ANNUAL
REPORT2014
Annual Report 2014
3
Table of Contents
CHAIRMAN AND CHIEF EXECUTIVESTATEMENT
THE BOARD OF DIRECTORS
REMUNERATION COMMITTEE REPORT
CORPORATE GOVERNANCE REPORT
CORPORATE SOCIAL RESPONSIBILITY REPORT
DIRECTORS’ REPORT
STATEMENT OF DIRECTORS’ RESPONSIBILITY
INDEPENDENT AUDITORS’ REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to consolidated financial statements
CORPORATE ADVISERS
4
7
9
12
15
17
20
22
25
26
28
30
34
36
99
100
SHAREHOLDER INFORMATION
4
1
Chairman and Chief
Executive Statement
Over the year 2014 the highly unstable political and economic environment in
Ukraine provided ongoing challenges for Ukrproduct Group. The most impor-
tant macroeconomic factors affecting us were the very significant volatility and
devaluation of the Hryvnia, escalating inflation and struggling consumption in
the domestic market. Furthermore, the tensions in the Eastern part of Ukraine
and Crimea caused unstable supplies to these areas leading to a reduction of
the actual market capacity. The Company has been addressing these issues by
strengthening its sales strategy in the rest of Ukraine.
In the dairy market, whilst Ukrproduct has not itself supplied Russia, the ban on
export of dairy products to Russia led to an oversupply of hard cheese in the
domestic market whilst at the same time resulted in lower raw milk prices due to
increased availability in the summer period. However, on an annual basis aver-
age raw milk prices in 2014 increased by approximately 8% y-o-y that coupled
with the increased cost of imported raw materials and higher energy costs
placed further pressure on unit costs.
BRANDED DAIRY PRODUCTS
The sales were challenged by the market situation and the limited purchasing
power of the local population. However, profitability improved as consumer price
increases compensated for rising input costs. Overall sales of branded products
in local currency decreased by 5% in Hryvnia terms compared to the previous
year with packaged butter and hard cheese categories being affected the most.
On the positive side consumer price increases resulted in margins improvement
thus gross profit in the branded products category grew by 21% in Hryvnia
terms.
In respect of its market share Ukrproduct Group has remained among the market
leaders in its core categories of processed cheese and butter. The Company is
also among top-five producers of kvass in Ukraine with 6.2% market share and
is the only mass manufacturer of “fresh” Kvass in Ukraine.
Inthe butter segment, the Company experienced a decrease in both volumes and
revenues by 39% and 27% respectively, however margins improved substantially
resulting in a gross profit increase of 67% in Hryvniaterms. In the second half of
Annual Report 2014 5
2014, the Company launched a comprehensive advertising and promotion cam-
paign for its flagship “Our Dairyman” brand. This initiative proved to be effective
resulting in positive sales trends towards the end of the year.
The overall market of spreads in Ukraine grew as a result of consumers switch-
ing from traditional butter to more affordable substitutes. Thus Ukrproduct’s
category of spreads showed a 17% y-o-y increase in sales, however profitability
was reduced as result of increased input costs leading to an 83% fall in gross
profit in Hryvniaterms.
Processed cheese showed a 5% decrease in revenues but as the contribution
margin improved compared with the previous year this resulted in a 16% gross
profit increase y-o-y in Hryvniaterms.
Hard cheese sales have been the most affected by the restrictions on exports to
Russia with local dumping of product by our competitors. As a result year-on-year
sales fell by 36% and the segment hardly broke-even on the gross profit level.
The Hryvniadevaluation prompted the increased focus on export sales of both
branded products and skimmed milk powder and led to the significant improve-
ment of the exportrevenues by 34% year-on-year. The advantageous trend in the
Skimmed Milk Powder segment which largely contributed to the Group’s profits
in the first half year reversed towards the end of 2014. Consequently, the Group
actively sought third party orders in order to capitalise on the Company’s effi-
cient milk protein processing facilities which were upgraded with funds provided
by the EBRD. This initiative was successful with orders being received from
multinationals such as Pepsico and Danone and increasing utilisation rates of the
facility. On an annual basis this segment showed a robust 71% increase in sales
and a more than 4 times increase in gross profit in Hryvna terms.
BEVERAGES
Kvass sales benefitted from the special focus of marketing and sales teams and
showed a healthy 10% increase to the previous year, a good result particularly due
to the challenging supply situation in Crimea that has accounted for a substantial
part of summer kvass sales. Gross profits declined by 4% compared to the previ-
ous year despite the increase in sales due to increased sugar and energy costs.
THIRD PARTY (DISTRIBUTION AND PRODUCTION) SERVICES
The services were developed with the focus on growing quality business with
sustainable margins. The Company has increased the efficiency of its production
capacities utilization via placement of the third party orders for skimmed milk. As
a result the revenues of the third party distribution and production increased by
35% y-o-y and their gross profitability increased by 52%.
Annual Report 2014 6
FINANCES
Overall the Company saw a 43% year-on-year increase in EBITDA and a more
than doubled operating profit for the full year 2014 in Hryvniaterms. Moreover,
the operating cash-flow has been substantially improved during the year. How-
ever, the significant Hryvniadevaluation has offset such operating improvement
via a negative foreign exchange difference charge. The effect of exchange rate
led to the Group reporting a loss for FY2014. Ukrproduct Group is substantially a
Hryvniabusiness and a sustained devaluation affects the translation of its finan-
cial performance in other currencies.
Ukrproduct Group has ensured sufficient bank facilities for working capital. As
at the date of this announcement the Group is engaged in negotiations with the
European Bank for Reconstruction and Development (“EBRD”) to restructure
the loan repayment schedule taking into account significant Hryvniadevaluation
which we anticipate completing in the second half of 2015.
On the operational side the second stage of modernization project with the European
Bank for Reconstruction and Development is now being finalized. Meanwhile the
Company is continuing to see the positive effect of the completed phases that has
become even more relevant given the rise in energy costs. Additionally, the Company
has been adjusting its business model including optimisation of sales and logistics
structure. This has proved to be successful and has resulted in improved efficiency of
operations. The financial outcomes of these initiatives are now being seen.
TRADING OUTLOOK
Given the volatile environment in the part of the Eastern Ukraine and Crimea, Ukr-
product has been looking to recover sales volumes via adjustment of its regional
focus. To this end the Company invested in a comprehensive marketing program
launched in Autumn 2014 for its flagship brand “Our Dairyman”. These initiatives
resulted in positive sales trends for the last quarter of the financial year and have
continued subsequently. Additionally, the Group has been optimising its product
offering to become more relevant to the current market environment. Finally, all
these efforts are underpinned by the further improvement in productivity.
The negotiations with EBRD with regards to restructuring of the loan repayment
are constructive and we look forward to the approval of new terms adjusted to
the current environment in the second half of 2015.
Jack Rowell
Chairman
Sergey Evlanchik
Chief Executive Officer
Annual Report 2014
7
2 The Board
of Directors
As of the date of the approval of the 2014 Annual Report, the Board members are as follows:
Name
Jack Rowell
Sergey Evlanchik
Alexander Slipchuk
Yuriy Hordiychuk
Position
Date appointed
Non-executive Chairman
November 2004
Chief Executive Officer
April 2008
Executive Director
November 2004
Chief Operational Officer
January 2013
Jack Rowell
Non-executive Chairman
Dr. Rowell has acted as Chairman of a number of companies in the public and
private sector, mainly within the food production industry. He was previously
an executive director on the board of Dalgety plc responsible for the consumer
foods division. Jack also served as 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.
Annual Report 2014 8
Sergey Evlanchik
Chief Executive Officer
Sergey Evlanchikis responsible for the Group’s overall performance and strategy
implementation and is a founder of Ukrproduct Group. He studied at Vladivostok
State University of Economics & Service in the Russian Federation and at Oxford
University in the UK, where he received his MBA degree. Together with Alexan-
der 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 devel-
opment in the industrial sector of Ukraine, particularly within the dairy industry,
where he joined the companies that would subsequently form Ukrproduct Group
in 2004. Sergey then led the Group to its successful listing on the AIM market
of the London Stock Exchange in 2005.In 2011 under the leadership of Sergey
Evlanchik the Group secured debt finance with EBRD focused on energy and
production efficiency upgrade of the existing production facilities.
Alexander Slipchuk
Executive Director
Alexander Slipchuk studied at Far-Eastern High Engineering Marine School in
Russia and graduated as a maritime navigator in 1989. Together with his part-
ner Sergey Evlanchik, Alexander established the securities house Alfa-Broker
in 1994, developed the equity trading business in the far east of the Russian
Federation, and acquired initial stakes in the companies that later became part
of Ukrproduct Group. Later in 1998, Alexander took on the executive positions
at the Molochnik and the Starakonstantinovskiy Dairy plants, Ukrproduct’s two
main operating assets.
Yuriy Hordiychuk
Chief Operational Officer
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 de-
gree in “Production Organization Management”. In 2006, Mr. Hordiychuk grad-
uated with MBA from the School of Economics (Russia) and earned a degree in
“Logistics and Supply Chains Management.
Annual Report 2014 9
3 Remuneration
Committee Report
This report is prepared by the Remuneration Committee of the Board and sets
out the Group’s policy on the remuneration of the Directors, with a description of
service agreements and remuneration packages for each Director.
Remuneration Committee
The Remuneration Committee comprises one non-executive Director, Jack
Rowell. This Committee is scheduled to meet at least twice per annum to advise
the Board on the Group’s remuneration strategy and to determine the terms of
employment and total remuneration of the respective Executive Directors of the
Group and of its subsidiary companies, including the granting of share options.
Among others, the objective of this Committee is to attract, retain and motivate
Executives capable of delivering the Group’s objectives. The Remuneration
Committee is also responsible for the evaluation of the performance of Executive
Directors.
The Remuneration Committee held two meetings during 2014.
Remuneration Policy
The Group’s remuneration policy is to provide remuneration packages which:
•
•
•
•
•
are designed to attract, motivate and retain high calibre Executives;
are competitive and in line with comparable businesses;
are rooted in practices exercised in countries where the Group operates;
intend to align the interests of the Executives with those of the shareholders
by means of fixed and performance related remuneration; and
set challenging performance targets and motivate Executives to achieve
those targets both in the short and long-term.
Annual Report 2014 10
Base salary
The 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 Director’s
professional experience. While determining the base salaries, the Committee
also considers general aspects of the employment terms and conditions of em-
ployees elsewhere in the Group.
Incentive bonus plans and equity arrangements
The Committee plans to consider developing long-term equity incentive ar-
rangements to make the overall Executive Remuneration structure more perfor-
mance-related, more competitive and aligned with shareholders’ interests.
Service contracts
The appointments of the respective Executive Directors of the company and its
subsidiaries are valid for an indefinite period and may be terminated with three
months notice given by either party at any time. The company or subsidiary’spol-
icy for compensation for loss of office is to provide compensation which reflects
the Group or that subsidiary company’s contractual obligations.
Bonus Scheme
The Committee has established a cash bonus scheme for Executive Directors
based on the overall performance of the Group and/or respective subsidiary
company and attainment of the operating profit targets.
Non-executive directors
The appointments of non-executive Directors are valid for an indefinite period
and may be terminated with three months notice given by either party at any
time. The decision to re-appoint, as well as the determination of the fees of the
non-executive Directors, rests with the Board. The non-executive Directors may
accept appointments with other companies, although any such appointment is
subject to the Board’s approval and terms and conditions of Service Agreements.
Annual Report 2014 11
Directors’ remuneration
Details of the Directors’ cash remuneration are outlined below:
Annual
Salary/fee
2014
2013
£’000 £’000
Bonus
2014 2013
£’000 £’000
Non-cash
compensation
2014
2013
£’000 £’000
Total cash
remuneration
2014 2013
£’000 £’000
Executive*
Alexander Slipchuk
Sergey Evlanchik
Yuriy Hordiychuk
Tetyana Komarova
Kateryna Kryuchko
Non-executive**
35
45
30
—
—
35
45
30
20
20
— —
— —
— —
— —
— —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35
45
30
20
20
Dr Jack Rowell
33.75 33.75
— —
—
—
—
33.75
* Given the trading performance of the Company the executives have decided to
forfeit their respective fees for the third and forth quarter of 2014.
**The Non-executive Director has decided to forfeit his fee for the forth quarter 2014
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 2014 are shown below.
Directors
Jack Rowell
Share Options
Exercise Price, pence
Exercise Period
130,290
10.0
to 05/02/2017
Annual Report 2014
12
4 Corporate
Governance Report
Corporate Governance Policy
Effective corporate governance is a priority of the Board and outlined below are
details of how the Company has applied the principles set out in The Combined
Code on Corporate Governance (the “Code”) revised in July 2006 by the Financial
Reporting Council. Under the rules of AIM, a market operated by the London Stock
Exchange, the company is not required to comply with the Code and the Board
considered that the size of the Group does not warrant compliance with all of the
Code’s requirements. The Board fully supports the principles on which the Code
is based and seeks to comply with best practice in such respects as they consider
appropriate for a Group of its size and nature. The Board has a wide range of expe-
rience directly relevant to the Group and its activities and its structure ensures that
no one individual or group dominates the decision making process.
The Board
The Board consists of one non-executive and three Executive Directors. The
roles of the Chairman of the Board and the Chief Executive of the Group are held
separately with a clear division of responsibility between them. The Chairman of
the Board is an independent non-executive Director.
Within the scope of the corporate governance procedures, the Board meets regu-
larly to consider the financial results, budgets, and major items of capital expend-
iture of all the Group’s companies. This body is also responsible for formulating,
reviewing and approving the Group’s strategy and the phases of its development.
TheBoard met four times during 2014.
Board Committees
The Board is assisted by the Audit and Remuneration Committees.
Annual Report 2014 13
Audit Committee
The Audit Committee consists of one non-executive Director, Jack Rowell. The
member of the Audit Committee has relevant financial experience. This Com-
mittee, 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 2014.
Remuneration Committee
The Remuneration Committee comprises one non-executive Director, Jack
Rowell. This Committee is scheduled to meet at least twice per annum to advise
the Board on the Group’s remuneration strategy and to determine the terms of
employment and total remuneration of the Executive Directors, including the
granting of share options. Among others, the objective of this Committee is to
attract, retain and motivate Executives capable of delivering the Group’s objec-
tives. The Remuneration Committee is also responsible for the evaluation of the
performance of Executive Directors.
The Remuneration Committee held two meetings during 2014.
Relations with shareholders
The Group maintains regular contact with its institutional and private sharehold-
ers, fund managers, financial analysts and brokers through a series of presenta-
tions, 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 meet-
ings with major shareholders on a regular basis. The Board believes that it is es-
sential to discuss with its major shareholders and keep them updated with regards
to the Group’s financial performance, strategy and business developments. The
Chairman is also accessible to major shareholders, if such meetings are required.
The Board invites all shareholders to attend the company’s Annual General
Meeting and encourages them to exercise their voting right and participate with
questions.
Internal Control
The Group adheres to comprehensive and strictly regulated budgeting and
reporting procedures that are aimed at more efficient internal control and risk
management. The Board is responsible for the Group’s system of internal control
Annual Report 2014 14
and for reviewing its effectiveness, however, it is recognised that any control
system can only provide reasonable and not absolute assurance against material
misstatement or loss.
The principal elements of the internal control system are as follows:
•
•
•
•
documented policies, procedures and authorisation levels;
clearly defined lines of responsibility in the organisational structure
of the Group;
a management structure which facilitates ease of communication
both vertically and horizontally;
annual budgeting and monthly reporting procedures.
The annual budgets consist of monthly budgets, which are updated each month
once actual figures become available. Due to the dynamic development of the
macroeconomic environment of the country the Group operates in, variances
in actual figures for sales, prices and other underlying assumptions from those
forecasted may occur. Hence, the budget is flexed to better reflect the future of
the Group. Such variances by each company within the Group are discovered
and recommendations for further actions are formulated.
The internal control system is further enforced by the Group’s internal audit
department. The main objectives of the internal audit function are to ensure the
safety of the Group’s assets and the reliability of accounting records. The internal
audit department is responsible for auditing the financial statements and account-
ing procedures of the companies within the Group, as well as for disclosing and
reducing various types of risks related to Group operations. Each company within
the Group has a designated auditor, who systematically performs the audits.
The Group’s controlling and risks analysis department is responsible for identi-
fying the possible issues in the Group’s processes, the ongoing optimization of
operations and risk management.
Annual Report 2014 15
5 Corporate Social
Responsibility Report
Corporate Social Responsibility
The Board is committed to developing and implementing corporate social re-
sponsibility (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 objec-
tives are as follows:
Employees
The Group is committed to ensuring equal opportunities to all its employees,
both current and prospective. Each employee’s efforts are highly valued and the
Board believes that a diverse mix of the workforce facilitates innovation, efficien-
cy and teamwork. As a matter of corporate policy, regular training and devel-
opment workshops are conducted for Ukrproduct’s staff. These are aimed at all
employee groups, including managerial, technical and production personnel. The
training programmes encourage staff to progress up the career ladder and are
central to the Group’s continuing growth and success.
Health and safety
Management at business units within the Group are responsible for developing
and maintaining the underlying practices that provide for a safe working environ-
Annual Report 2014 16
ment. Special attention is given to the production facilities, where the equipment,
including lighting, air conditioning, workspace and other constituents, undergo
constant reviews and improvements. Regular monitoring is carried out to ensure
that the required standards are met and that employees use the provided com-
munication channels to further improve their surrounding working conditions.
Customers
Customer satisfaction is at the core of the Group’s business model. Therefore, the
Board is keen to continue supplying the customers with high quality, affordable
products required by current market demands. The Group’s segmentation practices
are aimed at segregating various customer groups in order to meet their respective
needs with maximum efficiency. In addition, regular market research and surveys
are conducted to ensure maximum value is consistently offered to customers.
Environment
The Group recognises the importance of good environmental practices and seeks to
minimise a negative impact that its operations or products might have on the pro-
duction 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 produc-
tion facilities regularly in order to ensure that air quality is not adversely impacted by
its operations. The Group focuses on cutting water and energy consumption, as well
as reducing the volumes of waste. Collection and processing of waste have been
organised through the local waste collection plants. The Group’s development pro-
gramme 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 pro-
vides 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.
Annual Report 2014 17
6 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 2014.
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 activ-
ities 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 ac-
tivities 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 … and show a net loss
for the period of GBP 3.478 million (2013: GBP 0.704 million).
Whereas it is Company policy to pay dividend Board has decided not to recom-
mend the payment of the final dividend in respect of the year ended 31 Decem-
ber 2014.
Directors
Details of members of the Board of Directors are shown on page ….
Annual Report 2014 18
Executive
The Directors’ interests in the share capital of the company as at 31 December
2014 and 31 December 2013 are shown below:
Shares
2014
2013
Share options
2014
2013
Sergey Evlanchik
14,967,133
14,482,383
Alexander Slipchuk
14,939,133
14,487,383
—
—
—
—
Non-executive
Dr Jack Rowell
118,690
118,690
130,290
130,290
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 relation to the appointment and
replacement of Directors are set out in the company’s Article’s of Association.
Financial Risks Facing the Group
The principal risks of the business are credit risk, liquidity risk and market risk,
including fair value or cash flow interest-rate risk and foreign exchange risk.
The main purpose of the Group’s risk management programme is to evaluate,
monitor and manage these risks and to minimise potential adverse effects on
the Group’s financial performance and shareholders. The Chief Financial Officer
of the Group is in charge of risk management and introduction of all policies as
approved by the Board of Directors.
For further details of the Group’s risk management please see note 5 on page ….
Employees
The Group is committed to ensuring provision of equal opportunities for all em-
ployees, which is reflected by its selection, recruitment and training policies. The
Group considers its employees to be one of its most valuable assets and rewards
high performance through competitive remuneration and incentive schemes. The
Directors also consider it a priority to give employees the opportunity to com-
municate 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 2014 was 1,423 (2013: 1,583).
Annual Report 2014
19
Payment Policy
The Group has a general set of guidelines for paying its suppliers based on spe-
cific criteria. However, it is normal practice to agree payment terms with a spe-
cific 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
As described in Note 2(b) and Note 32 of the consolidated financial statement the
Group incurred a loss of £3,478k for the year ended 31 December 2014. This is
primarily due to 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 increase in raw milk prices. Fur-
thermore as at the date of this report the Group is in negotiations with the European
Bank for Reconstruction and Development to restructure the repayment of the loan.
Meanwhile following a review of the Group’s financial position and its budgets
and plans, the directors have concluded that the Group has sufficient financial
resources to meet working capital requirements for a period of up to 12 months
from the date of these financial statements.
Annual General Meeting
Ukrproduct’s AGM will be held on 24 July, 2015. The Notice of AGM and agenda
will be sent to shareholders no less than 14 days prior to the date of the meeting.
Auditors
Baker Tilly Channel Islands Limited was re-appointed as the Group’s auditors for
the 2014 financial year by the resolution of the Annual General Meeting (AGM)
of Shareholders held on June 25, 2014. 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
24 June 2015
Annual Report 2014
20
7
Statement of directors
responsibilities
for the preparation
and approval
of the consolidated
financial statements
for the year ended
31 december 2014
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 Generally 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 consolidated
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.
Annual Report 2014 21
In preparing these consolidated
financial statements, the directors
are required to:
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.
— select suitable accounting policies and
then apply them consistently;
— make judgments and estimates that are
reasonable and prudent;
— state that the financial information com-
plies with IFRS, subject to any material
departures disclosed and explained in the
consolidated financial statements; and
— prepare the consolidated financial state-
ments on the going concern basis unless it
is inappropriate to presume that the Group
will continue in business.
The board of directors confirms that the
Group has complied with the above mentioned
requirements in preparing its Consolidated
financial statements.
On behalf of the Directors:
Sergey Evlanchik
Chief Executive Officer
Annual Report 2014 22
8
Independent auditor’s
report to the members
of Ukrproduct Group
Limited
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Ukr-
product Group Limited (“the company” and together with its subsidiaries is re-
ferred to as “the Group”), for the year ended 31 December 2014, 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 Euro-
pean Union.
This report is made solely to the company’s members, as a body, in accordance
with Article 113A of the Companies (Jersey) Law 1991, as amended. Our audit
work 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 company and the company’s members as
a body, for our audit work, for this report, or for the opinions we have formed
Respective responsibilities of the Directors and Auditors
As explained more fully in the Statement of Directors’ Responsibilities, the Direc-
tors 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 finan-
cial 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.
Annual Report 2014 23
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 ap-
plied 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 information.
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
2014 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 requirements of the Companies
(Jersey) Law, 1991 as amended.
Emphasis of Matter
IIn forming our opinion on the consolidated financial statements, which is not
qualified, we draw your attention to the following matters:
a) Going concern
As described in Note 2(b) of the consolidated financial statements, the Group in-
curred a loss of £3,478k for the year ended 31 December 2014. This is primarily
due to 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 signifi-
cant devaluation of the local currency and the increase in raw milk prices.
As described in Note 2(b) and Note 32 of the consolidated financial statements,
the Group has borrowing arrangements with the European Bank for Reconstruc-
tion and Development (“EBRD”). The borrowing arrangements are subject to
repayment and loan covenants, some of which have not been met. The Group
has received a letter from the EBRD on 12 June 2015, which confirms that the
EBRD has not exercised its rights to require compliance with the loan agreement.
These rights extend to the ability of the EBRD to demand immediate repayment
of the loan. It is the view of the directors that the Group continues to have the
support of the EBRD and as at the date of the approval of the consolidated finan-
Annual Report 2014 24
cial statements are negotiating a restructuring of the loan agreement. Although
the EBRD have, on this occasion, not exercised their rights set out in the loan
agreement, there is a significant uncertainty as to their future actions should the
Group continue to breach the repayment and loan covenants. In addition there is
a significant uncertainty on the likely outcome of the negotiations for the restruc-
turing of the loan agreement.
The above matters indicate the existence of material uncertainties which may
cast significant doubt about the Group’s abilities to continue as a going concern.
The consolidated financial statements do not include any adjustments that would
result if the Group was unable to continue as a going concern.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Compa-
nies (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
24 June 2015
Annual Report 2014 Annual Report 2014
25
9
Consolidated
Financial
statements
9.1
9.2
9.3
9.4
9.5
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
Consolidated statement
of cash flows
Notes to consolidated
financial statements
26
9.1
Consolidated statement
of comprehensive income
for the year ended
31 December 2014
(in thousand GBP, unless otherwise stated)
Revenue
Cost of sales
GROSS PROFIT
Administrative expenses
Selling and distribution expenses
Other operating expenses
PROFIT FROM OPERATIONS
Net finance expenses
Effect of foreign currency translation
LOSS BEFORE TAXATION
Income tax expenses
LOSS FOR THE YEAR
Attributable to:
Owners of the Parent
Non-controlling interests
Earnings per share:
Basic
Diluted
Note
8
9
9
9
9
10
13
26
year ended
31.12.2014
£’000
31,876
(25,423)
year ended
31.12.2013
£’000
52,202
(45,012)
6,453
(1,963)
(2,797)
(508)
1,185
(761)
(3,857)
(3,433)
(45)
(3,478)
(3,478)
—
(8,77)
(8,78)
7,190
(2,725)
(3,240)
(408)
817
(1,009)
(361)
(553)
(151)
(704)
(704)
—
(1,77)
(1,77)
Annual Report 2014
27
Note
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
OTHER COMPREHENSIVE INCOME:
Items that may be subsequently reclassified
to profit or loss
Currency translation differences
(7,000)
(429)
Items that will not be reclassified to profit or loss
Reduction of revaluation reserve
Income from changes in tax rates
(21)
—
(32)
38
OTHER COMPREHENSIVE INCOME, NET OF TAX
(7,021)
(423)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
(10,499)
(1,127)
Attributable to:
Owners of the Parent
Non-controlling interests
(10,499)
(1,127)
—
—
Annual Report 2014
28
9.2
Consolidated statement
of financial positionas
at 31 december 2014
(in thousand GBP, unless otherwise stated)
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
Note
Year ended
31.12.2014
£’000
Year ended
31.12.2013
£’000
14
15
16
17
18
19
20
21
9 592
829
2
18 185
1 136
66
10 423
19 387
2 085
3 674
1 177
108
215
7 259
3 010
6 919
2 399
176
1 006
13 510
TOTAL ASSETS
17 682
32 897
Annual Report 2014
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Other reserves
Retained earnings
Non-controlling interests
TOTAL EQUITY
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
29
Note
Year ended
31.12.2014
£’000
Year ended
31.12.2013
£’000
22
23
24
16
24
25
3 967
(5 753)
9 358
7 572
—
3 967
1 430
12 672
18 069
—
7 572
18 069
4 728
302
5 030
2 454
2 583
14
29
5 118
636
5 754
5 802
3 226
18
28
5 080
9 074
10 110
17 682
14 828
32 897
These consolidated financial statements were approved
and authorised for issue by the Board of Directors on
23rd June 2015 and were signed on its behalf by:
Sergey Evlanchik
Chief Executive Officer
2015
Annual Report 2014
30
9.3
Consolidated statement
of changes in equity
as at 31 december 2014
(in thousand GBP, unless otherwise stated)
Attributable to owners of the parent
Non-controlling
Total Equit
interests
Share capital
Share premium
Merger reserve
Revaluation
Translation
Total
As at 1 January 2013
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
Depreciation on revaluation of property,
plant and equipment
Reduction of revaluation reserve
Group restructuring completion
Acquiring of shares
As at 31 December 2013
£’000
4,082
£’000
4,555
£’000
(367)
—
—
—
—
—
—
—
—
—
(115)
3,967
—
—
—
—
—
—
—
—
—
7
4,562
—
—
—
—
—
—
—
—
367
—
—
reserve
£’000
3,877
Retained
earnings
£’000
13,496
reserve
£’000
(6,339)
£’000
19,304
£’000
—
(704)
—
(704)
—
38
—
38
—
—
(32)
—
—
—
—
(704)
—
—
—
(367)
—
—
(429)
(429)
—
—
—
—
—
—
38
(429)
(1,095)
—
—
—
(32)
—
(108)
(247)
247
3,636
12,672
(6,768)
18,069
—
—
—
—
—
—
—
—
—
—
—
£’000
19,304
(704)
38
(429)
(1,095)
—
—
—
(32)
—
(108)
18,069
Annual Report 2014
31
Attributable to owners of the parent
Non-controlling
interests
Total Equit
As at 1 January 2013
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
Depreciation on revaluation of property,
plant and equipment
Reduction of revaluation reserve
Group restructuring completion
Acquiring of shares
As at 31 December 2013
—
—
—
—
—
—
—
—
—
(115)
3,967
—
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
367
—
—
Share capital
Share premium
Merger reserve
£’000
4,082
£’000
4,555
£’000
(367)
Revaluation
reserve
£’000
Retained
earnings
£’000
Translation
reserve
£’000
3,877
13,496
(6,339)
Total
£’000
19,304
£’000
—
(704)
—
(704)
—
38
—
38
—
—
—
—
(704)
—
—
(247)
247
(32)
—
—
—
(367)
—
—
(429)
(429)
—
—
—
—
—
—
38
(429)
(1,095)
—
—
—
(32)
—
(108)
4,562
3,636
12,672
(6,768)
18,069
—
—
—
—
—
—
—
—
—
—
—
£’000
19,304
(704)
38
(429)
(1,095)
—
—
—
(32)
—
(108)
18,069
Annual Report 2014
32
As at 31 December 2013
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 27)
Total transactions with owners
Depreciation on revaluation of property,
plant and equipment
Reduction of revaluation reserve
Acquiring of shares
As at 31 December 2014
Attributable to owners of the parent
Share capital
Share premium
Merger reserve
Revaluation
Translation
Total
£’000
3,967
£’000
4,562
£’000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,967
—
—
4,562
—
—
—
—
—
—
—
—
—
—
Non-controlling
Total Equit
interests
Retained
earnings
£’000
12,672
reserve
£’000
(6,768)
£’000
18,069
£’000
—
£’000
18,069
(3,478)
—
(3,478)
—
(3,478)
—
—
(3,478)
—
(7 000)
(7,000)
—
(7 000)
(10,478)
—
—
162
2
—
—
—
—
—
—
—
—
—
(19)
—
9,358
(13,768)
7,572
—
—
—
—
—
—
—
—
—
—
(7,000)
(10,478)
—
—
—
(19)
—
7,572
reserve
£’000
3,636
—
—
—
—
—
—
(162)
(21)
—
3,453
Annual Report 2014
Attributable to owners of the parent
Share capital
Share premium
Merger reserve
£’000
3,967
£’000
4,562
£’000
—
Revaluation
reserve
£’000
Retained
earnings
£’000
Translation
reserve
£’000
3,636
12,672
(6,768)
Total
£’000
18,069
33
Non-controlling
interests
Total Equit
£’000
—
£’000
18,069
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(162)
(21)
—
3,453
(3,478)
—
(3,478)
—
(3,478)
—
—
(3,478)
—
(7 000)
(7,000)
—
(7 000)
(10,478)
—
—
162
2
—
—
—
—
—
—
—
—
—
(19)
—
9,358
(13,768)
7,572
—
—
—
—
—
—
—
—
—
—
(7,000)
(10,478)
—
—
—
(19)
—
7,572
Depreciation on revaluation of property,
plant and equipment
Reduction of revaluation reserve
Acquiring of shares
As at 31 December 2014
—
—
3,967
—
—
4,562
As at 31 December 2013
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 27)
Total transactions with owners
Annual Report 2014
34
9.4
Consolidated statement
of cash flows as at
31 december 2014
(in thousand GBP, unless otherwise stated)
Note
Year ended
31.12.2014
£’000
Year ended
31.12.2013
£’000
(3,433)
(553)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Exchange difference
Depreciation and amortisation
11
(Profit)/loss on disposal of non-current assets
Write off of receivables/payables
Impairment of inventories
Impairment of available for sale investments
Loss from disposal of subsidiaries
Interest income
Interest expense on bank loans
10
10
Operation cash flow before working capital changes
(Increase) / decrease in inventories
Decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Changes in working capital
Cash generated from operations
3,857
866
74
279
76
—
6
(4)
765
2,486
(661)
195
979
513
2,999
361
1,417
5
(3)
144
31
19
(3)
1,012
2,430
202
290
(1,358)
(866)
1,564
Annual Report 2014
35
Note
Year ended
31.12.2014
£’000
Year ended
31.12.2013
£’000
Interest received
Income tax paid
Net cash generated by / (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment 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
4
(45)
2,958
(486)
19
(15)
(482)
—
(765)
(1,575)
—
(541)
(2 881)
3
(236)
1,331
(1,585)
41
17
(1,527)
(108)
(1,012)
1,239
1,145
(383)
881
Net decrease in cash and cash equivalents
(405)
685
Effect of exchange rate changes on cash and cash
equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
21
(386)
1,006
215
(94)
415
1,006
Annual Report 2014
36
9.5
Notes to consolidated
financial statements
for the year ended
31 December 2014
(in thousand GBP, unless otherwise stated)
1. GROUP AND PRINCIPAL ACTIVITIES
(a) Introduction
The Company is a public limited liability entity registered in Jersey with a regis-
tered office at 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands.
The Group’s overall management and production facilities are based in Ukraine,
with the HQ in Kyiv. The Group commands leading positions in the Ukrainian
processed cheese and packaged butter markets and owns a range of widely rec-
ognisable 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 2014 was 1,423 (2013: 1,583).
(b) Ukrainian environment
Ukraine’s political and economic situation has deteriorated significantly since the
Government’s decision not to sign the Association Agreement and the Deep and
Comprehensive Free Trade Agreement with the European Union in late Novem-
ber 2013. Political and social unrest combined with rising regional tensions has
deepened the ongoing economic crisis and has resulted in a widening of the
state budget deficit and a depletion of the National Bank of Ukraine’s foreign cur-
rency reserves and, as a result, a further downgrading of the Ukrainian sovereign
debt credit ratings.
In February 2014, following the devaluation of the national currency, the Na-
tional Bank of Ukraine introduced certain administrative restrictions on cur-
rency conversion transactions and also announced a transition to a floating
foreign exchange rate regime. In March 2014, various events in Crimea led to
the accession of the Republic of Crimea to the Russian Federation, which is not
recognised by Ukraine and the international community. This event resulted in
a significant deterioration of the relationship between Ukraine and the Russian
Federation. Following the instability in Crimea, regional tensions have spread to
Annual Report 2014 37
the Eastern regions of Ukraine, primarily Donetsk and Lugansk regions. In May
2014, protests in Donetsk and Lugansk regions escalated into military clashes
and armed conflict between armed supporters of the self-declared republics of
the Donetsk and Lugansk regions and the Ukrainian forces. As at the date these
consolidated financial statements were authorised for issue, the instability and
unrest continue, and part of the Donetsk and Lugansk regions remains under the
control of the self-proclaimed republics. As a result, Ukrainian authorities are not
currently able to fully enforce Ukrainian laws on this territory.
Since the beginning of the year, the Ukrainian Hryvnia (the “UAH”) depreciated
against major foreign currencies by approximately 49% calculated based on the
National Bank of Ukraine exchange rate of UAH to US Dollar (USD). From 31
December 2014 to the date of the issuance of these consolidated financial state-
ments, the UAH depreciated against USD by 46%.
The final resolution and the effects of the political and economic crisis are diffi-
cult to predict but may have further severe effects on the Ukrainian economy.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1. BASIS OF PREPARATION
The consolidated financial statements have been prepared on a historical cost
basis, except for property, plant and equipment and an intangible asset (custom-
er list) which have been measured at fair value. The consolidated financial state-
ments are presented in British Pounds Sterling (GBP) and all values are rounded
to the nearest thousand (£000) except where otherwise indicated.
(а) Statement of compliance
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards, International Accounting Standards
and Interpretations issued by the International Accounting Standards Board
(IASB), as adopted by the European Union (collectively “IFRS”).
The preparation of financial statements in conformity with IFRS requires the use
of certain critical accounting estimates. It also requires management to exercise
its judgment in the process of applying the Group’s accounting policies. Further
information is provided in note 3.
(b) Going concern
The Group incurred a loss of GBP 3,478 thousand for the year ended 31 Decem-
ber 2014, decreasing the retained earnings at that date to GBP 9,358 thousand.
In addition, due to significant devaluation of Ukrainian Hryvnia the burden of
loans denominated in foreign currencies has increased. As at 31 December
2014 the loans, denominated in foreign currency, was the following: UAH 1,345
thousand, EUR 5,693 thousand and USD 144 thousand (Note 24). Interest under
Annual Report 2014 38
these loan agreements is paid according to a fixed schedule annexed to the
Treaty. Moreover, the Group did not make the principal amount payment of EUR
300 thousand due in March 2015 and of EUR 300 thousand due in June 2015
under the terms of its Loan Agreement with the European Bank for Reconstruc-
tion and Development (the “EBRD”) dated March 31, 2011. Such breach of the
provisions relating to the loan repayment gives the bank a formal right to de-
mand early repayment of loans. The Board notified the EBRD in advance about all
breaches of terms of the Loan Agreement and expected to obtain a waiver on the
date of signing these consolidated financial statements. However, the EBRD did
not provide waiver in respect of breach of the repayment schedule in 2015. The
representatives of EBRD provided a letter on 12 June 2015 to the Group’s Board
stating that: 1) EBRD is aware of the breach of the repayment schedule for the
period ended 31 March 2015; 2) EBRD is currently considering a restructuring of
the terms of the Loan Agreement, including extension of the maturity date under
the Loan Agreement and; 3) as of the date of signing of the letter did not exer-
cise any of its rights in accordance with the Agreement. The Board believes that
the EBRD will not demand accelerated repayment of the loans due to the breach
of the repayment schedule in 2015. Based on the existence of these conditions,
the consolidated financial statements have been prepared on a going concern
basis, because management believes that it has employed sufficient and appro-
priate measures to underpin its cost cutting strategy including but not limited to:
reconstruction of manufacturing facilities in Starokonstantinov location, decrease
in the number of subsidiaries and streamlining its business processes aimed to
minimise non-value adding activities and related costs etc
(c) Consolidation principles
The consolidated financial statements comprise the financial statements of Ukr-
product Group Limited and its subsidiaries as at 31 December 2014.
Subsidiaries are consolidated from the date of acquisition, being the date on
which the Group obtains control, and continue to be consolidated until the date
that such control ceases.
Control is achieved when the Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns
through its power over the investee. Specifically, the Group controls an investee
if, and only if, the Group has:
— Power over the investee (i.e., existing rights that give it the current ability to
direct the relevant activities of the investee);
— Exposure, or rights, to variable returns from its involvement with the investee;
— The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights result in
control. To support this presumption and when the Group has less than a
majority of the voting or similar rights of an investee, the Group considers
Annual Report 2014 39
all relevant facts and circumstances in assessing whether it has power over
an investee, including:
— The contractual arrangement with the other vote holders of the investee;
— Rights arising from other contractual arrangements;
— The Group’s voting rights and potential voting rights;
The Group re-assesses whether or not it controls an investee if facts and cir-
cumstances indicate that there are changes to one or more of the three elements
of control. Consolidation of a subsidiary begins when the Group obtains control
over the subsidiary and ceases when the Group loses control of the subsidiary.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated financial statements from
the date the Group gains control until the date the Group ceases to control the
subsidiary.
All intra-group balances, income and expenses and unrealised gains and losses
resulting from intra-group transactions are eliminated in full on consolida-
tion. 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 own-
ers of the parent and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance. When necessary, adjustments
are made to the financial statements of subsidiaries to bring their accounting
policies into line with the Group’s accounting policies.
If the Group loses control over a subsidiary, it:
— Derecognises the assets (including goodwill) and liabilities of the subsidiary;
— Derecognises the carrying amount of any non-controlling interests;
— Derecognises the cumulative translation differences, recorded in equity;
— Recognises the fair value of the consideration received;
— Recognises 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.
The Group applies the acquisition method to account for business combinations.
The consideration transferred for the acquisition of a subsidiary is the fair value
of the assets transferred, the liabilities incurred to the former owners of the ac-
Annual Report 2014 40
quiree and the equity interests issued by the Group. Identifiable assets acquired
and liabilities 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.
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.
Consolidated financial statements of the Group include following companies:
Group’s company
Effective
Country
of incorpo- ownership ratio
ration
As at 31 December
2014
2013
Principal activities
Consolidation
method
Molochnik LLC*
Ukraine
100% 100%
Holder of some assets
Acquisition
Starokonstantinovskiy
Molochniy Zavod SC******
Ukraine
100% 100%
Production
Starkon-Moloko LLC*
Ukraine
100% 100%
Owner of property
& equipment
Acquisition
Acquisition
Krasilovsky Molochny Zavod
Private Enterprise SC******
Ukraine
100% 100%
Owner of land assets
Acquisition
Molochaia Dolina LLC******
Ukraine
100% 0%
Owner of land assets
Acquisition
Zhiviy Kvas LLC******
Ukraine
100% 100%
Production
Acquisition
Teofipolskiy Dairy Plant
Private Enterprise SC*
Milk investments Private
Enterprise SC*
Invest Garantiya Private
Enterprise******
Business Invest
Management LLS*
Favorit-Konsulting
Private Enterprise***
Avtopark
Starokonstantinov LLS***
Ukraine —
100%
To be constructed
Acquisition
Ukraine
100% 100%
Owner of equipment
Acquisition
Ukraine
100% 100%
Owner of equipment
Acquisition
Ukraine
100% 100%
Owner of equipment
Acquisition
Ukraine
100% 100%
Owner of equipment
Acquisition
Ukraine
100% 100%
Owner of fleet of vehicles
Acquisition
ATP Centr LLC***
Ukraine
100% 100%
Owner of fleet of vehicles
Acquisition
Annual Report 2014
41
Group’s company
Ukrprodexport Private
Enterprise SC*
Effective
Country
of incorpo- ownership ratio
ration
As at 31 December
2014
2013
Principal activities
Consolidation
method
Ukraine
100% 100%
Export operations
Acquisition
Ukrproduct-Logistic LLC *
Ukraine
100% 100%
Logistics
Acquisition
Gollandska Sirovarnya
MolendamLLC***
Molochniy Torgoviy
Souys LLC****
Ukraine
100% 100%
Sales & Distribution
Acquisition
Ukraine —
100%
Sales & Distribution
Acquisition
Lider-Product LLC****
Ukraine
100% 100%
Sales & Distribution
Acquisition
Premierproduct-Dnipro
Private Enterprise SC*****
Premierproduct-Jitomir
Private Enterprise SC**
Premierproduct-Lviv
Private Enterprise SC*****
Ukraine
100% 100%
Sales & Distribution
Acquisition
Ukraine
100% 100%
Sales & Distribution
Acquisition
Ukraine —
100%
Sales & Distribution
Acquisition
Alternatyvni investytsiyi UCVF*** Ukraine
100% 100%
Asset management
Acquisition
Ukrproduct Group CJSC
Ukraine
100% 100%
LinkStar Limited
Cyprus
100% 100%
Cyprus
100% 100%
Solaero Global Alternative
Fund Limited
Dairy Trading Corporation
Limited
Holder of some assets
and operating companies
Acquisition
Holder of Group’s
trademarks and assets
Holder of Group’s
trademarks and assets
Acquisition
Acquisition
BVI
100% 100%
Export operations
Acquisition
Reliable Logistics Services ltd
BVI
100% 100%
Holder of distribution
Acquisition
St. Invest Holding LTD
BVI
100% 100%
Holder of distribution
network
Acquisition
Ukrproduct Group LTD
Jersey
Listed on LSE
Parent
* The companies are held through Ukrproduct Group CJSC
which is a 100%-owned subsidiary of the Company
** The companies are held through LinkStar Limited which is
a 100%-owned subsidiary of the Company
*** Subsidiaries of Solaero Global Alternative Fund Limited,
the Group’s specialised distribution companies.
**** Subsidiaries of Krasilovsky Molochny Zavod Private
Enterprise SC.
***** Subsidiaries of Molochnik LLC, the Group’s specialised
distribution companies.
****** Subsidiaries of Alternatyvni investytsiyi UCVF.
Annual Report 2014
42
Alternatyvni investytsiyi UCVF is a limited life entity and is due to cease to exist
on 5 April 2022.
On 14 January 2014 the Group signed an agreement on acquisition of 100% of
share capital of the holder of land assets “Molocha dolina” LLC (previously under
common control). The result of the transaction is reflected in the statement of
comprehensive income.
(d) Reorganisation
A reorganisation of the Group continued in 2014 and resulted in the withdraw-
al of Molochniy Torgoviy Souys LLС via a merger with Starokonstantinovskiy
Molochniy Zavod SC for the purpose of improving the administration and report-
ing 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 recognised
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 recognised 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 recognised 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 recog-
nised directly in equity.
(f) Segment reporting
Operating segments are reported in a manner consistent with the internal report-
ing provided to the chief operating decision-maker. The chief operating decision
maker, who is responsible for allocating resources and assessing performance of
the operating segments, has been identified as the board of directors.
2.2. SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies given below have been consistently applied by the
Group in the preparation of these financial statements, unless otherwise stated.
Annual Report 2014 43
2.2.1. FOREIGN CURRENCY TRANSACTIONS
(а) 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 currency 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 is 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 are re-measured. Foreign exchange gains or losses resulting from the set-
tlement of such transactions and from the translation at the year-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the statement of comprehensive income, except when deferred
in equity as qualifying cash flow hedges and qualifying net investment hedges.
Foreign exchange gains and losses are presented in the income statement within
“Effect of foreign currency translation“.
The financial results and financial position of the Group’s companies are translat-
ed into the presentation currency as follows:
— For current year, all assets and liabilities are translated at the rate effective
at the reporting date. Income and expense items are translated at rates
approximating to those ruling when the transactions took place;
— Equity items are translated into the presentation currency using the histori-
cal rate;
— For comparative figures, all assets and liabilities are translated at the closing
rate existing at the relevant reporting date. Income and expense items are
translated at rates 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 statement are translated at average
exchange rates (unless this average is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the rate on the dates of
the transactions); and
Annual Report 2014 44
— All resulting exchange differences are recognised as a separate component
of equity within “Translation reserve”.
The principal UAH exchange rates used in the preparation of Consolidated finan-
cial statements are as follows:
Currency
31 December 2014
Average exchange
rate for 2014
31 December 2013
Average exchange
rate for 2013
GBP/UAH
USD/UAH
EUR/UAH
24,53
15,77
19,23
19,50
11,87
15,68
13,20
7,99
11,04
12,45
7,99
10,62
— 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 on 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 realisable value. Cost is deter-
mined using the weighted average method. Net realisable 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 labour, other direct costs and related production overheads (based on
normal operating capacity) but excludes borrowing costs. The cost of raw mate-
rials 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.
Annual Report 2014
45
At each reporting date the Group analyses inventories to determine whether they
are damaged, obsolete or slow-moving or whether their net realisable 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 peri-
odically checks inventories to determine whether they are damaged, obsolete or
slow-moving or if their net realisable value has declined for any other reason and
reduces accordingly the value of inventory to properly reflect in the Consolidated
Income Statement within Cost of sales.
2.2.4. PROPERTY, PLANT AND EQUIPMENT
(а) Recognition and measurement of property, plant and equipment
The cost of an item of property, plant and equipment is recognised 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 the enti-
ty expects to use the 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 equipment are subsequently
carried at fair value at the date of revaluation, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses. Changes in fair
value are recognised in equity (the “Revaluation reserve”). An appropriate trans-
fer 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 prop-
erty, plant and equipment also increase its carrying amount. Otherwise, the
Group recognises 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 modernisation.
(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 ex-
pected recoverable amount of a cash generating unit, to which the asset belongs.
Annual Report 2014 46
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 recognised as expenses, except when the as-
set 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 de-
termined in case the impairment loss for an asset (or a cash generating unit) was
not recognised in previous years. The reversal of the impairment loss is immedi-
ately recognised 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 an asset begins when it becomes available for use. Depreciation
of an asset terminates with the termination of its recognition. Depreciation does
not terminate when an asset is idle or if it is removed from active use and is
intended for disposal, unless it is already fully depreciated.
Depreciation is applied to all items of property, plant and equipment with the
exception of land. The Group calculates 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 produc-
tion method of depreciation to all production equipment as management consid-
ered this method to be the most appropriate for the production assets.
Terms of useful lives by groups of property, plant and equipment (except for
those depreciated under production method) are listed below:
Group of property, plant and equipment
Buildings
Plant and machinery
Vehicles
Instruments, tools and other equipment
Useful life
10–50 years
2–20 years
5–12 years
2—20 years
The assets’ residual values, useful lives and methods of depreciation are re-
viewed at each financial year end and adjusted prospectively, if appropriate.
2.2.5. ASSETS UNDER CONSTRUCTION
Assets under construction are reported at their cost of construction including
costs charged by third parties and the capitalisation of the Group’s material costs
Annual Report 2014 47
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 impaired. If any such indication exists, the Group performs impairment
testing as described in note 2.2.20. In case no indication exists that the asset
may be impaired, all accumulated costs of the asset are transferred to the rele-
vant fixed asset category and depreciated at applicable 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 recognised at historical cost less accumulated amortisation
and accumulated impairment losses, except for the customer list which is initial-
ly carried at fair value and subsequently amortised.
The Group recognises an item as an intangible asset, if it meets the following crite-
ria for recognition: it is probable that the Group will receive future economic bene-
fits 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 derecognised at disposal, or when the Group no longer
expects receipt from this asset of any economic benefits. The profit from cancel-
lation or disposal is defined by the difference between net proceeds on the sale
and the carrying value of intangible assets. If the intangible asset is exchanged
for a similar asset, the value of the acquired asset is equal to the value of the
disposed asset.
(b) Amortisation and useful life
Costs of computer software licenses are amortised over their estimated useful
lives using the straight-line method (7-10 years). The amortisation expense is
included within Administrative expenses in the Consolidated Income Statement.
Trademarks have finite useful lives and are carried at cost less accumulated am-
ortisation. Amortisation is calculated using the straight-line method to allocate
Annual Report 2014 48
the cost of trademarks over their estimated useful lives (20 years). The amortisa-
tion expense is included within Selling and Distribution expenses in the Consoli-
dated Income Statement.
Amortisation is calculated using the straight-line method to allocate the cost of the
customer list over its estimated useful life (20 years). The amortisation 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 value
of the assets transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the group. The consideration trans-
ferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Acquisition-related costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabil-
ities 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 acquiree.
If the business combination is achieved in stages, the acquisition date fair value
of the acquirer’s previously held equity interest in the acquiree is remeasured to
fair value as at the acquisition date through profit and loss.
Any contingent consideration to be transferred by the acquirer will be recog-
nised at fair value at the acquisition date. Subsequent changes to the fair value
of the contingent consideration which is deemed to be an asset or liability, will
be recognised in accordance with IAS 39 ‘’Financial Instruments: Recognition
and Measurement” 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 trans-
ferred 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 amortised but is subject to testing for impairment as at the report-
ing date or more frequently, if events or changes in circumstances indicate the
possibility of reducing its usefulness. At the acquisition date, goodwill is allocated
to each asset or group of assets that generate cash, and benefits from which are
expected to be received upon consolidation. The amount of impairment is deter-
mined by assessing the recoverable amount, which may be obtained for a cash
generating asset (group of cash generating assets) to which goodwill relates.
Where the recoverable amount is less than the book value of cash generating
asset (group of cash generating assets), impairment is recognised.
Annual Report 2014 49
2.2.7. FINANCIAL ASSETS
The Group classifies its financial assets as: financial assets at fair value through
profit or loss, loans and receivables, held-to-maturity investments, available for-
sale financial assets. Management determines the classification of financial assets
at initial recognition and re-evaluates this designation at every reporting date.
(і) Financial assets at fair value through profit or loss
This category comprises only “in-the-money” derivatives. They are carried at the
reporting date at fair value with changes in fair value recognised in the income
statement. The Group does not have any assets held for trading nor does it vol-
untarily classify any financial assets as being at fair value through profit or loss.
(іі) Loans and receivables
These assets are non-derivative financial assets with fixed or determinable pay-
ments that are not quoted in an active market. They arise principally through the
provision of goods and services to customers (trade receivables), but also incor-
porate other types of contractual monetary asset. They are carried at amortised
cost using the effective interest method less any impairment.
From time to time, the Group may renegotiate the terms of trade receivables due
from customers with which it has previously had a good trading history. Such
renegotiations will lead to changes in the timing of payments rather than chang-
es to the amounts owed and, in consequence, the new expected cash flows are
discounted at the original effective interest rate.
(iii) Financial assets held to maturity
The Group has not classified any of its financial assets as held to maturity.
(iiii) Available-for-sale (AFS) financial assets
The Group has not classified any of its financial assets as AFS.
(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 transac-
tion costs. Fair value at initial recognition is best evidenced by the transaction
price. A gain or loss on initial recognition is only recorded if there is a differ-
ence between fair value and transaction price which can be evidenced by other
Annual Report 2014 50
observable current market transactions in the same instrument or by a valuation
technique whose inputs include only data from observable markets.
All purchases and sales of financial instruments that require delivery within
the time frame established by regulation or market convention (“regular way”
purchases and sales) are recorded at trade date, which is the date that the Group
commits to deliver a financial instrument. All other purchases and sales are
recognised on the settlement date with the change in value between the com-
mitment date and settlement date not recognised for assets carried at cost or
amortised cost; recognised in the income statement for trading investments; and
recognised in equity for assets classified as available-for-sale.
(b) Fair value estimation principles
Fair value of financial instruments is based at their market value, established at the
reporting date, less transaction costs. If market value is not available, fair value of
the instrument is determined by means of pricing and discounted cash flow models.
If a discounted cash flow model is applied, the determination of future cash flows
is based on optimal management estimations and the 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 predomi-
nated 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 transac-
tion costs, less impairment losses.
Loans and receivables are measured at amortised cost less impairment losses.
amortised cost is calculated using the effective interest rate method. Premiums
and discounts, including initial transaction costs, are included in the carrying
amount of the related instrument and amortised 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
Annual Report 2014 51
they will enter bankruptcy or other financial reorganisation and where observable
data indicates 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 derecognised when the rights to receive cash flows from the
financial assets have expired or where the Group has transferred substantially all
risks and rewards of ownership.
2.2.8. FINANCIAL LIABILITIES
The Group classifies its financial liabilities into categories depending on the
purpose for which the liability was acquired. The Group has not classified any of
its liabilities at fair value through profit and loss.
Financial liabilities held at amortised cost include the following items:
Trade payables and other short-term monetary liabilities, which are recognised at
amortised cost.
Bank borrowings, overdrafts, promissory notes and bonds issued by the Group
are initially carried at fair value, being the amount advanced net of any transac-
tion costs directly attributable to the issue of the instrument. Such interest bear-
ing 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 recognised at fair value, adjusted in case of bor-
rowings for directly attributable transaction expenses.
(b) Subsequent measurement
Trade and other accounts payable initially recognised at fair value, are subse-
quently accounted for at amortised cost at effective interest rate method.
Borrowings and liabilities initially recognised at fair value less transaction
costs, are subsequently measured at amortised cost; any difference between
the amount of received resources and the sum of repayment is represented as
interest cost using 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, cancelled or expires.
Annual Report 2014 52
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 probable that the economic ben-
efits 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 in-
crease 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 the nominal amount of cash ex-
pected to be received. When the arrangement effectively constitutes a financing
transaction, the fair value of the consideration is determined by discounting all
future receipts using an imputed rate of interest. Revenue (proceeds) from sale
of products (goods, works and services) is not corrected by an amount of related
doubtful and uncollectible receivables. The amount of such debt is recognised 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 recognised when all the following
conditions are satisfied:
— the significant risks and rewards of ownership of the goods have passed to
the buyer;
— the Group is no longer involved in the management to the extent that is
usually associated with ownership, and has no control over the goods sold;
— the amount of revenue can be measured reliably;
—
it is probable that the economic benefits associated with the transaction will
flow to the Group; and
— the costs incurred or to be incurred in respect of the transaction can be
measured reliably.
Annual Report 2014 53
(b) Revenue from rendering of services
The revenue from rendering of services is recognised when all the following
conditions are satisfied:
— the amount of revenue can be reliably measured;
—
inflow of economic benefits related to the transaction is probable;
— the stage of completion of the transaction at the end of the reporting period
can be measured reliably; and
— the costs incurred for the transaction and the costs to complete the transac-
tion can be measured reliably.
2.2.11. EXPENSES RECOGNITION
Expenses are recognised by the Group when the following conditions are met:
the amount of expenses can be reliably measured, it is probable that future eco-
nomic, outflow will occur.
Expenses which can not be related directly to a gain in a certain period, are
shown as a part of expenses of the period they were incurred in.
If an asset provides economic benefits receivable during several reporting peri-
ods, 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 the
periods to which they relate, during which the receipt of economic benefits 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” in 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 borrow-
ing costs are expensed. Net financial expenses are recorded in the Consolidated
Statement of Comprehensive Income.
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.
Annual Report 2014 54
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 their 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 statements in accordance with
relevant legislation currently in force. The charge for taxation in the Consol-
idated Income Statement for the year comprises current tax and changes in
deferred tax.
Current tax is the amount of income tax payable/recoverable in respect of taxable
profit/tax loss for the period determined in accordance with rules established by
the tax authorities in respect of which income tax shall be paid/refundable.
Current tax liabilities and assets are measured at the amount expected to be paid
to or recovered from the taxation authorities, using the tax rates and laws that
have been enacted, or substantively enacted, by the reporting date.
Deferred tax assets and liabilities are calculated in respect of temporary differ-
ences using the liability method. Deferred income taxes are provided on all tem-
porary 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 as-
sumes the reporting date of realisation or settlement of the carrying value of its
assets or liabilities.
A deferred tax asset is recognised only to the extent to which there is a substan-
tial probability that future taxable profit, which may be reduced by the amount
of deductible temporary differences, will be received. Deferred tax assets and
liabilities are measured at tax rates, the use of which is expected in the period of
the asset or liability is settled, based on the provisions of the legislation enacted,
or declared (and practically adopted) at that date.
Deferred income taxes are recognised 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 differ-
ence will not will be reduced in the foreseeable future.
The Group reviews the carrying amount of deferred tax assets at each reporting
Annual Report 2014 55
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 realise 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 modifi-
cation, is also charged to the income statement over the remaining vesting peri-
od. 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 employ-
ees 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 28.
2.2.16. SHORT-TERM EMPLOYEE BENEFITS
Short-term employee benefits are recognised in the period in which an employ-
ee has rendered service to the Group. The Group recognises the undiscounted
amount of short-term employee benefits a liability (accrued expense), after
deducting any amount already paid.
2.2.17. PENSION COSTS
The Group contributes to the Ukrainian mandatory state pension scheme, social
insurance and employment funds in respect of its employees. The Group’s
pension scheme contributions are expensed as incurred and are included in staff
costs. The Group 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. Qualify-
ing transaction costs include the costs of preparing the prospectus, accounting,
tax and legal expenses, underwriting fees and valuation fees in respect of the
shares and of other assets.
2.2.19. LEASES
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 classified
as operating leases.
(а) Group as a lessee
Annual Report 2014 56
Operating lease expenses are recognised as expenses in the period to which they
relate, on a straight-line basis over the lease period.
(b) Group as a lessor
Operating lease income is recognised in “Revenue” as income in 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 advances
to employees, financial assets, and assets held for trading, the Group conducts
the following procedures ensuring accounting for these assets at an amount, not
exceeding their recoverable amount:
— at each reporting date the condition of these assets is analyzed for impairment.
—
in case any impairment indicators exist, the amount of expected recovery of
such asset is calculated to determine the amount of losses from impairment,
if any. If it is impossible to determine the amount of losses from impairment
of a separate asset, the Group determines the amount of estimated impair-
ment 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 the 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 relat-
ed 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 recognised as expenses directly in the Consolidated State-
ment of Comprehensive Income.
2.2.21. CONTINGENT LIABILITIES AND ASSETS
Contingent liabilities are potential liabilities of the Group arising from past events
the existence of which will be confirmed only by the occurrence or non-occurrence
of one or more future events, which are not under the complete control of the
Group, or current obligations resulting from past events are not recognised 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 recognise 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.
Annual Report 2014 57
Contingent assets are not recognised in the consolidated financial statements, but dis-
closed 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 the parties has a possibility to con-
trol or considerably influence the operational and financial decisions of another
company, which is defined in IAS 24 “Related Party Disclosures”.
While considering any relationship which can be defined as a related party trans-
action, the Group takes into consideration the substance of the transaction not
just its legal form.
The Group classifies the related parties according to existing criteria in the fol-
lowing 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 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); and
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.
2.2.23. FAIR VALUE MEASUREMENT
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that the trans-
action to sell the asset or transfer the liability takes place either in the principal
market for the asset or liability, or in the absence of a principal market, in the
most advantageous market for the asset or liability. The principal or the most ad-
vantageous market must be accessible to the Group. A fair value measurement of
a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest and best use.
Annual Report 2014 58
All assets and liabilities for which fair value is measured or disclosed in the
financial statements are categorised within the fair value hierarchy, described as
follows, based on the lowest level input that is significant to the fair value meas-
urement as a whole:
•
•
•
Level 1: Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is signifi-
cant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is signifi-
cant to the fair value measurement is unobservable.”
2.2.24. DIVIDENDS
Equity dividends are recognised in the consolidated financial statements when they
become legally payable. 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 man-
agement to make judgments, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities, and the disclosure of con-
tingent liabilities, at the end of the reporting period. However, uncertainty about
these assumptions and estimates could result in outcomes that require a mate-
rial adjustment to the carrying amount of the asset or liability affected in future
periods. In the process of applying the Group’s accounting policies, management
has made the following judgments, which have the most significant effect on the
amounts recognised in the financial statements:
(а) Estimates of fair value of property, plant and equipment based on revaluation
The Group is required, periodically as determined by the directors, to conduct re-
valuations 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 amortised or depreci-
ated over their useful lives. Useful lives are based on the management’s esti-
mates of the period that the assets will generate revenue, which are periodically
reviewed for continued appropriateness. Due to the long life of certain assets,
Annual Report 2014 59
changes to the estimates used can result in significant variations in the carrying
value. Further information is contained in notes 14 and 15.
(c) Impairment of goodwill
The Group is required to test, on an annual basis, whether goodwill has suffered
any impairment. The recoverable amount is determined based on value in use cal-
culations. The use of this method requires the estimation of future cash flows and
the choice of a discount rate in order to calculate the present value of the cash
flows. Actual outcomes may vary. Further information is contained in note 15.
(d) Inventory
The Group reviews the net realisable value of, and demand for, its inventory on a
quarterly basis to ensure recorded inventory is stated at the lower of cost or net
realisable value. Factors that could impact estimated demand and selling prices
are the timing and success of future technological innovations, competitor actions,
supplier prices and economic trends. Further information is contained in note 17.
(e) Legal proceedings
In accordance with IFRS the Group only recognises a provision where there is a
present obligation from a past event, a transfer of economic benefits is probable
and the amount of costs of the transfer can be estimated reliably. In instances
where the criteria are not met, a contingent liability may be disclosed in the notes
to the financial statements. Realisation of any contingent liabilities not currently
recognised or disclosed in the financial statements could have a material effect on
the Group’s financial position. Application of these accounting principles to legal
cases requires the Group’s management to make determinations about various
factual and legal matters beyond its control. The Group reviews outstanding legal
cases following developments in the legal proceedings and at each reporting date,
in order to assess the need for provisions in its financial statements. Among the
factors considered in making decisions on provisions are the nature of litigation,
claim or assessment, the legal process and potential level of damages in the juris-
diction in which the litigation, claim or assessment has been brought, the pro-
gress of the case (including the progress after the date of the financial statements
but before those statements are issued), the opinions or views of legal advisers,
experience on similar cases and any decision of the Group’s management as to
how it will respond to the litigation, claim or assessment.
(f) Income taxes
The Group is subject to income tax in several jurisdictions and significant judg-
ment is required in determining the provision for income taxes. During the ordi-
nary course of business, there are many transactions and calculations for which
the ultimate tax determination 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
Annual Report 2014 60
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 assessment of many factors including past experience and in-
terpretations of tax law. This assessment relies on estimates and assumptions and
may involve a series of complex judgments about future events. To the extent that
the final tax outcome of these matters is different than the amounts recorded, such
differences will impact income tax expense in the period in which such determina-
tion is made. Further information is contained in notes 13 and 16.
(g) Quality claims
The Group supplies consumers and industrial customers in Ukraine with dairy
products manufactured in accordance with the current laws, food safety standards
and technical requirements of the relevant Ukrainian authorities. The Group volun-
tarily applies non-domestic standards — ISO and HASSP — to some of the Group’s
operations. For the industrial customers both domestically and outside of Ukraine,
the food products are manufactured to the technical specifications agreed with the
buyers in advance of the sale. In instances where the quality criteria and/or techni-
cal 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 con-
tingent liabilities not currently recognised or disclosed in the financial statements
could have a material effect on the Group’s financial position. Application of these
accounting principles to quality claims requires the Group’s management to make
determinations about the future matters that may, at the time of determination, be
beyond management’s control. Among the factors considered in making decisions
on quality claims provisions are: the nature of the claim, the quantifiable variances
in quality giving rise to a claim, the potential loss from satisfying the claim and any
decision of the Group’s management as to how it will respond to the claim.
4. ADOPTION OF NEW AND REVISED IFRS
4.1. NEW AND AMENDED STANDARDS AND INTERPRETATIONS
The accounting policies adopted are consistent with those of the previous financial
year, except for the following new and amended IFRS effective as of 1 January 2014:
Amendments to IFRS 10, IFRS 12 and IAS 27: Investment Entities.
Amendments to IFRS 10, IFRS 11 and IFRS 12: Consolidated Financial Statements,
Joint Arrangements and Disclosure of Interests in Other Entities — Transition Guidance.
The following Standards, Amendments to Standards and Interpretations have been
issued but are not yet effective for annual periods beginning on 1 January 2014.
Those which may be relevant to the Group are set out below. The Group does not
plan to adopt these Standards early.
Annual Report 2014 61
Standards and Interpretations adopted by the EU:
IFRS 7 (Amendments) Financial instruments: Disclosures – Disclosures about the
initial application of IFRS 9 (effective for annual periods beginning on or after 1
January 2015).
IFRS 9 Financial Instruments: Classification and Measurement and Accounting for
financial liabilities and derecognition (effective for annual periods beginning on or
after 1 January 2015).
5. FINANCIAL RISK MANAGEMENT
The principal risks facing the Group’s business are credit risk, liquidity risk and mar-
ket 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, moni-
tor 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 incorporated 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 instru-
ment risk arises, are as follows:
— trade and other receivables;
—
loans issued;
— cash and cash equivalents;
— bank loans and overdrafts;
— trade and other payables.
The principal financial instruments are as follows:
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
FINANCIAL ASSETS
Loans and receivables:
— trade and other receivables (excluding non-financial assets)
3 080
— cash and cash equivalents
— other financial assets
215
108
3 403
1 124
1 006
176
2 306
Annual Report 2014
62
FINANCIAL LIABILITIES
Held at amortised cost:
— non-current bank loans
— current bank loans
— overdrafts
— trade and other payables (excluding non-financial liabilities)
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
4 728
2 110
344
2 311
9 493
5 118
5 348
454
2 435
13 355
(b) General objectives, policies and processes
The Group’s overall risk management programme recognises the unpredictability
of financial markets and seeks to minimise potential adverse effects on the Group’s
financial performance. Risk management is carried out by the Group Chief Executive
Officer (CEO) under policies approved by the Board of Directors (the “Board”). The
Group CEO identifies and evaluates financial risks in close co-operation with the
Group’s operating units. The Board provides broad guidance and operating principles
for overall risk management, as well as written policies covering specific areas, such
as foreign exchange risk, interest-rate risk, credit risk, and investing excess liquidity.
The Board has overall responsibility for the determination of the Group’s risk
management objectives and polices and, whilst retaining ultimate responsibility
for them, it has delegated the authority for designing and operating processes
that ensure the effective implementation of the objectives and policies to the
group’s finance function. The Board receives monthly updates from 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 neces-
sary. The overall objective of the Board is to set polices that seek to reduce risk
as far as possible without unduly affecting the Group’s competitiveness and
flexibility. Further details regarding these policies are laid out below.
(c) Credit risk
Credit risk is the risk that a counterparty will not be able to meet its obligations in
full when due. Ukrproduct Group is mainly exposed to credit risk from credit sales
to 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
Annual Report 2014
63
using the following criteria: trading history and the strength of own balance sheet.
The Group attempts to reduce credit risk by conducting periodic reviews which
includes obtaining external ratings and in certain cases bank references.
According to the Group’s risk assessment policy, implemented locally, every new
customer is appraised before entering contracts; trading history and the strength
of the own balance sheet being the main indicators of creditworthiness. While
starting the commercial relationship with the Group, a new customer is offered
the terms that are substantially tighter than those for the existing customers and
stipulate, as a rule, the cash-on-delivery payments terms and no-returns policy
(quality-related claims exempted). If the relationship progresses successfully,
the terms are gradually relaxed to fall in line with the Group’s normal business
practices and local specifics as required by the market. The Group’s periodic
review includes external ratings, when available, and in some cases bank refer-
ences. 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 creditwor-
thiness may transact with the Group on a prepayment basis only.
Quantitative disclosures of the credit risk exposure in relation to Trade and other
receivables, which are neither past due nor impaired, are made in note 18. The
Group does not rate trade receivables by category or recoverability as the Group’s
historical default rates have been negligible in the past (less than 0.01%); essentially
all trade receivables due to the Group had been recovered. In the future, the default
rate on trade receivables overdue is expected to remain stable or even fall because
in Ukraine the Group deals increasingly with the modern-format retailers whose
creditworthiness is conducive to the payment discipline required by the Group.
Maximum exposure to the Trade and other receivables component of credit risk
at the reporting date is the fair value of Trade and other receivables. There is no
collateral held as security or other credit enhancements.
The Group’s credit controllers monitor the utilisation of the credit limits on a
daily basis by customer and apply the delivery stop orders immediately if the
individual limits are exceeded. The Group’s procedure for recovery of the trade
receivables past due includes the following steps:
—
identification of the date and exact amount of the receivable past due, termi-
nation of all further deliveries and forwarding to the customer of the details
of the amount due and the notice of the failure to pay — 3 days after the
past due date;
— delivery to the customer of the formal claim for the amount overdue and the
visit of the representative of the commercial credit control department to the
customer premises — 2 weeks thereafter;
— filing a claim to the commercial court for repayment of the amount overdue
and late payment fees — 2 weeks thereafter ;
Annual Report 2014 64
— obtaining a court order for repayment of the amount due and collaboration
with bailiff — 2 weeks thereafter.
As a result of the credit control and risk assessment procedures, the Group does
not expect any significant losses from non-performance by the counterparties
at the reporting date from any of the financial instruments currently employed in
the business.
Credit risk also arises from cash and cash equivalents and deposits with banks
and financial institutions. The Group reviews the banks and financial institutions
it deals with to ensure that standards of credit worthiness are maintained.
Maximum exposure to the cash and cash equivalents and deposits with banks
and financial institutions component of credit risk at the reporting date is the fair
value of the cash balances due from such banks and financial institutions. There
is no collateral held as security or other credit enhancements.
Cash at bank and short term deposits are kept on the accounts in the following banks:
Bank
UBS AG
JSC OTP Bank
year ended
31.12.2014
Rating
A2
Caa3
PJSC Raiffeisen Bank Aval
Caa2
Other
year ended
31.12.2013
Rating
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
A2
B2
Caa1
116
88
3
4
211
—
870
106
26
1,002
The Group does not enter into derivatives to manage credit risk, although in
certain isolated cases may take steps to mitigate such risks if it is sufficiently
concentrated.
The Group is also exposed to a credit risk with regard to loans issued to third
parties, related parties and employees. This risk is considered to be low and is
managed according to the Group’s risk assessment policy.
The Group’s exposure to credit risk, where the carrying value of financial assets
is unsecured, is as shown below:
Annual Report 2014
65
Year ended
31.12.2014, £’000
Carrying Value
Year ended
31.12.2014, £’000
Maximum exposure
(unsecured)
Year ended
Year ended
31.12.2013, £’000 31.12.2013, £’000
Carrying Value
Maximum exposure
(unsecured)
Trade receivables
3,039
Loans issued
108
3,147
3,039
108
3,147
5,509
176
5,685
5,431
196
5,627
(d) Liquidity risk
Liquidity risk is a function of the possible difficulty to be encountered in raising
funds to meet financial obligations. The Group’s policy is to ensure that it will
always have sufficient cash to enable it to meet its obligations as they fall due
by maintaining the minimum cash balances and agreed overdraft facilities. The
Group also seeks to reduce liquidity risk by fixing interest rates and hence cash
flows on substantially all of its borrowings.
The Group’s operating divisions (plants) have different liquidity requirement pro-
files. 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 func-
tion. Each plant has a cash facility based on cash budgets with the Group Treasury.
The cash budgets are set locally and agreed by the CEO in advance. The main
element of the Group’s liquidity management is to reduce liquidity risk by fixing
interest rates and hence cash flows on substantially all of its long-term borrowings.
The CEO (and the Board, if requested) receives rolling quarterly cash flow projec-
tions on a monthly basis as well as information regarding the daily cash balances
at each plant and overall. In the ordinary course of business, the Group relies on
a combination of the available overdraft facilities and cash balances to fund the
on-going liquidity needs. Capital expenditures are usually funded 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
spending, immediate operating cost reductions, postponement of payments to the
third parties, and expansion of the overdraft ceilings. Although undesirable and
never occurring in the past, such emergency funding is the last resort on which the
Group may have to draw while ensuring the ongoing continuity of the business.
Maturities of the Group’s financial instruments are disclosed further in the notes
18, 25 of these financial statements.
(e) Market risk
Market risk may arise from the Group’s use of interest bearing, tradable and foreign
currency financial instruments. Market risk comprises fair value interest rate risk,
foreign exchange risk and commodity price risk and is further assessed below:
Annual Report 2014
66
(i) Cash flow and fair value interest-rate risk
As the Group has no significant interest-bearing assets, the Group’s income and op-
erating cash flows are substantially independent of changes in market interest rates.
The Group’s interest-rate risk arises only from overdrafts, and is considered to be
insignificant. The Group analyses the interest rate exposure on a monthly basis.
A sensitivity analysis is performed by applying various interest rate scenarios to
the borrowings. A change of interest rate by 7 percentage points (being the max-
imum reasonably possible expectation of changes in interest rates) would cause
a change in interest expense by GBP 505,610 (2013: GBP 336,786).
(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 in this regard. The Group’s
international operations consist primarily of the export of skimmed milk powder,
whey and casein to the various markets around the world. The primary curren-
cy for export sales is the US Dollar. The Group’s established corporate policy
towards minimising the potential foreign exchange risk is to require the custom-
ers to pay for the export shipments of the skimmed milk powders in full and in
advance. The Group’s purchases of the raw milk, semi-processed materials and
other components of the manufacturing cost are made in Ukraine and are entire-
ly 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 Starokonstanti-
novskiy Molochniy Zavod SC. This debt is denominated in Euro. Therefore, the
Group is exposed to the exchange rate risk that lies in the possibility of Euro
(EUR) appreciation against Hryvna (UAH). The sensitivity analysis shows that
EUR appreciation against Hryvna by 5% would cause exchange rate loss of GBP
294,000 (2013: GBP 329,000).
(iii) Commodity price risk
The Ukraine economy has been characterized by high rates of inflation. The
Group tends to experience inflation-driven increase in certain 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 be
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
Annual Report 2014 67
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 296,183 in 2015. The first stage of the modernisation project of Starokon-
stantinovskiy Molochniy Zavod SC financed by the European Bank of Recon-
struction and Development (“EBRD”) was completed and it is expected that it will
allow greater utilisation and efficiency of its production 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 ex-
ternal events. When controls fail to work, operational risks can damage goodwill,
have legal consequences or lead to financial losses. The Group can not expect
that all operational risks have been eliminated, but with the help of control
system and by monitoring the reaction to potential risks, the Group may manage
such risks. The control system provides an effective separation of duties, access
rights, approval and verification, personnel training, and valuation procedures.
6. CAPITAL MANAGEMENT POLICIES
The Group’s definition of the capital is ordinary share capital, share premium,
accumulated retained earnings and other equity reserves. The Directors view
their role as that of corporate guardians responsible for preservation and growth
of the capital, as well as for generation of the adequate returns to shareholders.
The Group’s objectives when maintaining and growing capital are:
— to safeguard the Group’s ability to continue as a going 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 opportu-
nities in order to balance the highest returns to shareholders overall with the
most advantageous timing of investment flows,
— to provide an adequate return to shareholders by delivering the products in
demand by the customers at prices commensurate with the level of risk and
expectations of shareholders.
The Group sets the amount of capital it requires in proportion to risk. The Group
manages its capital structure and makes adjustments to it in the light of changes
in economic conditions and the risk characteristics of the current trading envi-
ronment. The Group’s core assets consist predominantly of the property, plant
and equipment — the resources that have proven their ability to withstand the
competitive erosion and inflationary pressure.
Annual Report 2014 68
In order to maintain or adjust the capital structure, the Group may issue new
shares, adjust the amount of dividends paid to shareholders, repay the debt, return
capital to shareholders or sell assets to improve the cash position. Historically, the
first three methods were used to achieve and support the desired capital structure.
The Group monitors capital on the basis of the net debt to equity ratio (D/E ratio).
This ratio is calculated as net debt to shareholder equity. Net debt is calculated as
total debt (as shown in the balance sheet) less cash and cash equivalents.
Traditionally, the Group’s conservative strategy was to maintain the D/E ratio at
0.6 (60%) maximum. The Directors believe that for the Group, as an operating
company and a public entity, the maintenance of the prudent debt policy is cru-
cial in preserving the capital of the business.
However as at December 31, 2014 despite the fact that the Company did not
increase the amount of its borrowings the amount of debt increased as result of
the Hryvnia devaluation leading to the D/E ratio at 0.92. In management’s opinion
this excessive D/E ratio is the result of force-majeur circumstances.
The D/E ratios at 31 December 2014 and at 31 December 2013 were as follows:
Total debt
Less: Cash and cash equivalents
Net debt
Total equity
D/E ratio
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
7,182
(215)
6,967
7,572
92,0%
10,920
(1,006)
9,914
18,069
54,9%
7. SEGMENT INFORMATION
At 31 December 2014, the Group was organised internationally 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.
Annual Report 2014
The segment results for the year ended 31 December 2014 are as follows:
69
Branded Beverages Non-branded Distribution Un-allo- Total
products
£’000
products
£’000
services
£’000
cated
£’000
£’000
£’000
20,948
1,497
7,969
1,462
—
31,876
SALES
Gross profit
3 985
644
1 550
Administrative expenses
(947)
(183)
Selling and distribution expenses
(1,837)
(409)
Other operating expenses
—
—
PROFIT FROM OPERATIONS
1,201
52
Finance expenses, net
—
Loss from exchange differences —
—
—
PROFIT BEFORE TAXATION
1,201
52
Taxation
—
—
(301)
(506)
—
743
—
—
743
—
PROFIT FOR THE YEAR
1,201
52
743
Segment assets
9,196
1,345
4,341
Unallocated corporate assets
Unallocated deferred tax
—
—
—
—
—
—
CONSOLIDATED TOTAL ASSETS
9,196
1,345
4,341
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred tax
1 985
—
—
—
—
—
—
—
—
274
(38)
(41)
—
195
—
—
195
—
195
52
—
—
52
—
—
—
—
6,453
(494)
(1,963)
(4)
(2,797)
(508)
(508)
(1,006)
1,185
(761)
(761)
(3,857)
(3,857)
(5,624)
(3,433)
(45)
(45)
(5,669)
(3,478)
—
14,934
2,746
2,746
2
2
2,748
17,682
—
1,985
7,823
7,823
302
302
CONSOLIDATED TOTAL LIABILITIES 1,985
—
—
—
8,125
10,110
Other segment information:
Depreciation and amortisation
Capital expenditure
426
244
119
3
321
162
—
—
79
866
488
The unallocated corporate liabilities represent bank loans, overdrafts and accruals.
Annual Report 2014
70
SALES
Gross profit
The segment results for the year ended 31 December 2013 are as follows:
Branded Beverages Non-branded Distribution Un-allo- Total
products
£’000
products
£’000
services
£’000
cated
£’000
£’000
£’000
40,393
2,114
8,008
1,687
5,125
1,050
734
Administrative expenses
(1,863)
(181)
(204)
Selling and distribution expenses
(2 310)
(520)
Other operating expenses
—
—
PROFIT FROM OPERATIONS
Finance expenses, net
952
—
Income from exchange differences —
PROFIT BEFORE TAXATION
Taxation
952
—
349
—
—
349
—
(86)
—
444
—
—
444
—
PROFIT FOR THE YEAR
952
349
444
Segment assets
16,461
2,621
7,299
Unallocated corporate assets
Unallocated deferred tax
—
—
—
—
—
—
CONSOLIDATED TOTAL ASSETS
16,461
2,621
7,299
Segment liabilities
2,285
Unallocated corporate liabilities —
Unallocated deferred tax
—
—
—
—
236
—
—
CONSOLIDATED TOTAL LIABILITIES 2,285
—
236
Other segment information:
Depreciation and amortisation
Capital expenditure
658
797
147
121
489
379
—
—
52,202
7,190
(418)
(2,725)
(182)
(3,240)
(408)
(408)
(1,008) 817
(1,009)
(1,009)
(361)
(361)
(2,378)
(553)
(151)
(151)
(2,529)
(704)
—
26,858
5,973
5,973
66
66
6,039
32,897
—
2,521
11,671 11,671
636
636
12,307
14,828
123
288
1,417
1,585
281
(59)
(142)
—
80
—
—
80
—
80
477
—
—
477
—
—
—
—
—
—
Annual Report 2014
Sales by country
(consignees)
Ukraine
Singapore
Netherlands
Azerbaijan
Estonia
Moldova
UAE
Lithuania
—
Other countries
Total
Secondary reporting format — geographical segments:
year ended
31.12.2014
£’000
26,297
2,049
1,170
644
408
382
378
204
—
344
Sales by country
(consignees)
Ukraine
Netherlands
Azerbaijan
Moldova
Estonia
Lithuania
UAE
—
—
Other countries
71
year ended
31.12.2013
£’000
48,053
1,446
704
646
384
344
180
—
—
445
31,876
Total
52,202
The majority of the Group’s assets and liabilities are in Ukraine. Sales to the
countries in Europe represent sales to international traders of milk powders
located in Europe. These traders consequently resell the milk powders to other
countries worldwide.
The Group has no customers volume of sales to which exceeds 10% from the
total amount.
Annual Report 2014
72
8. REVENUE
For the years ended 31 December 2014 and 31 December 2013, sales revenue
was presented as follows:
GENERAL REVENUE
Branded (including bonuses)
Beverages (including bonuses)
Non-branded products
Distribution services (including bonuses)
Charge of bonuses
Total revenue (excluding bonuses)
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
33,201
22,055
1,687
7,970
1,489
(1,325)
31,876
53,674
41,688
2,243
8,008
1,735
(1,472)
52,202
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.
9. EXPENSES BY NATURE
For the years ended 31 December 2014 and 31 December 2013, items of ex-
penses were presented as follows:
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
(25,423)
(45,012)
COST OF SALES
Including:
Raw materials and consumables used, cost of goods sold,
manufacture overheads etc.
(22,504)
(40,569)
Wages and salaries, social security costs (Note 12)
Depreciation (Note 11)
(2,193)
(726)
(3,236)
(1,207)
Annual Report 2014
73
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
(1,963)
(2,725)
ADMINISTRATIVE EXPENSES
Including:
Wages and salaries, social security costs (Note 12)
(1,077)
(1,377)
PR, nominated broker, secretary, legal services etc.
Lease and current repair and maintenance
Security
Bank service
Communication
Taxes and compulsory payments
Amortisation and depreciation (Note 11)
Audit fees
IT materials, household expenses, reading materials
(283)
(101)
(92)
(73)
(58)
(43)
(46)
(40)
(22)
(257)
(330)
(139)
(136)
(98)
(50)
(61)
(56)
(99)
Other
(128)
(122)
SELLING AND DISTRIBUTION EXPENSES
(2,797)
(3,240)
Including:
Wages and salaries, social security costs (Note 12)
Delivery costs
Promotion
Lease and current repair and maintenance
Amortisation and depreciation (Note 11)
Impairment of inventories
Veterinary certificates, medical examination, permits
Royalty
Other
(966)
(787)
(578)
(140)
(85)
(76)
(68)
(6)
(91)
(1,365)
(759)
(417)
(264)
(96)
(144)
(58)
(5)
(132)
Annual Report 2014
74
OTHER OPERATING EXPENSES
Including:
Amortisation 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
10. NET FINANCE COSTS
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
(508)
(408)
(9)
—
(73)
(1)
(284)
(141)
(53)
(31)
(5)
(1)
—
(318)
For the years ended 31 December 2014 and 31 December 2013, financial in-
come/(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
31.12.2014
£’000
year ended
31.12.2013
£’000
4
4
(765)
(765)
(761)
3
3
(1,012)
(1,012)
(1,009)
Annual Report 2014
75
11. DEPRECIATION AND AMORTISATION
For the years ended 31 December 2014 and 31 December 2013, amortization
and depreciation were presented as follows:
Cost of sales
Administrative expenses
Selling and distribution expenses
Other operating expenses
Total depreciation and amortization
year ended
31.12.2014
£’000
(726)
(46)
(85)
(9)
(866)
year ended
31.12.2013
£’000
(1,207)
(61)
(96)
(53)
(1 417)
12. EMPLOYEE BENEFIT EXPENSES
For the years ended 31 December 2014 and 31 December 2013, employee bene-
fit expenses were presented as follows:
Wages and salaries (including key management personnel)
Social security costs
year ended
31.12.2014
£’000
(3,251)
(986)
(4,237)
year ended
31.12.2013
£’000
(4,400)
(1,578)
(5,978)
Average number of employees
1,423
1,583
Wages and salaries of operating personnel
Wages and salaries of administrative personnel
Wages and salaries of distribution personnel
(2,193)
(1,077)
(966)
Wages and salaries of personnel related to other operating expenses
(1)
(4,237)
(3,236)
(1,377)
(1,365)
(1)
(5,979)
Annual Report 2014
76
Wages and salaries of key management personnel:
For the year ended 31 December 2014, remuneration of the Group’s key manage-
ment personnel amounted to GBP 235,000 (2013: GBP 183,750).
Key management personnel received only short term benefits during the years
ended 31 December 2014 and 31 December 2013.
The key management personnel are those persons remunerated by the Group who
are members of the Board of Directors of the Company (Ukrproduct Group Ltd).
13. INCOME TAX EXPENSES
For the years ended 31 December 2014 and 31 December 2013, income tax
expenses were presented as follows:
Current tax charge — Ukraine
Current tax charge — non-Ukraine
Deferred tax relating to the origination
and reversal of temporary differences
Total income tax expenses
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
53
—
(8)
45
149
5
(3)
151
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 18% (2013: 19%).
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.
Annual Report 2014
77
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
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 (2014: 18%, 2013: 19%)
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
795
(26)
(4,202)
(3,433)
143
—
—
143
(98)
—
—
(98)
45
—
—
45
18%
0%
Nil
-4%
128
221
(902)
(553)
24
22
—
46
122
(17)
—
105
146
5
—
151
19%
10%
Nil
-8%
Annual Report 2014
78
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 implementa-
tion of regulations are well established, documented with a sufficient degree of
clarity and adhered to by the taxpayers. Nevertheless, there remain certain risks
in relation to the Ukrainian tax system: few court precedents with regard to tax
related issues exist; different opinions regarding legal interpretation may arise
both among and within government ministries and regulatory agencies; tax com-
pliance practice is subject to review and investigation by a number of authorities
with overlapping responsibilities.
Generally, tax declarations remain subject to inspection for an indefinite period.
In practice, however, the risk of retroactive tax assessments and penalty charges
decreases significantly after three years. The fact that a year has been reviewed
does not preclude the Ukrainian tax service performing a subsequent inspection
of that year.
The Group’s management believes that it has adequately provided for tax liabil-
ities in the accompanying financial statements; however, the risk remains that
those relevant authorities could take different positions with regard to interpre-
tive issues.
During the period under review, the Ukrainian companies within the Group paid
royalties and interest charges on the outstanding credits and bonds to another
Group company – LinkStar Limited (Cyprus). These payments were not taxa-
ble 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 Equipment”, the Group carries
out revaluations, with sufficient regularity to ensure that the carrying amount
does not differ materially from fair value. As at 31 December 2014, a review was
conducted and showed that the carrying 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 Starokostiantynivskyi Molochnyi Zavod
and its two structural divisions in the city of Zhytomyr and the city of Le-
tychiv,
— Group’s vehicle fleet which is used for transportation of raw materials and
finished dairy products,
Annual Report 2014 79
— 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 manufac-
turing 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:
— 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 beverages units is most sensi-
tive to the following assumptions:
Gross margins — Gross margins are based on budgeted values for 2015 and con-
sider product prices and cost indexes trends over 2016-2020 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 equity is derived from the expected return on
investment 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 26%.
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 obtained from published indexes for
Ukraine.
Growth rates estimates — Rates are based on published industry research applica-
ble for the Ukraine.
Market share assumptions — When using industry data for growth rates, these as-
sumptions 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
Annual Report 2014 80
management plans for further expansion of dairy products market share through
the development of the brands “Nash Molochnyk”, “Vershkova Dolyna” and “Mo-
lendam”. Hard cheese produced by the Group takes an additional market share
which is supported by the average actual dynamics for 2011-2014.
Industry forecasts have not been used for forecasting the sales in Kvass (bev-
erages) 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 his-
torically increasing every year and are expected to do so in the short and medi-
um term. The model is based on management’s own forecasted sales dynamics.
Based on the assumptions described above, using sensitivity analysis we indi-
cate that an impairment of the Dairy production CGU at WACC growth of 2% and
for Beverages production CGU at WACC growth of 3%.
With regard to the assessment of value in use of both CGU, management be-
lieves 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.
As at 31 December 2014 and 31 December 2013, property, plant and equipment
were presented as follows:
r
e
d
n
u
s
t
e
s
s
A
n
o
i
t
c
u
r
t
s
n
o
C
d
n
a
d
n
a
L
s
g
n
d
i
l
i
u
B
COST OR VALUATION
£’000
£’000
i
d
n
a
y
r
e
n
h
c
a
M
£’000
t
n
a
P
l
s
e
l
c
i
h
e
V
£’000
,
s
t
n
e
m
u
r
t
s
n
I
i
-
p
u
q
e
d
n
a
r
e
h
t
o
s
l
o
o
t
t
n
e
m
£’000
l
a
t
o
T
£’000
At 1 January 2013
940
9,832
12,600
3,671
1,227
28,270
Additions
1,491
—
Transfers to/from AUC
Disposals
Exchange differences on translation
to the presentation currency
(718)
—
(60)
54
503
(19)
—
38
43
1,588
137
—
(102)
(118)
(239)
40
—
(180)
(269)
(47)
(35)
(591)
At 31 December 2013
1,653
9,692
12,869
3,560
1,254
29,028
ACCUMULATED DEPRECIATION
At 1 January 2013
Depreciation charge
Disposals
29
—
—
3,212
3,628
2,277
374
—
654
(6)
137
(31)
677
165
9,823
1,330
(125)
(162)
Annual Report 2014
81
l
a
t
o
T
,
s
t
n
e
m
u
r
t
s
n
I
i
-
p
u
q
e
d
n
a
s
l
o
o
t
r
e
h
t
o
t
n
e
m
s
e
l
c
i
h
e
V
£’000
£’000
£’000
r
e
d
n
u
s
t
e
s
s
A
n
o
i
t
c
u
r
t
s
n
o
C
d
n
a
d
n
a
L
s
g
n
d
i
l
i
u
B
£’000
£’000
i
d
n
a
y
r
e
n
h
c
a
M
£’000
t
n
a
P
l
Exchange differences on translation
to the presentation currency
(52)
(56)
(27)
(13)
(148)
At 31 December 2013
29
3,534
4,220
2,356
704
10,843
COST OR VALUATION
At 1 January 2014
1,653
9,692
12,869
3,560
1,254
29,028
Additions
Transfers to/from AUC
Disposals
Exchange differences on translation
to the presentation currency
593
—
(1,716)
384
(11)
(12)
—
859
(28)
—
18
(124)
38
455
(60)
631
—
(235)
(472)
(3,650)
(4,940)
(957)
(740)
(10,759)
At 31 December 2014
47
6,414
8,760
2,497
947
18,665
ACCUMULATED DEPRECIATION
At 1 January 2014
Depreciation charge
Disposals
Exchange differences on translation
to the presentation currency
29
5
(5)
3,534
4,220
2,356
704
10,843
223
(7)
353
(6)
85
(62)
124
(54)
790
(134)
—
(874)
(808)
(488)
(256)
(2,426)
At 31 December 2014
29
2,876
3,759
1,891
518
9,073
Net book amount at 31 December 2014
18
3,538
5,001
606
Net book amount at 31 December 2013
1,624
6,158
8,649
1,204
Net book amount at 31 December 2012
911
6,619
8,972
1,395
429
550
550
9,592
18,185
18,447
Fixed assets with a net book value of GBP 8,446,038 at 31 December 2014
(2013: GBP 16,312,555) were pledged as collateral for loans.
As at December 31, 2014 the Group has no contractual commitments on pur-
chase of property, plant and equipment.
Annual Report 2014
82
Borrowing costs for the tranches from EBRD for the second stage of recon-
struction of SE Starokostiantynivskyi Molochnyi Zavod was capitalised during
March-December of 2014. They amounted to GBP 31,847 (2013: 33,757).
Average rate for EBRD loan 7,094% used to determine the amount of borrowing
costs eligible for capitalisation.
As at December 31, 2014 any prepayments for property, plant and equipment
were included within Assets under construction in the amount of GBP 8,000
(2013: GBP 599,000)
As at December 31, 2014 fully depreciated assets included within property, plant
and equipment with the original cost of GBP 149,000 (2013: GBP 565,000)
It’s impracticable to provide information about the carrying amounts of all
classes of assets, except office equipment if they were measured using the cost
model without undue cost and efforts.
15. INTANGIBLE ASSETS
As at the reporting dates intangible assets were presented as follows:
Computer
software
£’000
Trade marks
Customer list
Goodwill Total
£’000
£’000
£’000
£’000
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
32
2
(2)
(1)
31
26
3
—
(1)
28
883
—
—
(21)
692
—
—
—
104
1,711
—
—
—
2
(2)
(22)
862
692
104
1,689
196
49
—
(6)
251
35
—
—
—
—
—
—
473
87
—
(7)
239
286
—
553
Annual Report 2014
83
Computer
software
£’000
Trade marks
Customer list
Goodwill Total
£’000
£’000
£’000
£’000
COST OR VALUATION
At 1 January 2014
Additions
Disposals
31
41
(5)
862
—
—
Exchange differences on translation
to the presentation currency
(21)
(137)
692
—
—
(189)
104
—
1,689
41
(104)
(109)
—
(347)
At 31 December 2014
46
725
503
—
1,274
ACCUMULATED AMORTISATION
At 1 January 2014
Amortisation charge for the year
Disposals
28
3
—
239
47
—
Exchange differences on translation
to the presentation currency
(19)
(173)
286
26
—
8
—
—
—
—
553
76
(184)
At 31 December 2014
12
113
320
—
445
Net book amount at 31 December 2014 34
Net book amount at 31 December 2013 3
Net book amount at 31 December 2012 6
612
623
687
183
406
441
—
104
104
829
1,136
1,238
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 individ-
ual producers, the existing supplier base is very important for the dairy produc-
ers 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.
Annual Report 2014
84
The asset was valued by an independent valuer Uvecon using the sales com-
parison 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 2014, was that the carrying value of the
intangible asset as at December 31, 2014 is considered appropriate. It’s imprac-
ticable 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.
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 2014, was that
impairment needs to be recognised.
After having analysed all key factors the Group`s Management decided that as of
December 31, 2014 the Goodwill lost its value.
16. DEFERRED TAX ASSETS AND LIABILITIES
For the year ended 31 December 2014, deferred tax assets and liabilities were
presented as follows:
As at 31.12.2014
£’000
As at 31.12.2013
£’000
Deferred tax assets at the beginning of the year
(66)
—
(46) —
Deferred tax liability at the beginning of the year
—
636
—
670
Deferred tax asset recognised in income
statement during the year
Deferred tax liability recognised in income
statement during the year
42 —
(22) —
—
(15)
—
77
Reduction in deferred tax due to decrease in property,
plant and equipment revaluation reserve because of amortisation
—
(36)
—
(58)
Effect from tax rate change (2013: 19%; 2014: 18%)
— —
—
(38)
Exclusion from Group
Exchange differences on translation
to the presentation currency
— —
— —
22
(283)
2
(15)
Deferred tax assets at the end of the year
(2)
—
(66) —
Deferred tax liability at the end of the year
—
302
—
636
Annual Report 2014
85
17. INVENTORIES
As at the reporting dates inventories were presented as follows:
Finished goods
Raw materials
Work in progress
Other inventories
Trade receivables
Other receivables
Prepayments
As at
31.12.2014
£’000
As at
31.12.2013
£’000
942
571
31
541
2,085
1 156
1 053
167
634
3,010
During 2014, GBP 19,752 (2013: GBP 32,314) was recognised as an expense for
inventories carried at net realisable value. This is recognised in cost of sales. In-
ventories with a net book value of GBP 839,785 at 31 December 2014 (2013:GBP
336,332) were pledged as collateral for loans.
18. TRADE AND OTHER RECEIVABLES
As at the reporting dates receivables were presented as follows:
As at
31.12.2014
£’000
As at
31.12.2013
£’000
3,039
93
542
3,674
5,509
469
941
6,919
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.
Annual Report 2014
86
Maturity of trade receivables as at 31 December 2014 and 31 December 2013 is
presented as follows:
Total
£’000
Neither past
due nor
impaired
£’000
2014
2013
3,039
2,277
5,509
4,283
<30
days
£’000
162
178
Past due but not impaired
61-90
30-60
days
days
£’000
£’000
91-120
days
£’000
179
509
107
312
202
46
>120
days
£’000
112
181
Provisions were created for impaired trade and other receivables and holiday
allowance.
For the year ended 31 December 2014, provisions were presented as follows:
As at 31.12.2014
£’000
As at 31.12.2013
£’000
Impaired trade and other receivables at the beginning of the year
123 —
126 —
Holiday allowance at the beginning of the year
—
40
—
126
Accrual
Use of allowances
239
878
—
277
(14)
(827)
—
(364)
Effect of translation to presentation currency
(128)
(49)
(3)
1
Impaired trade and other receivables at the end of the year
220 —
123 —
Holiday allowance at the end of the year
—
42
—
40
19. CURRENT TAXES
As at the reporting dates current taxes were presented as follows:
VAT receivable
Current income tax prepayments
Other prepaid taxes
As at 31.12.2014
£’000
As at 31.12.2013
£’000
1,081
80
16
1,177
2,241
140
18
2,399
Annual Report 2014
87
20. OTHER FINANCIAL ASSETS
Loans and receivables
Loans issued to related parties
Loans issued to third parties
Loans issued to employees
As at 31.12.2014
£’000
As at 31.12.2013
£’000
—
86
22
108
—
174
2
176
Loans issued are short term in nature, repayable on demand and are interest free.
21. CASH AND CASH EQUIVALENTS (EXCLUDING BANK OVERDRAFTS)
As at the reporting dates cash and cash equivalents were presented as follows:
Cash — in UAH
Bank — in UAH
Bank — in other currencies
As at 31.12.2014
£’000
As at 31.12.2013
£’000
4
27
184
215
4
911
91
1,006
22. SHARE CAPITAL
As at the reporting dates share capital was presented as follows:
AUT HOR ISED
As at
31.12.2014
Number ’000
As at
31.12.2014
£’000
As at
31.12.2013
Number ’000
As at
31.12.2013
£’000
Ordinary shares of 10p each
60,000
6,000
60,000
6,000
Annual Report 2014
88
IS SUE D AND FULLY PAID AT B EGIN N ING
AND E ND O F T HE YEAR
As at
31.12.2014
Number ’000
As at
31.12.2014
£’000
As at
31.12.2013
Number ’000
As at
31.12.2013
£’000
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
39,673
—
At end of the year (excluding shares held 39,673
as treasury shares)
3,967
—
3,967
40,818
(1,145)
39,673
4,082
(115)
3,967
H ELD AS T REASUR Y SH ARE S
As at
31.12.2014
Number ’000
As at
31.12.2014
£’000
As at
31.12.2013
Number ’000
As at
31.12.2013
£’000
3,145
—
3,145
315
—
315
2,000
1,145
3,145
200
115
315
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
At end of the year
As at 31 December 2014 and 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.
23. OTHER RESERVES
At the reporting date other reserves were presented as follows:
Share
premium
£’000
Merger
reserve
£’000
Translation
reserve
£’000
Revaluation Total
reserve
£’000
other reserves
£’000
At 1 January 2013
4,555
(367)
(6,339)
3,877
1,726
Own shares acquisition
7
Depreciation on revaluation of property, —
plant and equipment
—
—
—
—
—
(247)
7
(247)
Annual Report 2014
89
Share
premium
£’000
Merger
reserve
£’000
Translation
reserve
£’000
Revaluation Total
reserve
£’000
other reserves
£’000
—
—
—
—
—
367
—
—
—
38
(32)
—
38
(32)
367
—
—
(429)
—
(429)
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
At 31 December 2013
4,562
—
(6,768)
3,636
Depreciation on revaluation of property, —
plant and equipment
—
—
(162)
Impact of the change in tax rate
Reduction of revaluation reserve
Exchange differences on translation
to the presentation currency
—
—
—
—
—
—
—
—
(7,000)
—
(21)
—
1,430
(162)
—
(21)
(7,000)
At 31 December 2014
4 562
—
(13 768)
3 453
(5 753)
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
Merger
Gains arising on the revaluation of the Group’s property.
The balance on this reserve is wholly undistributable.
Losses arising on the application of the pooling of interests method
of consolidation used to account for the merger of Ukrproduct Group Ltd
and its subsidiaries.
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.
Annual Report 2014
90
24. BANK LOANS AND OVERDRAFTS
As at 31, December 2014, 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 productiv-
ity of the Starokonstantinovskiy Molochniy Zavod SC plant.
Bank
Currency Type
Opening
date
Termination
date
Interest
rate
Limit
£’000
As at
As at
31.12.2014 31.12.2013
£’000
£’000
EBRD
EUR
Loan
31.03.2011 10.06.2018
≈ 7,2%
8,626
5,693
6,580
30.05.2011 09.07.2017
21,0%
1,631
1,001
2,676
OTP Bank
UAH
OTP Bank
USD
Credit
line
Credit
line
30.05.2011 09.07.2017
12,0%
Aval Bank
UAH
Overdraft 31.05.2013 22.04.2015
19,9%
Credit Europe UAH
Bank
Credit
line
11.02.2013 11.02.2016
current
market
rate
1,631
1,631
408
652
144
344
—
454
1,210
7,182
10,920
The average interest rate as at 31 December 2014 was 9. 34% (2013: 14.4%).
Maturity of financial liabilities
year ended
31.12.2014
£’000
year ended
31.12.2013
£’000
344
2,110
4,728
7,182
454
5,348
5,118
10,920
On demand
In less than 1 year*
In more than 1 year*
Annual Report 2014
91
Interest rate profile of financial liabilities
Floating rate
Fixed rate
On demand
Expiry within 1 year
Expiry in more then 1 years
£’000
344
965
4,728
6,037
£’000
—
1,145
—
1,145
As at
31.12.2014
£’000
As at
31.12.2013
£’000
344
2,110
4,728
7,182
454
5,348
5,118
10 920
The currency profile of the Group’s financial liabilities is as follows:
Floating
rate liabilities
£’000
Fixed rate
liabilities
£’000
Total as at
31.12.2014
£’000
Total as at
31.12.2013
£’000
—
5 693
5 693
1 345
144
1 345
144
— 5 693
1 489
7 182
4 340
—
6 580
10 920
UAH
USD
EUR
The book value and fair value of financial liabilities are as follows:
Book value as at
31.12.2014
£’000
Fair value as at
31.12.2014
£’000
Book value as at
31.12.2013
£’000
Fair value as at
31.12.2013
£’000
Bank loans
Bank overdrafts
6 838
344
7 182
6 838
344
7 182
10 466
454
10 920
10 466
454
10 920
*extendable according to 3-year agreement with bank.
Annual Report 2014
92
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
31.12.2014
£’000
As at
31.12.2013
£’000
1,942
2,332
371
42
187
41
337
254
263
40
2,583
3,226
The Group’s management believes that the carrying value for trade and other
payables is a reasonable approximation of their fair value.
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
(3,478)
(704)
Weighted number of ordinary shares in issue
39,673,049
39,804,751
Year ended
31.12.2014
£’000
Year ended
31.12.2013
£’000
Basic earnings per share, pence
Diluted average number of shares
Diluted earnings per share, pence
27. DIVIDENDS
(8.77)
(1.77)
39,629,619
39,816,596
(8.78)
(1.77)
Due to the business circumstances dictating prudence and cash conservation,
the Board has decided not to pay a final dividend in respect of the year ended
31 December 2014.
Annual Report 2014
93
28. SHARE-BASED PAYMENTS
The Company operates an equity-settled share based remuneration scheme for
employees.
2014 Weighted
average exercise
price
Number
Number
2013 Weighted
average exercise
price
Outstanding at beginning of the year
0.100
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
—
—
—
—
—
0.100
0.100
—
—
—
—
—
—
—
—
—
(0.028)
—
—
—
—
—
130,290
0.100
130,290
0.100
130,290
130,290
During the period under review the Company did not grant options to any parties.
All options granted to the Directors are exercisable over a period of four years.
As at the year end these options were not exercised.
Taking into account the fair value estimate of options granted at the grant date,
no remuneration charge was recognised in the Consolidated Statement of Com-
prehensive Income in 2014.
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%
Annual Report 2014
94
29. CURRENCY ANALYSIS
Currency analysis for the year ended 31 December 2014 is set out below:
UAH
USD
GBP
EUR
Total
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
2,909
1,177
108
31
4,225
1,345
2,346
14
29
3,734
763
—
—
184
947
144
47
—
—
191
—
—
—
—
—
—
—
—
—
—
2
—
—
—
2
3,674
1,177
108
215
5,174
5,693
7,182
190
—
—
2,583
14
29
5,883
9,808
Currency analysis for the year ended 31 December 2013 is set out below:
UAH
USD
GBP
EUR
Total
ASSETS
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
5,652
2,399
176
915
1,263
—
—
—
Total assets
9,142
1,263
—
—
—
—
—
4
—
—
91
95
6,919
2,399
176
1,006
10,500
Annual Report 2014
95
LIABILITIES
Bank borrowings
Trade and other payable
Current income tax liabilities
Other taxes payable
Total Liabilities
UAH
USD
GBP
EUR
Total
4,340
2,665
18
28
7,051
—
321
—
—
321
—
—
—
—
—
6,580
10,920
240
—
—
3,226
18
28
6,820
14,192
USD
EUR
USD
EUR
50% strengthening of Hryvnia rate against the following currencies as at 31 De-
cember 2014 and 2013, would increase /decrease the amount of profits /or loss-
es 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 2014
£’000
Effect on income
before tax in 2013
£’000
50%
50%
-50%
-50%
378
(2,941)
(378)
2,941
377
(2,690)
(377)
2,690
30. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the oth-
er 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 par-
ties are set out below. Remuneration of key management personnel is disclosed
in note 12.
Sales of goods and services to related parties and purchases from related parties
are summarised below. All sales and purchases were with related parties under
common control of the ultimate beneficiaries of the Company.
Annual Report 2014
96
Sales
Other operational incomes
Purchases
Year ended
31.12.2014
£’000
Year ended
31.12.2013
£’000
683
—
65
429
—
46
Balances due from/(to) related parties at each period end are shown below.
Receivables and prepayments
Loans issued
Trade and other payables
As at
31.12.2014
£’000
As at
31.12.2013
£’000
369
—
(72)
97
—
(76)
In 2014, the Group’s commercial relationships with the related parties comprised
sales, purchases, provision. 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 reg-
ulatory acts affecting the activities of Ukrainian enterprises may be subject to
changes and amendments within a short period of time. As a result, assets and
operating activity of the Group may be exposed to the risk in case if any unfa-
vourable changes take place in political and economic environment.
(b) Taxation
As a result of the unstable economic environment in Ukraine, the Ukrainian tax
authorities pay increasing attention to business communities. In this regard,
local and national tax legislation are constantly changing. Provisions of various
legislative and regulatory legal acts are not always clearly-worded, and their
interpretations depend on the opinion of tax authority officers and the Ministry
of Finance. It is common practice for disagreements between local, regional
Annual Report 2014
97
and republican taxation authorities to arise. A system of fines and penalties for
claimed or revealed violations exists in corresponding regulatory legal acts, laws
and decisions. Penalties include confiscation of amount in dispute (in case of
law violation) 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 accordance with the applicable laws and
regulations of Ukraine. The Group is required to contribute a specified percent-
age 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 contribu-
tions from salaries. As at 31 December 2014 and 2013 the Group had no liabil-
ities 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 2014 the
Group is not in breach of its loan agreements.
The amount of uncancellable lease commitments is insignificant.
As of December 31, 2014 the Group does not possess any finance lease and hire
purchase commitments, capital commitments and guarantees.
32. SUBSEQUENT EVENTS
(a) EBRD — breach of loan covenants
After the reporting year end, the Group did not meet the repayment terms and
loan covenants of the loan agreement with European Bank for Reconstruction
and Development (“EBRD”) (Note 24) of EUR 300 thousand due in March 2015
and of EUR 300 thousand due in June 2015. Such breach entitles the EBRD the
right to demand early repayment of loans. The management beforehand had
notified the EBRD about all breaches of terms of the loan agreement and loan
covenants and requested to obtain a waiver on the date of signing these consoli-
dated financial statements. However, the EBRD did not provide waiver in respect
of breach of the repayment schedule in 2015. The representatives of EBRD
provided a letter on 12 June 2015 to the Group’s Board stating that: 1) EBRD is
aware of the breach of the repayment schedule for the period ended 31 March
2015; 2) EBRD is currently considering a restructuring of the terms of the Loan
Agreement, including extension of the maturity date under the Loan Agreement
and; 3) as of the date of signing of the letter did not exercise any of its rights in
Annual Report 2014 98
accordance with the Agreement. The management believes that the EBRD will
not demand accelerated repayment an interest repayments of the loans due to
the breach of the repayment schedule in 2015.
(b) Foreign exchange rates
Post year end, the Ukrainian Hryvnia continued to devalue against the US Dollar.
In particular according is the National Bank of Ukraine the following are key
exchange rates:
Currency
UAH/GBP
UAH/USD
UAH/EUR
(c) Stock Listing
23 June 2015
33.96
21.52
24.12
On February 2, 2015 Ukrproduct Group’s shares were admitted to trading on the
Ukrainian stock market. No new ordinary shares have been issued and accord-
ingly the total number of shares in issue remains unchanged. Management
expects that the listing on the Ukrainian Stock Exchange will allow better access
to the local investors and will contribute to improving the liquidity of Company’s
shares.
Annual Report 2014 99
10
Corporate
advisers
Group secretary
UK legal advisers
Bedell Secretaries Limited
Gowlings (UK) LLP
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Nominated adviser
ZAI Corporate Finance Ltd
1 Hobhouse Court,
Suffolk Street
London SW1 4HH
125 Old Broad Street
London
EC2N 1AR
Jersey legal advisers
BedellCristin
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Nominated broker
ZAI Corporate Finance Ltd
Principal bankers
UBS SA
1 Hobhouse Court,
Suffolk Street
London SW1 4HH
40 rue du Rhone
CH-1211 Geneva
Switzerland
Independent auditors
Registrars
Baker Tilly Channel Islands
Limited
PO Box 437, 1st Floor,
Kensington Chambers,
46/50 Kensington Place,
St Helier, Jersey JE4 0ZE
Neville Registrars
Neville House
18 Laurel Lane
Halesowen B63 3DA
Annual Report 2014 100
11
Shareholder
Information
Registered office
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Registered number 88352 in Jersey
Financial Calendar
31 December 2014
Financial year end
24 June 2015
24 July 2015
Announcement of full year 2014 results
Annual General Meeting
Analysis of shareholding — at 31 December 2014
Size of shareholdings
Up to 5,000 shares
5,001 to 50,000 shares
50,001 to 200,000 shares
Over 200,000 shares
TOTAL
Number
of holders
% of total
Total holdings,
shares
% of total
34
30
23
17
103
33
29
23
15
59,428
561,119
2,748,81
39,449,221
100,00%
42,817,849
0.14
1.31
6.42
92.13
100.00
Annual Report 2014
101
As at December 31, 2014 the founding shareholdersMessrs Sergey Evlanchik
and Alexander Slipchuk held 14,967,133 (34.96%) and 14,939,133 (34.89%)
respectively;3,144,800 or approximately 7.34% were held treasury shares and
9,766,783 shares or approximately 22.81% were in the Free Float.
Administrative enquiries
All enquiries relating to individual shareholder matters should be made to the
registrar at: Neville Registrars,Neville House, 18 Laurel Lane, Halesowen, B63
3DA. The registrar will assist with enquiries regarding any change of circum-
stances (e.g. name, address, bank account details, bereavement, lost certifi-
cates, dividend payment and transfer of shares). All correspondence should be
clearly marked “Ukrproduct Group Ltd” and quote the full name and address of
the registered holder of the shares.
Investor Relations
Mariia Borodaieva
Phone: +380 (44) 232-96-02
Fax: +380 (44) 289-16-30
Email: mariia.borodaieva@ukrproduct.com
Annual Report 2014 102
Annual Report 2014 ukrproduct.com