TABLE OF CONTENTS
Chairman and Chief Executive Statement ........................................................................... 2
Key Financial Data 2011 ....................................................................................................... 5
Ukrproduct at a Glance ....................................................................................................... 7
Financial Review .................................................................................................................. 8
The Board of Directors ...................................................................................................... 10
Remuneration Committee Report ...................................................................................... 12
Corporate Governance Report ........................................................................................... 14
Corporate Social Responsibility Report ............................................................................ 16
Directors’ Report ............................................................................................................... 18
Statement of Directors’ Responsibility .............................................................................. 20
Independent Auditors’ Report ........................................................................................... 21
CONSOLIDATED INCOME STATEMENT ............................................................................. 22
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME .......................................... 23
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ................................................... 24
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY .................................................... 25
CONSOLIDATED STATEMENT OF CASH FLOWS ............................................................... 26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ............................................ 28
Corporate advisers ............................................................................................................ 85
Shareholder Information .................................................................................................... 86
1
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
CHAIRMAN AND CHIEF EXECUTIVE
STATEMENT
Market environment:
Over the year 2011 Ukrproduct Group Limited (“UPG” or
“Ukrproduct” which is referred to as the company and together
with its subsidiaries as “the Group”) continued to operate in a
challenging business environment. Inflation amounted to 9.2%
(IMF estimates). The real unemployment rate in Ukraine according
to the International Labor Organization reached an average of
10%, further constraining consumer purchasing power.
The introduction of the new Tax Code effective from the 1st of
April 2011 imposed much higher effective tax charges. The dairy
sector was also affected by changes to the milk subsidy regime.
The subsidies were not paid to the milk suppliers, leading to a
significant increase in raw milk prices for all processors.
Overview:
Overall, during the year, Ukrproduct succeeded in building
growth in sales and gross profit by focusing on branded/own
label products, distribution services and exports. Despite the
challenging background Ukrproduct increased sales in both
volume and monetary terms by 6% and 12% respectively.
However gross margins were pressured by a hike in energy
prices and reduced by an increase in raw milk prices. In addition
to inflation caused by the new government VAT subsidy regime,
prices surged earlier in the autumn season than usual, brought
about by a shortage and the subsequent competition for supply.
At present milk production is gradually reducing. At the same
time, the competitive market place made it very difficult to fully
recover such high cost inflation by increasing prices.
Branded products:
2011 brought about changes in the structure of the dairy market
in Ukraine driven both by the consumer seeking more value for
2
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
money and producers keen on finding the most advantageous
production models. Demand fell and as result market capacity
across all dairy categories in 2011 has contracted. Producers
responded either by reducing the prices and quality or by reducing
the package weight whilst maintaining the quality. In this difficult
situation the producers with a permit to export to Russia preferred
to pursue export opportunities.
Nevertheless Ukrproduct branded products showed a good
performance with revenue increasing by 9% and gross profit
increasing by 4%. Over the year Ukrproduct Group further
strengthened its leading position in the packaged butter market,
increasing its market share to 23% (compared to 22% in 2010)
and recovering its leadership position in processed cheese,
achieving market share of 16.3% (compared to 15.5% in 2010).
The Group also improved its expertise and market position in the
spreads segment. In the hard cheese segment, the Group focused
on increasing profitability and improving its position step by step
given the maturity of the hard cheese market.
Skimmed Milk Powder (SMP):
SMP remained subdued with the world trading environment and
high input costs negating profit making opportunities, in contrast
with last year. In the Ukraine this forced producers of SMP to
decrease output volumes by 20%.
SMP being the by-product of profitable butter production,
the Group could not fully avoid the adverse impact of lack of
profitability in this segment but addressed this challenge by
minimizing SMP output to the volumes necessary to satisfy only
the existing contracts with local multinational companies whilst
seeking other opportunities for protein utilization.
Distribution Services:
Revenue and gross profit from distribution services improved by
155% and 125% respectively in line with the new focus based on
the utilization of Ukrproduct`s pan-Ukrainian distribution network
of both vehicles and warehouses. The most significant progress
was made in the distribution of Kvass drink which showed an
increase in sales in monetary terms of 87% largely supported by
marketing efforts allowing more penetration into retail chains.
acquisition, integrating into Ukrproduct the kvass operations,
production facilities, trademark and marketing which will achieve
greater efficiency and ensure security of supply and branding.
Export:
Export sales of branded products have also benefitted from
improved focus and showed a similar story of improved sales and
gross profit. In 2011 branded export sales grew by over 30.8%
in tons and by more than 28% in monetary terms as a result of
a wider range of exported products and better presence in the
regions which are currently covered.
Cost efficiency:
The challenging market situation accentuated the need for
cost reduction. A further cost reduction program has been
implemented in Q4’2011 including production, management
and personnel optimizations. The benefits of this program have
become evident since January 2012.
Also Ukrproduct launched the reconstruction of its flagship plant
in Starokostiantyniv under a loan facility provided by EBRD in
March 2011. The reconstruction is due for completion in 2012
and will substantially improve energy efficiency and productivity
at this production facility, driving down unit costs and improving
profit margins. Cost savings are expected to accrue from mid
2012.
Kvass acquisition:
It was agreed in December 2011 that Ukrproduct Group would
acquire LLC “Zhyvyi Kvass” a producer of “Arsenievsky” branded
kvass and the transaction is now finalized. From September
2010 until the date of acquisition, Ukrproduct has been the
exclusive distributor of “Arsenievsky” branded kvass, a traditional
fermented beverage made from rye, black bread or barley. This
has proved to be successful and encouraging growth prospects
are foreseen.
Tax:
As of April 1, 2011 the government introduced a stringent Tax
Code inducing significantly higher tax charges. Improved planning
in the second half has mitigated to some extent the impact of the
introduction of the Code. The negative effect on business remains
substantial. However starting from January 2012, amendments
to the new Tax Code came into effect which together with
management efforts will result in a reduction of the effective tax
rate.
Outlook and strategy:
For the reasons stated, 2011 proved to be a very challenging
year for Ukrproduct and all processors. Although in 2012 some
challenges will persist driven by the economy, overall 2012 is
expected to show a recovery. Indeed the Group has started the
new year better with both sales and margins showing the growth
over 2011. Margins improved via stabilization of milk prices at a
lower level not least due to a partial return to the old milk subsidy
payment scheme and helped by the recent cost improvement
program. In respect of cost reduction, the Group has the results of
the EBRD financed program to look forward to.
Going forward our strategy will remain to grow with a clear focus
on branded products, distribution services, export and SMP.
Selling prices are expected to remain under pressure so margin
improvement will be sought via cost efficiency.
We plan to further develop our branded products by expanding
our product portfolio including the launch of new product
categories and new types of packaging. We will also continue
to support our existing products through marketing activity and
sales force efforts for better penetration.
The Group therefore considers this to be an important strategic
We anticipate that the global market for SMP will remain
3
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
depressed and thus the Group will continue the strategy adopted
in 2011 aimed at limiting output to the volumes required by local
multinational companies and at the same time expanding the
range of skimmed milk products.
The acquisition of LLC Zhyvyi Kvass now makes the kvass
business a complete and profitable category for UPG. It will add
energy to plans for the further successful development of Kvass
drink sales supported by active marketing communications and
strengthening of regional presence.
Overall, robust plans are in place to recover profitability in 2012
and move forward beyond. This will be a demanding task for the
executives in the challenging Ukrainian business environment.
Jack Rowell
(Chairman)
Sergey Evlanchik
(CEO)
4
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
EBITDA declined by 29% to GBP 1.86 m (2010: GBP 2.6 m)
Tax increased to GBP 431 k (2010: GBP 103 k)
Profit after Tax declined to GBP 400 k (2010: GBP 1.094 m)
Ukrproduct’s financial position
• As at December 31, 2011 cash balance stood at GBP 512 k
(2010: GBP 676 k)
• Additional banking facilities are available for all foreseen
requirements
Sergey Evlanchik
Chief Executive Officer
25 April 2012
KEY FINANCIAL DATA 2011
The Ukrainian economy
Inflation rate reported at 9.2% (source: IMF)
•
• Real GDP increased by 5.2% year-on year (source: State
•
Statistics Committee)
Introduction of new stringent Tax Code significantly increased
the tax burden
• Change in milk subsidy regime caused a 25% increase in
actual milk prices with additional inflation induced by a sup-
ply shortage
• SMP worldwide conditions/local costs reversed profitability
• Substantial energy costs increase - gas (32% y-on-y) and
electricity prices (22% y-on-y)
Revenue
• Overall revenue increased by 12% to GBP 50.5 m
• Core business:
- Branded products increased by 9% y-o-y to GBP 34.7 m
Exports of branded products increased by 28% to GBP
743 k
- Distribution services increased by 154% y-o-y
to GBP 8.3 m
Exports of distribution services increased by 39% to GBP
3.7m
• Skimmed milk products declined by 24.6% to GBP 7.5 m
Gross profit
• Core business increased by 12.3% to GBP 7.26 m
• Skimmed milk products declined by 166% to minus
GBP 457 k
5
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
6
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
UKRPRODUCT AT A GLANCE
MARKET POSITION
KEY FIGURES
Packaged Butter
Market Share: 23% (1st place)1
Ukrproduct is the market leader for packaged butter in Ukraine.
Year ended
31 December 2011
% change
from 2010
Processed Cheese
Market Share: 16.3% (1st place)2
Revenue
Gross Profit
Net Profit
Earnings per share
GBP 50.5 m
GBP 6.8 m
GBP 0.4 m
GBP 1.0 m
+12%
-5%
-62%
-62%
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
Ukrproduct Group offers a range of processed cheese products
under well-recognised brands which focus on the mass, middle
and premium markets.
Spreads
Market Share: 2.5% (5th place)
The Group sells butter-oil mix spreads under the ‘Farmers’ and
‘People’s Product’ brands.
PRODUCTS & SERVICES
Ukraine
Contribution to Revenue, %
Distribution Centre
Manufacturing Plant
1 Expert estimates
2 State Statistics Committee
7
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
FINANCIAL REVIEW
Revenue
In 2011 Ukrproduct achieved an increase in revenue supported by a
new sales and marketing strategy led by a new management team.
Consolidated revenue increased by 12% compared to 2010 and was
driven by growth in branded products and distribution services.
In 2011 branded products sales rose by 9% year-on-year while
distribution services showed a large increase of 154% year-on-year
contributing significantly to the Group’s gross profit. The branded
products segment continued to account for the majority of the
Group’s revenue, representing 69% of total sales (71% in 2010). The
revenue of the non-branded category declined by 25% year-on-year
in the light of the decreased profitability of this category due to high
input costs and weak domestic skimmed milk powder (SMP) prices.
Gross Profit and Administrative, Selling & Distribution
Expenses (AS&D)
In 2011 margins came under pressure, mainly due to the
introduction of the stringent new Tax Code and the changes in the
milk subsidy system in Ukraine which resulted in the price of raw
milk increasing by approximately 25%. The Group’s gross profit
declined by 5% year-on-year in 2011 to GBP 6.8 m compared to
GBP 7.2 m in 2010 while the gross profit margin decreased to
13.5% from 15.9% in 2010.
The gross profit of branded products and distribution services
increased by 4.2% and 126% respectively compared to 2010.
The distribution of Kvass (a traditional brewed drink) significantly
contributed to Group’s profits and proved an encouraging
growth trend. It was therefore disappointing that these improved
operating results were undermined by the negative gross profit of
GBP 457k from sales of non-branded products.
The Group’s Administrative, Selling & Distribution expenses
increased by 4% to GBP 5.8 m (2010: GBP 5.6 m), but the
proportion of these expenses to total revenue declined by 0.9% to
11.5% compared to 12.4% in 2010.
EBITDA and Profit After Tax
In 2011 the Group’s EBITDA declined by 29% year-on-year from
GBP 2.6 m to GBP 1.9 m. Depreciation and amortisation expense
declined by 17% y-o-y from GBP 1068k in 2010 to GBP 890k in
2011 following a change of depreciation method for all production
equipment. The profit after tax decreased by 63% y-o-y from GBP
1,094k in 2010 to GBP 400k in 2011.
Earnings per Share and Dividends
The Group’s basic earnings per share (EPS) and the diluted
earnings per share declined by 63% y-o-y from 2.69 pence in
2010 to 1.00 pence in 2011.
Sales 2011
£ 000
Share of
Sales 2011
Sales 2010
£ 000
Share of
Sales 2010
Gross Profit
2011
£ 000
Gross
margin
2011
Gross Profit
2010
£ 000
Gross margin
2010
Branded
34, 695
Non-branded
7,471
68,7%
14,8%
31,828
9,913
70,7%
22,0%
6,287
18,1%
6,033
-457
-6,1%
Distribution
services
8,358
16,5%
3,279
7,3%
969
11,6%
19.0%
7.0%
13.1%
693
428
Total
50,524
100%
45,020
100%
6,799
13,5%
7,154
15.9%
8
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Business circumstances dictate prudence and the conservation of
cash. The Board has therefore decided not to pay a final dividend
in respect of the year ended 31 December 2011.
Bank Facilities
Ukrproduct has a GBP 3.9 m credit facility with OTP Bank,
UkrsibBank and Forum Bank. As at 31 December 2011 the Group
had drawn down GBP 3.4 m of the available facility.
On March 31, 2011 Starokonstantinovskiy Molochniy Zavod
SC entered into a loan agreement with the European Bank for
Reconstruction and Development (EBRD) and received access to
a loan facility in the amount of EUR 11 million to finance a project
to increase the energy efficiency and productivity of the plant. The
project supports the Group’s strategy to drive down unit cost and
improve profit margins. As at December 31, 2011 the Group had
received EUR 4.6 m of the EBRD loan.
Cash Flow
The Group’s cash balance stood at GBP 0.51 m as at December
31, 2011 compared to GBP 0.68 m as at December 31, 2010. The
cash generation by activities for 2011 is as follows:
•
• net cash generated by the operating activities totalled minus
GBP 342k in 2011 compared to positive GBP 465k in 2010.
the net cash used by investing activities totalled GBP 3.5 m
in 2011 (2010: GBP 0.7 m) while GBP 3.4 m was used for the
modernisation project of Starokonstantinovskiy Molochniy
Zavod SC described above.
• cash from financing activities amounted to GBP 3.6 m in
2011 compared to GBP 0.8 m in 2010.
The Group’s cash resources are sufficient to meet current debt
obligations in the short and medium term.
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
25 April 2011
9
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
THE BOARD OF DIRECTORS
As of the date of the approval of the 2011 Annual Report, the
Board members are as follows:
Name
Position
Date appointed
Jack Rowell
Non-executive
Chairman
November 2004
Sergey Evlanchik
Olena Yakovenko
CEO
CFO
April 2008
September 2010
Alexander Slipchuk
Executive Director
November 2004
Jack Rowell
Non-executive Chairman
Sergey Evlanchik
Chief Executive Officer
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 Chairman 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 University and is a Chartered
Accountant.
Sergey Evlanchik is responsible for the Group’s overall
performance and strategy implementation and is a founder of
Ukrproduct Group. He studied at Vladivostok State University of
Economics & 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 Group,
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 business 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 the AIM market of the London Stock
Exchange in 2005.
10
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Olena Yakovenko
Chief Financial Officer
Alexander Slipchuk
Executive Director
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
previously 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 Group. 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 Financial 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.
Alexander Slipchuk studied at Far-Eastern High Engineering
Marine School in Russia and graduated 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 assets. He serves as the Group’s Executive Director in
an advisory capacity.
11
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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
remuneration packages for each Director.
Remuneration Committee
The Remuneration Committee comprises one non-executive
Director, Jack Rowell. This Committee is scheduled to meet
at least twice per annum to advise the Board on the Group’s
remuneration 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 Committee is also
responsible for the evaluation of the performance of Executive
Directors.
The Remuneration Committee held two meetings during 2011.
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
12
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
the respective Executive Directors of the company and its
subsidiaries, 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 conditions 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
company and its subsidiaries are valid for an indefinite period and
may be terminated with three months notice given by either party
at any time. The company or subsidiary’s policy 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.
Non-executive directors
The appointments of non-executive Directors are valid for an
indefinite period and may be terminated 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
Bonus
Non-cash
compensation
Total cash remuneration
2011
2010
2011
2010
2011
2010
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
2011
£ ‘000
2010
£ ‘000
Executive
Olena Yakovenko
Alexander Slipchuk
Sergey Evlanchik
Non-executive
Dr Jack Rowell
40
70
90
45
10
70
90
45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
40
70
90
45
10
70
90
45
Share based payments
In 2009 the company granted share options to Jack Rowell, the
Chairman. Details of the options outstanding at 31 December
2011 are shown below. The Directors’ Remuneration disclosed
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.
13
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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
Governance (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 Chairman 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 Director.
14
14
UKRPRODUCT GROUP LTD
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
ANNUAL REPORT 2011
Within the scope of the corporate governance procedures, the
Board meets regularly to consider 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 six times during 2011 and all the directors
attended all meetings, with the exception of Mr Alexander
Slipchuk, who attended five of six meetings, missing one by prior
arrangement and Mrs Olena Yakovenko, who attended five of six
meetings, missing one for health reasons.
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 reported to
the shareholders.
The Audit Committee met twice during 2011.
Remuneration Committee
The Remuneration Committee comprises one non-executive
Director, Jack Rowell. This Committee is scheduled to meet
at least twice per annum to advise the Board on the Group’s
remuneration 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 performance of
Executive Directors.
The Remuneration Committee held two meetings during 2011.
Relations with shareholders
The Group maintains regular contact with its institutional and
private shareholders, fund 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 encourages them to exercise their
voting right and participate with questions.
Internal Control
The Group adheres to comprehensive and strictly regulated
budgeting and reporting procedures that are aimed at more
efficient internal control and risk management. The Board is
responsible 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 communi-
cation both vertically and horizontally;
• 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 discovered 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 auditing 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.
15
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
CORPORATE SOCIAL RESPONSIBILITY
REPORT
Corporate Social Responsibility
The Board is committed to developing and implementing
corporate social responsibility (CSR) policies aimed at:
• Promoting equality and fairness among employees, partners
and suppliers
• Ensuring safe working conditions
• 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 follows:
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
16
16
UKRPRODUCT GROUP LTD
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
ANNUAL REPORT 2011
at all employee groups, including managerial, technical and
production personnel. The training programmes encourage staff
to progress up the career ladder and are central 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, workspace and other constituents,
undergo constant reviews and improvements. Regular monitoring
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.
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
surrounding areas. The Group adopted the environmental laws
and regulations of Ukraine to reduce, 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 advanced 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 implemented 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.
17
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
DIRECTORS’ REPORT
The Directors present their report and the audited consolidated
financial statements of Ukrproduct Group Ltd (referred to as the
company and together with its subsidiaries as “the Group”) for the
year ended 31 December 2011.
Principal Activities and business review
Ukrproduct Group Ltd (the company or “Ukrproduct”) is a
holding Group 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 year are set out on page 22 and
show a profit for the period of GBP 0.4 million (2010: GBP 1.094
million).
18
18
UKRPRODUCT GROUP LTD
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
ANNUAL REPORT 2011
Based on the Group’s financial performance in 2011, the Group
did not pay any interim dividend. Business circumstances dictate
prudence and the conservation of cash. The Board has therefore
decided not to pay a final dividend in respect of the year ended 31
December 2011.
Directors
Details of members of the Board of Directors are shown on pages
10-11
The Directors’ interests in the share capital of the company as at
31 December 2011 and 31 December 2010 are shown below:
Shares
Share options
2011
2010
2011
2010
14,422,383
14,422,383
14,487,383
14,487,383
-
-
-
-
38,690
38,690
130,290
130,290
Executive
Sergey
Evlanchik
Alexander
Slipchuk
Non-
executive
Dr Jack
Rowell
Powers of the Directors
Subject to the Company’s Memorandum and Articles of
Association, Companies (Jersey) Law 1991, as amended and
any directions given by special resolution, the business of the
company shall be managed by the Directors 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 replacement of Directors are set
out in the company’s Article’s 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 49
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 employees 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 employees 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 1,751 in 2011 (2010: 1,857).
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
requirements for a period of up to 12 months from the date of
these financial statements.
Annual General Meeting
Ukrproduct’s AGM will be held on 7 June, 2012. The Notice of
AGM and agenda will be sent to shareholders no less than 18
days prior to the date of the meeting.
Auditors
Baker Tilly Channel Islands Limited was re-appointed as the
Group’s auditors for the 2011 financial year by the resolution of
the Annual General Meeting (AGM) of Shareholders held on June
9, 2011. A resolution to re-appoint them shall be proposed at the
forthcoming AGM.
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 Group’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
25 April 2012
19
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
The Board of Directors confirms that the Group has complied with
the above mentioned requirements in preparing its Consolidated
financial statements.
The directors are also responsible for:
•
implementing and maintaining an efficient and reliable sys-
tem of internal controls in the Group;
• keeping proper accounting records that disclose with reason-
able 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
25 April 2012
STATEMENT OF DIRECTORS
RESPONSIBILITIES FOR THE
PREPARATION AND APPROVAL OF THE
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
31 DECEMBER 2011 AND 31 DECEMBER
2010
The directors are responsible for the preparation of the
consolidated financial statements in accordance 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 accordance 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.
20
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF UKRPRODUCT GROUP
LIMITED
We have audited the consolidated financial statements of
Ukrproduct Group Limited (the company which together with
its subsidiaries is referred to as “the Group”) for the year ended
31 December 2011 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 (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 responsible 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 statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies
are appropriate to the Group’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements.
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 2011 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 ac-
counting records and returns.
Ewan John Spraggon
For and on behalf of Baker Tilly Channel Islands Limited
Chartered Accountants
St Helier, Jersey
25 April 2012
21
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
CONSOLIDATED INCOME STATEMENT
Revenue
Cost of sales
GROSS PROFIT
Administrative expenses
Selling and distribution expenses
Other operating income / (expenses), net
PROFIT FROM OPERATIONS
Net finance costs
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
22
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Note
year ended
31 December 2011
£ ‘000
year ended
31 December 2010
£ ‘000
8
50 524
45 020
9, 2.1 (f)
(43 725)
(37 866)
6 799
7 154
9
(2 855)
9, 2.1 (f)
(2 790)
9
(183)
(2 899)
(2 184)
(502)
971
1 569
10
(428)
288
831
(367)
(5)
1 197
13
(431)
(103)
400
1 094
410
(10)
1 104
(10)
1,00
1,00
2,69
2,69
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
Income from changes in tax rates
Tax effect from change in revaluation reserve
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 2011
£ ‘000
year ended
31 December 2010
£ ‘000
400
1 094
(28)
-
268
(62)
178
578
588
(10)
351
4 112
-
(1 028)
3 435
4 529
4 539
(10)
23
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note
As at
31 December 2011
£ ‘000
As at
31 December 2010
£ ‘000
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
Bank borrowings
Deferred tax liabilities
Current liabilities
Bank borrowings
Trade and other payables
Current income tax liabilities
Other taxes payable
TOTAL EQUITY AND LIABILITIES
14
15
16
17
18
19
20
21
22
23
24
16
25
26
17 173
1 055
169
50
18 447
4 634
6 906
404
177
512
12 633
31 080
4 082
2 868
12 367
19 317
-
19 317
3 844
881
4 725
3 514
3 165
108
251
7 038
31 080
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
68
38
4 759
25 180
These financial statements were approved and authorised for issue by the Board of Directors
on 24 April 2012 and were signed on its behalf by:
Olena Yakovenko
Chief Financial Officer
25 April 2012
Notes on pages 28 - 83 are an integral part of these consolidated
financial statements.
24
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent
Total
Non-
controlling
interests
Total Equity
Share
capital
£ ‘000
Share
premium
Merger
reserve
£ ‘000 £ ‘000
Revaluation
reserve
£ ‘000
Retained
earnings
£ ‘000
Translation
reserve
£ ‘001
£ ‘000
£ ‘000
£ ‘000
4 107
4 588 (1 427)
1 333
11 744
1 104
(5 777)
14 568
30
1 104 (10)
14 598
1 094
-
-
3 084
3 084
3 084
-
-
3 084
1 104
351
4 539 (10)
4 529
351
351
351
-
-
-
(82)
(82)
-
(50)
50
-
(82)
(82)
-
(82)
(82)
-
(1)
1
-
-
-
(25)
(33)
(58)
(58)
4 082
4 555 (1 427)
4 366
12 817
410
(5 426)
18 967 20
410 (10)
18 987
400
206
206
206
(28)
(28)
(28)
-
-
206
410
(28)
588 (10)
578
-
-
(204)
(204)
-
(204)
(204)
-
-
(204)
(204)
(302)
302
-
-
-
-
(136)
102
(34)
(34)
1 060
(1 060)
-
(10)
(10)
4 082
4 555
(367)
4 134
12 367
(5 454)
19 317
-
19 317
As at 1 January 2010
Profit for the year
Other comprehensive
income
Gain on the revaluation
of property, plant and
equipment
Currency translation
differences
Total comprehensive
income
Transactions with owners
Dividends paid
Total transactions with
owners
Depreciation on revaluation
of non current assets
Reduction of revaluation
reserve
Acquiring of shares
(Note 22)
As at 31 December 2010
Profit for the year
Other comprehensive
income
Income from changes of
tax rates
Currency translation
differences
Total comprehensive
income
Transactions with owners
Dividends paid (Note 28)
Total transactions with
owners
Depreciation on revaluation
of property, plant and
equipment
Reduction of revaluation
reserve
Exclusion from Group
(Note 2.1 (c))
As at 31 December 2011
25
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
CONSOLIDATED STATEMENT OF CASH FLOWS
Note
11
22, 23
28
10
21
year ended
31 December 2011
£ ‘000
year ended
31 December 2010
£ ‘000
831
1 197
(288)
890
(214)
51
(18)
(19)
447
(583)
(2 789)
1 842
150
19
(511)
(342)
(3 792)
422
-
113
(222)
(3 479)
-
(204)
(447)
561
3 707
3 617
(204)
40
676
512
5
1 068
74
129
-
(20)
387
(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
Cash flows from operating activities
Profit before taxation for the year
Adjustments for:
Exchange difference
Depreciation and amortisation
(Profit)/loss of disposal of property, plant and equipment
Impairment of trade receivables
Income from disposal of subsidiaries
Interest income
Interest expense
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Interest received
Income tax paid
Net cash (used in) / 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
Purchase / 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
Increase in short term borrowing
Increase in long term borrowing
Net cash used in financing activities
Net (decrease) / 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
26
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
27
27
UKRPRODUCT GROUP LTD
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
ANNUAL REPORT 2011
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
1. GROUP AND PRINCIPAL ACTIVITIES
2.1. Basis of preparation
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 2011 was 1,751 (2010: 1,857).
The consolidated financial statements have been prepared on a
historical cost basis, except for property, plant and equipment,
intangible asset (Customer list) that have been measured at
fair value. The consolidated financial statements are presented
in British pounds sterling and all values are rounded to the
nearest thousand (£000) except where otherwise indicated. The
consolidated financial statements 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
(collectively IFRS) issued by the International Accounting
Standards Board (IASB) as adopted by the European Union.
28
28
UKRPRODUCT GROUP LTD
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
ANNUAL REPORT 2011
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, re-
corded 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 comprehensive income to profit or loss.
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 policies. Further information is
provided in note 3.
(b) Consolidation principles
The consolidated financial statements comprise the financial
statements of Ukrproduct Group Limited and its subsidiaries as at
31 December 2011.
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 financial
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
interest of a subsidiary, without a change of control, is accounted
for as an equity transaction. Losses incurred by the Group are
attributed to the non-controlling interests. Any further excess
losses were attributable to the parent, unless the non-controlling
interests has a binding obligation to cover these. Upon loss of
control, the Group accounts for the investment retained at its
proportionate share of net asset value at the date control was lost.
29
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Group's company
Country of
incorporation
Effective ownership
ratio*
Principal activities
Consolidation
method
Consolidated financial statements of the Group include following companies:
Promislove Pidpriemstvo Pischeprom 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*
Zhiviy Kvas LLC**
Teofipolskiy Dairy Plant Private Enterprise SC*
Milk investments Private Enterprise SC*
Invest Garantiya Private Enterprise*
Business Invest Management LLS*
Favorit-Konsulting Private Enterprise**
Avtopark Starokonstantinov LLS**
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
ATP Centr LLC**
Ukraine
100%
100%
Tekhnomolprom Private Enterprise SC**
Molochiy Promisloviy Kapital Private Enterprise SC*1
STK-moloko Private Enterprise SC*
Ukraine
Ukraine
Ukraine
-
-
-
30
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
As at 31 December
2011
2010
-
97,6%
Production
Acquisition
100%
100%
Production
Acquisition
100%
100%
Production
Acquisition
100%
100%
Owner of property &
equipment
Acquisition
100%
100%
Production
Acquisition
-
100%
Production
Acquisition
100%
100%
Production
Acquisition
100%
-
Production
Acquisition
100%
100%
To be constructed
Acquisition
100%
100%
Owner of equipment
Acquisition
100%
100%
Owner of equipment
Acquisition
100%
-
Owner of equipment
Acquisition
100%
100%
Owner of equipment
Acquisition
100%
100%
Owner of fleet
of vehicles
Owner of fleet
of vehicles
Acquisition
Acquisition
Acquisition
100%
Owner of property &
equipment
-
Owner of equipment
Acquisition
100%
Production
Acquisition
Group's company
Country of
incorporation
Effective ownership ratio*
Principal activities
Consolidation
method
Ukrprodexport Private Enterprise SC*
Ukrproduct-Logistic LLC *
Agrospetsresursy LLC*
Nash Molochnik Private Enterprise SC***
Gollandska Sirovarnya MolendamLLC*
Molochniy Torgoviy Souys LLC****
Lider-Product LLC****
Premierproduct-Donetsk Private Enterprise
SC****
Premierproduct-Mikolaiv Private Enterprise
SC****
As at 31 December
2011
100%
100%
-
-
100%
100%
100%
100%
2010
100%
Export operations
Acquisition
100%
Logistics
Acquisition
100%
Former Distribution
Acquisition
100%
Former Distribution
Acquisition
-
-
-
Sales&Distribution
Acquisition
Sales&Distribution
Acquisition
Sales&Distribution
Acquisition
100%
Sales&Distribution
Acquisition
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
100%
100%
Sales&Distribution
Acquisition
Premierproduct-Dnipro Private Enterprise SC****
Premierproduct-Jitomir Private Enterprise SC****
Premierproduct-Lviv Private Enterprise SC****
Premierproduct-Harkiv Private Enterprise SC****
Premierproduct-Centr Private Enterprise SC****
Ukrproduct Group CJSC
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
100%
100%
100%
100%
100%
100%
100%
Sales&Distribution
Acquisition
100%
Sales&Distribution
Acquisition
100%
Sales&Distribution
Acquisition
100%
Sales&Distribution
Acquisition
100%
Sales&Distribution
Acquisition
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%
100%
Export operations
Merger
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 companies.
1 Molochiy Promisloviy Kapital Private Enterprise SC was formed and excluded from the Group during the year ended 31 December 2011.
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UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
(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
Change of depreciation method for certain equipment
The Group changed its basis of depreciation from the declining
balance method for buildings and vehicles to the straight-line
method of depreciation. The change was due to the requirements
of the new Ukrainian Tax code. The Group also changed the
method of depreciation for the production equipment other than
cheese manufacturing equipment from declining balance method
to unit of production method. Management believes this method
reflects better use of the Group’s equipment. The effect of the
changes in accounting estimates was to decrease depreciation by
about GBP 498,843.
Reclassification of delivery cost from the Group’s manufacturing
to trading enterprises
The Group changed the presentation of product delivery
costs from the Group’s manufacturing facilities to the trading
enterprises. Starting from 1 January 2011 these costs have
been included in the cost of sales of finished products. In
previous periods these expenses were included within selling
and distribution expenses. Management believes this provides a
fair presentation of the Group’s cost allocation as intercompany
transportation expenses are related to cost of sales in accordance
with IAS 2 “Inventories”. The prior year comparative cost of GBP
517,000 has also been appropriately reclassified.
(c) Reorganisation
A reorganisation of the Group’s legal structure took place in 2011
and resulted in:
• withdrawal of seven companies for the purpose of improving
the administration and reporting processes;
• new subsidiaries of Ukrproduct Group “Lider-Product”
LLC and “Molochnyi Torgovyi Soyuz” LLC were formed to
increase efficiency of the logistics and sales functions. The
sales activity was splitted into two directions and became
focused on selling to: 1) large clients and 2) small clients.
The logistics function was shifted from trading companies to
UPG’s logistic company (Ukrproduct-Logistic LLC);
• a strategic acquisition of the branded kvass business “Zhyvyi
Kvass” LLC through the purchase of its 100% share capital
in December 2011. The Group from September 2010 until
the date of acquisition has been the exclusive distributor of
“Arsenievsky” branded kvass; a traditional fermented bever-
age made from rye, black bread or barley. This has proved to
be successful and there are encouraging growth prospects.
The existing distribution agreement was due for renewal at
the end of 2012.
The consideration and the fair value of the net assets acquired are
disclosed in Note 33.
(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 convertible 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.
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(h) Segment reporting
Operating segements 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:
•
the Ukrainian Hryvnia is the currency of the primary econom-
ic 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 presenta-
tional currency for its consolidated IFRS financial statements.
Transactions in currencies that differ from the Group’s functional
currency are considered to be foreign currency transactions.
•
The majority of companies making up the Group maintain their
accounting records in accordance with Ukrainian regulations. The
financial statements have been prepared from those accounting
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.
(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 deferred in equity as qualifying cash flow
hedges and qualifying net investment hedges. Foreign exchange
gains and losses are presented in the income statement within
“Effect of foreign currency translation“.
Financial results and financial position of the Group’s companies
are translated into the presentation 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 trans-
lated at the closing rate existing at the relevant reporting
date. Income and expense items are translated at rates ap-
proximating to those ruling when the transactions took place.
• All exchange differences resulting from the application of the
translation methods described 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
•
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UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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 sepa-
rate component of equity within “Translation reserve”.
(b) Transactions and balances (continued)
The principal UAH exchange rates used in the preparation of
Consolidated financial statements are as follows:
Currency
31
December
2011
Average
exchange
rate for
2011
31
December
2010
Average
exchange
rate for
2010
UAH/
GBP
UAH/
USD
UAH/
EUR
12,32
12,77
12,29
12,26
7,99
7,97
7,96
7,93
10,30
11,07
10,57
10,56
- 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 overdrafts
are included in current liabilities in the statement of financial
position.
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UKRPRODUCT GROUP LTD
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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 operat-
ing supply and materials);
finished goods;
• work in progress (including semi finished products);
•
• other inventories (including fuel, packaging, building materi-
als, spare parts, other materials, 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. The net realisable
value is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses. The Group
periodically checks inventories to determine whether they are
damaged, obsolete or slow-moving or if their net realisable value
has declined for any other reason and reduces accordingly the
value of inventory to properly reflect in the Consolidated Income
Statement within Cost of sales.
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 Equipment) 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 better 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
accumulated impairment losses. Changes in fair value are
recognised in equity (the “revaluation reserve”). 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, impairment 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, associated with property, plant and equipment,
for the following categories: repairs and maintenance; 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 equipment 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 practicable 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 generating 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 recognized as expenses, except when the asset
is carried at revalued price. In such cases, the impairment 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 terminates 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 depreciated.
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 reducing balance
method to allocate their cost or revalued amounts to their residual
values over their estimated useful lives. As of January 1, 2010
35
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
the Group separated the equipment used for production of hard
and processed cheese into a separate group and applied to it
the production method of depreciation. As of January 1, 2011
the Group applied the production method of depreciation to all
production equipment as management considered this method to
be the most appropriate for the production assets. 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
Useful life
Buildings and constructions
10 - 50 years
Plant and machinery
Equipment
Motor vehicles
2 - 20 years
2 - 20 years
5 - 12 years
The assets’ residual values, useful lives and methods of
depreciation are reviewed at each financial 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 performs 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.
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UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
2.2.6. Intangible assets
(а) Recognition and measurement of intangible assets
Intangible assets are accounted at for historical cost less
accumulated amortization and accumulated 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 recognition: 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
expenses 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, economic
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 acquirer’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 ‘’Financial 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 obtained 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
37
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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 services
to customers (trade receivables), but also incorporate other types
of contractual monetary 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 customers 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 consequence, 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.
(iii) Available-for-sale financial assets
The non-derivative financial assets not included in the above
categories are classified as available-for-sale and comprise the
Group’s investments in entities not qualifying as subsidiaries as
well as investment certificates and are carried at cost.
(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
38
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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 evidenced
by other observable current market transactions in the same
instrument or by a valuation technique whose inputs include only
data from observable markets.
All purchases and sales of financial instruments that require
delivery within the time frame established 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 between 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 determined 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
instruments 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 financial asset or a group of financial
assets is impaired. A financial asset or a group of financial
assets 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 incurred
‘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 impairment
may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency
in interest or principal payments, the probability that they will
enter bankruptcy or other financial reorganization and where
observable data indicate 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 assets 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 carried at fair value, being the 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 expense
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 interest payable
on redemption, as well as any interest or coupon payable while
the liability is outstanding.
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UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
(а) Initial recognition
Financial liabilities are initially recognized at fair value, adjusted in
case of borrowings for directly 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 cancelled or expires.
2.2.9. Share capital
Ordinary shares are classified as share capital. The difference
between fair value of consideration 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 (excluding the capital increase
through contributions from members of the enterprise), provided
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
40
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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
discounting 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.
(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 transac-
tion can be measured reliably.
•
•
•
(b) Revenue from rendering of services
The revenue from rendering of services is recognized when all the
following conditions are satisfied:
•
•
•
the amount of revenue can be reliably measured;
inflow of economic benefits related to the transaction is pos-
sible;
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.
expensed. Net financial expenses are recorded in the Consolidated
statement of comprehensive income as a separate line item
“Financial income/(expenses), net.”
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 accordingly relate to, during which the
receipt of economic benefits receiving is expected.
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 qualifying 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
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 liability 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.
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2.2.14. Tax
Taxation has been provided for in the financial statements in
accordance with relevant legislation 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 recovered from the taxation authorities,
using the tax rates and laws that have been enacted, or
substantively 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 between
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 realization
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
differences, 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
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UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
legislation enacted, or declared (and practically adopted) at that
date.
Deferred income taxes are recognized for all temporary
differences associated with investments 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 significant 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 reduces 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 reduction 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
conditions 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 statement
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 services 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 income 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 pension schemes.
2.2.18. Share issue costs
All qualifying transaction costs in respect of the issue of shares
are accounted for as a deduction 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 incidental 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.
2.2.20. Impairment of assets
In respect of all assets, except for inventories, assets resulting
from fees to employees, financial assets, assets held for trading,
the Group conducts the following procedures ensuring accounting
for these assets at the amount, not exceeding their recoverable
amount:
• at each reporting date the condition of these assets is ana-
lyzed 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 impos-
sible to determine the amount of losses from impairment
of a separate asset, the Group determines 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.
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2.2.21. Contingent liabilities and assets
2.2.22. Related parties
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 required to settle liabilities as probable, or the value
of liabilities can not be reliably determined.
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 Disclosures”.
While considering any relationship which can be defined as
related party transactions it is necessary to take into consideration
the substance of the operation not only its legal form.
The Group does not recognize contingent liabilities in the financial
statements. The Group discloses 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.
The Group classifies the related parties according to existing
criteria in the following categories:
а) companies that directly or indirectly through one or more
intermediaries, exercise control over the Group, are con-
trolled by it, or together with it are under common control
(this includes holding companies, subsidiaries and fellow
subsidiaries of the parent company);
b) associates are companies whose activities are significantly
influenced by the Group, but are neither subsidiaries, nor
joint ventures of the investor;
c) individuals, directly or indirectly holding ordinary shares that
give them a possibility to significantly 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 officials
(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 indirectly by any person described in
paragraphs (c) or (d), or a person influenced significantly by
such persons. This includes enterprises owned by directors
or major shareholders of the Group, and companies which
have a common key management member with the Group.
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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.
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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,
expenses, assets and liabilities, and the disclosure of contingent
liabilities, at the end of the reporting 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 affected in future periods.
In the process of applying the Group’s accounting policies,
management has made the following judgments, which have the
most significant effect on the amounts recognised in the financial
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
46
46
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ANNUAL REPORT 2011
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 impairment. 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 information is
contained in note 15.
(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 information
is contained in note 17.
(e) Legal proceedings
In accordance with IFRS the Group only recognises a provision
where there is a present obligation 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 developments in the legal
proceedings and at each reporting date, in order to assess the
need for provisions 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 statements but before
those statements are issued), the opinions or views of legal
advisers, experience 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 different than
the amounts recorded, such differences will impact income tax
expense in the period in which such determination is made. Further
information is contained in notes 13 and 16.
(g) Quality claims
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 requirements
of the relevant Ukrainian authorities. The Group voluntarily
applies non-domestic standards – 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 specifications 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 decisions on quality claims
provisions are: the nature of the claim, the quantifiable variances
in 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.
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UKRPRODUCT GROUP LTD
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IAS 1: Presentation of financial statements - Amendment;
Presentation of items of other comprehensive income (effective
for annual periods beginning on or after 1 July 2012).
IAS 7: Financial Instruments - Disclosures - Amendment;
Offsetting Finansial Assets and Financial Liabilities (effective for
annual periods beginning on or after 1 January 2013).
IAS 32: Financial Instruments - Presentation - Amendment;
Offsetting Finansial Assets and Financial Liabilities (effective for
annual periods beginning on or after 1 January 2014).
The Group has not yet completed the expected impact of applying
these standards and amendments.
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 financial year beginning 1 January
2011 but not currently relevant to the Group (although they
may affect the accounting for future transactions and events)
IFRS 2: Share-based Payments - Amendment; Cash-settled
Share-based Payment Transactions (effective for annual periods
beginning on or after 1 January 2010).
IAS 32: Financial Instruments: Presentation - Amendment;
Classification of Rights Issues (effective for annual periods
beginning on or after 1 February 2010).
IAS 7: Financial Instruments; Disclosures - Amendment;
Disclosures - Transfers of Financial Assets (effective for annual
periods beginning on or after 1 July 2011).
Improvements to IFRS (IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 34,
IFRIC 13) (effective date 1 January 2011)
4.2. Standards and Interpretations not adopted
by the EU
IIAS 12: Income Taxes - Amendment; Deferred Tax: Recovery of
Underlying Assets (effective for annual periods beginning on or
after 1 January 2012).
IFRS 9: Financial Instruments (effective 1 January 2015)
IFRS 10: Consolidated Finansial Statements (effective 1 January
2013)
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5. FINANCIAL RISK MANAGEMENT
The principal risks facing the Group’s 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.
The Group’s budget for 2012 incorporates the forecasted inflation
rates. The Group considers that there are no material risks related
to the inflation.
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:
- long-term credits
- bank loans
- overdrafts
- trade and other payables (excluding non-financial liabilities)
(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
year ended
31 December 2011
£ ‘000
year ended
31 December 2010
£ ‘000
5 487
512
177
169
6 345
3 844
3 261
253
2 374
9 732
4 874
676
220
89
5 859
-
2 842
96
1 079
4 017
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UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
(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 approved 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 investing excess liquidity.
The Board has overall responsibility for the determination of
the Group’s risk management objectives and polices and, whilst
retaining ultimate responsibility for them, it has delegated the
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 report their findings to CEO and the Audit
Committee, if and when necessary. The overall objective 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
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UKRPRODUCT GROUP LTD
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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-returns 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 negligible 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
retailers 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 customer 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 forward-
ing 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 payment 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 institutions. 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 institutions 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.
The Group is also exposed to a credit risk with regard to
loans issued to third parties, related parties and employees. This
risk is considered to be low and is managed according to the
Group’s risk assessment policy
(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 overall. In the
ordinary course of business, the Group relies on a combination
of the available overdraft 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,
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UKRPRODUCT GROUP LTD
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the Group is expected to revert to the emergency funding made
available through temporary freeze to the current portion of capital
spending, 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.
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
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:
The Group has a long-term loan from European Bank of
Reconstruction and Development (EBRD) for the purpose of
modernization of Starokonstantinovskiy Molochniy Zavod SC.
This debt is denominated in Euro. Therefore, the Group is exposed
to the exchange rate risk that lies in the possibility of Euro (EUR)
appreciation against Hryvna (UAH). The sensitivity analysis
shows that EUR appreciation against Hryvna by 5% would cause
exchange rate loss of GBP 191,000.
(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. A change of interest rate by
7 percenatge points (being the maximum reasonably possible
expectation of changes in interest rates) would cause a change in
interest expense by GBP 258,452. (2010: 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 export sales is the US Dollar. The Group’s
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UKRPRODUCT GROUP LTD
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(iii) Commodity price risk
The Ukraine economy has been characterized by high rates of
inflation. The Group tends to experience 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 competitive pressures, it may not able to
raise the prices charged for products and services sufficiently 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 according to the market
development and competition.
The Group is also exposed to commodity price risk for skimmed
milk powder (SMP). The price for this product is determined by
the world and domestic market. The profitability of skimmed milk
powder was adversely affected by higher raw milk prices and
excess stock of SMP in Ukraine, which resulted in an unexpected
price decrease on the domestic market.
A 10% change in the SMP prices would lead to the change in
Gross Profit of GBP 374,378 in 2012. However, in 2012’Q2 the
first stage of modernization project of Starokonstantinovskiy
Molochniy Zavod SC financed by EBRD will be completed and
will allow to reduce the cost of SMP production and improve
its quality. Also, there are alternative ways of using the proteins
such as sale of skimmed milk and production of hard cheese.
The Group takes all measures to improve the profit from protein
products.
(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
or lead to financial losses. The Group can not expect that all
operational risks have been eliminated, 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 retained 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 con-
cern, so that it can continue to provide returns for sharehold-
ers 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 commen-
surate 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 ability
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%) maximum. The Directors 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 leverage – defined by the
Group as D/E ratio in excess of 0.6 – could be justified only under
exceptional circumstances and requires the full Board’s consent.
53
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
The D/E ratios at 31 December 2011 and at 31 December 2010 were as follows.
Total debt
Less: Cash and cash equivalents
Net debt
Total equity
D/E ratio
7. SEGMENT INFORMATION
year ended
year ended
31 December 2011
31 December 2010
£ ‘000
7 358
512
6 846
19 317
35,4%
£ ‘000
2 938
676
2 262
18 987
11,9%
At 31 December 2011, the Group was organised internationally into three main business segments:
1) Branded products – processed cheese, hard cheese, packaged butter and spreads
2) Non-branded product – skimmed milk powder, other skimmed milk products
3) Distribution services – resale of third-party goods and provision of transport services.
The Non-branded product category besides its major part (the skimmed milk powder) also includes the skimmed milk and other skimmed
milk products due to their increased sales volumes. Earlier the sales of skimmed milk and other skimmed milk products were reflected in
“Other” article of revenue.
54
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
The segment results for the year ended 31 December 2011 are as follows:
Branded
products
£ ‘000
76 623
41 929
34 694
6 287
(1 825)
(2 377)
(93)
1 992
-
-
1 992
-
1 992
17 748
-
-
17 748
1 885
-
-
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
1 885
Non-branded
products
£ ‘000
11 497
4 027
7 471
(457)
(286)
(77)
-
(821)
-
-
(821)
-
(821)
2 384
-
-
2 384
-
-
-
-
Other segment information:
Depreciation and
amortisation
Capital expenditure
620
159
1 068
2 523
Distribution
services
£ ‘000
Un-allocated
£ ‘000
18 641
10 283
8 359
969
(265)
(296)
-
408
-
-
408
-
408
3 445
-
-
3 445
646
-
-
646
46
78
-
-
-
-
(479)
(39)
(90)
(608)
(428)
288
(748)
(431)
(1 179)
-
7 475
227
7 702
-
8 550
881
9 431
66
93
Total
£ ‘000
106 762
56 238
50 524
6 799
(2 855)
(2 790)
(183)
971
(428)
288
831
(431)
400
23 577
7 475
227
31 279
2 531
8 550
881
11 962
891
3 762
55
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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.
The Group has increased its export activity through selling additional products (food and non-food products). These products are purchased
from third parties and are reflected in the “Distribution services” line. In 2011 the additional revenue and gross profit from this activity
made up GBP 2.68 mln and GBP 40k respectively without additional working capital from the Group. The working capital as at 31 December,
2011 on these export transactions stood at minus GBP 150k.
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
6 033
(1 942)
(1 954)
(125)
2 012
-
-
2 012
-
2 012
15 209
-
-
15 209
1 027
-
-
1 027
679
252
Non-branded
products
£ ‘000
18 325
8 412
9 913
693
(272)
(61)
-
360
-
-
360
-
360
2 662
-
-
2 662
79
-
-
79
Distribution
services
£ ‘000
11 825
8 546
3 279
428
(91)
(105)
-
232
-
-
232
-
232
612
-
-
612
147
-
-
147
288
107
16
32
Un-allocated
Total
£ ‘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
7 154
(2 899)
(2 184)
(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
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.
56
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Secondary reporting format - geographical segments:
Sales by country (consignees)
Ukraine
Holland
Russia
Estonia
Azerbaijan
Greece
Other countries
Total
year ended
31 December 2011
£ ‘000
42 302
1 900
1 659
992
752
514
2 405
50 524
Sales by country
(consignees)
Ukraine
Singapore
Holland
Germany
Turkey
Azerbaijan
Other countries
Total
year ended
31 December 2010
£ ‘000
38 040
2 377
1 529
1 058
676
383
957
45 020
The majority of the Group’s assets and liabilities are in Ukraine. Sales to the countries in Europe 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.
57
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
8. REVENUE
For the years ended 31 December 2011 and 31 December 2010, sales revenue was presented as follows:
General revenue
Branded (including bonuses)
Charge of bonuses
Branded (excluding bonuses)
Non-branded products
Distribution services
Total revenue (excluding bonuses)
year ended
31 December 2011
£ ‘000
year ended
31 December 2010
£ ‘000
51 461
35 632
(937)
34 695
7 471
8 358
50 524
45 721
32 529
(701)
31 828
9 913
3 279
45 020
Bonuses are compensation granted to the Group’s main customers within its distribution network.
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.
58
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
9. EXPENSES BY NATURE
For the years ended 31 December 2011 and 31 December 2010, items of expenses were presented 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:
Wages and salaries, social security costs (Note 12)
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:
Wages and salaries, social security costs (Note 12)
Delivery costs
Lease and current repair and mainenance
Promotion
Veterinary certificates, medical examination, permits
Amortization and depreciation (Note 11)
Other
Other operating exp
Including:
Profit from sale of non-current assets
Impairment of trade receivables
Impairment of assets (as a result of revaluation)
Amortization and depreciation (Note 11)
Wages and salaries, social security costs (Note 12)
Other
year ended
31 December 2011
£ ‘000
(43 725)
year ended
31 December 2010
£ ‘000
(37 866)
(40 205)
(34 985)
(2 812)
(708)
(2 855)
(1 547)
(222)
(251)
(129)
(166)
(57)
(123)
(76)
(62)
(69)
(153)
(2 790)
(1 470)
(569)
(368)
(141)
(84)
(54)
(104)
(183)
286
(51)
(42)
(59)
(20)
(297)
(1 968)
(913)
(2 899)
(1 348)
(286)
(340)
(175)
(159)
(122)
(121)
(74)
(67)
(58)
(149)
(2 184)
(1 105)
(267)
(469)
(201)
(48)
(48)
(46)
(502)
-
(128)
(37)
(49)
(20)
(268)
59
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
10. FINANCIAL INCOME/(EXPENSES), NET
11. AMORTIZATION AND DEPRECIATION
For the years ended 31 December 2011 and 31 December 2010,
financial income/(expenses) were presented as follows:
For the years ended 31 December 2011 and 31 December 2010,
amortization and depreciation were presented as follows:
year ended
31 December
2011
£ ‘000
year ended
31 December
2010
£ ‘000
19
19
20
20
(447)
(387)
(447)
(428)
(387)
(367)
Finance income
Interest income on bank
deposit
Total interest income
Finance expense
Interest expense on bank
loans
Total finance expense
Net finance expense
recognised in income
statement
year ended
31 December
2011
£ ‘000
year ended
31 December
2010
£ ‘000
(708)
(69)
(54)
(59)
(890)
(913)
(58)
(48)
(49)
(1 068)
Cost of sales
Administrative expenses
Selling and distribution
expenses
Other operating expenses
Total amortization and
depreciation
60
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
12. EMPLOYEE BENEFIT EXPENSE
For the years ended 31 December 2011 and 31 December 2010,
employee benefit expense were presented as follows:
year ended
31 December
2011
£ ‘000
year ended
31 December
2010
£ ‘000
(4 378)
(3 325)
Wages and salaries
(including key
management personnel)
Social security costs
(1 471)
(1 116)
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
(5 849)
(4 441)
1 751
1 857
year ended
31 December
2011
£ ‘000
year ended
31 December
2010
£ ‘000
(2 812)
(1 968)
(1 547)
(1 348)
(1 470)
(1 105)
(20)
(20)
(5 849)
(4 441)
Wages and salaries of key management personnel:
For the year ended 31 December 2011, remuneration of the
Group’s key management personnel amounted to GBP 252,000
(2010: GBP 250,000).
Key management personnel received only short term benefits
during the years ended 31 December 2011 and 31 December
2010.
The key management personnel are those persons remunerated
by the Group who are members of the Board of Directors of the
Company (Ukrproduct Group Ltd) and Senior Management.
61
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
13. INCOME TAX EXPENSES
For the years ended 31 December 2011 and 31 December 2010,
income tax expenses were presented as follows:
year ended
31 December
2011
£ ‘000
year ended
31 December
2010
£ ‘000
Current tax charge - Ukraine
545
82
Current tax charge - non-
Ukraine
Deferred tax relating to the
origination and reversal of
temporary differences
10
38
(124)
(17)
Total income tax expenses
431
103
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 movement on these
temporary differences is recognised at the rate of 23% (2010: 25%).
The numerical reconciliation between tax charge and the product of
accounting profit multiplied by the applicable tax rate(s) is provided
in the following table.
62
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
year ended
31 December
2011
£ ‘000
year ended
31 December
2010
£ ‘000
1 048
97
(314)
1 382
1
(186)
831
1 197
Profit before tax:
Ukraine
Cyprus
Other (BVI, Jersey, loss before tax
in Ukraine)
Profit before tax, total
Tax calculated at domestic tax rates applicable to profits in the
relevant countries
Ukraine (2011: 23%, 2010: 25%)
Cyprus (10%)
BVI, Jersey (0%)
241
10
-
251
346
0,1
-
346
Tax calculated at domestic tax rates applicable to net income not
subject to tax and expenses not deductible for tax purposes
Ukraine
Cyprus
BVI, Jersey
180
-
-
180
(281)
38
-
(243)
Tax charge
Ukraine
Cyprus
BVI, Jersey
The weighted average applicable
tax rate
Ukraine
Cyprus
BVI, Jersey
421
10
-
431
65
38
-
103
23%
10%
Nil
30%
25%
10%
Nil
14%
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 significant
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 regard 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.
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 accompanying 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 Taxation Treaty between Ukraine and Cyprus.
The Ukrainian government has adopted a new Tax Code. Effective
April 1, 2011, expenses incurred 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.
14. PROPERTY, PLANT AND EQUIPMENT
In accordance with IAS 16 “Property, Plant and Equipment”,
the Group carries out assets imparement tests with further
revaluations, if necessary, on a regular basis. As at 31 December
2011, an asset impairment test was conducted and showed that
the carrying value of assets remained appropriate.
As of January 1, 2011 the Group applied to all production
equipment the production method of depreciation.
The reason for the change is as follows:
- The production method will ensure that the unit cost reflects
the reality.
- There is no obsolescence of the equipment
Fixed assets with a net book value of GBP 9,598,486 at 31
December 2011 (2010: GBP 9,036,176) were pledged as collateral
for loans.
63
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
As at 31 December 2011 and 31 December 2010 property, plant and equipment were presented as follows
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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
Cost or valuation
At 1 January 2011
Additions
Acquisition of subsidiary
Transfers to/from AUC
Exclusion from Group
64
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
473
471
164
(418)
-
(92)
14
6 627
-
1 596
51
-
(151)
201
4 772
1
1 362
101
-
41
109
2 699
-
812
9
-
-
80
2 087
-
1 612
166
-
(24)
47
1 037
45
306
100
-
(209)
32
420
-
140
4
-
-
13
14 996
517
5 040
-
-
(435)
403
612
8 324
6 386
3 600
3 888
1 311
577
20 521
-
-
29
-
-
-
2 097
295
246
-
(22)
60
2 496
323
171
-
(24)
40
1 149
212
103
-
-
35
1 421
230
473
-
(23)
26
448
144
46
-
(232)
14
9
50
5
-
-
1
6 462
992
965
-
(301)
140
29
2 676
3 006
1 499
2 127
420
65
8 258
612
3 762
2
(512)
(45)
8 324
-
288
401
(2)
6 386
-
2 088
63
(2)
3 600
-
1 826
-
-
3 888
-
11
45
-
1 311
61
29
3
(2)
577
-
14
-
-
20 521
3 823
2 418
-
(51)
Disposals
Exchange differences on
translation to the presentation
currency
At 31 December 2011
Accumulated depreciation
At 1 January 2011
Depreciation charge
Acquisition of subsidiary
Exclusion from Group
Disposals
Exchange differences on
translation to the presentation
currency
At 31 December 2011
Net book amount at 31
December 2011
Net book amount at 31
December 2010
Net book amount at 31
December 2009
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8 891
8 499
5 486
3 850
1 397
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273
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(17)
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148
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(37)
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2 948
5 943
3 229
5 270
1 716
3 770
2 243
1 607
420
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65
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134
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8 258
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89
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(186)
20
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17 173
583
5 648
3 380
2 101
1 761
891
512
12 263
473
4 530
2 276
1 271
1 255
269
8 534
65
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
15. INTANGIBLE ASSETS
As at the reporting dates intangible assets were presented as follows:
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
Cost or valuation
At 1 January 2011
Additions
Acquisition of subsidiary
Disposals
Exchange differences on translation to the presentation
currency
At 31 December 2011
Accumulated amortisation
At 1 January 2011
Amortisation charge for the year
Disposals
Exchange differences on translation to the presentation
currency
At 31 December 2011
Net book amount at 31 December 2011
Net book amount at 31 December 2010
Net book amount at 31 December 2009
66
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Computer
software
£ ‘000
42
3
(6)
1
Trade
marks
£ ‘000
456
-
-
12
Customer list
Goodwill
Total
£ ‘000
£ ‘000
£ ‘000
752
-
-
-
104
-
-
-
1 354
3
(6)
13
40
468
752
104
1 364
21
10
(5)
1
111
25
-
4
157
41
-
(1)
-
-
-
-
289
76
(5)
4
27
140
197
-
364
40
8
-
(12)
-
468
-
-
-
1
752
-
-
(61)
1
104
-
157
-
-
1 364
8
157
(73)
2
36
469
692
261
1 458
27
6
(9)
-
24
12
13
21
140
23
-
-
197
38
(19)
-
-
-
-
-
364
67
(28)
-
163
306
328
345
216
476
-
261
403
1 055
555
595
104
104
1 000
1 065
The Group`s production plans are based on the established practice
of production and distribution 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, 2011 and considers that the amount
of GBP 0.26 million is its fair value.
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 “Customer 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 depreciated
replacement cost (DRC) methods (for tangible assets) and income
and cost advantage methods (intangible assets). As at December
31, 2011 the revaluation of the assets has been conducted and
the loss on revaluation of GBP 41,600 has been recognised in the
consolidated financial statements.
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 2011, was that no impairment needs
to be recognised and the carrying value of the acquired goodwill is
considered appropriate.
After having analyzed all key factors the Group`s Management
decided that as of December 31, 2011 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.
67
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
16. DEFERRED TAX ASSETS AND LIABILITIES
For the year ended 31 December 2011, deferred tax assets and liabilities were presented as follows:
As at
31 December 2011
£ ‘000
(248)
-
190
As at
31 December 2010
£ ‘000
(63)
-
(184)
-
1 434
-
-
459
-
-
(196)
-
(49)
-
-
-
1 028
-
(124)
-
(19)
-
-
8
(50)
-
(206)
(2)
(25)
-
881
-
-
(1)
(248)
-
-
-
15
-
1 434
As at 31 December 2011
£ ‘000
909
662
2 338
725
4 634
As at 31 December 2010
£ ‘000
850
507
1 954
674
3 985
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
Effect from tax rate change (2010: 25%, 2011: 23%, 2012: 21%)
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
17. INVENTORIES
As at the reporting dates inventories were presented as follows:
Raw materials
Work in progress
Finished goods
Other inventories
68
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
18. TRADE AND OTHER RECEIVABLES
19. CURRENT TAXES
As at the reporting dates receivables were presented as follows:
As at the reporting dates current taxes
were presented as follows:
As at
31 December 2011
£ ‘000
As at
31 December 2010
£ ‘000
Trade receivables
Other receivables
Prepayments
5 239
901
766
6 906
VAT receivable
Prepaid profit tax
Other prepaid taxes
4 587
585
432
5 605
As at
As at
31 December 2011 31 December 2010
£ ‘000
1 091
-
3
1 094
£ ‘000
388
-
16
404
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 a high share (around
27%) of total trade receivables being with three clients.
Maturity of trade receivables as at 31 December 2011 and 31
December 2011 is presented as follows:
In less then 1 year
As at
31 December 2011
£ ‘000
6 906
6 906
As at
31 December 2010
£ ‘000
5 605
5 605
As at 31 December 2011, there were no trade and other receivables
past due not impaired (2010: Nil)
20. OTHER FINANCIAL ASSETS
Loans and
receivables
Loans issued to
related parties
Loans issued to third
parties
Loans issued to
employees
As at
31 December 2011
£ ‘000
As at
31 December 2010
£ ‘000
2
141
129
-
46
79
177
220
Loans issued are denominated in Hryvnia, are short term in nature,
and are interest free.
69
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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 2011
£ ‘000
As at
31 December 2010
£ ‘000
19
315
-
178
512
10
306
2
358
676
As at 31 December 2011 bank deposits were presented as follows:
Bank
Currency
of deposit
Interest rate
Deposit opening
date
Deposit termination
date
As at 31 December 2011
Raiffeisen Bank Aval
OJSC
Raiffeisen Bank Aval
OJSC
OTP Bank
UAH
UAH
EUR
12%-15%
16.06.2010
17.06.2011
12%-15%
06.05.2010
10.05.2011
1,5%
15.08.2011
no termination date
£ ‘000
-
-
0,5
0,5
70
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
22. SHARE CAPITAL
As at the reporting dates share capital was presented as follows:
As at
31 December 2011
Number '000
Authorised
As at
31 December 2011
£ ‘000
As at
31 December 2010
Number '000
As at
31 December 2010
£ ‘000
Ordinary shares of 10p each
60 000
6 000
60 000
6 000
Issued and fully paid at beginning and end of the year
As at
31 December 2011
Number '000
As at
31 December 2011
£ ‘000
As at
31 December 2010
Number '000
As at
31 December 2010
£ ‘000
40 818
-
40 818
4 082
-
4 082
41 068
(250)
40 818
4 107
(25)
4 082
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
At end of the year (excluding shares held as
treasury shares)
Held as treasury shares
As at
31 December 2011
Number '000
As at
31 December 2011
£ ‘000
As at
31 December 2010
Number '000
As at
31 December 2010
£ ‘000
Ordinary shares of 10p each
At beginning of the year
2 000
200
Own shares acquired
-
-
At end of the year
2 000
200
1 750
250
2 000
175
25
200
As at 31 December 2011 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 40 817 599.1
71
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
23. OTHER RESERVES
At 1 January 2010
Own shares acquisition
Gain on revaluation of fixed assets
Depreciation on revaluation of property,
plant and equipment
Reduction of options reserve
Exchange differences on translation to
the presentation currency
At 31 December 2010
Depreciation on revaluation of property,
plant and equipment
Impact of the change in tax rate
Reduction of revaluation reserve
Exclusion from Group
Exchange differences on translation to
the presentation currency
At 31 December 2011
Share premium Merger reserve Translation reserve
£ '000
4 588
(33)
-
-
£ '000
(1 427)
-
-
-
£ '000
(5 777)
-
-
-
Revaluation
reserve
£ '000
1 333
-
3 084
(50)
Total other
reserves
£ '000
(1 283)
(33)
3 084
(50)
-
-
-
-
-
351
(1)
-
(1)
351
4 555
-
(1 427)
-
(5 426)
-
4 366
(302)
2 068
(302)
-
-
-
-
4 555
-
-
1 060
-
(367)
-
-
-
(28)
206
(136)
-
-
206
(136)
1 060
(28)
(5 454)
4 134
2 868
The following describes the nature and purpose of each reserve within owners’ equity.
Reserve
Share premium
Revaluation
Merger
Share option
Retained earnings
Translation
72
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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 income statement.
Amount of all foreign exchange differences arising from the translation 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
As at
31 December 2011
31 December 2010
£ ‘000
£ ‘000
20
10
(30)
-
30
(10)
-
20
73
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
25. BANK LOANS AND OVERDRAFTS
As at 31, December 2011, the Group had received EUR 4.6 mln of an EUR 11 mln credit line facility from the European Bank
for Reconstruction and Development (EBRD) for the financing of a project to increase energy efficiency and productivity of the
Starokonstantinovskiy Molochniy Zavod SC plant.
Bank
Currency
Type
Opening date
Termination
date
Interest
rate
EBRD
OTP Bank
OTP Bank
Bank Forum
PJSC
UkrSibbank
PJSC
EUR
UAH, USD
UAH
UAH
Loan
Credit line
Loan
Credit line
31.03.2011
30.05.2011
14.10.2011
20.10.2011
10.09.2018
26.06.2014
01.10.2012
19.10.2012
8,5%
14,7%
18,5%
21,8%
UAH
Overdraft
28.04.2011
30.03.2012
17%
406
Limit
£ ‘000
9 196
3 247
7
406
As at 31
December 2011
As at 31
December 2010
£ ‘000
3 844
3 148
7
106
253
7 358
£ ‘000
-
2 842
-
-
96
2 938
The Group also had an additional overdraft facility of UAH 1,900,000 (GBP 154,597) with Raiffeisen Bank Aval OJSC which was totally repaid
back in August 2011.
The average interest rate as at 31 December 2011 was 16.5% (2010: 19.2%).
Maturity of financial liabilities
year ended
31 December 2011
£ ‘000
253
3 261
3 844
7 358
year ended
31 December 2010
£ ‘000
96
2 842
2 938
On demand
In less than 1 year*
In more than 1 year*
*extendable according to 3-year agreement with bank.
74
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Interest rate profile of financial liabilities
On demand
Expiry within 1 year
Expiry in more then 1
years
Floating rate
Fixed rate
£ '000
253
-
3 844
£ '000
-
3 261
-
4 097
3 261
As at
31 December 2011
£ ‘000
253
3 261
3 846
7 360
As at
31 December 2010
£ ‘000
96
2 842
2 938
The currency profile of the Group’s financial liabilities is as follows:
UAH
USD
EUR
Floating rate liabilities
Fixed rate liabilities
£ '000
253
-
3 844
4 097
£ '000
3 261
-
-
3 261
Total as at 31 December
2011
£ '000
3 514
-
3 844
7 358
Total as at 31 December
2010
£ '000
2 775
164
2 938
The book value and fair value of financial liabilities are as follows:
Bank loans
Bank overdrafts
Book value as at 31 December
2011
£ '000
7 105
253
7 358
Fair value as at 31 December
2011
£ '000
7 105
253
7 358
Book value as at 31
December 2010
£ '000
2 842
96
2 938
Fair value as at 31
December 2010
£ '000
2 842
96
2 938
75
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
26. TRADE AND OTHER PAYABLES
27. EARNINGS PER SHARE
As at
As at
31 December 2011
31 December 2010
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.
Trade payables
Other payables
Prepayments
received
Accruals
Provisions
£ ‘000
2 235
328
170
282
150
£ ‘000
1 052
204
204
255
-
3 165
1 715
The Group’s management believes that the carrying value for
trade and other payables is a reasonable approximation of their
fair value.
year ended
year ended
31 December
2011
31 December 2010
£ ‘000
410
£ ‘000
1 104
40 817 599
41 052 531
1,00
2,69
40 817 599
41 052 531
1,00
2,69
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
76
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
28. DIVIDENDS
Due to the business circumstances dictating the prudence and cash conservation, the Board has decided not to pay a final dividend in
respect of the year ended 31 December 2011.
Final dividend for 2010 of 0.50 pence (2009 - 0.40 pence) per ordinary
share proposed and paid during the year relating to the previous
year's results
year ended
year ended
31 December 2011
31 December 2010
£ ‘000
204
204
£ ‘000
82
82
29. SHARE-BASED PAYMENTS
The Company operates an equity-settled share based remuneration scheme for employees.
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Lapsed during the year
2011 Weighted
average exercise price
2011
2010 Weighted average
exercise price
2010
£
0,128
-
-
-
-
Number
130 290
-
-
-
-
£
Number
0,128
130 290
-
-
-
-
-
-
-
-
Outstanding at the end of the year
0,128
130 290
0,128
130 290
Exercisable at the end of the year
0,128
130 290
0,128
130 290
77
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
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 remuneration charge was recognised in statement of
comprehensive income in 2011.
The fair value of options granted in 2009 was calculated based on the following data
2009
Adjusted Black-Scholes
0,1275
0,1280
4,0
25%
5%
0%
1,92%
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
78
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
30. CURRENCY ANALYSIS
Currency analysis for the year ended 31 December 2011 is set out below:
UAH
USD
RUR
GBP
EUR
Total
Assets
Trade and other receivables
5 726
1 154
Current taxes
Other financial assets
Cash and cash equivalents
Total assets
Liabilities
Bank borrowings
Trade and other payable
Current income tax liabilities
Other taxes payable
Total Liabilities
404
177
447
-
-
60
6 754
1 214
3 514
2 999
108
251
-
164
-
-
6 872
164
-
-
-
-
-
-
-
-
-
-
-
-
-
5
5
-
-
-
-
-
26
6 906
-
404
-
-
177
512
26
7 999
3 844
7 358
2
-
-
3 165
108
251
3 846
10 882
79
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Currency analysis for the year ended 31 December 2010 is set out below:
UAH
USD
RUR
GBP
EUR
Total
Assets
Trade and other receivables
4 986
598
-
Current taxes
1 094
-
-
Other financial assets
220
-
-
Cash and cash equivalents
315
318
-
Total assets
Liabilities
6 615
916
-
Bank loans and overdrafts
2 938
-
-
Trade and other payable
1 498
64
97
Taxes payable
38
-
-
Current income tax liabilities
68
-
-
Total Liabilities
4 542
64
97
-
-
-
43
43
-
-
-
-
-
21
-
-
-
21
-
56
-
-
56
5 605
1 094
220
676
7 595
2 938
1 715
38
68
4 759
80
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
10 % strengthening of Hryvnia rate against the following
currencies as at 31 December 2011 and 2010, 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 in rate
Effect on
income before
tax in 2011
Effect on
income
before tax in
2010
£ ‘000
£ ‘000
10%
10%
10%
-10%
105
(382)
-
(105)
-10% 382
-10%
-
85
(4)
(10)
(85)
4
10
USD
EUR
RUR
USD
EUR
RUR
31. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability
to control the other party or exercise 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 relationship, 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 summarised below. All sales and purchases
were with related parties under common control of the ultimate
beneficiaries of the Company.
year ended
31 December
2011
£ ‘000
year ended
31 December
2010
£ ‘000
Sales
Other operational incomes
326
1 719
Purchase
(1 381)
504
33
(678)
81
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
Balances due from/(to) related parties at each period end are
shown below.
32. COMMITMENTS AND
CONTINGENCIES
As at
31 December
2011
£ ‘000
As at
31 December
2010
£ ‘000
Receivables and
prepayments
Loans issued
48
2
Trade and other payable
(424)
252
141
(205)
In 2011, the Group’s commercial relationships with the related
parties comprised sales, purchases, 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 unrelated parties. There were no
guarantees given to or provided by from the Group to related
parties and vice versa.
The ultimate controlling owners and beneficiaries of the related
parties were Messrs Alexander Slipchuk and Sergey Evlanchik.
82
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
(a) Economic environment
The Group carries out most of its operations in Ukraine. Laws
and other regulatory acts affecting 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 always 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 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 Government 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 finance 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 2011 and 2010 the Group’s had no
liabilities for supplementary pensions, health care, insurance benefits
or retirement indemnities to its current or former employees.
34. SUBSEQUENT EVENTS
On 20 February 2012 the Group signed an agreement approved
by the Board on March 21, 2012 for the purchase of the trade
mark “Arsenievsky” for the amount of GBP 290 192 to support the
acquisition of “Zhyvyi Kvass” LCC. The “Arsenievsky” trade mark is
recognized in the Ukrainian kvass market and is in the process of
being registered for patent protection.
The amount of uncancellable lease commitments is insignificant.
As of December 31, 2011 the Group does not possess any finance
lease and hire purchase commitments, capital commitments and
guarantees.
33. ACQUISITION OF SUBSIDIARY
On 29 December 2011 the Group signed an agreement on strategic
acquisition of 100% of share capital of the branded kvass business
“Zhyvyi Kvass” LLC that was ratified by the Board on March 21,
2012. The consideration and the fair value of the net assets of
“Zhyvyi Kvass” LLC are shown below:
Consideration
Cash
Total consideration transferred
Note As at 31 December
2011
£ ‘000
5
5
Recognised amounts of identifiable assets acquired and liabilities
assumed
cash and cash equivalents
Trade and other receivables
2 417
401
14
Inventories
Cash and cash equivalents
Other non-current assets
Trade and other payables
Total identifiable net assets
Goodwill
Total
79
2
1
(3 052)
(152)
157
5
15
The goodwill arising from the acquisition of “Zhyvyi Kvass” LLC is
attributable to the value of trade mark “Arsenievsky”.
83
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
84
UKRPRODUCT GROUP LTD ANNUAL REPORT 2011
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
Seymour Pierce Limited
20 Old Bailey
London
EC4M 7EN
Independent auditors
Baker Tilly Channel Islands Limited
PO Box 437
13 Caste Street
St Helier
Jersey JE4 0ZE
UK legal advisers
Gowlings (UK) LLP
125 Old Broad Street
London
EC2N 1AR
Jersey legal advisers
Bedell Cristin
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Principal bankers
UBS SA
40 rue du Rhône
CH-1211 Geneva
Switzerland
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
85
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
The ultimate controlling parties of Ukrproduct Group Ltd are
Messrs Sergey Evlanchik and Alexander Slipchuk who collectively
controlled, as of 31 December 2010, 67.52% of the common
shares of the Company.
Share price (pence) – year to 31 December 2011
At end of year: 12.38 p
Lowest: 12.0 p
Highest: 29.0 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, Beckenham,
Kent, BR3 4TU. The registrar will assist with enquiries regarding
any change of circumstances (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. Shareholder 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
Mariia Borodaieva
Phone: +380-44-502-80-14
Fax: +380-44-531-13-89
Email : mariia.borodaieva@ukrproduct.com
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 2011
Financial year end
25 April 2012
results
7 June 2012
Announcement of full year 2011
Annual General Meeting
Analysis of shareholding – at 31 December 2011
Size of
shareholdings
Number of
holders
% of
total
Total holdings,
shares
% of
total
Up to 5,000
shares
5,001 to 50,000
shares
50,001 to
200,000 shares
Over 200,000
shares
62
32.6
87,461
0.2
59
31.1
564,781
1.4
38
20.0
2,831,673
6.9
31
16.3
37,333,684
91.5
Total
190
100%
40, 817, 599
100%
86
UKRPRODUCT GROUP LTD
ANNUAL REPORT 2011
www.ukrproduct.com