business seg-
ments:
1) Branded product – (processed cheese, hard cheese, packaged butter and spreads)
2) Skimmed milk powder
3) Other (transport services and resale of third-party goods).
The segment results for the year ended 31 December 2010 are as follows:
Sales, Total
Sales to internal customers
Sales to external customers
Gross profit
Administrative expenses
Selling and distribution expenses
Other operating expenses
Profit from operations
Finance expenses, net
Loss from exchange differences
Profit before taxation
Taxation
Profit for the year
Segment assets
Unallocated corporate assets
Unallocated deferred tax
Consolidated total assets
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred tax
Consolidated total liabilities
Other segment information:
Depreciation and amortisation
Capital expenditure
Branded
products
£ ‘000
81,331
49,503
31,828
6,550
(1,942)
(2,471)
(125)
2,012
-
-
2,012
-
2,012
15,209
-
-
15,209
1,027
-
-
1,027
679
252
Skimmed
milk powder
£ ‘000
17,081
8,412
8,669
703
(272)
(61)
-
370
-
-
370
-
370
2,662
-
-
2,662
79
-
-
79
288
107
Other
Unallocated
Total
£ ‘000
13,069
8,546
4,523
418
(91)
(105)
-
222
-
-
222
-
222
612
-
-
612
147
-
-
147
16
32
£ ‘000
-
-
-
-
(594)
(64)
(377)
(1,035)
(367)
(5)
(1,407)
(103)
(1,510)
-
6,449
248
6 697
-
3,506
1,434
4,940
85
80
£ ‘000
111,481
66,461
45,020
7,671
(2,899)
(2,701)
(502)
1,569
(367)
(5)
1,197
(103)
1,094
18,483
6,449
248
25,180
1,253
3,506
1,434
6,193
1,068
471
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
52
Sales, Total
Sales to internal customers
Sales to external customers
Gross profit
Administrative expenses
Selling and distribution expenses
Other operating expenses
Profit from operations
Finance expenses, net
Loss from exchange differences
Profit before taxation
Taxation
Profit for the year
Segment assets
Unallocated corporate assets
Unallocated deferred tax
Consolidated total assets
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred tax
Consolidated total liabilities
Other segment information:
Depreciation and amortisation
Capital expenditure
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
The segment results for the year ended 31 December 2009 are as follows:
Branded
products
£ ‘000
72,757
42,893
29,864
6,480
(1,686)
(2,218)
-
2,576
-
-
2,576
-
2,576
11,626
-
-
11,626
933
-
-
933
989
588
Skimmed
milk powder
£ ‘000
28,177
16,151
12,026
267
(210)
(29)
-
28
-
-
28
-
28
1,661
-
-
1,661
-
-
-
-
280
110
Other
Unallocated
Total
£ ‘000
8,138
6,861
1,277
182
(14)
(24)
-
144
-
-
144
-
144
505
-
-
505
-
-
-
-
10
6
£ ‘000
-
-
-
-
(668)
(330)
20
(978)
(426)
(249)
(1,653)
(54)
(1,707)
-
4,422
63
4,485
-
2,287
459
2,746
126
15
£ ‘000
109,072
65,905
43,167
6,929
(2,578)
(2,601)
20
1,770
(426)
(249)
1,095
(54)
1,041
13,792
4,422
63
18,277
933
2,287
459
3,679
1,405
719
The unallocated corporate liabilities represent bank loans, overdrafts and accruals.
The basis of pricing of the inter-segment transfers is the current market price at which the
goods could be bought on the spot market externally but not lower than the full production
costs plus the accompanying transport expenses.
Secondary reporting format – geographical segments:
Sales by country (consignees)
Ukraine
Holland
Germany
Singapore
Kazakhstan
Azerbaijan
Other countries
Total
year ended
31 December 2010
£ ‘000
38,040
2,377
1,529
1,058
676
383
957
45,020
year ended
31 December 2009
£ ‘000
30,827
4,480
1,810
1,366
1,141
793
2,750
43,167
The majority of the Group's assets and liabilities are in Ukraine. Sales to the countries in Eu-
rope represent sales to international traders of milk powders located in Europe. These traders
consequently resell the milk powders to other countries worldwide.
The Group has no customers volume of sales to which exceeds 10% from the total amount.
53
8. REVENUE
For the years ended 31 December 2010 and 31 December 2009, sales revenue was presented
as follows
year ended
31 December 2010
£ ‘000
year ended
31 December 2009
£ ‘000
General revenue
Branded (including bonuses)
Charge of bonuses
Branded (excluding bonuses)
SMP
Other
Total revenue (excluding bonuses)
45,721
32,529
(701)
31,828
8,669
4,523
45,020
43,679
30,375
(511)
29,864
12,026
1,277
43,167
Bonuses are compensation granted to the Group’s main customers within its distribution net-
work.
Bonuses are accounted for based on a fixed percentage of the product sold by customers who
comprise retail networks and distributors. Cash compensation is paid on a periodic basis
during the year.
Sales by country
(consignees)
at end of 2010
Ukraine
Germany
Holland
Other countries
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
54
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
9. EXPENSES BY NATURE
For the years ended 31 December 2010 and 31 December 2009, items of expenses were pre-
sented as follows:
Cost of sales
Including:
Raw materials and consumables used,
cost of goods sold, manufacture overheads etc.
Wages and salaries, social security costs (Note 12)
Depreciation (Note 11)
Administrative exp
Including:
year ended
31 December 2010
£ ‘000
year ended
31 December 2009
£ ‘000
(37,349)
(36,238)
(34,468)
(1,968)
(913)
(2,899)
(32,867)
(2,107)
(1 264)
(2,578)
Wages and salaries, social security costs (Note 12)
(1,348)
(1,124)
Lease and current repair and mainenance
PR, nominated broker, secretary, legal services etc.
Bank service
Security
Taxes and compulsory payments
Communication
Office expenses
Audit fees
Amortization and depreciation (Note 11)
Other
Selling and distribution
Including:
(286)
(340)
(175)
(159)
(122)
(121)
(74)
(67)
(58)
(149)
(2,701)
Wages and salaries, social security costs (Note 12)
(1,105)
Delivery costs
Lease and current repair and mainenance
Promotion
Amortization and depreciation (Note 11)
Other
Other operating exp
Including:
Profit from sale of foreign currencies
Bad debts write-off
Impairment of assets (as a result of revaluation)
Amortization and depreciation (Note 11)
Wages and salaries, social security costs (Note 12)
Other
(784)
(469)
(201)
(48)
(94)
(502)
1
(128)
(37)
(49)
(20)
(269)
(310)
(317)
(150)
(160)
(76)
(110)
(60)
(73)
(63)
(135)
(2,601)
(890)
(770)
(430)
(350)
(40)
(121)
20
264
(75)
-
(38)
(29)
(102)
55
10. FINANCIAL INCOME/(EXPENSES), NET
For the years ended 31 December 2010 and 31 December 2009, financial income/(expenses)
were presented as follows:
year ended
31 December 2010
£ ‘000
year ended
31 December 2009
£ ‘000
Finance income
Interest income on bank deposit
Total interest income
Finance expense
Interest expense on bank loans
Other finance expense
Total finance expense
Net finance expense recognised in income statement
20
20
(387)
(387)
(367)
1
1
(427)
(427)
(426)
11. AMORTIZATION AND DEPRECIATION
For the years ended 31 December 2010 and 31 December 2009, amortization and depreciation
were presented as follows:
Cost of sales
Administrative expenses
Selling and distribution expenses
Other operating expenses
Total amortization and depreciation
year ended
31 December 2010
£ ‘000
(913)
(58)
(48)
(49)
(1,068)
year ended
31 December 2009
£ ‘000
(1,264)
(63)
(40)
(38)
(1,405)
12. EMPLOYEE BENEFIT EXPENSE
For the years ended 31 December 2010 and 31 December 2009, employee benefit expense
were presented as follows:
Wages and salaries (including key management personnel)
Social security costs
Average number of employees
Wages and salaries of operating personnel
Wages and salaries of administrative personnel
Wages and salaries of distribution personnel
Wages and salaries of personnel related
to other operating expenses
year ended
31 December 2010
£ ‘000
(3,325)
(1,116)
(4,441)
1,857
year ended
31 December 2010
£ ‘000
(1,968)
(1,348)
(1,105)
year ended
31 December 2009
£ ‘000
(3,132)
(1,018)
(4,150)
1,925
year ended
31 December 2009
£ ‘000
(2,107)
(1,124)
(890)
(20)
(4,441)
(29)
(4,150)
Wages and salaries of key management personnel:
For the year ended 31 December 2010, remuneration of the Group's key management person-
nel amounted to GBP 250,000 (2009: GBP 247,000).
The key management personnel are those persons remunerated by the Group who are mem-
bers of the Board of Directors of the Company (Ukrproduct Group Ltd) and Senior Management.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
56
13. INCOME TAX EXPENSES
For the years ended 31 December 2010 and 31 December 2009, income tax expenses were
presented as follows:
Current tax charge – Ukraine
Current tax charge – non-Ukraine
Deferred tax relating to the origination and reversal
of temporary differences
Total income tax expenses
year ended
31 December 2010
£ ‘000
82
38
year ended
31 December 2009
£ ‘000
72
18
(17)
103
(36)
54
Differences in treatment of certain elements of financial statements by IFRS and Ukrainian
statutory taxation regulations give rise to temporary differences. The tax effect of the move-
ment on these temporary differences is recognised at the rate of 25% (2009: 25%).
The numerical reconciliation between tax charge and the product of accounting profit multi-
plied by the applicable tax rate(s) is provided in the following table.
year ended
31 December 2010
£ ‘000
year ended
31 December 2009
£ ‘000
Profit before tax:
(1,263)
Ukraine
1
Cyprus
2,459
Other (BVI, Jersey)
Profit before tax, total
1,197
Tax calculated at domestic tax rates applicable to profits in the relevant countries
-
Ukraine (25%)
0.1
Cyprus (10%)
-
BVI, Jersey (0%)
0.1
Tax calculated at domestic tax rates applicable to net income not subject to tax and expenses not de-
ductible for tax purposes
Ukraine
Cyprus
BVI, Jersey
(834)
584
1,345
1,095
-
58
-
58
36
(40)
-
(4)
-
36
18
-
54
Nil
10%
Nil
5.3%
65
38
-
103
-
65
38
-
103
Nil
10%
Nil
0%
Tax charge
Ukraine
Cyprus
BVI, Jersey
The weighted average applicable tax rate
Ukraine
Cyprus
BVI, Jersey
There are a number of laws related to various taxes imposed by both central and regional
governmental authorities. Although laws related to these taxes have not been in force for sig-
nificant periods, the practice of taxation and implementation of regulations are well established,
documented with a sufficient degree of clarity and adhered to by the taxpayers. Nevertheless,
there remain certain risks in relation to the Ukrainian tax system: few court precedents with re-
gard to tax related issues exist; different opinions regarding legal interpretation may arise both
among and within government ministries and regulatory agencies; tax compliance practice is
subject to review and investigation by a number of authorities with overlapping responsibilities.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
57
Generally, tax declarations remain subject to inspection for an indefinite period. In practice,
however, the risk of retroactive tax assessments and penalty charges decreases significantly
after three years. The fact that a year has been reviewed does not preclude the Ukrainian tax
service performing a subsequent inspection of that year.
The Group's management believes that it has adequately provided for tax liabilities in the ac-
companying financial statements; however, the risk remains that those relevant authorities
could take different positions with regard to interpretive issues.
During the period under review, the Ukrainian companies within the Group paid royalties and
interest charge on the outstanding credits and bonds to another Group company – Linkstar
Limited (Cyprus). These payments were not taxable in Ukraine due to the existing Double Taxa-
tion Treaty between Ukraine and Cyprus.
14. PROPERTY, PLANT AND EQUIPMENT
In accordance with IAS 16 "Property, Plant and Equipment", the Group carries out revaluations
on a regular basis and conducts a full valuation exercise if there is an indication of impairment.
The Group carried out the revaluation of assets in 2010 at the effective valuation date of 31 Oc-
tober 2010. The revaluation was carried out by independent appraisers “B.G.S-Assets” LLC
(Ukraine) using different methods namely cost, comparables and the asset cash generating
method.
The revaluation resulted in the 49% appraisal of total assets.
The recoverable amount of the cash-generating unit was determined on the basis of value-in
use. The amount of value in use for the cash generating unit was determined on the basis of
the most recent budget estimates prepared by management and application of the income ap-
proach of valuation. Under the income approach, the discounted cash flow method has been
applied with discount rate of 22.3%.
As of January 1, 2010 the Group separated Plant and machinery used for production of hard
and processed cheese into a separate asset group and applied to it the units of production
method of depreciation.
The basis for the change is as follows:
•
•
•
In 2010 a significant change in the expected structure of future economic benefits took
place. It became clear that the equipment of the hard and processed cheese production
units would be used less intensively than expected.
The production method will ensure that the unit cost reflects the reality and the products
are competitive on the market.
There is no obsolescence of the equipment
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
58
Cost or valuation
At 1 January 2009
Additions
Transfers to/from AUC
Exclusion from Group
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2009
Accumulated depreciation
At 1 January 2009
Depreciation charge
Exclusion from Group
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2009
Cost or valuation
At 1 January 2010
Additions
Gain on revaluation
Transfers to/from AUC
Exclusion from Group
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2010
Accumulated depreciation
At 1 January 2010
Depreciation charge
Gain on revaluation
Exclusion from Group
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2010
Net book amount at 31 December 2010
Net book amount at 31 December 2009
Net book amount at 31 December 2008
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
As at 31 December 2010 and 31 December 2009, property, plant and equipment were pre-
sented as follows:
s
g
n
d
i
l
i
u
B
d
n
a
d
n
a
L
i
y
r
e
n
h
c
a
M
d
n
a
t
n
a
P
l
f
o
d
o
h
t
e
m
n
o
i
t
c
u
d
o
r
p
r
e
d
n
u
s
t
e
s
s
a
.
l
c
n
i
i
n
o
i
t
a
c
e
r
p
e
d
r
e
d
n
u
s
t
e
s
s
A
n
o
i
t
c
u
r
t
s
n
o
C
r
e
h
t
o
d
n
a
l
s
e
c
h
e
V
i
f
o
d
o
h
t
e
m
n
o
i
t
c
u
d
o
r
p
r
e
d
n
u
s
t
e
s
s
a
.
l
c
n
i
i
n
o
i
t
a
c
e
r
p
e
d
t
n
e
m
p
u
q
e
i
l
a
t
o
T
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
191
585
(194)
(2)
-
(107)
473
-
-
-
-
-
-
473
471
164
(418)
-
(92)
14
612
-
-
29
-
-
(0,1)
29
583
473
191
7,485
-
-
-
(2)
(856)
6,627
2,155
277
-
-
(335)
2,097
6,627
-
1,596
51
-
(151)
201
8,324
2,097
295
246
-
(22)
60
2,676
5,648
4,530
5,330
5,328
-
169
-
(90)
(635)
4,772
2,268
546
-
(6)
(312)
2,496
4,772
1
1,362
101
-
41
109
6,386
2,496
323
171
-
(24)
40
3,006
3,380
2,276
3,060
2,962
-
76
-
-
(359)
2,680
1,234
335
-
-
(160)
1,408
2,680
-
742
24
-
-
80
3,526
1,408
88
333
-
-
42
1,871
1,655
1,271
-
4,103
120
25
(2)
(183)
(939)
3,124
2,157
516
(1)
(136)
(667)
1,869
3,124
45
1,918
266
-
(233)
79
5,199
1,869
374
519
-
(255)
40
2,547
2,652
1,255
1,946
434
-
-
-
-
(52)
382
51
71
-
-
(9)
113
382
-
147
5
-
-
11
545
113
4
44
-
-
3
164
381
269
-
17,107
705
-
(4)
(275)
(2,537)
14,996
6,580
1,339
(1)
(142)
(1,314)
6,462
14,996
517
5,040
-
-
(435)
403
20,521
6,462
992
965
-
(301)
140
8,258
12,263
8,534
10,527
Fixed assets with a net book value of GBP 9,036,176 at 31 December 2010 (GBP 6,507,967 at
31 December 2009) were pledged as collateral for loans.
15. INTANGIBLE ASSETS
As at the reporting dates intangible assets were presented as follows:
Computer software
£ ‘000
Trade marks
£ ‘000
Customer list
£ ‘000
Goodwill
£ ‘000
Cost or valuation
At 1 January 2009
Additions
Disposals
Exchange differences on translation to the presentation currency
At 31 December 2009
Accumulated amortisation
At 1 January 2009
Amortisation charge for the year
Disposals
Exchange differences on translation to the presentation currency
At 31 December 2009
Cost or valuation
At 1 January 2010
Additions
Disposals
Exchange differences on translation to the presentation currency
At 31 December 2010
Accumulated amortisation
At 1 January 2010
Amortisation charge for the year
Disposals
Exchange differences on translation to the presentation currency
At 31 December 2010
Net book amount at 31 December 2010
Net book amount at 31 December 2009
Net book amount at 31 December 2008
42
14
(1)
(13)
42
24
9
(1)
(11)
21
42
3
(6)
1
40
21
10
(5)
1
27
13
21
18
500
-
-
(44)
456
97
23
-
(9)
111
456
-
-
12
468
111
25
-
4
140
328
345
403
752
-
-
-
752
122
34
-
1
157
752
-
-
-
752
157
41
-
(1)
197
555
595
630
104
-
-
-
104
-
-
-
-
-
104
-
-
-
104
-
-
-
-
-
104
104
104
59
Total
£ ‘000
1,398
14
(1)
(57)
1,354
243
66
(1)
(19)
289
1,354
3
(6)
13
1,364
289
76
(5)
4
364
1,000
1,065
1,155
The remaining amortization periods of the intangible assets are as follows:
• Computer software 3-7 years;
•
Trademarks 15 years;
• Customer list 15 years.
Acquired intangible assets and Goodwill.
The intangible asset “Customer list” represents the captive individual suppliers of raw milk in
the vicinity of Letichivsky Maslozavod OJSC and Zhmerinsky Maslosyrzavod LLC. In Ukraine,
where about 80% of the entire milk comes from the individual producers, the existing supplier
base is very important for the dairy producers and thus is valuable. The acquired asset “Cus-
tomer list” was recognised in the accounts on the basis of the Purchase Price Allocation (PPA)
exercise conducted within the 12-month period following the acquisitions of two plants. The
asset was valued by an independent valuer Uvecon using the sales comparison method and de-
preciated replacement cost (DRC) methods (for tangible assets) and income and cost advan-
tage methods (intangible assets).
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
60
The Group regularly monitors the carrying value of its acquired intangible assets, goodwill and
events or changes in circumstances that indicate there may be an impairment. The result of the
review, undertaken at 31 December 2010, was that no impairment needs to be recognised and
the carrying value of the acquired intangible assets and goodwill is considered appropriate.
After having analysed all key factors the Group`s Management decided that as of December 31,
2010 the Goodwill of Letichiv Dairy Plant did not lose any of its value. Besides, this asset has
unlimited useful life duration and has been tested as part of Group`s single cash generating
unit.
The Group`s production plans are based on the established practice of production and distribu-
tion of dairy products in the raw material zone of Letichiv Dairy Plant and it foresees the use of
this asset for an unlimited period of time.
Maintenance of Goodwill does not require considerable costs and the Group does not plan such
inputs in the future.
Taking into consideration all the factors mentioned above, the Group`s Management does not
see any reasons for Goodwill impairment as of December 31, 2010 and considers that the
amount of GBP 0.1 million is its fair value.
16. DEFERRED TAX ASSETS AND LIABILITIES
For the year ended 31 December 2010, deferred tax assets and liabilities were presented as fol-
lows:
As at
31 December 2010
£ ‘000
As at
31 December 2009
£ ‘000
Deffered tax asset at the beginning of the year
Deffered tax liability at the beginning of the year
Deferred tax asset recognised in income statement during the year
Defered tax liability recognised in income statement during the year
Increase in deferred tax due to increase
in property, plant and equipment revaluation reserve
Reduction in deferred tax due to decrease in property,
plant and equipment revaluation reserve because of amortisation
Exclusion from Group
Exchange differences on translation to the presentation currency
Deferred tax asset at the end of the year
Deferred tax liability at the end of the year
(63)
-
(184)
-
-
-
-
(1)
(248)
-
-
459
-
(49)
1 028
(19)
-
15
-
1 434
(117)
-
42
-
-
-
-
12
(63)
-
-
697
-
(78)
-
(32)
(14)
(114)
-
459
17. INVENTORIES
As at the reporting dates inventories were presented as follows:
Raw materials
Work in progress
Finished goods
Other inventories
As at
31 December 2010
£ ‘000
850
507
1,954
674
3,985
As at
31 December 2009
£ ‘000
722
28
1,206
489
2,445
Certain information in the note has been reclassified to conform with the presentation format
adopted in the current year. The restatement has no effect on the financial results or financial
position of the Group.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
61
18. TRADE AND OTHER RECEIVABLES
As at the reporting dates receivables (excluding non-financial assets) were presented as fol-
lows:
Trade receivables
Other receivables
As at
31 December 2010
£ ‘000
4,587
287
4,874
As at
31 December 2009
£ ‘000
4,221
43
4,264
The Group’s management believes that the carrying value for trade and other receivables is a
reasonable approximation of their fair value. The amount of overdue but unimpaired accounts
receivable is insignificant and is not disclosed in this note.
There is concentration of credit risk due to high share (around 22%) of total trade receivables
is being with three clients.
Maturity of trade receivables as at 31 December 2010 and 31 December 2009 is presented as
follows:
In less then 1 year
As at
31 December 2010
£ ‘000
4,874
4,874
As at
31 December 2009
£ ‘000
4,264
4,264
As at 31 December 2010, there were no trade and other receivables past due not impaired
(2009: Nil)
19. CURRENT TAXES
As at the reporting dates current taxes were presented as follows:
VAT receivable
Other prepaid taxes
As at
31 December 2010
£ ‘000
1,091
3
1,094
As at
31 December 2009
£ ‘000
1,029
2
1,031
At the reporting date the Group has accumulated a substantial tax asset being VAT receivable.
Management intends to recover this amount by way of offsetting it against VAT liabilities that
will arise from the regular business activities during the first half of 2011
Loans and receivables
Loans issued to related parties
Loans issued to employees
As at
31 December 2010
£ ‘000
141
79
220
As at
31 December 2009
£ ‘000
-
79
79
Loans issued are denominated in Hryvnia, are short term in nature, and are interest free.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
62
21. CASH AND CASH EQUIVALENTS (EXCLUDING BANK
OVERDRAFTS)
As at the reporting dates cash and cash equivalents were presented as follows:
Cash - in UAH
Bank - in UAH
Cash - in other currencies
Bank - in other currencies
As at
31 December 2010
£ ‘000
10
306
2
358
676
As at
31 December 2009
£ ‘000
7
162
2
65
236
As at 31 December 2010 short-term deposits (less than 3 months) were presented as follows:
Bank
Currency of deposit
Interest rate Deposit opening date Deposit termination date
Raiffeisen Bank Aval OJSC
Raiffeisen Bank Aval OJSC
UAH
UAH
12%-15%
12%-15%
2010-06-16
2010-05-06
2011-06-17
2011-05-10
As at 31 December 2010
£ ‘000
1.2
1.6
2.8
22. SHARE CAPITAL
As at the reporting dates share capital was presented as follows:
Authorised
As at
31 December 2010
Number '000
60,000
As at
31 December 2010
£ ‘000
6,000
As at
31 December 2009
Number '000
50,000
As at
31 December 2009
£ ‘000
5,000
By the special resolution of the AGM of July 5, 2010 the Group increased the authorised share
capital from GBP 5,000,000 divided into 50,000,000 ordinary shares of ten pence (£0.10) nom-
inal value each to GBP 6,000,000 divided into 60,000,000 ordinary shares of ten pence (£0.10)
nominal value each.
Issued and fully paid at beginning and end of the year
As at
31 December 2010
Number '000
As at
31 December 2010
£ ‘000
As at
31 December 2009
Number '000
As at
31 December 2009
£ ‘000
41,068
(250)
40,818
4,107
(25)
4,082
42,818
(1,750)
41,068
4,282
(175)
4,107
As at
31 December 2010
Number '000
Held as treasury shares
As at
31 December 2010
£ ‘000
As at
31 December 2009
Number '000
As at
31 December 2009
£ ‘000
1,750
250
2,000
175
25
200
-
1,750
1,750
-
175
175
Ordinary shares of 10p each
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
At end of the year
(excluding shares held as treasury shares)
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
At end of the year
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
63
In December 2010 the Company acquired 250,000 ordinary shares of 10 pence each at
23 pence per share. These shares are held as treasury shares. The total consideration paid was
GBP 57,500.
As at 31 December 2010 the Company held a total of 2,000,250 Ordinary Shares as treasury
shares and the total number of Ordinary Shares in issue (excluding shares held as treasury
shares) was 40,817,599.
23. OTHER RESERVES
At 1 January 2009
Own shares acquisition
Depreciation on revaluation of property, plant and equipment
Reduction of options reserve
Exchange differences on translation to the presentation currency
At 31 December 2009
Own shares acquisition
Gain on revaluation of fixed assets
Depreciation on revaluation of property, plant and equipment
Reduction of revaluation reserve
Exchange differences on translation to the presentation currency
At 31 December 2010
Share
premium
£ '000
4,621
(33)
-
-
-
4,588
(33)
-
-
-
-
4,555
Merger
reserve
£ '000
(1,427)
-
-
-
-
(1,427)
-
-
-
-
-
(1,427)
Share
option reserve
£ '000
24
-
-
Translation
reserve
£ '000
(3,823)
-
-
Revaluation
reserve
£ '000
1,428
-
(95)
Total other
reserves
£ '000
823
(33)
(95)
(24)
-
-
-
-
-
-
-
-
-
(1,954)
(5,777)
-
-
-
-
351
(5,426)
-
-
(24)
(1,954)
1,333
-
3,084
(50)
(1)
-
4,366
(1,283)
(33)
3,084
(50)
(1)
351
2,068
The following describes the nature and purpose of each reserve within owners’ equity.
Reserve
Share premium
Revaluation
Merger
Share option
Retained earnings
Translation
Description and purpose
Amount subscribed for share capital in excess of nominal value.
Gains arising on the revaluation of the Group’s property. The balance
on this reserve is wholly undistributable.
Losses arising on the application of the pooling of interests method of
consolidation used to account for the merger of Ukrproduct Group Ltd
and its subsidiaries.
Amount arising from share based payments (issue of share options).
Cumulative net gains and losses recognised in the consolidated in-
come statement.
Amount of all foreign exchange differences arising from the transla-
tion of the financial information of foreign subsidiaries.
24. NON-CONTROLLING INTERESTS
At 1 January
Net profit for the period
Decrease of Non-controlling interests
At 31 December
As at
31 December 2010
£ ‘000
30
(10)
-
20
As at
31 December 2009
£ ‘000
82
(23)
(29)
30
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
64
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
25. BANK LOANS AND OVERDRAFTS
Bank loans include a secured 3-year credit line of up to UAH 40,000,000 (GBP 3,255,000) from
OTP Bank CJSC denominated in Ukrainian Hryvnia (UAH) and US dollars (USD). As at 31 De-
cember 2010 an amount of GBP 2,842,600 was drawn from this credit line (2009: GBP
1,574,000).
The Group has an overdraft facility with Ukrsibbabnk of up to UAH 5,000,000 (GBP 406,800).
As at 31 December 2010 an amount of GBP 96,100 was used from this overdraft. The Group
also has an additional overdraft facility of UAH 1,900,000 (GBP 154,597) with Raiffeisen Bank
Aval OJSC. As at December 31, 2010 the Group does not have any debt liability under this
overdraft.
The average interest rate as at 31 December 2010 was 19.5% (2009: 19.0%). This loan is se-
cured by the assets of the company's subsidiaries: Invest Garantiya Private Enterprise, Milk in-
vestments Private Enterprise and Starkon-Moloko LLC.
Maturity of financial liabilities
On demand
In less then 1 year
year ended
year ended
31 December 2010
31 December 2009
£ ‘000
96
2,842
2,938
£ ‘000
7
1,574
1,581
Interest rate profile of financial liabilities
Floating rate
Fixed rate
As at
As at
31 December 2010 31 December 2009
£ '000
96
-
96
£ '000
-
2,842
2,842
£ ‘000
96
2,842
2,938
£ ‘000
7
1,574
1,581
On demand
Expiry within 1 year
The currency profile of the Group's financial liabilities is as follows:
Floating rate
Fixed rate
Total as at
Total as at
liabilities
£ '000
96
-
96
liabilities 31 December 2010 31 December 2009
£ '000
2,678
164
2,842
£ '000
2,775
164
2,938
£ '000
1,581
-
1,581
UAH
USD
The book value and fair value of financial liabilities are as follows:
Book value as at
Fair value as at
Book value as at
Fair value as at
31 December 2010 31 December 2010 31 December 2009 31 December 2009
Bank loans
Bank overdrafts
£ '000
2,842
96
2,938
£ '000
2,842
96
2,938
£ '000
1,574
7
1,581
£ '000
1,574
7
1,581
65
26. TRADE AND OTHER PAYABLES
Trade payables
Other payables
Prepayments received
Accruals
As at
31 December 2009
£ ‘000
1,190
113
52
220
1,575
The Group’s management believes that the carrying value for trade and other payables is a rea-
sonable approximation of their fair value.
As at
31 December 2010
£ ‘000
1,052
204
204
255
1,715
27. EARNINGS PER SHARE
Basic earnings per share has been calculated by dividing net profit attributable to the ordinary
shareholders by the weighted average number of shares in issue.
year ended
31 December 2010
£ ‘000
1,104
41,052,531
2.69
41,052,531
2.69
year ended
31 December 2009
£ ‘000
1,064
41,997,869
2.5
41,997,869
2.5
Net profit attributable to ordinary shareholders
Weighted number of ordinary shares in issue
Basic earnings per share, pence
Diluted average number of shares
Diluted earnings per share, pence
28. DIVIDENDS
As at April 1, 2011, the Board of Directors proposed the final dividend payment of 0.50 pence
per ordinary share for the full year ended December 31, 2010 in the amount of GBP 210,000. If
approved at the AGM, the final dividend will be paid on June 24, 2011 to the shareholders on
the register as at May 20, 2011.
No tax consequences for the Group will arise out of this transaction as the Group’s parent com-
pany is an entity registered under Jersey laws.
year ended
31 December 2010
£ ‘000
year ended
31 December 2009
£ ‘000
Final dividend for 2009 of 0.20 pence
(2008 - 0.40 pence) per ordinary share proposed
and paid during the year relating to the previous year's results
Interim dividend for 2009 of 0.20 pence
per ordinary share paid during the year
82
-
82
172
82
254
The final dividend for the year ended 31 December 2010 has not been accrued at the
reporting date.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
29. SHARE-BASED PAYMENTS
The Company operates an equity-settled share based remuneration scheme for employees.
2010 Weighted
average
exercise price
2010
2009 Weighted
average
exercise price
2009
£
Number
£
Number
Outstanding
at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Lapsed during the year
Outstanding at the end
of the year
Exercisable at the end
of the year
0.128
130,290
-
-
-
-
0.128
0.128
-
-
-
-
130,290
130,290
0.570
0.128
-
-
0.570
0.128
0.128
130,290
130,290
-
-
130,290
130,290
130,290
During the period under review the Company did not grant options to any parties.
All options granted to the Directors are exercisable over a period of four years.
Taking into account the fair value of options granted estimated at the grant date no remunera-
tion charge was recognised in statement of comprehensive income in 2010.
The fair value of options granted in 2009 was calculated based on the following data
Item
Option pricing model used
Weighted average share price at the grant date
Exercise price
Weighted-average contractual life, years
Expected volatility
Expected dividend yield
Expected dividehd growth rate
Weighted-average risk-free interest rate
2009
Adjusted Black-Scholes
0.1275
0.1280
4.0
25%
5%
0%
1.9%
66
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
Assets
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
Total assets
Liabilities
Bank loans and overdrafts
Trade and other payable
Taxes payable
Current income tax liabilities
Total Liabilities
Assets
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
Total assets
Liabilities
Bank loans and overdrafts
Trade and other payable
Taxes payable
Current income tax liabilities
Total Liabilities
67
30. CURRENCY ANALYSIS
Currency analysis for the year ended 31 December 2010 is set out below:
UAH
USD
RUR
GBP
EUR
Total
4,986
1,094
220
315
6,615
2,938
1,498
38
68
4,542
598
-
-
318
916
-
64
-
-
64
-
-
-
-
-
-
97
-
-
97
-
-
-
43
43
-
-
-
-
-
21
-
-
-
21
-
56
-
-
56
5,605
1,094
220
676
7,595
2,938
1,715
38
68
4,759
Currency analysis for the year ended 31 December 2009 is set out below:
UAH
USD
RUR
GBP
EUR
Total
4,310
1,031
79
170
5,590
1,581
1,506
32
32
3,151
425
-
-
17
442
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
-
-
40
43
-
-
-
-
-
-
-
-
9
9
-
69
-
-
69
4,738
1,031
79
236
6,084
1,581
1,575
32
32
3,220
10 % strengthening of Hryvnia rate against the following currencies as at 31 December 2010
and 2009, would increase (decrease) the amount of profits (or losses) for the period by the
amounts mentioned below. This analysis was conducted based on the assumption that all other
variables, in particular, interest rates, remained unchanged. The change of GBP exchange rate
does not have impact on the result as all the balances in GBP are attributable to the Group’s
companies where GBP is a functional currency.
Increase/ decrease
Effect on income
Effect on income
in rate
before tax in 2010
before tax in 2009
£ ‘000
£ ‘000
10%
10%
10%
-10%
-10%
-10%
85
(4)
(10)
(85)
4
10
44
(6)
-
(44)
6
-
USD
EUR
RUR
USD
EUR
RUR
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
68
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
31. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the other party or ex-
ercise significant influence over the other party in making financial or operational decisions as
defined by IAS 24 "Related Party Disclosures". In considering each possible related party rela-
tionship, attention is directed to the substance of the relationship, not merely the legal form.
Transactions and balances between the Group companies and other related parties are set out
below. Remuneration of key management personnel is disclosed in note 12.
Sales of goods and services to related parties and purchases from related parties are sum-
marised below. All sales and purchases were with related parties under common control of the
ultimate beneficiaries of the Company.
Sales
Other operational incomes
Purchase
year ended
31 December 2010
£ ‘000
504
33
(678)
year ended
31 December 2009
£ ‘000
143
-
(108)
Balances due from/(to) related parties at each period end are shown below.
Receivables and prepayments
Loans issued
Trade and other payable
As at
31 December 2010
£ ‘000
252
141
(205)
As at
31 December 2009
£ ‘000
113
-
(51)
In 2010, the Group’s commercial relationships with the related parties comprised sales, pur-
chases, provision, issue and repayment of loans. The terms and conditions for the contracts
with the related parties were similar to the terms and conditions applied in dealings with unre-
lated parties. There were no guarantees given to or provided by from the Group to related par-
ties and vice versa.
The ultimate controlling owners and beneficiaries of the related parties were Messrs Alexander
Slipchuk and Sergey Evlanchik.
32. COMMITMENTS AND CONTINGENCIES
(a) Economic environment
The Group carries out most of its operations in Ukraine. Laws and other regulatory acts affect-
ing the activities of Ukrainian enterprises may be subject to changes and amendments within a
short period of time. As a result, assets and operating activity of the Group may be exposed to
the risk in case if any unfavorable changes take place in political and economic environment.
(b) Taxation
As a result of the unstable economic environment in Ukraine the Ukrainian tax authorities pay
increasing attention to business communities. In this regard, local and national tax legislation
are constantly changing. Provisions of various legislative and regulatory legal acts are not al-
ways clearly-worded, and their interpretations depend on opinion of tax authority officers and
the Ministry of Finance. It is a common practice when disagreements between local, regional
69
and republican taxation authorities take place. A system of fines and penalties for claimed or
revealed violations exists in corresponding regulatory legal acts, laws and decisions. Penalties
include confiscation of amount in dispute (in case of law violation) and as well as fees. These
facts create tax risks, that is, that the Group may therefore be exposed to the risk of additional
tax liabilities, fines and penalties. These risks far exceed risks in the countries with advanced
tax systems.
(c) Retirement and other liabilities
Employees of the Group receive pension benefits from the Pension Fund, a Ukrainian Govern-
ment organization in accordance with the applicable laws and regulations of Ukraine. The
Group is required to contribute a specified percentage of the payroll to the Pension Fund to fi-
nance the benefits. The only obligation of the Group with respect to this pension plan is to
make the specified contributions from salaries. As at 31 December 2010 and 2009 the Group's
had no liabilities for supplementary pensions, health care, insurance benefits or retirement in-
demnities to its current or former employees.
The amount of uncancellable lease commitments is insignificant.
As of December 31, 2010 the Group does not possess any finance lease and hire purchase
commitments, capital commitments and guarantees.
As at 31 December 2010 the Company had an outstanding legal claim to Starokonstantinovskiy
Dairy plant from the tax authorities amounting to GBP 1,270,000. As of the date of this report
the claim is considered by the court of appeal. The court of first appearance pronounced in
favor of the Company. Company’s management does not see any risks of material cash out-
flow.
33. SUBSEQUENT EVENTS
In 2011 the Group sold the assets of Zhmerinsky Maslosyrzavod LLC. The result of this trans-
action will be reflected in the financial statements for 2011 year.
The Ukrainian government has adopted a new Tax Code. Effective April 1, 2011, expenses in-
curred by legal entities for the purchase of goods and services from private entrepreneurs,
such as small wholesale customers of Ukrproduct, who pay a unified tax (a lump sum), will not
be deductible for the purpose of calculating corporate profit tax. The Group believes that the
level of bad debt in 2011 may increase, compared to 2010, as certain small wholesale cus-
tomers of the Group may experience significant working capital constraints.
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
C O R P O R A T E A D V I S E R S A N D S H A R E H O L D E R I N F O R M A T I O N
71
Jersey legal advisers
Bedell Cristin
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Principal bankers
Deutsche Bank International Limited
PO Box 727
St. Paul’s Gate
New Street
St Helier
Jersey JE4 8ZB
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
CORPORATE ADVISERS
Company secretary
Bedell Secretaries Limited
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Nominated adviser
W H Ireland Limited
11 St James’s Square
Manchester M2 6WH
Nominated broker
Metropol (UK) Limited
Princes House
38 Jermyn street
London, SW1Y 6DN
Independent auditors
Baker Tilly Channel Islands Limited
PO Box 437
13 Caste Street
St Helier
Jersey JE4 0ZE
UK legal advisers
Cobbetts
70 Gray’s Inn Road
London WC1X 8BT
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010
72
SHAREHOLDER INFORMATION
Registered office
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Registered number 88352 in Jersey
Financial Calendar
Date
Event
31 December 2010
Financial year end
5 April 2011
9 June 2011
24 June 2011
Announcement of full year 2010 results
Annual General Meeting
Final Dividend Payment
Analysis of shareholding – at 31 December 2010
Size of shareholdings
Number of holders
% of total
Total holdings, shares
% of total
9
23
19
11
62
14.5%
37.0%
30.7%
17.8%
100%
14,165
456,661
2,203,620
38,143,153
40,817, 599
0.01%
1.1%
5.4%
93.5%
100.0%
The ultimate controlling parties of Ukrproduct Group Ltd are Messrs Sergey Evlanchik and
Alexander Slipchuk who collectively controlled, as of 31 December 2010, 68.51% of the com-
mon shares of the Company.
Share price (pence) – year to 31 December 2010
At end of year: 24 p
Lowest: 22.5 p
Highest: 41.2 p
Administrative enquiries
All enquiries relating to individual shareholder matters should be made to the registrar at:
Capita Registrars Shareholders Services Department, The Registry, 34 Beckenham Road, Beck-
enham, Kent, BR3 4TU. The registrar will assist with enquiries regarding any change of circum-
stances (e.g. name, address, bank account details, bereavement, lost certificates, dividend
payment and transfer of shares). All correspondence should be clearly marked “Ukrproduct
Group Ltd” and quote the full name and address of the registered holder of the shares. Share-
holder information, together with a range of online services for Ukrproduct Group Ltd
shareholders is also available at the registrar’s website www.capitaregistrars.com.
Investor Relations
The PBN Company – Ukraine
Media Public Relations
10G Starokyivska Street
04655, Kyiv, Ukraine
Tel. +38 044 586 63 50
Email: oksana.monastyrska@pbn.kiev.ua
The PBN Buchanan
Financial Public Relations
45 Moorfields
London EC2Y9AE, UK
Tel. + 44 (0) 20 7466 5000
E-mail: laura.citron@pbn.ru
Up to 5,000 shares
5,001 to 50,000 shares
50,001 to 200,000 shares
Over 200,000 shares
Total
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2010