Annual Report
2013
TABLE OF CONTENTS
Chairman and Chief Executive Statement 6
The Board of Directors 8
Remuneration Committee Report 10
Corporate Governance Report 12
Corporate Social Responsibility Report 14
Directors Report 15
Statement of Directors Responsibility 17
Independent Auditors Report 18
CONSOLIDATED INCOME STATEMENT 20
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 21
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 22
CONSOLIDATED STATEMENT OF CASH FLOWS 23
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26
Shareholder Information 72
CHAIRMAN AND CHIEF ExECUTIVE
STATEMENT
6
The economic environment during 2013 continued to
be challenging due to weak demand and an uncertain
political situation in Ukraine. At the same time the dairy
sector was mainly marked by the significant increase
in raw milk prices across both domestic and global
markets and shortage of raw milk supply in Ukraine.
Within this context, Ukrproduct has continued to pursue
its strategies of business development.
Branded Dairy Products
In terms of sales, the major branded dairy product
groups have performed well resulting in an aggregated
revenue increase of 13% year-on-year. The profitability
however was negatively affected by the escalation of
raw milk prices rising approximately 24% compared to
the previous year average price. The reason behind the
price increase were the shortage of raw milk and con-
sequently stricter competition for supply caused, among
other factors, by the active exports to Russia from the
hard cheese producers. During this time the competitive
market environment did not allow to fully off-set the
pressure of the rising costs on the margins by lifting the
consumer prices.
The Company sustained its leading position in its core
categories of packaged butter and processed cheese
with the market shares of 20.8% and 23.2% respec-
tively (Source: expert estimates based on the data from
State Statistics Committee of Ukraine).
The category of packaged butter was the most affected
by the increase in the price of raw milk which consti-
tutes a very substantial proportion of this product’s
unit cost. Thus despite the 5% increase in revenues the
gross profit has decreased by 55% year-on-year.
Processed cheese showed an encouraging increase in
sales in both revenues and volumes due to securing
new clients and increasing selling prices in line with the
market trends. As result the revenues increased by 28%
year-on-year. However the quickly rising input costs
did not allow a similar increase in gross profit which
made up only 3% compared to the previous year.
Hard cheese category benefitted from the further pen-
etration into the profitable retail chains and has shown
a 27% increase in revenues along with reaching a 13%
gross profitability compared to the zero profitability in the
previous year.
Skimmed Milk Powder
The segment of skimmed milk powder showed a strong
recovery in profitability from the previous year benefitting
from higher domestic and export demand together with
higher prices. However the shortage of raw milk supply
constrained the sales volumes. As result the sales have
declined by an average 10% year-on-year whilst the
gross profit margin achieved was an average of 9%
compared to the negative profitability in the previous
year.
Beverages
Kvass was further supported by the sales and marketing
initiative and improvement in geographical coverage.
As result the brand of this unique fresh product was
significantly strengthened and the market share im-
proved. However at the same time the sales were affected
by the short high season caused by poor weather in the
summer. Consequently both the revenue and gross profit
declined by 12% and 14% respectively. Ukrproduct is
currently holding the 5th position on the market of kvass
with the market share of 4.9% (Source: expert estimates
based on the data from State Statistics Committee of
Ukraine).
Distribution Services
The Company continued to provide distribution services to
third parties but with the focus on growing a quality-driven
business with sustainable margins. Sales of products be-
coming commoditized and cash consuming have been re-
duced. As the issues with VAT refund on export persisted,
the Company has concentrated on domestic operations.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 Sales were also adversely affected as higher unit costs
due to a currency devaluation of the hryvna and sustained
high raw milk prices has necessitated the consumer price
increases.
Trading has now improved. Sales are recovering across
all product categories. At the same time hryvna devalua-
tion is having a positive influence on the export revenues
thus Ukrproduct will aim to grow its export oriented sales.
More positively margins are increasing with the declining
milk prices. This follows on an increase in milk availability
given the constraints on exports to Russia.
Plans internal to the Company are little affected as
Ukrproduct has been engaged in restructuring - simplify
and modernize – its operations to improve cost, quality and
speed of its supply chain. This embraces site consolida-
tion, outsourcing of distribution, boosting sales force
efficiency and overheads elimination. This program is
fundamental to the Company turnaround plans. Progress
has been made and the benefits will be evident throughout
the year ahead.
In summary Ukraine has been facing political and eco-
nomical challenges. Within the context of such headwinds,
Ukrproduct has adjusted its business model to allow viable
progress through the current turbulent environment so far
as it can be assessed successfully.
Sergey Evlanchik
Jack Rowell
(CEO)
(Chairman)
7
Operational highlights
In 2013 the Group has received a further Euro 1.3 mil-
lion loan from the European Bank of Reconstruction and
Development (EBRD) for the second stage of modern-
ization project at Starokostiantyniv Dairy Plant. This is
focused on upgrading the production platform for butter
and spreads improving both quality and costs. This part
of the project is scheduled to be launched into opera-
tions with an effective start in mid 2014. Additionally
the Company performed structural reorganizations of
the Group aimed at increasing the operational efficien-
cies and reducing costs.
Financial overview
Financial results for the year reflect the sensitivity of dairy
business margins to the ongoing high raw milk prices.
The previously buoyant butter category was affected
substantially with margins reduced by half. Effectively this
alone pushed Ukrproduct Group into the overall loss.
Such margin pressure was mitigated by improving
branded dairy sales, the resumption of profitability in
the skimmed milk powder category and reduction in
Group overheads. EBITDA margin fell a percentage point
resulting in EBITDA of GBP 2.2 m (2012: GBP 3.2 m).
The operational profit was negated by the increase in
interest charges arising from the EBRD loan. This was
compounded by an exchange difference charge of GBP
361,000 and a tax charge, net loss notwithstanding,
imposed by the Ukrainian tax regime.
Operating cash flow was positive. The Group started
to repay the EBRD loan on schedule making the first
instalment of Euro 437,000 in December 2013. The
Company believes that it will have further support from
EBRD should any rescheduling of repayments be neces-
sary. Other banking facilities remain in place for working
capital requirements.
Ukrproduct Group is substantially a hryvna business and
a sustained devaluation will affect translation in other
currencies.
Outlook
The unstable political and economic situation, as to
be expected, has had an adverse effect on businesses
throughout Ukraine including Ukrproduct Group.
In the early year the Company revenues in hryvna were
below expectations as consumer confidence fell, a range
of open markets servicing mass and mid-market closed
and a number of agents in other sales channels withdrew
from the market not least for the reason of bad debt risk.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 THE BOARD OF DIRECTORS
As of the date of the approval of the 2013 Annual Report, the Board members are as follows:
Name
Position
Jack Rowell
Sergey Evlanchik
Alexander Slipchuk
Yuriy Hordiychuk
Non-executive Chairman
Chief Executive Officer
Executive Director
Chief Operational Officer
Date appointed
November 2004
April 2008
November 2004
January 2013
8
Jack Rowell
Non-executive Chairman
Sergey Evlanchik
Chief Executive Officer
Dr. Rowell has acted as Chairman of a number of com-
panies in the public and private sector, mainly within
the food production industry. He was previously an
executive director on the board of Dalgety plc respon-
sible 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 over-
all 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 suc-
cessful listing on the AIM market of the London Stock
Exchange in 2005. In 2011 under the leadership of Ser-
gey Evlanchik the Group secured debt finance with EBRD
focused on energy and production efficiency upgrade of
the existing production facilities.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 Alexander Slipchuk
Executive Director
Yuriy Hordiychuk
Chief Operational Officer
9
Alexander Slipchuk studied at Far-Eastern High Engi-
neering 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 trad-
ing 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.
Yuri Hordiychuk has been with the Group since 2002.
Firstly, he was Director of the Provision of Raw Materials
at the company, and in 2005 was promoted to Director of
Production. The next significant step in the career of Mr.
Hordiychuk was taken in 2008, when he was promoted to
General Director of the Company. Yuri has more than ten
years of experience of administrative activity and a degree
in “Production Organization Management”. In 2006, Mr.
Hordiychuk graduated with MBA from the School of
Economics (Russia) and earned a degree in Logistics and
Supply Chains Management.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 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
Base salary
10
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 remunera-
tion 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 Execu-
tives 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 2013.
Remuneration Policy
The Group’s remuneration policy is to provide remu-
neration packages which:
are designed to attract, motivate and retain high
calibre Executives;
are competitive and in line with comparable busi-
nesses;
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.
The Committee on an annual basis reviews base salaries
of the respective Executive Directors of the company and
its subsidiaries, taking into account job responsibili-
ties, 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 Execu-
tive 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 in-
definite 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 at-
tainment of the operating profit targets.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 Non-executive directors
We have nothing to report in respect of the followThe
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:
Annual
Salary/fee
Bonus
Non-cash
compensation
Total cash
remuneration
2013
£ ‘000
2012
£ ‘000
2013
£ ‘000
2012
£ ‘000
2013
£ ‘000
2012
£ ‘000
2013
£ ‘000
2012
£ ‘000
Executive*
Olena Yakovenko
Alexander Slipchuk
Sergey Evlanchik
Yuriy Hordiychuk
Tetyana Komarova
Kateryna Kryuchko
Non-executive**
Dr Jack Rowell
-
35
45
30
20
20
33.75
40
70
90
-
-
-
45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35
45
30
20
20
33.75
40
70
90
-
-
-
45
11
* Given the trading performance of the Company the
executives have decided to forfeit their respective fees
for the third and forth quarter of 2013
** The Non-executive Director has decided to forfeit his
fee for the forth quarter 2013.
Share based payments
In 2009 the company granted share options to Jack
Rowell. In February 2013 given the decline of market
share price the exercise price for these options was reset
to 10 pence and the exercise period extended until 2017.
As at the year end these options were not exercised. The
details of the options outstanding at 31 December 2013
are shown below.
Directors
Jack Rowell
Share Options
130,290
Exercise
Price, pence
10.0
Exercise Period
to 05/02/2017
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 CORPORATE GOVERNANCE REPORT
12
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.
In June 2013 Concorde Capital investment company
announced the results of the study ‘Corporate Gov-
ernance in Ukraine – 2013’ and updated ratings of
corporate governance practices in the Ukrainian listed
companies.
The aim of the study was to provide investors with the
tools to better understand the corporate governance prac-
tices in the Ukrainian companies in order to make sound
investment decisions. The project covered 111 compa-
nies operating in Ukraine who, issued either shares, or
bonds traded on the Ukrainian and international stock
exchanges. According to the study, Ukrproduct Group Ltd
was listed among the five companies that received the
highest score – 10.0 out of 10.0.
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.
Within the scope of the corporate governance proce-
dures, 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 re-
sponsible for formulating, reviewing and approving the
Group’s strategy and the phases of its development.
The Board met five times during 2013.
Board Committees
The Board is assisted by the Audit and Remuneration
Committees.
Audit Committee
The Audit Committee consists of one non-executive Di-
rector, 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 2013.
Remuneration Committee
The Remuneration Committee comprises one non-exec-
utive 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 Ex-
ecutive Directors, including the granting of share options.
Among others, the objective of this Committee is to at-
tract, 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 2013.
Relations with shareholders
The Group maintains regular contact with its institu-
tional and private shareholders, fund managers, financial
analysts and brokers through a series of presentations,
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 The annual budgets consist of monthly budgets, which
are updated each month once actual figures become
available. Due to the dynamic development of the macro-
economic environment of the country the Group operates
in, variances in actual figures for sales, prices and other
underlying assumptions from those forecasted may oc-
cur. 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
Group’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 disclos-
ing and reducing various types of risks related to Group
operations. Each company within the Group has a desig-
nated 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 opera-
tions and risk management.
13
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 other Directors holds
conference calls and meetings with major sharehold-
ers 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 com-
pany’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 regu-
lated 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, how-
ever, 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 organ-
isational structure of the Group;
a management structure which facilitates ease of
communication both vertically and horizontally;
annual budgeting and monthly reporting proce-
dures.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 CORPORATE SOCIAL RESPONSIBILITY REPORT
Corporate Social Responsibility
Customers
14
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 opportuni-
ties to all its employees, both current and prospective.
Each employee’s efforts are highly valued and the Board
believes that a diverse mix of the workforce facilitates
innovation, efficiency and teamwork. As a matter of
corporate policy, regular training and development
workshops are conducted for Ukrproduct’s staff. These
are aimed at all employee groups, including manage-
rial, 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 produc-
tion 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 sur-
rounding working conditions.
Customer satisfaction is at the core of the Group’s busi-
ness 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 respec-
tive 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 im-
pacted 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 organ-
ised through the local waste collection plants. The Group’s
development programme 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 main-
tained within its supplier base. The certified food safety
management system in compliance with ISO 22000 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.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 DIRECTORS’ REPORT
The Directors present their report and the audited consolidated financial state-
ments of Ukrproduct Group Ltd (referred to as the company and together with
its subsidiaries as “the Group”) for the year ended 31 December 2013.
Principal Activities and business
review
Ukrproduct Group Ltd (the company or “Ukrproduct”)
is a holding Group for a group of food and beverages
businesses located in Ukraine. The principal activities
of Ukrproduct Group are the production and distribution
of highly branded dairy foods and beverages (kvass) 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.
Results and Dividends
The results of the Group for the year are set out on page
15 and show a net loss for the period of GBP 0.704
million (2012: profit GBP 0. 852 million).
Whereas it is Company policy to pay dividend Board
has decided not to recommend the payment of the final
dividend in respect of the year ended 31 December 2013.
Directors
Details of members of the Board of Directors are shown
on page 8.
The Directors’ interests in the share capital of the com-
pany as at 31 December 2013 and 31 December 2012
are shown below:
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
exercise all such powers of the company. The rules in rela-
tion 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 43.
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 competi-
tive remuneration and incentive schemes. The Directors
also consider it a priority to give employees the oppor-
Executive
Sergey Evlanchik
Alexander Slipchuk
Non-executive
Dr Jack Rowell
Shares
Share options
2013
2012
2013
2012
14,482,383
14,487,383
14,422,383
14,487,383
-
-
-
-
118,690
18,690
130,290
130,290
15
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 tunity to communicate their ideas and opinions to all levels
of management, both directly and through various surveys.
The average number of employees of the Group during the
year ended 31 December 2013 was 1,583 (2012: 1,640).
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.
Auditors
Baker Tilly Channel Islands Limited was re-appointed as
the Group’s auditors for the 2013 financial year by the
resolution of the Annual General Meeting (AGM) of Share-
holders held on June 26, 2013. 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
Annual General Meeting
30 April 2014
Ukrproduct’s AGM will be held on 25 June, 2014. The
Notice of AGM and agenda will be sent to shareholders
no less than 18 days prior to the date of the meeting.
16
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 STATEMENT OF DIRECTORS RESPONSIBILITIES
FOR THE PREPARATION AND APPROVAL OF
THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
The Board of Directors confirms that the Group has com-
plied with the above mentioned requirements in prepar-
ing its Consolidated financial statements.
The directors are also responsible for:
implementing and maintaining an efficient and
reliable system of internal controls in the Group;
keeping proper accounting records that disclose
with reasonable accuracy at any time the financial
position of the Group;
taking reasonable steps to safeguard the assets
of the Group and to prevent and detect fraud and
other irregularities; and
the maintenance and integrity of the Group’s
website.
Jack Rowell
Chairman Ukrproduct Group Ltd
30 April 2014
17
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 reason-
able and prudent;
state that the financial information comply with
IFRS, subject to any material departures dis-
closed and explained in the financial informa-
tion;
prepare the financial information on the going
concern basis unless it is inappropriate to pre-
sume that the Group will continue in business.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF UKRPRODUCT GROUP LIMITED
18
Report on the consolidated
financial statements
We have audited the accompanying consolidated
financial statements of Ukrproduct Group Limited (“the
company” and together with its subsidiaries is referred
to as “the Group”), for the year ended 31 December
2013, which comprise the consolidated statements of
income, comprehensive income, consolidated statement
of financial position, consolidated statement of changes
in equity, the consolidated cash flow statement and the
related notes 1 to 32. The financial reporting framework
that has been applied in their preparation is applicable
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 Com-
panies (Jersey) Law 1991, as amended. Our audit work
is undertaken so that we might state to the company’s
members those matters we are required to state to them
in an auditors’ 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 com-
pany 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 the
Directors and Auditors
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the
preparation of the consolidated 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 consolidated 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 (APBs) Ethical
Standards for Auditors.
Scope of the audit of the
consolidated financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to
give reasonable assurance that the consolidated 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.
Our responsibilities do not extend to any other informa-
tion.
Opinion on consolidated financial
statements
In our opinion the consolidated financial statements:
give a true and fair view of the state of the
Group’s affairs as at 31 December 2013 and
of group’s loss 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 re-
quirements of the Companies (Jersey) Law, 1991
as amended.
Emphasis of Matter
In forming our opinion on the consolidated financial
statements, which is not qualified, we draw your attention
to the following matters:
Going Concern
We have considered the adequacy of the disclosures made
in the notes to the consolidated financial statements con-
cerning the Group’s ability to continue as a going concern.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 As described in Note 2(b) of the consolidated financial
statements, the Group incurred a loss during the year,
primarily as a result of the volatile political and economic
situation in Ukraine. This has resulted in a number of
challenges to the Group, including but not limited to the
significant devaluation of the local currency and the in-
crease in raw milk prices. The Group applied for a waiver
from the EBRD in connection with financial covenants
contained in the loan agreement, which was granted
by the EBRD. Group management believes that they
will continue to receive the support of the EBRD for the
foreseeable future. The directors have also put in place a
number of additional cost efficiency measures including
but not limited to the reconstruction of manufacturing
facilities in Starokonstantinov, further optimization in the
number of its subsidiaries and streamlining its busi-
ness processes. Additionally, due to the position in the
Ukraine, there is a risk that the Group may not be able to
operate in Crimea following its occupation by Russia. At
the date of this report the Group continues to operate in
Crimea, and monitor the situation.
The overall impact of the continuing economic and
political turmoil in Ukraine and their final resolution are
uncertain and may adversely affect both the Ukrainian
economy and therefore the operations of the Group.
Matters on which we are required
to report by exception
We have nothing to report in respect of the following
matters where the Companies (Jersey) Law 1991 requires
us to report to you if, in our opinion:
proper accounting records have not been kept; or
proper returns adequate for our audit have not
been received from branches not visited by us; or
the financial statements are not in agreement with
the accounting records and returns; or
we have not received all the information and
explanations which to the best of our knowledge
and belief are necessary for the purposes of our
audit.
David Hopkins
For and on behalf of Baker Tilly Channel Islands Limited
Chartered Accountants
St Helier, Jersey
30 April 2014
19
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2013
(in thousand GBP, unless otherwise stated)
Note
Year ended
31 December 2013
£ ‘000
Year ended
31 December 2012
£ ‘000
8
9
9
9
9
10
13
Revenue
Cost of sales
GROSS PROFIT
Administrative expenses
Selling and distribution expenses
Net other operating expenses
PROFIT FROM OPERATIONS
Net finance costs
Effect of foreign currency translation
20
PROFIT BEFORE TAxATION
Income tax expenses
PROFIT FOR THE YEAR
Attributable to:
Owners of the Parent
Non-controlling interests
Earnings per share:
Basic
Diluted
52 202
(45 012)
7 190
(2 725)
(3 240)
(408)
817
(1 009)
(361)
(553)
(151)
(704)
(704)
-
(1,77)
(1,77)
60 212
(51 177)
9 035
(3 059)
(3 473)
(494)
2 009
(771)
(53)
1 185
(333)
852
852
-
2,09
2,09
ukrproduct annual report 2013 CONSOLIDATED STATEMENT
OF OTHER COMPREHENSIVE INCOME
(in thousand GBP, unless otherwise stated)
Year ended
31 December 2013
£ ‘000
Year ended
31 December 2012
£ ‘000
Items that may be subsequently reclassified to profit or loss
Currency translation differences
Items that will not be reclassified to profit or loss
Reduction of revaluation reserve
Income from changes in tax rates
OTHER COMPREHENSIVE INCOME, NET OF TAx
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Attributable to:
Owners of the Parent
Non-controlling interests
(429)
(32)
38
(423)
(1 127)
(1 127)
-
The notes on pages 10 - 51 are an integral part of these consolidated financial statements.
(885)
(57)
83
(859)
(7)
(7)
-
21
ukrproduct annual report 2013 CONSOLIDATED STATEMENT OF FINANCIAL
POSITION AS AT 31 DECEMBER 2013
(in thousand GBP, unless otherwise stated)
Note
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘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
22
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 loans and overdrafts
Deferred tax liabilities
Current liabilities
Bank loans and overdrafts
Trade and other payables
Current income tax liabilities
Other taxes payable
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
14
15
16
17
18
19
20
21
22
23
24
16
24
25
18 185
1 136
-
66
19 387
3 010
6 919
2 399
176
1 006
13 510
32 897
3 967
1 430
12 672
18 069
-
18 069
5 118
636
5 754
5 802
3 226
18
28
9 074
32 897
The notes on pages 10 - 51 are an integral part of these consolidated financial statements.
18 447
1 238
30
46
19 761
3 415
6 899
2 990
196
415
13 915
33 676
4 082
1 726
13 496
19 304
-
19 304
4 903
670
5 573
4 056
4 512
110
121
8 799
33 676
ukrproduct annual report 2013
CONSOLIDATED STATEMENT OF CASH FLOWS
AS AT 31 DECEMBER 2013
(in thousand GBP, unless otherwise stated)
Note
Year ended
31 December 2013
£ ‘000
Year ended
31 December 2012
£ ‘000
Cash flows from operating activities
Profit before taxation for the year
Adjustments for:
Exchange difference
Depreciation and amortisation
(Profit)/loss on disposal of non-current assets
Write off of receivables/payables
Impairment of inventories
Impairment of available for sale investments
Income from disposal of subsidiaries
Interest income
Interest expense on bank loans
Operation cash flow before working capital changes
Decrease in inventories
Increase / (decrease) in trade and other receivables
(Decrease) / increase in trade and other payables
Changes in working capital
Cash generated from operations
Interest received
Income tax paid
Net cash generated by / (used in) operating activities
Cash flows from investing activities
Payments for property, plant and equipment and
intangible assets
Proceeds from sale of property, plant and equipment
Repayments of loans issued
Net cash used in investing activities
Cash flows from financing activities
Acquiring of shares
Interest paid
(Decrease) / increase in short term borrowing
Increase in long term borrowing
Repayments of long term borrowing
Net cash generated by financing activities
Net decrease 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
11
10
10
10
21
(553)
361
1 417
5
(3)
144
31
19
(3)
1 012
2 430
202
290
(1 358)
(866)
1 564
3
(236)
1 331
(1 585)
41
17
(1 527)
(108)
(1 012)
1 239
1 145
(383)
881
685
(94)
415
1 006
1185
53
1 164
25
120
76
36
-
(11)
782
3 430
908
(2 874)
942
(1 024)
2 406
11
(519)
1 898
(3 321)
50
(27)
(3 298)
-
(782)
(118)
2 182
1 282
(118)
21
512
415
These consolidated financial statements were approved and authorised for issue by the Board of Directors on 25 April 2014 and were signed on its behalf by:
Sergey Evlanchik
Chief Executive Officer
25 April 2014
23
ukrproduct annual report 2013
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY AS AT 31 DECEMBER 2013
(in thousand GBP, unless otherwise stated)
Attributable to owners of the parent
Share
capital
Share
premium
Merger
reserve
Revaluation
reserve
Retained
earings
Translation
reserve
Total
Non-
controlling
interests
Total
Equity
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
£ ‘000
As at 1 January 2012
4 082
4 555
(367)
4 134
12 367
(5 454)
19 317
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 27)
Total transactions with owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
83
-
83
-
-
24
Depreciation on revaluation
of property, plant and equipment
Reduction of revaluation reserve
Exclusion from Group (Note 2.1 (c))
As at 31 December 2012
-
-
-
4 082
-
-
-
4 555
-
-
-
(367)
(283)
(57)
-
3 877
Loss 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
Group restructuring completion
(Note 2.1 (c))
Acquiring of shares
As at 31 December 2013
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(115)
3 967
-
7
4 562
367
-
-
-
38
-
38
-
-
(247)
(32)
-
-
3 636
The notes on pages 10 - 51 are an integral part of these consolidated financial statements.
852
-
-
-
852
-
-
-
-
-
(885)
50
-
-
283
(6)
-
13 496
-
-
-
(6 399)
(704)
-
-
-
(704)
-
(429)
(429)
-
-
247
-
-
-
-
-
852
-
83
(885)
50
-
-
-
(63)
-
19 304
(704)
38
(429)
(1 095)
-
-
-
-
(367)
-
12 672
-
-
(6 768)
-
(108)
18 069
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19 317
852
83
(885)
50
-
-
-
(63)
-
19 304
(704)
38
(429)
(1 095)
-
-
-
-
-
(108)
18 069
ukrproduct annual report 2013
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2013
(in thousand GBP, unless otherwise stated)
1. GROUP AND PRINCIPAL
ACTIVITIES
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Company is a public limited liability entity regis-
tered 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 Ukrai-
nian 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 2013 was 1,583 (2012:
1,640).
27
2.1. Basis of preparation
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 pre-
pared in accordance with International Financial Repor-
ting Standards, International Accounting Standards and
Interpretations (collectively IFRS) issued by the Interna-
tional Accounting Standards Board (IASB) as adopted by
the European Union.
The preparation of financial statements in conformity with
IFRS requires the use of certain critical accounting esti-
mates. It also requires management to exercise its judg-
ment in the process of applying the Group’s accounting
policies. Further information is provided in note 3.
(b) Going concern
The Group incurred a loss of GBP 704 thousand for the
year ended 31 December 2013, decreasing the retained
earnings at that date to GBP 12,672 thousand. Despite
the existence of these conditions, the consolidated finan-
cial statements have been prepared on a going concern
basis, because management believes that it has employed
sufficient and appropriate measures to underpin its cost
cutting strategy including but not limited to: reconstruc-
tion of manufacturing facilities in Starokonstantinov
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
location, decrease in the number of subsidiaries and
streamlining its business processes aimed to minimise
non-value adding activities and related costs etc.
Since November 2013, Ukraine has been in a political
and economic turmoil. The Ukrainian Hryvnia deval-
ued against major world currencies (see Note 32) and
significant external financing is required to maintain
stability of the economy. The National Bank of Ukraine,
among other measures, has imposed temporary restric-
tions on processing of client payments by banks and
on the purchase of foreign currency on the inter-bank
market. In February 2014, Ukraine’s sovereign rating
has been downgraded to CCC with a negative outlook.
In February 2014, the Parliament of Ukraine voted for
reinstatement of the 2004 Constitution and dismissal of
the incumbent President. New presidential elections are
scheduled for May 2014 and a transitional government
has been formed. In March 2014, Crimea, an autono-
mous region of Ukraine, was effectively annexed by the
Russian Federation. The further political developments
are currently unpredictable and may adversely affect
the Ukrainian economy. As of 31 December 2013 the
Group had no assets located in the Crimea. For the year
ended 31 December 2013 the Group has generated in
the Crimea in average 21% of operating profit per an-
num. As of the date of this report, the Group’s opera-
tion throughout Ukraine, including those in Crimea
continued normally through the first quarter of 2014.
Given the existence of these conditions, it is the view
of management that the preparation of the consolidated
financial statements on a going concern basis to be
appropriate.
On 31 March 2011, the Group entered into a loan
agreement with the European Bank Reconstruction and
Development (“EBRD”) for a EUR 11m credit facility.
During the year the Group received a waiver letter from
EBRD, who agreed not to exercise or enforce the right
to require compliance by the Group with the financial
covenants of the loan agreement for the year ended 31
December 2013 only.
While the letter does not extend the waiver to a period
of 12 months from the date of the signature of the
financial statements, it is the view of management, on
the basis of its continuous cooperation and negotia-
tions with EBRD, that EBRD will continue to agree not
to exercise its rights under the agreement for a period of
at least 12 months from the date of the signature of the
financial statements, despite the uncertainty as to the
Group’s ability to meet the terms of financial covenants.
28
(c) Consolidation principles
The consolidated financial statements comprise the
financial statements of Ukrproduct Group Limited and its
subsidiaries as at 31 December 2012.
Subsidiaries are consolidated from the date of acquisi-
tion, 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, that is, as transactions with owners in their
capacity as owners. Profit or loss and each component of
other comprehensive income are attributed to the owners
of the parent and to the non-controlling interests. Total
comprehensive income is attributed to the owners of the
parent and to the non-controlling interests even if this
results in the non-controlling interests having a deficit
balance.
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 differ-
ences, recorded in equity;
Recognises the fair value of the consideration
received;
Recognises any investment retained in the former
subsidiary at its fair value at the date when
control is lost;
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.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 CONSOLIDATED FINANCIAL STATEMENTS OF
THE GROUP INCLUDE FOLLOWING COMPANIES:
Group’s company
Country of
incorporation
Effective
ownership ratio*
As at 31 December
2012
2013
Principal activities
Consolidation
method
Molochnik LLC*
Starokonstantinovskiy Molochniy Zavod SC*
Starkon-Moloko LLC*
Krasilovsky Molochny Zavod 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***
ATP Centr LLC***
Ukrprodexport Private Enterprise SC*
Ukrproduct-Logistic LLC *
Gollandska Sirovarnya MolendamLLC***
Molochniy Torgoviy Souys LLC****
Lider-Product LLC****
Premierproduct-Donetsk Private Enterprise SC
Premierproduct-Mikolaiv Private Enterprise SC
Premierproduct-Dnipro Private Enterprise SC*****
Premierproduct-Jitomir Private Enterprise SC**
Premierproduct-Lviv Private Enterprise SC*****
Alternatyvni investytsiyi UCVF***
Ukrproduct Group CJSC
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
LinkStar Limited
Cyprus
100%
100%
Solaero Global Alternative Fund Limited
Cyprus
100%
100%
29
Production
Production
Owner of property & equipment
Production
Production
Production
To be constructed
Owner of equipment
Owner of equipment
Owner of equipment
Owner of equipment
Owner of fleet of vehicles
Owner of fleet of vehicles
Export operations
Logistics
Sales&Distribution
Sales&Distribution
Sales&Distribution
Sales&Distribution
Sales&Distribution
Sales&Distribution
Sales&Distribution
Sales&Distribution
Assets management
Holder of some assets and
operating companies
Holder of Group’s trademarks
and assets
Holder of Group’s trademarks
and assets
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
Acquisition
ukrproduct annual report 201312This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012
Group’s company
Country of
incorporation
Effective
ownership ratio*
As at 31 December
2012
2013
Principal activities
Consolidation
method
Dairy Trading Corporation Limited
Reliable Logistics Services ltd
St. Invest Holding LTD
Ukrproduct Group LTD
BVI
BVI
BVI
Jersey
100%
100%
100%
100%
100%
100%
Export operations
Holder of distribution network
Holder of distribution network
Listed on LSE
Acquisition
Acquisition
Acquisition
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 Solaero Global Alternative Fund Limited, the Group’s specialised distribution companies.
**** Subsidiaries of Reliable Logistics Services ltd, the Group’s specialised distribution companies.
30
***** Subsidiaries of Molochnik LLC, the Group’s specialised distribution companies.
****** Subsidiaries of Alternatyvni investytsiyi UCVF.
Alternatyvni investytsiyi UCVF is a limited life entity. Its life limit is 5 April 2022.
In 2013 the Group has completed the legal restructuring of the Group companies by means of the Group subsidiaries shares transfer directly to the Company. The
Group and consolidated companies have been under common control of ultimate beneficiaries of the Company before and after restructuring. Acquisition / transfer
transactions under common control are accounted for using predecessor accounting method (see Note 2.1 (e)). Due to the fact the restructuring of the Group was
mainly completed the management has decided to reclassify the merger reserve into retained earnings account.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
(d) Reorganisation
A reorganisation of the Group’s legal structure
took place in 2013 and resulted in withdrawal of
two companies and liquidation of Letichivsky Maslo-
zavod Private Enterprise SC via merger with Staro-
konstantinovskiy Molochniy Zavod SC for the pur-
pose of improving the administration and reporting
processes.
(e) Accounting for acquisitions of
companies under common control
Acquisitions of controlling interests in companies
that were previously under the control of the ultimate
beneficiaries of the Company are accounted for as if the
acquisition had occurred at the beginning of the earliest
comparative period presented or, if later, at the date on
which control was obtained by the ultimate beneficiaries
of the Company. The assets and liabilities acquired
are recognized at their book values. The components
of equity of the acquired companies are added to the
same components within Group equity except that any
share capital of the acquired companies is recorded as a
part of merger reserve. The cash consideration for such
acquisitions is recognized as a liability to or a reduction
of receivables from related parties, with a corresponding
reduction in equity, from the date the acquired company
is included in these consolidated financial statements
until the cash consideration is paid.
No goodwill is recognized where the Group acquires
additional interests in the acquired companies from
the Ultimate controlling shareholders. The difference
between the share of net assets acquired and the cost of
investment is recognized directly in equity.
(f) Subsidiaries
Subsidiaries are all entities (including structured
entities) over which the group has control. The group
controls an entity when the group is exposed to, or has
rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through
its power over the entity. Subsidiaries are fully consoli-
dated from the date on which control is transferred to
the group. They are deconsolidated from the date that
control ceases.
The group applies the acquisition method to account for
business combinations. The consideration transferred
for the acquisition of a subsidiary is the fair values
of the assets transferred, the liabilities incurred to the
former owners of the acquiree and the equity interests
issued by the group. Identifiable assets acquired and li-
abilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at
the acquisition date.
Acquisition-related costs are expensed as incurred.
(g) 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.
(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 identi-
fied 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, unless otherwise stated.
2.2.1. Foreign currency transactions
31
(a) Functional and presentation
currency
The Ukrainian Hryvnia is the currency of the primary
economic environment in which the majority of the Group
companies operate.
Transactions in currencies that differ from the functional cur-
rency are considered to be foreign currency transactions.
Management has considered what would be the most
appropriate presentational currency for consolidated IFRS
financial statements and has concluded that the Group
should use British pounds sterling (hereinafter “GBP”
or £) as the Group’s presentational currency. This is
because 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.
(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
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
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 com-
prehensive income, except when deferred in equity as
qualifying cash flow hedges and qualifying net invest-
ment 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 presenta-
tion 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 liabili-
ties are translated at the closing rate existing at
the relevant reporting date. Income and expense
items are translated at rates approximating 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 state-
ment are translated at average exchange rates
(unless this average is not a reasonable ap-
proximation of the cumulative effect of the rates
prevailing on the transaction dates, in which
case income and expenses are translated at the
rate on the dates of the transactions);
All resulting exchange differences are recog-
nised as a separate component of equity within
«Translation reserve».
The principal UAH exchange rates used in the
preparation of Consolidated financial statements
are as follows:
Currency
31
December
2013
Average
exchange
rate for
2013
31
December
2012
Average
exchange
rate for
2012
UAH/GBP
13,20
12,45
UAH/USD
UAH/EUR
7,99
11,04
7,99
10,62
12,90
7,99
10,54
12,66
7,99
10,27
32
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.
2.2.3. Inventories
Inventories are stated at the lower of cost and net realiz-
able value. Cost is determined using the weighted aver-
age method. Net realizable value is the estimated selling
price in the ordinary course of business less applicable
variable selling expenses.
The Group identifies the following types of inventories:
raw and other materials (including main and
auxiliary operating supply and materials);
work in progress (including semi finished
products);
finished goods;
other inventories (including fuel, packaging,
building materials, spare parts, other 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 op-
erating 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 invento-
ries 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.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 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 is
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 adopts 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 believes that this policy provides
more reliable and relevant financial information because
it better reflects the value in use of such assets to the
Group.
All significant categories of property, plant and equip-
ment are subsequently carried at fair value at the date of
revaluation, less any subsequent accumulated deprecia-
tion 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 rec-
ognized 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 avail-
able 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. The Group calcu-
lates the depreciation using the straight line method to
allocate their cost or revalued amounts to their residual
values over their estimated useful lives. 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 produc-
tion method) are listed below:
Group of property, plant and equipment
Useful life
Buildings and constructions
Plant and machinery
Vehicles
Instruments, tools and other equipment
10 - 50 years
2 - 20 years
5 - 12 years
2 - 20 years
The assets’ residual values, useful lives and methods of
depreciation are reviewed at each financial year end and
adjusted prospectively, if appropriate.
33
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 34
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 assesses
whether there is any indication that an asset may be im-
paired. 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 ap-
plicable rates from the time the asset is completed and
ready for use.
2.2.6. Intangible assets
(а) Recognition and measurement
of intangible assets
Intangible assets are recognized at historical cost less
accumulated amortization and accumulated impairment
losses, except for 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 prob-
able 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 pro-
ceeds 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 (7-10 years). The amortization expense is
included within Administrative expenses in the Consoli-
dated 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 and
Distribution expenses in the Consolidated Income State-
ment.
Amortization is calculated using the straight-line method
to allocate the cost of the customer list over its esti-
mated useful life (20 years). The amortization expense is
included in Other operating expenses in the Consolidated
Income Statement.
(c) Business combinations and
goodwill
The consideration transferred for the acquisition of a
subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owners of the acquiree
and the equity interests issued by the group’. The
consideration transferred includes the fair value of any
asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expenses as
incurred.
The consideration transferred for the acquisition of a
subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owners of the acquiree
and the equity interests issued by the group’. The
consideration transferred includes the fair value of any
asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expenses as
incurred.
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 ac-
quisition 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
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
acquirer will be recognised at fair value at the acquisi-
tion 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 Mea-
surement» 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 acquisi-
tion 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 as-
set (group of cash generating assets), impairment is
recognized.
2.2.7. Financial assets
The Group classifies its financial assets as: financial
assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, available
for-sale financial assets. Management determines the
classification of financial assets at initial recognition
and re-evaluates this designation at every reporting
date.
(i) Financial assets at fair value
through profit or loss
This category comprises only «in-the-money» deriva-
tives. 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.
(ii) 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 provi-
sion of goods and services to customers (trade receiv-
ables), 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 rene-
gotiations will lead to changes in the timing of payments
rather than changes to the amounts owed and, in conse-
quence, the new expected cash flows are discounted at
the original effective interest rate.
The Group has not classified any of its financial assets as
held to maturity.
(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 qualify-
ing 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 recognition is best evidenced by
the transaction price. A gain or loss on initial recogni-
tion 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» pur-
chases and sales) are recorded at trade date, which is the
date that the Group commits to deliver a financial instru-
ment. 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 mar-
ket value, established at the reporting date, less transac-
35
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
36
tion 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 de-
termination 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 instru-
ment 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 re-
ceive 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 ac-
quired. The Group has not classified any of its liabilities
at fair value through profit and loss.
Financial liabilities held at amortized cost include the
following items:
Trade payables and other short-term monetary
liabilities, which are recognised at amortized
cost;
Bank borrowings, overdrafts, promissory notes
and bonds issued by the Group are initially car-
ried at fair value, being the 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.
(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 re-
ceived 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.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
2.2.9. Share capital
The ordinary shares are classified as share capital.
The difference between the fair value of consideration
received and the nominal value of issued share capital
is recognised as share premium.
2.2.10. Revenue recognition
Revenue is recognised to the extent that it is prob-
able 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 is reflected in the amount of the fair
value of assets received.
Revenue is the amount of cash or cash equivalents
received or receivable. However, in case of delay in
receipt of cash or cash equivalents, the fair value of the
consideration may be less than received or expected
to be received nominal amount of cash. When the
arrangement effectively constitutes a financing transac-
tion, 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 recog-
nized 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 manage-
ment 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 associ-
ated with the transaction will flow to the Group;
the costs incurred or to be incurred in respect of
the transaction can be measured reliably.
(b) Revenue from rendering of
services
The revenue from rendering of services is recognized
when all the following conditions are satisfied:
the amount of revenue can be reliably measured;
inflow of economic benefits related to the trans-
action is possible;
reliable measurement of stage of transaction
completeness at the balance sheet is possible;
there is a possibility for reliable measuring of
cost, applied for transaction carrying out and
cost, which are required for its completing.
2.2.11. Expenses recognition
Expenses are recognized by the Group when the follow-
ing 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 receiv-
ing 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 expensed. Net financial
37
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 expenses are recorded in the Consolidated statement of
comprehensive income as a separate line item «Finan-
cial income/(expenses), net».
2.2.13. Value added tax
VAT is levied at two rates: 20% on Ukrainian domestic
sales and imports of goods, works and services and 0%
on export of goods and provision of works or services
to be used outside Ukraine.
VAT output equals the total amount of VAT collected
within a reporting period, and arises on the earlier of
the date of shipping goods to a customer or the date
of receiving payment from the customer. VAT input is
the amount that a taxpayer is entitled to offset against
his VAT 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.
2.2.14. Tax
Taxation has been provided for in the financial state-
ments in accordance with relevant legislation currently
in force. The charge for taxation in the Income State-
ment for the year comprises current tax and changes in
deferred tax.
Current tax is the amount of income tax payable (re-
coverable) 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 deduct-
ible 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 legislation en-
acted, 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 there is no longer the probability that there will
be sufficient taxable profits, which allow 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 is accrued.
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 remain-
ing 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.
38
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 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 does not 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 pro-
spectus, accounting, tax and legal expenses, underwrit-
ing fees and valuation fees in respect of the shares and
of other assets.
2.2.19. Leases
A 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 classi-
fied 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, as-
sets 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 analyzed for impairment;
in case any impairment indicators exist, the
amount of expected recovery of such asset is
calculated to determine the amount of losses
from impairment, if any. If it is impossible to
determine the amount of losses from impair-
ment 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.
2.2.21. Contingent liabilities and
assets
Contingent liabilities are potential liabilities of the Group
arising from past events the existence of which will be
confirmed only by the occurrence or non-occurrence of
one or more future events, which are not under the com-
plete control of the Group, or current obligations result-
ing 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.
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 Consoli-
dated financial statements, but disclosed in the Notes
where there is a sufficient probability of future economic
benefits.
2.2.22. Related parties
Parties are considered to be related if one of parties has a
possibility to control or considerably influence the opera-
tional and financial decisions of another company, which
is defined in IAS 24 «Related Party Disclosures».
While considering any relationship which can be defined as
a related party transaction, the Group takes into consider-
ation the substance of the transaction not just its legal form.
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 controlled by it, or together with it are under
39
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 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, includ-
ing 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.
40
2.2.23. Dividends
Equity dividends are recognised in the Consolidated
financial statements when they become legally payable.
In the case of interim dividends are recognised when
they are paid. In the case of final dividends, this is when
approved by the shareholders at the AGM.
3. SIGNIFICANT ACCOUNTING
JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS
The preparation of the Group’s Consolidated financial
statements requires management to make judgments,
estimates and assumptions that affect the reported
amounts of revenues, 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 poli-
cies, 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 prop-
erty, plant and equipment based on
revaluation
The Group is required, periodically as determined by the
directors, to conduct revaluations of its property, plant
and equipment. Such revaluations are conducted by
independent valuers who employ the valuation methods
in accordance with International Valuation Standards
such as cost method, comparison (market) method and
revenue (income) method.
(b) Useful lives of intangible assets
and property, plant and equipment
Intangible assets and property, plant and equipment are
amortized or depreciated over their useful lives. Useful
lives are based on the management’s estimates of the
period that the assets will generate revenue, which are
periodically reviewed for continued appropriateness. Due
to the long life of certain assets, changes to the estimates
used can result in significant variations in the carrying
value. Further information is contained in notes 14 and 15.
(c) Impairment of goodwill
The Group is required to test, on an annual basis, wheth-
er 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
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 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 manage-
ment 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 state-
ments. Among the factors considered in making deci-
sions 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 finan-
cial 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 manage-
ment as to how it will respond to the litigation, claim or
assessment.
(f) Income taxes
The Group is subject to income tax in several jurisdic-
tions and significant judgment is required in determin-
ing the provision for income taxes. During the ordinary
course of business, there are many transactions and
calculations for which the ultimate tax determina-
tion is uncertain. As a result, the Group recognises
tax liabilities based on estimates of whether additional
taxes and interest will be due. These tax liabilities are
recognised when, despite the Group’s belief that its tax
return positions are supportable, the Group believes that
certain positions are likely to be challenged and may
not be fully sustained upon review by tax authorities.
The Group believes that its accruals for tax liabilities are
adequate for all open audit years based on its assess-
ment 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 differ-
ent 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 consumers and industrial custom-
ers 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 domesti-
cally 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 account-
ing 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.
4. ADOPTION OF NEW AND
REVISED IFRS
41
4.1. New and amended standards
and interpretations
The accounting policies adopted are consistent with
those of the previous financial year, except for the follow-
ing amendments to IFRS effective as of 1 January 2013:
IAS 1 - Financial statement presentation: Amend-
ments regarding other comprehensive income
IAS 19 - Employee benefits: Amendments elimi-
nate the corridor approach and calculate finance
costs on a net funding basis
IAS 27 - Consolidated and Separate Financial
Statements - Amendments to disclosure require-
ments following the new IFRS 10
IAS 28 - Associates and Joint Ventures - change
in accounting treatments for joint ventures and
associates following the new IFRS 11
IFRS 1 - First Time adoption of International
Financial Reporting Standards: Amendments to
government grants
IFRS 7 - Financial Instruments: Disclosures:
Amendments on asset and liability offsetting
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 4.3. Annual Improvements
These improvements have been made effective on the 1
January 2013 and will not have an impact on the Group,
but include:
IFRS 1 First-time Adoption of International Financial
Reporting Standards
This improvement clarifies that an entity that stopped
applying IFRS in the past and chooses, or is required,
to apply IFRS, has the option to re-apply IFRS 1. If IFRS 1
is not re-applied, an entity must retrospectively restate its
financial statements as if it had never stopped applying IFRS.
IAS 1 Presentation of Financial Statements
This improvement clarifies the difference between volun-
tary additional comparative information and the minimum
required comparative information. Generally, the mini-
mum required comparative information is the previous
period.
IAS 16 Property Plant and Equipment
This improvement clarifies that major spare parts and
servicing equipment that meet the definition of property,
plant and equipment are not inventory.
IAS 32 Financial Instruments, Presentation
This improvement clarifies that income taxes arising from
distributions to equity holders are accounted for in ac-
cordance with IAS 12 Income Taxes.
IAS 34 Interim Financial Reporting
The amendment aligns the disclosure requirements
for total segment assets with total segment liabilities
in interim financial statements. This clarification also
ensures that interim disclosures are aligned with annual
disclosures.
These improvements are effective for annual periods
beginning on or after 1 January 2013.
IFRS 10 - Consolidated financial statements
IFRS 11 - Joint arrangements
IFRS 12 - Disclosures of interests in other entities
IFRS 13 - Fair Value Measurement
IFRIC 20 - Stripping Costs in the Production
Phase of a Surface Mine
The new and amended IFRS are effective for annual
periods beginning on or after 1 January 2013 and has
been no effect on the Group’s financial position or
performance.
4.2. Standards issued but not yet
effective
The standards and interpretations that are issued,
but not yet effective, up to the date of issuance of the
Group’s financial statements are disclosed below. The
Group’s intends to adopt these standards, if applicable,
when they become effective.
IAS 32 Financial Instruments: Presentation
These amendments are to the application guidance in
IAS 32, Financial Instruments: Presentation, and clarify
some of the requirements for offsetting financial as-
sets and financial liabilities on the balance sheet. The
amendments become effective for annual periods begin-
ning on or after 1 January 2014. The amendment has no
impact on the group.
IAS 36 Impairment of Assets
This amendment addresses the disclosure of informa-
tion about the recoverable amount of impaired assets
if that amount is based on fair value less costs of
disposal. The amendments become effective for annual
periods beginning on or after 1 January 2014. The
amendment has no impact on the group.
\ IFRS 9 Financial Instruments
IFRS 9 is the first standard issued as part of wider
project to replace IAS 39. IFRS 9 retains but simpli-
fies the mixed measurement model and establishes two
primary measurement categories for financial assets.
Amortised costs and fair value. He basis of classifica-
tion depends on the business model and the contractual
cash flow characteristics of the financial asset. The
guidance on IAS 39 on impairment of financial assets
and hedge accounting continues to apply. The amend-
ments become effective for annual periods beginning on
or after 1 January 2015. The amendment has no impact
on the group.
42
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 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 share-
holders. The Chief Executive Officer of the Group is in
charge of risk management and introduction of all poli-
cies as approved by the Board of Directors. The Group’s
budget for 2014 incorporates the forecasted inflation
rates. The Group considers that there are no material
risks related to the inflation.
а) Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
trade and other receivables
available for sale investments in unquoted
equity securities in Ukraine
loans issued
cash and cash equivalents
bank overdrafts
promissory notes
trade and other payables
The principal financial instruments are as follows:
(b) General objectives, policies
and processes
The Group’s overall risk management programme recog-
nises 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 del-
egated 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.
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
43
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:
- non-current bank loans
- current bank loans
- overdrafts
- trade and other payables (excluding non-financial liabilities)
1 124
1 006
176
-
2 306
5 118
5 348
454
2 435
13 355
6 031
415
196
30
6 672
4 903
3 748
308
4 007
12 966
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 (c) Credit risk
Credit risk is the risk that a counterparty will not be able
to meet its obligations in full when due. Ukrproduct Group
is mainly exposed to credit risk from credit sales to the
customers in Ukraine. The Group manages its credit risk
through the Group’s risk assessment policy by evaluating
each new customer before signing a contract using the
following criteria: trading history and the strength of own
balance sheet. The Group attempts to reduce credit risk
by conducting periodic review which includes obtaining
external ratings and in certain cases bank references.
According to the Group’s risk assessment policy, imple-
mented locally, every new customer is appraised before en-
tering 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 stipu-
late, 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 rela-
tion 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 re-
tailers whose creditworthiness is conducive to the payment
discipline required by the Group.
Maximum exposure to the Trade and other receivables
component of credit risk at the reporting date is the fair
value of Trade and other receivables. There is no collateral
held as security or other credit enhancements.
The Group’s credit controllers monitor the utilisation of the
credit limits on a daily basis by 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 deliv-
eries and forwarding to the customer of the details
of the amount due and the notice of the failure to
pay - 3 days after the past due date;
delivery to the customer of the formal claim for the
amount overdue and the visit of the representative
of the commercial credit control department to the
customer premises- 2 weeks thereafter;
filing a claim to the commercial court for repayment
of the amount overdue and late 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 proce-
dures, 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 institu-
tions. There is no collateral held as security or other credit
enhancements.
Cash at bank and short term deposits are kept on the ac-
counts in the following banks:
Bank
Rating
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
JSC
UkrSibbank
UBS AG
B+
A2
4
-
JSC OTP Bank
B2
870
Caa1
106
PJSC
Raiffeisen
Bank Aval
PJSC Credit
Europe Bank
Ba3
-
Other
22
1 002
202
78
61
29
10
12
392
44
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 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 concen-
trated.
The Group is also exposed to a credit risk with regard
to loans issued to third parties, related parties and em-
ployees. This risk is considered to be low and is man-
aged according to the Group’s risk assessment policy.
The Group’s exposure to credit risk, where the carry-
ing value of financial assets is unsecured, is as shown
below:
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
Carryng Value
Maximum exposire
(unsecured)
Trade receivables
5 509
Loans issued
176
Cash at bank
and short term
deposits
1 002
6 687
5 431
196
392
6 019
(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 borrow-
ings.
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 roll-
ing quarterly cash flow projections on a monthly basis
as well as information regarding the daily cash bal-
ances 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 through longer-term bank loans. In case
of the inadequate cash balances and the overdraft facili-
ties close to the agreed ceilings, the Group is expected to
revert to the emergency funding made available through
temporary freeze to the current portion of capital spend-
ing, immediate operating cost reductions, postpone-
ment of payments to the third parties, and expansion of
the overdraft ceilings. Although undesirable and never
occurring in the past, such emergency funding is the
last resort on which the Group may have to draw while
ensuring the ongoing continuity of the business.
Maturities of the Group’s financial instruments are
disclosed further in the notes 18, 20, 21, 25 of these
financial statements.
(e) Market risk
Market risk may arise from the Group’s use of interest
bearing, tradable and foreign currency financial instru-
ments. Market risk comprises fair value interest rate risk,
foreign exchange risk and commodity price risk and is
further assessed below:
(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 sub-
stantially 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
336,786 (2012: GBP 226,742).
(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 skimmed milk pow-
der, whey and casein to the various markets around the
world. The primary currency for export sales is the US
Dollar. The Group’s established corporate policy towards
minimising the potential foreign exchange risk is to
require the customers to pay for the export shipments
of the skimmed milk powders in full and in advance.
The Group’s purchases of the raw milk, semi-processed
45
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
materials and other components of the manufacturing
cost are made in Ukraine and are entirely Hryvnia-
denominated. All outstanding balances of trade payables
by the Group are in Hryvnias. Currency analysis is
provided in Note 29.
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) apprecia-
tion against Hryvna (UAH). The sensitivity analysis
shows that EUR appreciation against Hryvna by 5%
would cause exchange rate loss of GBP 329,000 (2012:
GBP 286,000).
(iii) Commodity price risk
The Ukraine economy has been characterized by high
rates of inflation. The Group tends to experience infla-
tion-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 SMP 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 443 in 2014.
The first stage of the modernisation project of Staro-
konstantinovskiy Molochniy Zavod SC financed by the
European Bank of Reconstruction and Development
(EBRD) was completed and it is expected that it will
allow greater utilisation and efficiency of its pro-
duction process, reducing any impact of changes
in skimmed milk 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 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 Executive 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 2014
incorporates the forecasted inflation rates. The Group
considers that there are no material risks related to the
inflation.
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 concern, so that it can continue to provide
returns for shareholders and benefits for other
stakeholders;
to identify the appropriate mix of debt, equity and
partner sharing opportunities in order to balance
the highest returns to shareholders overall with the
most advantageous timing of investment flows;
to provide an adequate return to shareholders
by delivering the products in demand by the cus-
tomers at prices commensurate with the level of
risk and expectations of shareholders.
The Group sets the amount of capital it requires in propor-
tion to risk. The Group manages its capital structure and
makes adjustments to it in the light of changes in eco-
nomic 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
46
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
7. SEGMENT INFORMATION
At 31 December 2013, the Group was organised inter-
nationally into four main business segments:
1) Branded products - processed cheese, hard
cheese, packaged butter and spreads;
2) Beverages - kvass;
3) Non-branded products - skimmed milk powder,
other skimmed milk products;
4) 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.
47
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 struc-
ture. 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.
The D/E ratios at 31 December 2013 and at 31 Decem-
ber 2012 were as follows:
Bank
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
Total debt
10 920
8 959
Less: Cash and
cash equivalents
Net debt
1 006
9 914
Total equity
18 069
D/E ratio
54,9%
415
8 544
19 304
44,3%
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 The segment results for the year ended 31 December 2013 are as follows:
Branded
products
£ ‘000
Beverages
£ ‘000
Non-branded
products
£ ‘000
Distribution
services
£ ‘000
Un-allocated
Total
£ ‘000
£ ‘000
Sales
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
40 393
5 125
(1 863)
(2 310)
-
952
-
-
952
-
952
2 114
1 050
(181)
(520)
-
349
-
-
349
-
349
8 008
734
(204)
(86)
-
444
-
-
444
-
444
16 461
2 621
7 299
Unallocated corporate assets
48
Unallocated deferred tax
Consolidated total assets
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred tax
-
-
16 461
2 285
-
-
Consolidated total liabilities
2 285
Other segment information:
Depreciation and amortisation
Capital expenditure
658
797
-
-
2 621
-
-
-
-
147
121
-
-
7 299
236
-
-
236
489
379
1 687
281
(59)
(142)
-
80
-
-
80
-
80
477
-
-
477
-
-
-
-
-
-
-
-
(418)
(182)
(408)
(1 008)
(1 009)
(361)
(2 378)
(151)
(2 379)
(2 529)
5 973
66
6 039
-
11 671
636
12 307
123
288
52 202
7 190
(2 725)
(3 240)
(408)
817
(1 009)
(361)
(553)
(151)
(704)
26 858
5 973
66
32 897
2 521
11 671
636
14 828
1 417
1 585
The unallocated corporate liabilities represent bank loans, overdrafts and accruals.
Revenues from inter-segment transactions are equal to zero.
ukrproduct annual report 2013
The segment results for the year ended 31 December 2012 are as follows:
Branded
products
£ ‘000
Beverages
£ ‘000
Non-branded
products
£ ‘000
Distribution
services
£ ‘000
Un-allocated
Total
£ ‘000
£ ‘000
8 853
13 363
Sales
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
35 601
7 582
(1 906)
(2 688)
(195)
2 793
-
-
2 793
-
2 793
14 856
-
-
14 856
3 544
-
-
Consolidated total liabilities
3 544
Other segment information:
Depreciation and amortisation
Capital expenditure
678
1 130
2 395
1 244
(168)
(545)
(6)
505
-
-
505
-
505
2 747
-
-
(249)
(297)
(59)
-
(605)
-
-
(605)
-
(605)
4 726
-
-
2 747
4 726
-
-
-
-
97
-
16
-
-
16
288
2 131
478
(272)
(193)
-
13
-
-
13
-
13
272
-
-
272
-
-
-
-
16
-
-
-
(416)
12
(293)
(697)
(771)
(53)
(1 521)
(333)
(1 854)
-
11 029
46
11 075
-
10 142
670
10 812
85
60
60 212
9 035
(3 059)
(3 473)
(494)
2 009
(771)
(53)
(1 185)
(333)
852
22 601
11 029
46
33 676
3 560
10 142
670
14 372
1 164
3 321
49
The unallocated corporate liabilities represent bank loans, overdrafts and accruals.
ukrproduct annual report 2013
Secondary reporting format - geographical segments:
Sales by country (consignees)
year ended
31 December 2013
£ ‘000
Sales by country (consignees)
year ended
31 December 2012
£ ‘000
Ukraine
Netherlands
Azerbaijan
Moldova
Estonia
Lithuania
UAE
-
-
Other countries
Total
48 053
1 446
704
646
384
344
180
-
-
445
52 202
Ukraine
Great Britain
Netherlands
Germany
Russia
Singapore
Azerbaijan
Moldova
Estonia
Other countries
Total
41 902
9 775
1 948
1 641
787
843
644
332
318
2 022
60 212
The majority of the Group’s assets and liabilities are in Ukraine. Sales to Great Britain in 2012 represent resale of third parties products.
Sales to the other countries in Europe represent sales to international traders of milk powders located in Europe. These traders conse-
quently resell the milk powders to other countries worldwide.
50
The Group has no customers volume of sales to which exceeds 10% from the total amount.
ukrproduct annual report 2013 8. REVENUE
For the years ended 31 December 2013 and 31 December 2012, sales revenue was presented as follows:
General revenue
General revenue
Branded (including bonuses)
Beverages (including bonuses)
Non-branded products
Distribution services (including bonuses)
Charge of bonuses
Total revenue (excluding bonuses)
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
53 674
41 688
2 243
8 008
1 735
(1 472)
52 202
61 421
36 689
2 490
8 854
13 388
(1 209)
60 212
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.
51
ukrproduct annual report 2013 9. ExPENSES BY NATURE
For the years ended 31 December 2013 and 31 December 2012, items of expenses were presented as follows:
General revenue
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
52
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 expenses
Including:
Wages and salaries, social security costs (Note 12)
Lease and current repair and mainenance
PR, nominated broker, secretary, legal services etc.
Security
Bank service
IT materials, household expenses, reading materials
Communication
Amortization and depreciation (Note 11)
Audit fees
Taxes and compulsory payments
Other
Selling and distribution expenses
Including:
Wages and salaries, social security costs (Note 12)
Delivery costs
Promotion
Lease and current repair and mainenance
Impairment of inventories
Amortization and depreciation (Note 11)
Veterinary certificates, medical examination, permits
Royalty
Other
Other operating expenses
Including:
Amortization and depreciation (Note 11)
Impairment of available for sale investments
Profit / (loss) on disposal of non-current assets
Wages and salaries, social security costs (Note 12)
Impairment of trade receivables
Other
(45 012)
(40 569)
(3 236)
(1 207)
(2 725)
(1 377)
(330)
(257)
(139)
(136)
(99)
(98)
(61)
(56)
(50)
(122)
(3 240)
(1 365)
(759)
(417)
(264)
(144)
(96)
(58)
(5)
(132)
(408)
(53)
(31)
(5)
(1)
-
(318)
(51 177)
(46 960)
(3 222)
(995)
(3 059)
(1 660)
(294)
(200)
(162)
(139)
(117)
(101)
(71)
(68)
(63)
(184)
(3 473)
(1 537)
(789)
(460)
(246)
(76)
(77)
(64)
(79)
(145)
(494)
(21)
(36)
(25)
(15)
(120)
(277)
ukrproduct annual report 2013 10. NET FINANCE COST
For the years ended 31 December 2013 and 31 December 2012, financial income/(expenses) were presented as follows:
Finance income
Interest income
Total interest income
Finance expense
Interest expense on bank loans
Total finance expense
Net finance expense recognised in income statement
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
3
3
(1 012)
(1 012)
(1 009)
11
11
(782)
(782)
(771)
11. DEPRECIATION AND AMORTIZATION
53
For the years ended 31 December 2013 and 31 December 2012, amortization and depreciation were presented as follows:
Cost of sales
Administrative expenses
Selling and distribution expenses
Other operating expenses
Total amortization and depreciation
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
(1 207)
(61)
(96)
(53)
(1 417)
(995)
(71)
(77)
(21)
(1 164)
ukrproduct annual report 2013 12. EMPLOYEE BENEFIT ExPENSES
For the years ended 31 December 2013 and 31 December 2012, financial income/(expenses) were presented as follows:
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
Wages and salaries (including key management personnel)
Social security costs
Average number of employees
(4 400)
(1 579)
(5 979)
1 583
(4 791)
(1 643)
(6 434)
1 640
54
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
Wages and salaries of key management personnel:
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
(3 236)
(1 377)
(1 365)
(1)
(5 979)
(3 222)
(1 660)
(1 537)
(15)
(6 434)
For the year ended 31 December 2013, remuneration of the Group’s key management personnel amounted to GBP 183,750 (2012: GBP 249,000).
Key management personnel received only short term benefits during the years ended 31 December 2013 and 31 December 2012.
The key management personnel are those persons remunerated by the Group who are members of the Board of Directors of the Com-
pany (Ukrproduct Group Ltd).
ukrproduct annual report 2013 13. INCOME TAx ExPENSES
For the years ended 31 December 2013 and 31 December 2012, income tax expenses were presented as follows:
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
Current tax charge - Ukraine
Current tax charge - non-Ukraine
Deferred tax relating to the origination and reversal of temporary differences
Total income tax expenses
149
5
(3)
151
403
21
(91)
333
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 19% (2012: 21%).
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.
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
55
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 (2013: 19%, 2012: 21%)
Cyprus (10%)
BVI, Jersey (0%)
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
Tax charge
Ukraine
Cyprus
BVI, Jersey
The weighted average applicable tax rate
Ukraine
Cyprus
BVI, Jersey
128
221
(902)
(553)
24
22
-
46
122
(17)
-
105
146
5
-
151
19%
10%
Nil
-8%
2 158
106
(1 079)
1 185
453
11
-
464
(141)
10
-
(131)
312
21
-
333
21%
10%
Nil
39%
ukrproduct annual report 2013 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 inter-
pretation 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 decreas-
es 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 finan-
cial 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 compa-
nies 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.
14. PROPERTY, PLANT AND
EQUIPMENT
In accordance with IAS 16 “Property, Plant and Equip-
ment”, the Group carries out revaluations, with suffi-
cient regularity to ensure that the carrying amount does
not differ materially from fair value. As at 31 December
2013, a review was conducted and showed that the car-
rying value of assets remained appropriate.
The Group is divided into two cash generating units
(hereinafter CGU):
Dairy production
The Dairy production is the aggregation of assets which
produces butter, cheese, protein and skimmed milk
products. This is comprised of:
- The manufacturing facilities of SE Starokostian-
tynivskyi Molochnyi Zavod and its two structural
divisions in the city of Zhytomyr and the city of
Letychiv,
- Group’s vehicle fleet which is used for transporta-
tion of raw materials and finished dairy products,
- Trademarks of dairy segment “Nash Molochnik” (“Our
Dairyman”), “Vershkova Dolyna” (“Creamy Valley”) and
“Narodnyi Product” (“People’s Product”) and,
- Goodwill arising from the purchase of the raw milk
zone and the manufacturing capacities in the city of
Letychiv.
Beverages production
The Beverage production is the aggregation of assets
which produces Zhyvyi Kvass Arseniyivskyi. This is
comprised of:
- Includes the manufacturing capacities of LLC Zhyvyi
Kvass and,
- The trademark “Arseniyivskyi”.
Key assumptions used in value in use calculations
The calculation of value in use for both dairy and bever-
ages units is most sensitive to the following assump-
tions:
Gross margins – Gross margins are based on and
budgeted values for 2014 and consider product
prices and cost indexes trends over 2015-2020
years.
Discount rates – Discount rates represent the current
market assessment of the risks specific to each
CGU, taking into consideration the time value of
money and individual risks of the underlying assets
that have not been incorporated in the cash flow
estimates. The discount rate calculation is based
on the specific circumstances of the Group and its
operating segments and is derived from its weighted
average cost of capital (WACC). The WACC takes
into account both debt and equity. The cost of eq-
uity is derived from the expected return on invest-
ment by the Group’s investors. The cost of debt is
based on the interest bearing borrowings which the
Group is obliged to service. Segment-specific risk
is incorporated by applying individual beta factors.
The beta factors are evaluated annually and using
publicly available market data. WACC applied in the
model for both CGUs is equal to 17,9%.
Product price growth – Obtained from published
consumer price index for Ukraine or world price
trends for exported product groups.
Raw materials price inflation – Estimates are ob-
tained from published indexes for Ukraine.
56
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 Based on the assumptions described above, using sensi-
tivity analysis we indicate that an impairment of the Dairy
production CGU at WACC growth of 2% and for Bever-
ages production CGU at WACC growth of 3%.
With regard to the assessment of value in use of both
CGU, management believes that no reasonably possible
change in any of the above key assumptions would cause
the carrying value of the unit to materially exceed its
recoverable amount.
Growth rates estimates – Rates are based on pub-
lished industry research applicable for Ukraine.
Market share assumptions – When using indus-
try data for growth rates, these assumptions are
important because management assesses how the
unit’s position, relative to its competitors, might
change over the forecast period.
Industry forecasts have not been used for forecasting of
sales in the butter, hard cheese and processed cheese
categories, as they are not in line with Group manage-
ment plans for further expansion of dairy products
market share through the development of the brands
“Nash Molochnik” , “Vershkova Dolyna” and “Molendam”.
Hard cheese produced by the Group takes an additional
market share which is supported by the average actual
dynamics for 2010-2013.
Industry forecasts have not been used for forecasting
the sales in Kvass (beverages) category, as the Group
produces a unique product Zhyvyi (Live) Kvass which
has no competing beverage of its nature in the Ukraine.
The sales are historically increasing every year and are
expected to do so in the short and medium term. The
model is based on management’s own forecasted sales
dynamics.
57
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 As at 31 December 2013 and 31 December 2012, property, plant and equipment were presented as follows:
Assets under
Construction
£ ‘000
Land and
Buildings
£ ‘000
Plant and
Machinery
£ ‘000
Vehicles
£ ‘000
Instruments, tools
and other equipment
£ ‘000
Total
£ ‘000
Cost or valuation
At 1 January 2012
Additions
Transfers to/from AUC
Exclusion from Group
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2012
Accumulated depreciation
At 1 January 2012
Depreciation charge
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2012
Cost or valuation
At 1 January 2013
Additions
Transfers to/from AUC
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2013
Accumulated depreciation
At 1 January 2013
Depreciation charge
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2013
Net book amount at 31 December 2013
Net book amount at 31 December 2012
Net book amount at 31 December 2011
3 540
1 124
(3 531)
-
(78)
(115)
940
29
-
-
-
29
940
1 491
(718)
-
(60)
1 653
29
-
-
-
29
1 624
911
3 511
58
8 891
-
1 323
-
-
(382)
9 832
2 948
321
-
(56)
3 213
9 832
-
40
-
(180)
9 692
3 212
374
-
(52)
3 534
6 158
6 619
5 943
8 499
1 880
2 586
-
(17)
(348)
12 600
3 229
455
(15)
(41)
3 628
12 600
54
503
(19)
(269)
12 869
3 628
654
(6)
(56)
4 220
8 649
8 972
5 270
3 850
96
10
-
(177)
(108)
3 671
2 243
140
(63)
(44)
2 276
3 671
-
38
(102)
(47)
3 560
2 277
137
(31)
(27)
2 356
1 204
1 395
1 607
1 397
303
(388)
-
(28)
(57)
1 227
555
166
(23)
(21)
677
1 227
43
137
(118)
(35)
1 254
677
165
(125)
(13)
704
550
550
842
26 177
3 403
-
-
(300)
(1 010)
28 270
9 004
1 082
(101)
(162)
9 823
28 270
1 588
-
(239)
(591)
29 028
9 823
1 330
(162)
(148)
10 843
18 185
18 447
17 173
Fixed assets with a net book value of GBP 16,312,555 at 31 December 2013 (2012: GBP 13,386,555) were pledged as collateral for loans.
As at December 31, 2013 the Group has no contractual commitments on purchase of property, plant and equipment.
Borrowing costs for the tranches from EBRD for the second stage of reconstruction of SE Starokostiantynivskyi Molochnyi Zavod was capi-
talised during July-December of 2013. They amounted to GBP 33,757 (2012: nil). Average rate for EBRD loan 7,225% used to determine
the amount of borrowing costs eligible for capitalisation.
As at December 31, 2013 prepayments for property, plant and equipment were included within Assets under construction in the amount of GBP
599,000 (2012: GBP 84,000) As at December 31, 2013 fully depreciated assets included within property, plant and equipment with the
original cost of GBP 565,000 (2012: GBP 34,000)
IIt’s impracticable to provide information about the carrying amounts of all classes of assets, except office equipment if they were mea-
sured using the cost model without undue cost and efforts.
ukrproduct annual report 2013 15. INTANGIBLE ASSETS
As at the reporting dates intangible assets were presented as follows:
Computer
software
£ ‘000
Trade
marks
£ ‘000
Customer list
Goodwill
Total
£ ‘000
£ ‘000
£ ‘000
Cost or valuation
At 1 January 2012
Additions
Acquisition of subsidiary
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2012
Accumulated amortisation
At 1 January 2012
Amortisation charge for the year
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2012
Cost or valuation
At 1 January 2013
Additions
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2013
Accumulated amortisation
At 1 January 2013
Amortisation charge for the year
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2013
Net book amount at 31 December 2013
Net book amount at 31 December 2012
Net book amount at 31 December 2011
36
2
-
(5)
(1)
32
24
6
(3)
(1)
26
32
2
(2)
(1)
31
26
3
-
(1)
28
3
6
12
469
289
153
-
(28)
883
163
41
-
(8)
196
883
-
-
(21)
862
196
49
-
(6)
239
623
687
306
692
-
-
-
-
692
216
35
-
-
251
692
-
-
-
692
251
35
-
-
286
406
441
476
261
-
(153)
-
(4)
104
-
-
-
-
-
104
-
-
-
104
-
-
-
-
-
104
104
261
1 458
291
-
(5)
(33)
1 711
403
82
(3)
(9)
473
1 711
2
(2)
(22)
1 689
473
87
-
(7)
553
1 136
1 238
1 055
59
The remaining amortization periods of the intangible assets are as follows:
- Computer software 2-9 years;
- Trademarks 11-18 years;
- Customer list 11 years.
Acquired intangible assets and Goodwill
The intangible asset “Customer list” represents the captive individual suppliers of raw milk. 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). The
result of the impairment test, what was held in 2013, was that the carrying value of the intangible asset as at December 31, 2013 is considered
appropriate. It’s impracticable to provide information about the carrying amount of customer list if it was measured using the cost model without
undue cost and efforts. There is no revaluation surplus that relates to Customer list at the beginning and end of the period
ukrproduct annual report 2013
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 2013, was that no impairment needs to be
recognised and the carrying value of the acquired good-
will is considered appropriate.
After having analyzed all key factors the Group’s Manage-
ment decided that as of December 31, 2013 the Goodwill
did not lose any of its value. The directors believe this asset
has unlimited useful life duration and has been tested as
part of Group’s single cash generating unit. See Note 14.
The Group’s production plans are based on the estab-
lished practice of production and distribution of dairy
products in the raw material zone 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, 2013 and con-
siders that the amount of GBP 0.1 million is its fair value.
16. DEFERRED TAx ASSETS AND LIABILITIES
For the year ended 31 December 2013, deferred tax assets and liabilities were presented as follows:
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
60
Deferred tax asset at the beginning of the year
Deferred tax liability at the beginning of the year
Deferred tax asset recognised in income statement during the year
Deferred tax liability recognised in income statement during the year
Reduction in deferred tax due to decrease in property, plant and equipment revalu-
ation reserve because of amortisation
Effect from tax rate change (2011: 23%, 2012: 21%, 2013: 19%)
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
(46)
-
(22)
(20)
(73)
-
-
2
(66)
-
-
670
-
77
(58)
(38)
-
(15)
-
636
(50)
-
2
-
-
-
-
2
(46)
-
-
881
(83)
-
(35)
-
670
17. INVENTORIES
As at the reporting dates inventories were presented as follows:
Finished goods
Raw materials
Work in progress
Other inventories
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
1 156
1 053
167
634
3 010
1 660
817
367
571
3 415
IInventories with a net book value of GBP 336,332 at 31 December 2013 (2012: nil) were pledged as collateral for loans.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 20. OTHER FINANCIAL ASSETS
Loans and
receivables
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
Loans issued
to related parties
-
Loans issued
to third parties
174
45
124
Loans issued
to employees
2
176
27
196
21. CASH AND CASH
EQUIVALENTS (ExCLUDING
BANK OVERDRAFTS)
As at the reporting dates cash and cash equivalents were
presented as follows:
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
61
Cash - in UAH
4
Bank - in UAH
911
Bank - in other
currencies
91
1 006
23
303
89
415
18. TRADE AND OTHER
RECEIVABLES
As at the reporting dates receivables were presented as
follows:
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
Trade receivables
5 509
Other receivables
469
Prepayments
941
6 919
5 431
1 129
339
6 899
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.
Maturity of trade receivables as at 31 December 2013
and 31 December 2012 is presented as follows:
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
In less then 1 year
6 919
6 919
6 899
6 899
As at 31 December 2013, there were no trade and other
receivables past due not impaired (2012: Nil)
19. CURRENT TAxES
As at the reporting dates current taxes were presented
as follows:
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
VAT receivable
2 241
2 833
Current income tax
prepayments
140
Other prepaid taxes
18
2 399
142
15
2 990
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
22. SHARE CAPITAL
As at the reporting dates share capital was presented as follows:
Authorised
As at
31 December 2013
Number ‘000
£ ‘000
year ended
31 December 2013
£ ‘000
As at
31 December 2012
Number ‘000
£ ‘000
year ended
31 December 2012
£ ‘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 2013
Number ‘000
£ ‘000
year ended
31 December 2013
£ ‘000
As at
31 December 2012
Number ‘000
£ ‘000
year ended
31 December 2012
£ ‘000
Ordinary shares of 10p each
At beginning of the year
62
Own shares acquired
At end of the year (excludin
40 818
(1 145)
shares held as treasury shares)
39 673
4 082
(115)
3 967
40 818
-
40 818
-
40 818
40 818
Held as treasury shares
As at
31 December 2013
Number ‘000
£ ‘000
year ended
31 December 2013
£ ‘000
As at
31 December 2012
Number ‘000
£ ‘000
year ended
31 December 2012
£ ‘000
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
At end of the year
2 000
1 145
3 145
200
115
315
2 000
-
2 000
200
-
200
As at 31 December 2013 the Company held a total of 3 144 800 Ordinary Shares as treasury shares and the total number of Ordinary Shares
in issue (excluding shares held as treasury shares) was 39 673 049
Subsequent events is disclosed in note 32.
ukrproduct annual report 2013 23. OTHER RESERVES
At the reporting date other reserves were presented as follows:
Share
premium
£ ‘000
Merger
reserve
£ ‘000
Translation
reserve
£ ‘000
Revaluation
reserve
£ ‘000
Revaluation
reserve
£ ‘000
At 1 January 2012
Own shares acquisition
Gain on revaluation of fixed assets
Depreciation on revaluation of
property, plant and equipment
Exchange differences on translation
to the presentation currency
At 31 December 2012
Own shares acquisition
Depreciation on revaluation of
property, plant and equipment
Impact of the change in tax rate
Reduction of revaluation reserve
Group restructuring completion
(Note 2.1 (c))
Exchange differences on translation
to the presentation currency
7
-
-
-
-
-
At 31 December 2013
4 562
4 555
(367)
(5 454)
-
-
-
-
-
-
-
-
4 555
(367)
-
-
-
(885)
(6 339)
0
-
-
-
-
(429)
(6 768)
-
-
-
-
(367)
-
-
4 134
(283)
83
(57)
-
3 877
-
(247)
38
(32)
-
-
3 636
2 868
(283)
83
(57)
(885)
1 726
7
(247)
38
(32)
367
(429)
1 430
63
The following describes the nature and purpose of each reserve within owners’ equity.
Reserve Description and purpose
Share premium Amount subscribed for share capital in excess of nominal value.
Revaluation Gains arising on the revaluation of the Group’s property. The balance on this reserve is wholly undistributable.
Merger 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.
Retained earnings Cumulative net gains and losses recognised in the consolidated income statement.
Translation Amount of all foreign exchange differences arising from the translation of the financial information of foreign
subsidiaries.
ukrproduct annual report 2013
24. BANK LOANS AND OVERDRAFTS
As at 31, December 2013, the Group had received EUR 8.3 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 Staro-
konstantinovskiy Molochniy Zavod SC plant.
The Group is not in default on any of its loan agreements.
Bank
Currency
Type
Opening
date
Termination
date
Interest
rate
Limit
£ ‘000
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
EBRD
OTP Bank
Aval Bank
UkrSibbank PJSC
Credit Europe Bank
EUR
UAH
UAH
UAH
UAH
Loan
31.03.2011
10.06.2018
≈ 8,5%
Credit line
30.05.2011
25.06.2014
12,0%
Overdraft
31.052013
23.04.2014
18,0%
Overdraft
28.04.2011
31.05.2013
20%
9 203
3 031
758
379
6 580
2 676
454
-
Credit line
11.02.2013
11.02.2016
current
1 212
1 210
market rate
10 920
5 720
2 931
-
308
-
8 959
The average interest rate as at 31 December 2013 was 14.4% (2012: 12.9%).
Maturity of financial liabilities
64
On demand
In less than 1 year*
In more than 1 year*
Interest rate profile of financial liabilities
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
454
5 348
5 118
10 920
308
3 748
4 903
8 959
Floating rate
Fixed rate
£ ‘000
£ ‘000
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
On demand
In less than 1 year*
In more than 1 year*
454
1 462
5 118
7 034
-
3 886
-
3 886
454
5 348
5 118
10 920
308
3 748
4 903
8 959
ukrproduct annual report 2013 The currency profile of the Group’s financial liabilities is as follows:
Floating rate
liabilities
£ ‘000
Fixed rate
liabilities
£ ‘000
Total as at
31 December 2013
£ ‘000
Total as at
31 December 2012
£ ‘000
UAH
EUR
-
6 580
6 580
4 340
-
4 340
4 340
6 580
10 920
3 239
5 720
8 959
The book value and fair value of financial liabilities are as follows:
Book value as at
31 December 2013
Fair value as at
31 December 2013
Book value as at
31 December 2012
Fair value as at
31 December 2012
Bank loans
Bank overdrafts
10 466
454
10 920
10 466
454
10 920
8 651
308
8 959
8 651
308
8 959
65
*Extendable according to 3-year agreement with bank.
ukrproduct annual report 2013 25. TRADE AND OTHER PAYABLES
At the reporting date trade and other payables were presented as follows:
Trade payables
Other payables
Prepayments received
Accruals
Provisions
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
2 332
337
254
263
40
3 226
3 603
344
25
288
252
4 512
The Group’s management believes that the carrying value for trade and other payables is a reasonable approximation of their fair value.
Provisions were created for impaired trade and other receivables and holiday allowance.
For the year ended 31 December 2013, provisions were presented as follows:
Impaired trade and other receivables at the beginning of the year
66
Holiday allowance at the beginning of the year
Accrual
Use of allowances
Effect of translation to presentation currency
Impaired trade and other receivables at the end of the year
Holiday allowance at the end of the year
As at
31 December 2013
£ ‘000
As at
31 December 2012
£ ‘000
126
-
-
-
(3)
123
-
-
126
277
(364)
1
-
40
40
-
110
(4)
(20)
126
-
-
110
372
(351)
(5)
-
126
26. EARNINGS PER SHARE
Basic earnings per share have been calculated by dividing net profit attributable to the ordinary shareholders by the weighted
average number of shares in issue.
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
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
(704 )
39 804 751
(1,77)
39 816 596
(1,77)
852
40 817 599
2,09
40 817 599
2,09
ukrproduct annual report 2013 27. DIVIDENDS
Due to the business circumstances dictating the prudence and cash conservation, the Board has decided not to pay a final divi-
dend in respect of the year ended 31 December 2013.
28. SHARE-BASED PAYMENTS
The Company operates an equity-settled share based remuneration scheme for employees.
2013 Weighted average
exercise price
£
Number
2012 Weighted average
exercise price
£
Number
Outstanding at beginning of the year
0, 128
130 290
0, 128
130 290
Granted during the year
Forfeited during the year
Exercised during the year
Lapsed during the year
Change in option terms
Outstanding at the end of the year
Exercisable at the end of the year
-
-
-
-
(0,028)
0, 100
0, 100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
130 290
130 290
0, 128
0, 128
130 290
130 290
During the period under review the Company did not grant options to any parties. In February 2013 given the decline of market share price the exer-
cise price for these options was reset to 10 pence and the exercise period extended until 2017. As at the year end these options were not exercised.
67
All options granted to the Directors are exercisable over a period of four years.
Taking into account the fair value estimate of options granted at the grant date, no remuneration charge was recognised in statement of
comprehensive income in 2013.
The fair value of options granted in 2009 was calculated based on the following data:
Item
Option pricing model used
Weighted average share price at the grant date
Exercise price
Weighted-average contractual life, years
Expected volatility
Expected dividend yield
Expected dividend growth rate
Weighted-average risk-free interest rate
2009
Adjusted Black-Scholes
0,1275
0,1280
4,0
25%
5%
0%
1,92%
ukrproduct annual report 2013
29. CURRENCY ANALYSIS
Currency analysis for the year ended 31 December 2013 is set out below:
Assets
Trade and other receivables
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
UAH
5 652
2 399
176
915
9 142
4 340
2 665
18
28
7 051
USD
1 263
-
-
-
1 263
-
321
-
-
321
Currency analysis for the year ended 31 December 2012 is set out below:
GBP
EUR
Total
-
-
-
-
-
-
-
-
-
-
4
-
-
91
95
6 580
240
-
-
6 820
6 919
2 399
176
1 006
10 500
10 920
3 226
18
28
14 192
68
Assets
Trade and other receivables
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
UAH
5 788
2 990
151
326
9 255
3 239
4 192
110
121
7 662
USD
1 077
-
45
84
1 206
-
147
-
-
147
GBP
EUR
Total
25
-
-
5
30
-
-
-
-
-
9
-
-
-
9
5 720
173
-
-
5 893
6 899
2 990
196
415
10 500
8 959
4 512
110
121
13 702
40 % strengthening of Hryvnia rate against the following currencies as at 31 December 2013 and 2012, 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 2013
£ ‘000
Effect on income
before tax in 2012
£ ‘000
USD
EUR
USD
EUR
40%
40%
-40%
-40%
377
(2 690)
(377)
2 690
106
(588)
(106)
588
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 30. 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 com-
mon control of the ultimate beneficiaries of the Company.
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
Sales
429
289
Other
operational
incomes
Purchases
-
46
-
84
Balances due from/(to) related parties at each period
end are shown below.
year ended
31 December 2013
£ ‘000
year ended
31 December 2012
£ ‘000
Receivables and
prepayments
Loans issued
Trade and other
payables
97
-
(76)
86
45
(173)
In 2013, the Group’s commercial relationships with the
related parties comprised sales, purchases, provision,
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.
31. COMMITMENTS AND
CONTINGENCIES
(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 re-
sult, assets and operating activity of the Group may be
exposed to the risk in case if any unfavourable 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 at-
tention 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 the opinion of tax authority officers and the Ministry of
Finance. It is common practice for disagreements between
local, regional and republican taxation authorities to arise.
A system of fines and penalties for claimed or revealed vi-
olations exists in corresponding regulatory legal acts, laws
and decisions. Penalties include confiscation of amount
in dispute (in case of law violation) as well as fines. These
facts create tax risks, which means that the Group may be
exposed to the risk of additional tax liabilities, fines and
penalties. These risks far exceed risks in 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 ac-
cordance 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 2013 and 2012 the Group had no liabilities for
supplementary pensions, health care, insurance benefits or
retirement indemnities to its current or former employees.
(d) Compliance with covenants
The Group is subject to certain covenants related primarily
to its borrowings. Non-compliance with such covenants
may result in negative consequences for the Group.
Group’s management is confident that as at 31 December
2013 the Group is not in breach of its loan agreements.
69
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013
32. SUBSEQUENT EVENTS
(a) EBRD - breach of loan
covenants
On 04 April 2014 EBRD agreed to not to exercise or
enforce the right to require compliance with broken
covenants and thus the Group managed to remedy the
default.
(b) Foreign exchange rates
As at the date of issue of these financial statements the
UAH exchange rates are as follows:
Currency
UAH/GBP
UAH/USD
UAH/EUR
30 April 2014
19.22
11,41
15,81
70
(c) Stock Listing
Pursuant to the resolution of the National Commission
on Securities and Stock Market dated 14 January 2014
the shares of the Company have been approved to be
admitted to trading on the Ukrainian stock market.
It is expected that 581,400 ordinary shares of 10 pence
each will be admitted to trading on the Ukrainian Stock
Market and the dealings are expected to commence
shortly. No new ordinary shares have been issued and
accordingly the total number of shares in issue remains
unchanged.
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 7171
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 CORPORATE ADVISERS
Group secretary
Bedell Secretaries Limited
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Nominated adviser
Cantor Fitzgerald Europe
1 America Square
17 Crosswall
London EC3N 2LS
72
Nominated broker
Cantor Fitzgerald Europe
1 America Square
17 Crosswall
London EC3N 2LS
Independent auditors
Baker Tilly Channel Islands Limited
PO Box 437
13 Castle 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
Neville Registrars
Neville House
18 Laurel Lane
Halesowen B63 3DA
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 NOTES
73
12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 NOTES
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12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012ukrproduct annual report 2013 12This 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 CommitteeThe Remuneration Committee comprises one non-n-executiveDirector, Jack Rowell. This Committee is scheduled to meetat least twice per annum to advise the Board on the Groups 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 Groups objectives. The Remuneration Committee is alsoresponsible for the evaluation of the performance of Executive Directors.The Remuneration Committee held two meetings during 2011.Remuneration PolicyThe Company’s remuneration policy is to provide remuneration packages which:• are designed to attract, motivate and retain high calibreExecutives;• are competitive and in line with comparable businesses;• are rooted in practices exercised in countries where theGroup operates;• intend to align the interests of the Executives with those ofthe shareholders by means of fixed and performance relatedremuneration; and• set challenging performance targets and motivate Executivesto achieve those targets both in the short and long-term.Base salaryThe Committee on an annual basis reviews base salaries of 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 Directors 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 arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Executive Remuneration structure more performance-e-related, more competitive and aligned with sharehold-ers’ interests.Service contractsThe 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 compensationfor loss of office is to provide compensation which reflects the Group or that subsidiary companys contractual obligations.Bonus SchemeThe Committee has established a cash bonus scheme for Executive Directors based on the overall perfor-mance of the Group and/or respective subsidiary company and attainment of the operating profit targets.UKRPRODUCT AT A GLANCENon-executive directorsThe 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 suchappointment is subject to the Board’s approval and terms and conditions of Service Agreements.Incentive bonus plans and equity arrangementsThe Committee plans to consider developing long-termequity incentive arrangements to make the overall Execu-tive Remuneration structure more performance-related, more competitive and aligned with shareholders’ interests.UKRPRODUCT GROUP LTD ANNUAL REPORT 2012 ukrproduct.com