TABLE OF
CONTENTS
Chairman and Chief
Executive Statement
The Board of Directors
Remuneration
Committee Report
Corporate Governance
Report
Corporate Social
Responsibility Report
Directors’ Report
Statement of Directors’
Responsibility
Independent
Auditors’ Report
3
7
11
15
19
23
27
29
Consolidated
income statement
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement
of cash flows
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
Corporate advisers
Shareholder Information
33
33
36
38
42
44
111
113
2
Annual Report 2015
CHAIRMAN AND
CHIEF EXECUTIVE
STATEMENT
Annual Report 2015
3
During 2015 Ukrproduct faced significant headwinds. The Ukrainian economy was under pres-
sure accentuated by the smoking conflict in the East of the country and the weakening of the
Ukrainian economy overall. This is reflected in the devaluation of the local currency — hryvna,
deterioration of consumer confidence and geographic contraction of the available market. Fur-
thermore the complete closure of the Russian market caused the oversupply of dairy products
on the Ukrainian market and further intensified local competition.
The Company sought to defy the increasing
challenges of the business environment by
revising the regional sales focus, enhancing its
sales and operating efficiency as well as adjusting
the sales mix in view of changing consumer prefer-
ences. This programme was designed to resist pres-
sure on profit margins and overall to create cash.
It has been implemented in consultation with the
European Bank of Reconstruction and Development.
In dairy domestic market demand shrunk across the
Company’s key product categories leading to fierce
competition. At the same time, average raw milk prices
showed a year-on-year increase of circa 16 % prompted
by stronger competition for supply on the back of even
higher price increases for imported dairy ingredients.
BRANDED DAIRY
PRODUCTS
Volumes fell overall given focus on reliable custom-
ers only, lack of business in the East and desperate
competition. Turnover reduced by 1% compared with
2014. Butter gained marginally as consumers moved
from Spreads that contracted. Processed cheese in
particular suffered a decline given the competition,
as did hard cheese which was impacted by the ban
on Ukrainian exports to Russia.
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Annual Report 2015
On a positive note the devaluing hryvnia provided
Ukrproduct group with an opportunity to increase its
export volumes across the range of its dairy prod-
ucts. This helped to mitigate the pressures of the
domestic market
However, overall gross profits faced a significant
decline. Wages in real terms fell making it difficult
to increase consumer prices in order to fully offset
the sharp rise in input costs namely energy and dairy
ingredients, not least raw milk. As a result, gross
profit of branded dairy products decreased by 41%
in hryvna terms mostly owing to the packaged butter
and processed cheese categories.
BEVERAGES. KVASS.
The sales of kvass showed only a 1% decrease in
2015 in sales denominated in Ukrainian Hryvna com-
pared to the same period last year due to the strict
control over debtors.
FINANCES
Total revenues for the year decreased by 36.8%
to £20.158m (2014: £31.876m). In local currency
terms, Hryvna revenues overall grew by 8%.
Gross profit margins fell to 11.48% (2014: 20.24%)
and despite a significant 30.5% reduction in op-
erating expenses to £3.66m, we are reporting an
operating loss of £1.346m (2014: operating profit
£1.185m). This was accentuated by negative ex-
change rate differences amounting to £1.733m
(2014: charge £3.857m) resulting in a loss before
taxation for the year of £3.847m (2014: £3.433m).
from 2018 to 2024 and an additional grace period for
2016. The Board believes that these terms provide
confidence and are favourable for the Group dis-
charging immediate pressure on cash flows whilst
ensuring that the loan will be repaid in full over a
longer period of time. The Group has finalised doc-
umentation on restructuring of the loan with EBRD
and signed the revised Loan Agreement.
Exports at £3.872m accounted for approximately
19.2% (2014: 17.5%) of sales, with domestic sales
broken down between regional distributors, national
retail chains and wholesale suppliers to other pro-
ducers (such as Danone and Mondelez).
CASH
Balances of cash at 31 December 2015 stood at
£0.093m (2014: £0.215m).There has been a focus
to reduce overdue receivables in order to improve
cash generation and to decrease financial costs. New
operating procedures and incentives have been in-
troduced across the sales and marketing and finance
function resulting in average cash collection period
falling from 45 to 39 days, thus releasing cash for
operations. The Group’s cash levels are sufficient to
meet current debt interest obligations in the short
and medium term.
As the cost of EBRD euro denominated loan was
inflated by the devaluation of hryvnya, the bank
undertook a thorough business review as a part of
the loan restructuring negotiations. That resulted in
the agreement with EBRD to restructure the terms
including extension of the maturity date of the loan
The revaluation of assets added £0.9m to the Balance
Sheet as at 31st December 2015.
TRADING OUTLOOK
The Company is adapting to this most challenging
business environment and is working to restore prof-
itability according to its improvement programme.
Sales and marketing activities are concentrated on
the non-occupied regions of Ukraine and ex-Soviet
countries with a major focus on cash generation
instead of revenue. Productivity improvements and
cost efficiencies were introduced in warehousing and
marketing as well as delivery of material optimization
of Zhitomir subsidiary overheads with more to come.
In this volatile trading environment working capital is
subject to everyday close control to generate more
cash as a result of all these initiatives.
In 2015 the Company introduced new beverages — a
rosehip-based product and Uzvar — Ukrainian tradi-
tional drink brewed from dried fruits. Like kvass new
products are positioned as natural drinks for active
people practicing a healthy lifestyle. Natural-based
beverages are traditionally popular in Ukraine and
the Company expects growth in new beverage sales.
Jack Rowell
Chairman
Alexander Slipchuk
Chief Executive Officer
Annual Report 2015
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6
Annual Report 2015
THE BOARD
OF DIRECTORS
Annual Report 2015
7
As of the date of the approval of the 2015 Annual Report, the Board members are as follows:
Name
Jack Rowell
Sergey Evlanchik
Alexander Slipchuk
Yuriy Hordiychuk
Position
Non-executive Chairman
Executive Officer
Chief Executive Director
Chief Operational Officer
Date appointed
November 2004
April 2008
November 2004
January 2013
All directors were re-elected at Annual General Meeting (AGM) on 24 July 2015.
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.
ALEXANDER SLIPCHUK
CHIEF EXECUTIVE DIRECTOR
Alexander Slipchuk is responsible for the Group’s overall performance and strategy
implementation and is a founder of Ukrproduct Group. He studied at Far-Eastern High
Engineering Marine School in Russia and graduated as a maritime navigator in 1989.
Together with Sergey Evlanchik, Alexander established the securities house Alfa-Broker
in 1994, developed the equity trading business in the far east of the Russian Federa-
tion, 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.
8
Annual Report 2015
SERGEY EVLANCHIK
EXECUTIVE OFFICER
Sergey Evlanchik studied at Vladivostok State University of Economics & Service
in the Russian Federation and at Oxford University in the UK, where he received his
MBA degree. Together with Alexander Slipchuk, he established the equity trading
group, Alfa-Broker in 1994 in the Far East of the Russian Federation. After the recess
of the Russian and Ukrainian equity markets in 1998, Mr Evlanchik refocused his ac-
tivities on business development in the industrial sector of Ukraine, particularly with-
in 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.
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 degree in “Production Organization
Management”. In 2006, Mr. Hordiychuk graduated with MBA from the School of Eco-
nomics (Russia) and earned a degree in “Logistics and Supply Chains Management”.
Annual Report 2015
9
10
Annual Report 2015
REMUNERATION
COMMITTEE
REPORT
Annual Report 2015
11
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-ex-
ecutive 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 remuner-
ation of the respective Executive Directors of the Group
and of its subsidiary companies, including the granting
of share options. Among others, the objective of this
Committee is to attract, retain and motivate Execu-
tives capable of delivering the Group’s objectives. The
Remuneration Committee is also responsible for the
evaluation of the performance of Executive Directors.
The Remuneration Committee held two meetings
during 2015.
REMUNERATION POLICY
The Group’s remuneration policy is to provide remu-
neration packages which:
•
are designed to attract, motivate and retain high
calibre Executives;
•
•
•
•
are competitive and in line with comparable
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 moti-
vate Executives to achieve those targets both in
the short and long-term.
BASE SALARY
The Committee on an annual basis reviews base
salaries of the respective Executive Directors of the
company and its subsidiaries, taking into account
job responsibilities, competitive market rates and the
performance of the Executive concerned. Considera-
tion is also given to the cost of living and the Direc-
tor’s professional experience. While determining the
base salaries, the Committee also considers general
aspects of the employment terms and conditions of
employees elsewhere in the Group.
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Annual Report 2015
INCENTIVE BONUS
PLANS AND EQUITY
ARRANGEMENTS
The Committee plans to introduce long-term equity
incentive arrangements to make the overall Executive
Remuneration structure more performance-related,
more competitive and aligned with shareholders’
interests subject to an improving environment in
Ukraine.
SERVICE CONTRACTS
The appointments of the respective Executive
Directors of the company and its subsidiaries are
valid for an indefinite period and may be terminated
with three months notice given by either party at
any time. The company or subsidiary’s policy for
compensation for loss of office is to provide com-
pensation 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 subsid-
iary 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 terminat-
ed 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 com-
panies, although any such appointment is subject
to the Board’s approval and terms and conditions of
Service Agreements.
Annual Report 2015
13
DIRECTORS’ REMUNERATION
Details of the Directors’ cash remuneration are outlined below:
Annual
Salary/fee
2015
2014
£’000 £’000
Bonus
2015 2014
£’000 £’000
Non-cash
compensation
2015
2014
£’000 £’000
Total cash
remuneration
2015 2014
£’000 £’000
Executive*
Alexander Slipchuk
Sergey Evlanchik
Yuriy Hordiychuk
Non-executive**
52.5
67.5
9.9
35
45
30
— —
— —
— —
—
—
—
—
—
—
Dr Jack Rowell
33.75 33.75
— —
—
—
52.5
67.5
9.9
35
45
30
129.9 110.0
33.75 33.75
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 De-
cember 2015 are shown below.
Directors
Jack Rowell
Share Options
Exercise Price, pence
Exercise Period
130,290
10.0
to 05/02/2017
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Annual Report 2015
CORPORATE
GOVERNANCE
REPORT
Annual Report 2015
15
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
UK Corporate Governance Code (the “Code”) revised
in April 2016 by the Financial Reporting Council. Un-
der the rules of AIM, a market operated by the Lon-
don 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 re-
spects 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 responsibil-
ity between them. The Chairman of the Board is an
independent non-executive Director.
Within the scope of the corporate governance pro-
cedures, the Board meets regularly to consider the
financial results, budgets, and major items of capital
expenditure of all the Group’s companies. This body
is also responsible for formulating, reviewing and
approving the Group’s strategy and the phases of its
development.
The Board met four times during 2015.
BOARD
COMMITTEES
The Board is assisted by the Audit and Remuneration
Committees.
AUDIT COMMITTEE
The Audit Committee consists of one non-executive
Director, Jack Rowell. The member of the Audit
Committee has relevant financial experience. This
Committee, inter alia, is responsible for reviewing
the Annual and Interim financial statements, in addi-
tion to the systems of internal control and risk man-
agement, and also for ensuring the integrity of the
financial information reported to the shareholders.
The Audit Committee met twice during 2015.
REMUNERATION
COMMITTEE
The Remuneration Committee comprises one non-ex-
ecutive 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
16
Annual Report 2015
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 2015.
RELATIONS WITH
SHAREHOLDERS
The Group maintains regular contact with its insti-
tutional and private shareholders, fund managers,
financial analysts and brokers through a series of
presentations, conference calls and meetings. All cor-
porate materials, including annual reports, financial
results statements and other information, are availa-
ble on the Group’s website www.ukrproduct.com
The Chief Executive Officer and other Directors holds
conference calls and meetings with major share-
holders on a regular basis. The Board believes that
it is essential to discuss with its major shareholders
and keep them updated with regards to the Group’s
financial performance, strategy and business devel-
opments. The Chairman is also accessible to major
shareholders, if such meetings are required.
The Board invites all shareholders to attend the
company’s Annual General Meeting and encourages
them to exercise their voting right and participate
with questions.
INTERNAL CONTROL
The Group adheres to comprehensive and strictly
regulated budgeting and reporting procedures that
are aimed at more efficient internal control and
risk management. The Board is responsible for the
Group’s system of internal control and for reviewing
its effectiveness, however, it is recognised that any
control system can only provide reasonable and not
absolute assurance against material misstatement or
loss.
The principal elements of the internal control system
are as follows:
•
•
•
•
documented policies, procedures and authorisa-
tion 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 proce-
dures.
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.
Annual Report 2015
17
The internal control system is further enforced by
the Group’s internal audit department. The main
objectives of the internal audit function are to ensure
the safety of the Group’s assets and the reliability of
accounting records. The internal audit department is
responsible for auditing the financial statements and
accounting procedures of the companies within the
Group, as well as for disclosing and reducing various
types of risks related to Group operations. The
Group’s controlling and risks analysis department
is responsible for identifying the possible issues in
the Group’s processes, the ongoing optimization of
operations and risk management.
18
Annual Report 2015
CORPORATE
SOCIAL
RESPONSIBILITY
REPORT
Annual Report 2015
19
CORPORATE SOCIAL
RESPONSIBILITY
The Board is committed to developing and im-
plementing corporate social responsibility (CSR)
policies aimed at:
• Promoting equality and fairness among employ-
ees, 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
personnel. The training programmes encourage staff
to progress up the career ladder and are central to
the Group’s continuing growth and success.
HEALTH AND SAFETY
Management at business units within the Group
are responsible for developing and maintaining
the underlying practices that provide for a safe
working environment. Special attention is given
to the production facilities, where the equipment,
including lighting, air conditioning, workspace and
other constituents, undergo constant reviews and
improvements. Regular monitoring is carried out to
ensure that the required standards are met and that
employees use the provided communication chan-
nels to further improve their surrounding working
conditions.
•
Establishing long-term and healthy relationships
with the Group’s partners, customers and other
affiliated parties.
CUSTOMERS
The main elements of the Group’s approach towards
fulfilling the above objectives are as follows:
EMPLOYEES
The Group is committed to ensuring equal opportu-
nities to all its employees, both current and prospec-
tive. Each employee’s efforts are highly valued and
the Board believes that a diverse mix of the work-
force facilitates innovation, efficiency and teamwork.
As a matter of corporate policy, regular training and
development workshops are conducted for Ukrprod-
uct’s staff. These are aimed at all employee groups,
including managerial, technical and production
Customer satisfaction is at the core of the Group’s
business model. Therefore, the Board is keen to
continue supplying the customers with high quali-
ty, 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 any
20
Annual Report 2015
negative impact that its operations or products might
have on the production sites and surrounding areas.
The Group adopted the environmental laws and
regulations of Ukraine to reduce, control and elimi-
nate various types of pollution and to protect natural
resources. Ukrproduct monitors and controls all its
production facilities regularly in order to ensure that
air quality is not adversely impacted by its oper-
ations. The Group focuses on cutting water and ener-
gy consumption, as well as reducing the volumes of
waste. Collection and processing of waste have been
organised through the local waste collection plants.
The Group’s development programme puts specific
emphasis on acquiring and installing only the most
advanced and environmentally-friendly production
and auxiliary equipment.
FOOD SAFETY
Food safety is one of key priorities for the Group.
Ukrproduct is committed to produce high quality and
safe food and ensures that high standards are main-
tained within its supplier base. The certified food
safety management system in compliance with ISO
22000 was implemented by the Group. This system
provides the possibility to fully monitor all produc-
tion 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 2015
21
22
Annual Report 2015
DIRECTORS’
REPORT
Annual Report 2015
23
The Directors present their report and the audited consolidated financial statements
of Ukrproduct Group Ltd (referred to as the company and together with its subsidiaries
as “the Group”) for the year ended 31 December 2015.
PRINCIPAL ACTIVITIES
AND BUSINESS REVIEW
Ukrproduct Group Ltd (the “company” or “Ukrprod-
uct”) is a holding company for a group of food and
beverages businesses located in Ukraine. The princi-
pal activities of Ukrproduct Group are the production
and distribution of highly branded dairy foods and
beverages (kvass) in Ukraine and the export of milk
powder. The Group is one of the leading branded
food producers in Ukraine with its own nationwide
distribution network. More detailed commentary on
the Group’s activities during the year, its financial
performance, future plans, and prospects are out-
lined in the Chairman and Chief Executive Statement.
RESULTS AND DIVIDENDS
The results of the Group for the year are set out on
page 35 and show a net loss for the period of GBP
3.906 million (2014: GBP 3.478 million).
The Board has decided not to recommend the pay-
ment of a dividend in respect of the year ended 31
December 2015(2014:Nil).
DIRECTORS
Details of members of the Board of Directors are
shown on page 8.
The Directors’ interests in the share capital of the company as at 31 December 2015 and 31 December 2014
are shown below:
Shares
2015
2014
Share options
2015
2014
Executive
Sergey Evlanchik
Alexander Slipchuk
Non-executive
Dr Jack Rowell
24
Annual Report 2015
14,967,133
14,967,133
14,939,133
14,939,133
—
—
—
—
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 resolu-
tion, 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 appoint-
ment 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 68.
EMPLOYEES
The Group is committed to ensuring provision of equal
opportunities for all employees, which is reflected
by its selection, recruitment and training policies.
The Group considers its employees to be one of its
most valuable assets and rewards high performance
through competitive remuneration and incentive
schemes. The Directors also consider it a priority to
give employees the opportunity to communicate their
ideas and opinions to all levels of management, both
directly and through various surveys. The average
number of employees of the Group during the year
ended 31 December 2015 was 1,132 (2014: 1,423).
PAYMENT POLICY
The Group has a general set of guidelines for paying
its suppliers based on specific criteria. However,
it is normal practice to agree payment terms with
a specific supplier when entering into a purchase
contract. The Group seeks to abide by the payment
terms agreed whenever it is satisfied that the goods
or services have been provided in accordance with
the agreed terms and conditions.
GOING CONCERN
As described in Note 2(b) of the consolidated finan-
cial statement the Group incurred a loss of £3.906k
for the year ended 31 December 2015. 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. The new Loan
Agreement with the European Bank for Reconstruc-
tion and Development was signed on 24 June 2016.
The terms include extension of the maturity date from
10 December 2018 to 1 December 2024. The Com-
pany has also been provided with a capital repayment
holiday until 1 March 2017, at which point quarterly
Annual Report 2015
25
capital repayments commence, increasing in amount
on an annual basis until 1 December 2022, followed
by a final bullet repayment on 1 December 2024.
AUDITORS
Meanwhile following a review of the Group’s finan-
cial 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 25 July, 2016. The
Notice of AGM and agenda will be sent to share-
holders no less than 21 days prior to the date of the
meeting.
Baker Tilly Channel Islands Limited was re-appointed
as the Group’s auditors for the 2015 financial year by
the resolution of the Annual General Meeting (AGM)
of Shareholders held on July 24, 2015. A resolution
to re-appoint them shall be proposed at the forth-
coming 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
30 June 2016
26
Annual Report 2015
STATEMENT
OF DIRECTORS
RESPONSIBILITIES
FOR THE PREPARATION AND APPROVAL
OF THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2015
Annual Report 2015
27
The directors are responsible for the preparation
of the consolidated financial statements in ac-
cordance with applicable Jersey law and other
regulations and enactments in force at the time. The
Companies (Jersey) Law 1991, as amended requires
the directors to prepare financial statements for
each year in accordance with 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 Euro-
pean 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.
In preparing these consolidated financial statements,
the directors are required to:
— select suitable accounting policies and then
apply them consistently;
— prepare the consolidated financial statements on
the going concern basis unless it is inappropri-
ate 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.
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 finan-
cial 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
— make judgments and estimates that are reasona-
website.
ble and prudent;
— state that the financial information complies with
IFRS, subject to any material departures dis-
closed and explained in the consolidated finan-
cial statements; and
On behalf of the Directors:
Alexander Slipchuk
Chief Executive Officer
28
Annual Report 2015
INDEPENDENT
AUDITOR’S
REPORT
TO THE MEMBERS OF UKRPRODUCT
GROUP LIMITED
Annual Report 2015
29
REPORT ON THE
CONSOLIDATED
FINANCIAL
STATEMENTS
We have audited the accompanying consolidated
financial statements of Ukrproduct Group Limited
(“the company” and together with its subsidiaries
is referred to as “the Group”), for the year ended 31
December 2015, which comprise the consolidat-
ed statements of income, comprehensive income,
consolidated statement of financial position, consol-
idated statement of changes in equity, the consoli-
dated cash flow statement and the related notes 1 to
32. The financial reporting framework that has been
applied in their preparation is applicable law and
International Financial Reporting Standards (IFRS) as
adopted by the European Union.
This report is made solely to the company’s mem-
bers, 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 compa-
ny’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 Direc-
tors’ Responsibilities, the Directors are responsible
for the preparation of the consolidated financial
statements and for being satisfied that they give a
true and fair view.
Our responsibility is to audit and express an opinion
on the consolidated financial statements in accord-
ance with applicable law and International Stand-
ards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices
Board’s (APBs) Ethical Standards for Auditors.
Scope of the audit of the consolidated financial state-
ments
An audit involves obtaining evidence about the
amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the con-
solidated 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 circumstanc-
es and have been consistently applied and ade-
quately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the
overall presentation of the financial statements. Our
responsibilities do not extend to any other informa-
tion.
30
Annual Report 2015
OPINION ON
CONSOLIDATED
FINANCIAL STATEMENTS
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.
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 2015 and of
Group’s loss for the year then ended;
— have been properly prepared in accordance with
IFRS as adopted by the European Union; and
— have been prepared in accordance with the re-
quirements of the Companies (Jersey) Law, 1991
as amended.
EMPHASIS OF MATTER
In forming our opinion on the consolidated financial
statements, which is not qualified, we draw your
attention to the following matters:
a) Going concern
EUROPEAN BANK FOR
RECONSTRUCTION AND
DEVELOPMENT
We also draw attention to Note 2(b) and to Note 24
to the consolidated financial statements which refer
to the non-observance during the year by the Group
of the terms of the loan agreement with the European
Bank for Reconstruction and Development (“EBRD”)
and the subsequent restructuring of those borrowing
arrangements after the year end
MATTERS ON WHICH
WE ARE REQUIRED TO
REPORT BY EXCEPTION
As described in Note 2(b) to the consolidated finan-
cial statements. The Group incurred a loss of £3,905k
for the year ended 31 December 2015. This was
primarily due to the volatile political and economic
situation in Ukraine which resulted in a number of
challenges to the Group, including but not limited to
the significant devaluation of the local currency and
high rates of inflation
We have nothing to report in respect of the following
matters where the Companies (Jersey) Law 1991
requires us to report to you if, in our opinion:
— proper accounting records have not been kept; or
— proper returns adequate for our audit have not
been received from branches not visited by us; or
Annual Report 2015
31
— the financial statements are not in agreement
with the accounting records and returns; or
— we have not received all the information and
explanations which to the best of our knowledge
and belief are necessary for the purposes of our
audit.
David Hopkins
For and on behalf of Baker Tilly Channel Islands
Limited
Chartered Accountants
St Helier, Jersey
30 June 2016
32
Annual Report 2015
CONSOLIDATED
FINANCIAL
STATEMENTS
CONSOLIDATED INCOME
STATEMENT
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
Annual Report 2015
33
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
(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/Loss per share:
Basic
Diluted
34
Annual Report 2015
Note
8
9
9
9
9
10
13
26
year ended
31.12.2015
£’000
20 158
(17 844)
year ended
31.12.2014
£’000
31 876
(25 423)
2 314
(1 109)
(1 462)
(1 089)
(1 346)
(768)
(1 733)
(3 847)
(59)
6 453
(1 963)
(2 797)
(508)
1 185
(761)
(3 857)
(3 433)
(45)
(3 906)
(3 478)
(3 906)
—
(9,85)
(9,91)
(3 478)
—
(8,77)
(8,78)
Note
year ended
31.12.2015
£’000
year ended
31.12.2014
£’000
OTHER COMPREHENSIVE INCOME:
Items that may be subsequently reclassified
to profit or loss
Currency translation differences
(1 526)
(7 000)
Items that will not be reclassified to profit or loss
Reduction of revaluation reserve
Gain on revaluation of property,
plant and equipment
Income tax in respest of revaluation reserve
OTHER COMPREHENSIVE INCOME, NET OF TAX
—
1 113
(200)
(613)
(21)
—
—
(7 021)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
(4 519)
(10 499)
Attributable to:
Owners of the Parent
Non-controlling interests
(4 519)
—
(10 499)
—
Annual Report 2015
35
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
(in thousand GBP, unless otherwise stated)
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Long-term receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
Note
As at
31.12.2015
£’000
As at
31.12.2014
£’000
14
15
16
17
18
19
20
21
7 416
596
—
46
8 058
1 496
1 486
348
11
93
3 434
9 562
829
—
2
10 423
2 085
3 674
1 177
108
215
7 259
TOTAL ASSETS
11 492
17 682
36
Annual Report 2015
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
Note
As at
31.12.2015
£’000
As at
31.12.2014
£’000
22
23
24
16
24
25
3 967
(6 540)
5 654
3 081
—
3 967
(5 753)
9 358
7 572
—
3 081
7 572
3 206
466
3 672
3 121
1 586
18
15
4 728
302
5 030
2 454
2 583
14
29
4 740
5 080
8 412
11 492
10 110
17 682
Annual Report 2015
37
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
AS AT 31 DECEMBER 2015
(in thousand GBP, unless otherwise stated)
Attributable to owners of the parent
Share capital
Share premium
£’000
3 967
£’000
4 562
Revaluation
reserve
£’000
3 636
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3 967
—
4 562
—
—
—
—
—
—
(162)
(21)
3 453
Translation
Total
Non-controlling
Total Equity
Retained
earnings
£’000
12 672
(3 478)
—
—
(3 478)
—
—
162
2
9 358
reserve
£’000
(6 768)
—
—
(7 000)
(7 000)
—
—
—
—
(13 768)
£’000
18 069
(3 478)
—
(7 000)
(10 478)
—
—
—
(19)
7 572
interests
£’000
—
—
—
—
—
—
—
—
—
—
£’000
18 069
(3 478)
—
(7 000)
(10 478)
—
—
—
(19)
7 572
As at 1 January 2014
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
As at December 2014
38
Annual Report 2015
Attributable to owners of the parent
Share capital
Share premium
Revaluation
£’000
3 967
£’000
4 562
As at 1 January 2014
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
As at December 2014
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3 967
—
4 562
reserve
£’000
3 636
—
—
—
—
—
—
(162)
(21)
3 453
Retained
earnings
£’000
12 672
(3 478)
—
—
(3 478)
—
—
162
2
9 358
Translation
reserve
£’000
(6 768)
—
—
(7 000)
(7 000)
—
—
—
—
(13 768)
Total
£’000
18 069
(3 478)
—
(7 000)
(10 478)
—
—
—
(19)
7 572
Non-controlling
interests
£’000
—
—
—
—
—
—
—
—
—
—
Total Equity
£’000
18 069
(3 478)
—
(7 000)
(10 478)
—
—
—
(19)
7 572
Annual Report 2015
39
Attributable to owners of the parent
Share capital
Share premium
As at December 2014
Loss for the year
Other comprehensive income
£’000
3 967
—
Gain on revaluation of property, plant and equipment —
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 2015
—
—
—
—
—
—
—
3 967
£’000
4 562
—
—
—
—
—
—
—
—
—
4 562
Revaluation
reserve
£’000
3 453
—
913
—
913
—
—
(86)
(88)
—
4 192
Non-controlling
Total Equity
interests
£’000
Retained
earnings
£’000
9 358
(3 906)
—
—
(3 906)
—
—
86
116
—
5 654
Translation
reserve
£’000
(13 768)
—
—
(1 526)
(1 526)
—
—
—
—
—
(15 294)
Total
£’000
7 572
(3 906)
913
(1 526)
(4 519)
—
—
—
28
—
3 081
—
—
—
—
—
—
—
—
—
—
—
£’000
7 572
(3 906)
913
(1 526)
(4 519)
—
—
—
28
—
3 081
40
Annual Report 2015
Gain on revaluation of property, plant and equipment —
As at December 2014
Loss for the year
Other comprehensive income
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 2015
Attributable to owners of the parent
Share capital
Share premium
Revaluation
£’000
3 967
—
—
—
—
—
—
—
—
3 967
£’000
4 562
—
—
—
—
—
—
—
—
—
4 562
reserve
£’000
3 453
—
913
—
913
—
—
(86)
(88)
—
4 192
Retained
earnings
£’000
9 358
(3 906)
—
—
(3 906)
—
—
86
116
—
5 654
Translation
reserve
£’000
(13 768)
—
—
(1 526)
(1 526)
—
—
—
—
—
(15 294)
Total
£’000
7 572
(3 906)
913
(1 526)
(4 519)
—
—
—
28
—
3 081
Non-controlling
interests
£’000
—
—
—
—
—
—
—
—
—
—
—
Total Equity
£’000
7 572
(3 906)
913
(1 526)
(4 519)
—
—
—
28
—
3 081
Annual Report 2015
41
CONSOLIDATED STATEMENT
OF CASH FLOWS
AS AT 31 DECEMBER 2015
(in thousand GBP, unless otherwise stated)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Exchange difference
Depreciation and amortisation
(Profit)/loss on disposal of non-current assets
Write off of receivables/payables
Impairment of inventories
Loss from disposal of subsidiaries
Interest income
Interest expense on bank loans
Operation cash flow before working capital changes
(Increase) / decrease in inventories
Decrease in trade and other receivables
Increase / (decrease) in trade and other payables
11
10
10
Changes in working capital
Cash generated from operations
Interest received
Income tax paid
Net cash generated by / (used in) operating activities
42
Annual Report 2015
Note
Year ended
31.12.2015
£’000
Year ended
31.12.2014
£’000
(3 847)
(3 433)
1 733
537
(4)
857
78
(4)
(1)
769
119
(127)
890
(404)
359
478
1
169
648
3 857
866
74
279
76
6
(4)
765
2 486
(661)
195
979
513
2 999
4
(45)
2 958
Note
Year ended
31.12.2015
£’000
Year ended
31.12.2014
£’000
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
Net decrease in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
21
(259)
18
66
(175)
—
(607)
(76)
—
—
(683)
(210)
88
215
93
(486)
19
(15)
(482)
—
(765)
(1 575)
—
(541)
(2 881)
(405)
(386)
1 006
215
These consolidated financial statements were approved
and authorised for issue by the Board of Directors on
30 June 2016 and were signed on its behalf by:
Alexander Slipchuk
Chief Executive Officer
2016
Annual Report 2015
43
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
(in thousand GBP, unless otherwise stated)
1.GROUP AND PRINCIPAL
ACTIVITIES
(a) Introduction
The Company is a public limited liability entity reg-
istered in Jersey with a registered office at 26 New
Street, St Helier, Jersey, JE2 3RA, Channel Islands.
The Group’s overall management and production fa-
cilities are based in Ukraine, with the HQ in Kyiv. The
Group commands leading positions in the Ukrainian
processed cheese and packaged butter markets and
owns a range of widely recognisable trademarks in
Ukraine, including “Nash Molochnik” (translated as
Our Dairyman), “Narodniy Product” (People’s Prod-
uct) “Molendam” and “Vershkova Dolina” (Creamy
Valley). The average number of employees of the
Group during the year ended 31 December 2015 was
1,132 (2014: 1,423).
(b) Ukrainian environment
The Group conducts its operations mainly in Ukraine.
The Ukrainian economy while deemed to be of mar-
ket status continues to display certain characteristics
consistent with that of an economy in transition.
These characteristics include, but are not limited to,
low levels of liquidity in the capital markets, high
inflation, and significant imbalances in the public
finance and foreign trade. From 1 January 2015 and
up to 31 December 2015, the Ukrainian Hryvnia (the
“UAH”) depreciated against major foreign curren-
cies (by approximately 36% calculated based on the
National Bank of Ukraine (the “NBU”) exchange rate
44
Annual Report 2015
of UAH to EUR, by approximately 52 % calculated
based on the National Bank of Ukraine (the “NBU”)
exchange rate of UAH to USD, by approximately 45%
calculated based on the National Bank of Ukraine
(the “NBU”) exchange rate of UAH to GBP). From
31 December 2015 to the date of the issuance of
these financial statements, the UAH depreciated
against EUR by 11%, against USD by 6% and GBP
by 6%.The NBU imposed certain restrictions on
purchase of foreign currencies, cross border settle-
ments (including repayment of dividends), and also
mandated obligatory conversion of foreign currency
proceeds into UAH. The known and estimable effects
of the above events on the financial position and
performance of the Group in the reporting period
have been taken into account in preparing these
financial statements. The Government has commit-
ted to direct its policy towards the association with
the European Union, to implement a set of reforms
aiming at the removal of the existing imbalances
in the economy, public finance and public gov-
ernance, and the improvement of the investment
climate. Stabilisation of the Ukrainian economy in
the foreseeable future depends on the success of the
actions undertaken by the Government and securing
continued financial support of Ukraine by interna-
tional donors and international financial institutions.
Management is monitoring the developments in
the current environment and taking actions, where
appropriate, to minimize any negative effects to the
extent possible. Further adverse developments in the
political, macroeconomic and/or international trade
conditions may further adversely affect the Group’s
financial position and performance in a manner not
currently determinable.
2.SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES
2.1.BASIS OF PREPARATION
The consolidated financial statements have been pre-
pared on a historical cost basis, except for property,
plant and equipment and an intangible asset (cus-
tomer list) which have been measured at fair value.
The consolidated financial statements 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 Finan-
cial Reporting Standards, International Accounting
Standards and Interpretations issued by the Inter-
national 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 ac-
counting 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 final resolution and the effects of the political and
economic crisis are difficult to predict but may have
further severe effects on the Ukrainian economy.
The Group incurred a loss of GBP 3,906 thousand for
the year ended 31 December 2015, decreasing the
retained earnings at that date to GBP 5,712 thousand.
Annual Report 2015
45
In addition, due to significant devaluation of Ukrainian
Hryvnia the burden of loans denominated in foreign
currencies has increased. As at 31 December 2015
the loans, denominated in foreign currency, was the
following: UAH 970 thousand, EUR 5,357 thousand
(Note 24). Interest under 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 1 230 thousand during
2015 and EUR 762 thousand during 2016 (363
thousand GBP on 10 March 2016 and 399 thousand
GBP on 10 June 2016) 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 demand
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 sched-
ule in 2015 as new Loan Agreement was signed 24
June 2016. This new Loan Agreement was discussed
during 2015 and first half of the 2016 in respect of
new terms of its Loan Agreement. Terms suggest
new repayment schedule up to 1 December 2024.
Company gained grace period till 01/03/2017. Be-
ginning with 01/03/2017 Company will pay tranches
according to the new agreement.
priate measures to underpin its cost cutting strategy
including but not limited to: reconstruction of man-
ufacturing facilities in Starokonstantinov location,
decrease in the number of subsidiaries and stream-
lining its business processes aimed to minimise
non-value adding activities and related costs, export
capacity development. In 2015 Company obtained
a license for export to China, in 2016 Company
obtained a license for export to Kazakhstan. This
license is used for sales of hard cheese and cheese
product. In processed cheese category Company
plans to gain market share in Ukraine by launch-
ing new branded products. In beverages category
Company plans development and gain in sales of keg
kvass. Also in beverages category launch and sales
development of new products are planned. Company
works on energy usage reducing as well.
(c) Consolidation principles
The consolidated financial statements comprise the
financial statements of Ukrproduct Group Limited
and its subsidiaries as at 31 December 2015.
Subsidiaries are consolidated from the date of ac-
quisition, 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. Specif-
ically, the Group controls an investee if, and only if,
the Group has:
Based on the existence of these conditions, the con-
solidated financial statements have been prepared
on a going concern basis, because management
believes that it has employed sufficient and appro-
— Power over the investee (i.e., existing rights that
give it the current ability to direct the relevant
activities of the investee).
46
Annual Report 2015
— 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 all relevant facts and circum-
stances in assessing whether it has power over an
investee, including:
consolidation. A change in the ownership interest
of a subsidiary, without a change of control, is
accounted for as an equity transaction, that is, as
transactions with owners in their capacity as owners.
Profit or loss and each component of other com-
prehensive income are attributed to the owners of
the parent and to the non-controlling interests. Total
comprehensive income is attributed to the owners of
the parent and to the non-controlling interests even
if this results in the non-controlling interests having
a deficit balance. When necessary, adjustments are
made to the financial statements of subsidiaries
to bring their accounting policies into line with the
Group’s accounting policies.
— The contractual arrangement with the other vote
holders of the investee.
If the Group loses control over a subsidiary, it:
— Rights arising from other contractual arrange-
— Derecognises the assets (including goodwill) and
ments.
liabilities of the subsidiary.
— The Group’s voting rights and potential voting
— Derecognises the carrying amount of any
rights.
non-controlling interests.
The Group re-assesses whether or not it controls
an investee if facts and circumstances 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 con-
trol 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.
— Derecognises the cumulative translation differ-
ences, recorded in equity.
— Recognises the fair value of the consideration
received.
— Recognises any investment retained in the for-
mer subsidiary at its fair value at the date when
control is lost.
— Recognises any surplus or deficit in profit or
loss.
All intra-group balances, income and expenses
and unrealised gains and losses resulting from
intra-group transactions are eliminated in full on
— Reclassifies the parent’s share of components
previously recognised in other comprehensive
income to profit or loss.
Annual Report 2015
47
The Group applies the acquisition method to account
for business combinations. The consideration trans-
ferred 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. 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 prof-
its or losses and net assets not owned by the Group.
Non-controlling interests are presented separately
from parent share capital in equity in the Consolidat-
ed 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
2015
2014
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% 100%
Owner of land assets
Zhiviy Kvas LLC******
Ukraine
100% 100%
Production
Acquisition
Acquisition
Milk investments Private
Enterprise SC*
Invest Garantiya Private
Enterprise******
Business Invest
Management LLS*
Favorit-Konsulting
Private Enterprise***
Avtopark
Starokonstantinov LLS***
48
Annual Report 2015
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
Group’s company
Effective
Country
of incorpo- ownership ratio
ration
As at 31 December
2014
2013
Principal activities
Consolidation
method
ATP Centr LLC***
Ukraine
100% 100%
Owner of fleet of vehicles
Acquisition
Ukrprodexport Private
Enterprise SC*
Ukraine
100% 100%
Export operations
Acquisition
Ukrproduct-Logistic LLC *
Ukraine —
100%
Logistics
Acquisition
Gollandska Sirovarnya
MolendamLLC***
Ukraine —
100%
Sales & Distribution
Acquisition
Lider-Product LLC****
Ukraine
100% 100%
Sales & Distribution
Acquisition
Premierproduct-Dnipro
Private Enterprise SC*****
Premierproduct-Jitomir
Private Enterprise SC**
Ukraine —
100%
To be constructed
Acquisition
Ukraine
100% 100%
Sales & Distribution
Acquisition
Alternatyvni investytsiyi UCVF*** Ukraine
100% 100%
Asset management
Acquisition
Ukrproduct Group CJSC
Ukraine
100% 100%
LinkStar Limited
Cyprus
100% 100%
Solaero Global Alternative
Fund Limited
Dairy Trading Corporation
Limited
Cyprus
100% 100%
Holder of some assets
and operating companies
Holder of Group’s
trademarks and assets
Holder of Group’s
trademarks and assets
Acquisition
Acquisition
Acquisition
BVI
100% 100%
Export operations
Acquisition
Reliable Logistics Services ltd
BVI
100% 100%
St. Invest Holding LTD
BVI
100% 100%
Holder of distribution
network
Holder of distribution
network
Acquisition
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.
Alternatyvni investytsiyi UCVF is a limited life entity and is due
to cease to exist on 5 April 2022.
In 2015, Premierproduct-Dnipro Private Enterprise SC was
withdrawn from Group. Loss from operation is insignificant,it
does not require disclosure.
Annual Report 2015
49
(d) Reorganisation
A reorganisation of the Group continued in 2015 and
resulted in the withdrawal of Gollandska Sirovarnya
MolendamLLC and Ukrproduct-Logistic LLC via a
merger with Starokonstantinovskiy Molochniy Zavod
SC for the purpose of improving the administration
and reporting processes.
Operating segments are reported in a manner con-
sistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision
maker, who is responsible for allocating resources and
assessing performance of the operating segments, has
been identified as the board of directors.
2.2. SIGNIFICANT ACCOUNTING POLICIES
(e) Accounting for acquisitions of companies under
common control
Significant accounting policies given below have been
consistently applied by the Group in the preparation of
these financial statements, unless otherwise stated.
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 with-
in Group equity except that any share capital of the
acquired companies is recorded as a part of merger
reserve. The cash consideration for such acquisi-
tions is recognised as a liability to or a reduction of
receivables from related parties, with a correspond-
ing 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 recognised directly in equity.
(f) Segment reporting
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 func-
tional currency are considered to be foreign currency
transactions.
Management has considered what would be the
most appropriate presentational currency for consol-
idated IFRS financial statements and has concluded
that the Group should use British Pounds Sterling
(hereinafter “GBP” or £) as the Group’s presentation-
al 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 pre-
50
Annual Report 2015
vailing at the dates of the transactions or valuation
where items are re-measured. Foreign exchange
gains or losses resulting from the settlement of such
transactions and from the translation at the year-end
exchange rates of monetary assets and liabilities de-
nominated 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 state-
ment within “Effect of foreign currency translation“.
The financial results and financial position of the
Group’s companies are translated into the presenta-
tion currency as follows:
— For current year, all assets and liabilities are
translated at the rate effective at the reporting
date. Income and expense items are translated
at rates approximating to those ruling when the
transactions took place;
— Equity items are translated into the presentation
currency using the historical rate;
— For comparative figures, all assets and 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 sep-
arate component of equity;
— Income and expenses for each income statement
are translated at average exchange rates (unless
this average is not a reasonable approximation
of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and
expenses are translated at the rate on the dates
of the transactions); and
— All resulting exchange differences are recognised
as a separate component of equity within “Trans-
lation reserve”.
The principal UAH exchange rates used in the preparation of Consolidated financial statements are as follows:
Currency
31 December 2015
Average exchange
rate for 2015
31 December 2014
Average exchange
rate for 2014
GBP/UAH
USD/UAH
EUR/UAH
35,53
24,00
26,22
33,34
21,81
24,19
24,53
15,77
19,23
19,50
11,87
15,68
— 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.
Annual Report 2015
51
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 matur-
ities 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 determined 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 prod-
ucts);
— 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 prod-
ucts comprises raw materials, direct labour, other
direct costs and related production overheads (based
on normal operating capacity) but excludes bor-
rowing costs. The cost of raw materials and other
inventories comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the
inventories to their present location and condition.
At each reporting date the Group analyses invento-
ries to determine whether they are damaged, obso-
lete or slow-moving or whether their net realisable
value has declined. The net realisable value is the es-
timated selling price in the ordinary course of busi-
ness, less applicable variable selling expenses. The
Group periodically checks inventories to determine
whether they are damaged, obsolete or slow-mov-
ing 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 entity 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 infor-
mation 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 accu-
mulated depreciation and subsequent accumulated
impairment losses. Changes in fair value are rec-
52
Annual Report 2015
ognised in equity (the “Revaluation reserve”). An
appropriate transfer is made from the revaluation
reserve to the retained earnings when assets are ex-
pensed through the income statement (e.g. through
depreciation, impairment or sale).
Subsequent costs that increase future economic ben-
efits of the item of property, plant and equipment also
increase its carrying amount. Otherwise, the Group
recognises subsequent costs as expenses of the peri-
od 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 expected recoverable amount of a
cash generating unit, to which the asset belongs.
When, according to estimates, the expected recover-
able 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 asset is carried at revalued price. In such cases,
the impairment loss is considered as a decrease in
the revaluation reserve. If the impairment loss is
subsequently reversed, the asset’s carrying value (or
a cash generating unit) is increased to the revised
estimate of its expected recoverable amount. In
such a case, the increased carrying value should not
exceed the carrying value that could be determined
in case the impairment loss for an asset (or a cash
generating unit) was not recognised in previous
years. The reversal of the impairment loss is imme-
diately 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 dispos-
al, 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 equip-
ment as management considered this method to be
the most appropriate for the production assets.
Annual Report 2015
53
Terms of useful lives by groups of property, plant and equipment (except for those depreciated under produc-
tion method) are listed below:
Group of property, plant and equipment
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 reviewed at each financial year end
and adjusted prospectively, if appropriate.
2.2.5. ASSETS UNDER CONSTRUCTION
is initially carried at fair value and subsequently
amortised.
Assets under construction are reported at their cost
of construction including costs charged by third
parties and the capitalisation of the Group’s material
costs incurred. No depreciation is charged on assets
during construction. Upon the completion, the Group
assesses whether there is any indication that an
asset may be impaired. If any such indication exists,
the Group performs impairment testing as described
in note 2.2.20. In case no indication exists that the
asset may be impaired, all accumulated costs of
the asset are transferred to the relevant fixed asset
category and depreciated at applicable rates from the
time the asset is completed and ready for use.
The Group recognises an item as an intangible asset,
if it meets the following criteria for recognition: it is
probable that the Group will receive future economic
benefits associated with the asset and costs of the
asset can be reasonably estimated.
The Group identifies the following types of intangible
assets:
— Computer software licenses;
— Trademarks;
2.2.6. INTANGIBLE ASSETS
— The customer list.
(а) Recognition and measurement of intangible
assets
Intangible assets are recognised at historical cost
less accumulated amortisation and accumulated im-
pairment losses, except for the customer list which
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.
54
Annual Report 2015
The customer list was initially measured at fair value
at the date of revaluation obtained by using the esti-
mates 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
cancellation or disposal is defined by the difference
between net proceeds on the sale and the carrying
value of intangible assets. If the intangible asset is ex-
changed for a similar asset, the value of the acquired
asset is equal to the value of the disposed asset.
(b) Amortisation and useful life
ferred, the liabilities incurred to the former owners
of the acquiree and the equity interests issued by the
group. The consideration transferred includes the fair
value of any asset or liability resulting from a contin-
gent consideration arrangement. Acquisition-related
costs are expensed as incurred.
When the Group acquires a business, it assesses the
financial assets and liabilities assumed for appropri-
ate 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.
Costs of computer software licenses are amortised
over their estimated useful lives using the straight-
line method (1-10 years). The amortisation expense
is included within Administrative expenses in the
Consolidated Income Statement.
If the business combination is achieved in stages,
the acquisition date fair value of the acquirer’s previ-
ously held equity interest in the acquiree is remeas-
ured to fair value as at the acquisition date through
profit and loss.
Trademarks have finite useful lives and are carried at
cost less accumulated amortisation. Amortisation is
calculated using the straight-line method to allocate
the cost of trademarks over their estimated useful
lives (12-20 years). The amortisation expense is
included within Selling and Distribution expenses in
the Consolidated 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 trans-
Any contingent consideration to be transferred by the
acquirer will be recognised at fair value at the acqui-
sition 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 transferred over the
Group’s net identifiable assets acquired and liabilities
assumed. If this consideration is lower than the fair
value of the net assets of the subsidiary acquired, the
difference is recognised in profit or loss.
Annual Report 2015
55
Goodwill is not amortised but is subject to testing for
impairment as at the reporting date or more fre-
quently, if events or changes in circumstances indi-
cate 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 con-
solidation. The amount of impairment is determined
by assessing the recoverable amount, which may be
obtained for a cash generating asset (group of cash
generating assets) to which goodwill relates. Where
the recoverable amount is less than the book value
of cash generating asset (group of cash generating
assets), impairment is recognised.
in an active market. They arise principally through
the provision of goods and services to customers
(trade receivables), but also incorporate other types
of contractual monetary asset. They are carried at
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 changes to the amounts owed
and, in consequence, the new expected cash flows are
discounted at the original effective interest rate.
2.2.7. FINANCIAL ASSETS
(iii) Financial assets held to maturity
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 rec-
ognition and re-evaluates this designation at every
reporting date.
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.
(і) Financial assets at fair value through profit or
loss
(а) Initial recognition
This category comprises only “in-the-money” deriva-
tives. They are carried at the reporting date at fair val-
ue with changes in fair value recognised in the income
statement. The Group does not have any assets held
for trading nor does it voluntarily classify any financial
assets as being at fair value through profit or loss.
(іі) Loans and receivables
These assets are non-derivative financial assets with
fixed or determinable payments that are not quoted
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 trans-
action costs. Fair value at initial recognition is best
evidenced by the transaction price. A gain or loss
on initial recognition is only recorded if there is a
difference between fair value and transaction price
which can be evidenced by other observable current
market transactions in the same instrument or by a
valuation technique whose inputs include only data
from observable markets.
56
Annual Report 2015
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 deliv-
er a financial instrument. All other purchases and
sales are recognised on the settlement date with the
change in value between the commitment 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 de-
termination of future cash flows is based on optimal
management estimations and the discounting rate is
market rate for similar financial instruments predom-
inated as at reporting date. If the price model is used
entering figures are based on average market data
predominated as at reporting date.
(c) Subsequent measurement
Subsequent to initial recognition all financial assets
at fair value through profit or loss and all availa-
ble-for-sale instruments are measured at fair value,
except that any instrument that does not have a
quoted market price in an active market and whose
fair value cannot be reliably measured is stated at
cost, including transaction costs, less impairment
losses.
Loans and receivables are measured at amortised
cost less impairment losses. amortised cost is
calculated using the effective interest rate method.
Premiums and discounts, including initial transac-
tion 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 diffi-
culty, default or delinquency in interest or principal
payments, the probability that they will enter bank-
ruptcy 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 substan-
tially all risks and rewards of ownership.
Annual Report 2015
57
2.2.8. FINANCIAL LIABILITIES
The Group classifies its financial liabilities into cate-
gories depending on the purpose for which the liabil-
ity was acquired. The Group has not classified any of
its liabilities at fair value through profit and loss.
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.
Financial liabilities held at amortised cost include the
following items:
(c) Derecognition
Trade payables and other short-term monetary liabil-
ities, which are recognised at amortised cost.
A financial liability is derecognised when the obli-
gation under the liability is discharged, cancelled or
expires.
Bank borrowings, overdrafts, promissory notes and
bonds issued by the Group are initially carried at
fair value, being the amount advanced net of any
transaction costs directly attributable to the issue of
the instrument. Such interest bearing liabilities are
subsequently measured at amortised cost using the
effective interest rate method, which ensures that
any interest expense over the period to repayment is
at a constant rate on the balance of the liability car-
ried 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 borrowings for directly
attributable transaction expenses.
(b) Subsequent measurement
Trade and other accounts payable initially recognised
at fair value, are subsequently accounted for at am-
ortised cost at effective interest rate method.
2.2.9. SHARE CAPITAL
The ordinary shares are classified as share capital.
The difference between the fair value of considera-
tion 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 proba-
ble that the economic benefits will flow to the Group
and the revenue can be reliably measured. Revenue
is measured simultaneously with an increase in asset
or decrease in liabilities, which causes the increase
in shareholders’ equity (excluding the capital 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 expected to be received.
58
Annual Report 2015
When the arrangement effectively constitutes a
financing transaction, the fair value of the con-
sideration 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 recog-
nised when all the following conditions are satisfied:
— the significant risks and rewards of ownership of
the goods have passed to the buyer;
— the Group is no longer involved in the manage-
ment to the extent that is usually associated with
ownership, and has no control over the goods
sold;
— the amount of revenue can be measured reliably;
— it is probable that the economic benefits associ-
ated with the transaction will flow to the Group;
and
— the costs incurred or to be incurred in respect of
the transaction can be measured reliably.
(b) Revenue from rendering of services
The revenue from rendering of services is recog-
nised when all the following conditions are satisfied:
— the amount of revenue can be reliably measured;
— inflow of economic benefits related to the trans-
action is 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 transaction can be meas-
ured reliably.
2.2.11. EXPENSES RECOGNITION
Expenses are recognised by the Group when the
following conditions are met: the amount of expens-
es can be reliably measured, it is probable that future
economic, 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 periods, expenses are cal-
culated 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 peri-
od but relate to production of semi-finished products
Annual Report 2015
59
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-pro-
gress”, included within “Inventories” in the Consoli-
dated Statement of Financial Position.
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.
2.2.12. FINANCIAL EXPENSES
Interest expenses and other costs on borrowings
to finance construction or production of qualifying
assets are capitalized during the period of time
that is required to complete and prepare the asset
for its intended use. All other borrowing costs are
expensed. Net financial 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 domes-
tic sales and imports of goods, works and services
and, 0% on export of goods and provision of works
or services to be used outside Ukraine.
VAT output equals the total amount of VAT collected
within a reporting period, and arises on the earlier of
the date of shipping goods to a customer or the date
of receiving payment from the customer. VAT input is
the amount that a taxpayer is entitled to offset against
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 Con-
solidated Income Statement for the year comprises
current tax and changes in deferred tax.
Current tax liabilities and assets are measured at the
amount expected to be paid to or recovered from the
taxation authorities, using the tax rates and laws that
have been enacted, or substantively enacted, by the
reporting date.
Deferred tax assets and liabilities are calculated in
respect of temporary differences using the liability
method. Deferred income taxes are provided on all
temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts
for financial reporting purposes, except in situations
where the deferred tax arising on initial recognition
of goodwill or of an asset or liability in a transaction
that is not a deal to merge companies and which, at
the time of its commission, has no effect on ac-
counting 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 substantial probability that future
taxable profit, which may be reduced by the amount
of deductible temporary differences, will be received.
Deferred tax assets and liabilities are measured at
tax rates, the use of which is expected in the period
of the asset or liability is settled, based on the pro-
visions of the legislation enacted, or declared (and
practically adopted) at that date.
60
Annual Report 2015
Deferred income taxes are recognised for all tem-
porary differences associated with investments in
subsidiaries and associated companies and joint
activities, except in cases where the Group controls
the timing of the reversal of temporary differences,
and where there is a significant probability that the
temporary difference will not will be reduced in the
foreseeable future.
The Group reviews the carrying amount of deferred
tax assets at each reporting date and reduces it to
the extent to which there is no longer the probability
that there will be sufficient taxable profits, which
allow to 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 modification, is also charged to the income
statement over the remaining vesting period. Where
equity instruments are granted to persons other than
employees, the income statement is charged with the
fair value of goods and services received. Where fair
value of goods and services received from persons
other than employees is difficult to identify, the fair
value of the instruments granted is charged to the in-
come statement over the vesting period. The fair value
of options to be expensed is determined on the basis
of adjusted Black-Scholes model as set out in note 28.
2.16. SHORT-TERM EMPLOYEE BENEFITS
Short-term employee benefits are recognised in the pe-
riod in which an employee has rendered service to the
Group. The Group recognises the undiscounted amount
of short-term employee benefits a liability (accrued
expense), after deducting any amount already paid.
2.2.17. PENSION COSTS
The Group contributes to the Ukrainian mandatory
state pension scheme, social insurance and employ-
ment funds in respect of its employees. The Group’s
pension scheme contributions are expensed as in-
curred 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 clas-
sified as operating leases.
(а) Group as a lessee
Operating lease expenses are recognised as expenses
in the period to which they relate, on a straight-line
basis over the lease period.
Annual Report 2015
61
(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.
of expected recovery. Losses from impairment are
recognised as expenses directly in the Consolidated
Statement of Comprehensive Income.
2.2.21. CONTINGENT LIABILITIES AND ASSETS
2.2.20. IMPAIRMENT OF ASSETS
In respect of all assets, except for inventories, as-
sets resulting from advances to employees, financial
assets, and assets held for trading, the Group con-
ducts 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.
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-oc-
currence 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 recog-
nised 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.
— 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 sep-
arate asset, the Group determines the amount of
estimated impairment of the cash-generating unit,
to which the asset belongs.
The amount of expected recovery is the higher of two
estimates: net selling price and “value in use” of 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 mar-
ket estimates of time value of money and risks related
to the asset.
If according to estimates the amount of expected
recovery of assets (or a cash-generating unit) is
less than its book value, the book value of asset (or
a cash-generating unit) is reduced to the amount
The Group does not recognise contingent liabilities in
the financial statements. The Group discloses infor-
mation about contingent liabilities in the notes to the
financial statements except when the probability of
outflow of resources required to settle the obligation,
is unlikely.
Contingent assets are not recognised in the consoli-
dated financial statements, but disclosed in the Notes
where there is a sufficient probability of future eco-
nomic benefits.
2.2.22. RELATED PARTIES
Parties are considered to be related if one of the
parties has a possibility to control or considerably
influence the operational and financial decisions of
another company, which is defined in IAS 24 “Related
Party Disclosures”.
62
Annual Report 2015
While considering any relationship which can be
defined as a related party transaction, 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 following categories:
а) companies that directly or indirectly, through one
or more intermediaries, exercise control over the
Group, are controlled by it, or together with it are
under common control (this includes holding
companies, subsidiaries and fellow subsidiaries of
the parent company);
b) associates are companies whose activities are sig-
nificantly 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, man-
aging and controlling the activities of the Group,
including directors and senior officials (as well as
the non-executive director and close relatives of
these individuals); 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 order-
ly transaction between market participants at the
measurement date. The fair value measurement is
based on the presumption that the transaction 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 advanta-
geous market for the asset or liability. The principal or
the most advantageous 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.
All assets and liabilities for which fair value is meas-
ured 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 measurement 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 significant to the fair value
measurement is directly or indirectly observable.
•
Level 3: Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is unobservable.
Annual Report 2015
63
2.2.24. DIVIDENDS
Equity dividends are recognised in the consolidat-
ed 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 management to make judg-
ments, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and
liabilities, and the disclosure of contingent liabilities,
at the end of the reporting period. However, uncer-
tainty about these assumptions and estimates could
result in outcomes that require a material adjustment
to the carrying amount of the asset or liability affect-
ed in future periods.
In the process of applying the Group’s accounting
policies, management has made the following judg-
ments, which have the most significant effect on the
amounts recognised in the financial statements:
(а) Estimates of fair value of property, plant and
equipment based on revaluation
The Group is required, periodically as determined by
the directors, to conduct revaluations of its property,
plant and equipment. Such revaluations are conduct-
ed by independent valuers who employ the valuation
methods in accordance with International Valuation
Standards such as cost method, comparison (mar-
ket) method and revenue (income) method.
(b) Useful lives of intangible assets and property,
plant and equipment
Intangible assets and property, plant and equip-
ment are amortised or depreciated over their useful
lives. Useful lives are based on the management’s
estimates of the period that the assets will generate
revenue, which are periodically reviewed for contin-
ued appropriateness. Due to the long life of certain
assets, changes to the estimates used can result in
significant variations in the carrying value. Further
information is contained in notes 14 and 15.
(c) Impairment of goodwill
The Group is required to test, on an annual basis,
whether goodwill has suffered any impairment. The
recoverable amount is determined based on value in
use calculations. The use of this method requires the
estimation of future cash flows and the choice of a
discount rate in order to calculate the present value
of the cash flows. Actual outcomes may vary. Further
information is contained in note 15.
(d) Inventory
The Group reviews the net realisable value of, and
demand for, its inventory on a quarterly basis to en-
sure 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
64
Annual Report 2015
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 recognis-
es 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 finan-
cial statements. Among the factors considered in
making decisions on provisions are the nature of
litigation, claim or assessment, the legal process and
potential level of damages in the jurisdiction in which
the litigation, claim or assessment has been brought,
the progress of the case (including the progress after
the date of the financial statements but before those
statements are issued), the opinions or views of
legal advisers, experience on similar cases and any
decision of the Group’s management as to how it will
respond to the litigation, claim or assessment.
(f) Income taxes
The Group is subject to income tax in several ju-
risdictions and significant judgment is required in
determining the provision for income taxes. During
the ordinary course of business, there are many
transactions and calculations for which the ulti-
mate 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 return positions are
supportable, the Group believes that certain posi-
tions 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 ade-
quate for all open audit years based on its assess-
ment of many factors including past experience and
interpretations of tax law. This assessment relies on
estimates and assumptions and may involve a series
of complex judgments about future events. To the
extent that the final tax outcome of these matters is
different than the amounts recorded, such differenc-
es will impact income tax expense in the period in
which such determination is made. Further informa-
tion is contained in notes 13 and 16.
(g) Quality claims
The Group supplies consumers and industrial cus-
tomers in Ukraine with dairy products manufactured
in accordance with the current laws, food safety
standards and technical requirements of the relevant
Ukrainian authorities. The Group voluntarily applies
non-domestic standards – ISO and HASSP – to
some of the Group’s operations. For the industrial
customers both domestically and outside of Ukraine,
the food products are manufactured to the technical
specifications agreed with the buyers in advance of
the sale. In instances where the quality criteria and/
or technical specifications are not met or the delivery
of products are made close to expiry date, a quality
claim may arise and the corresponding contingent
Annual Report 2015
65
liability may be disclosed in the notes to the finan-
cial statements. Realisation of any such contingent
liabilities not currently recognised or disclosed in the
financial statements could have a material effect on
the Group’s financial position. Application of these
accounting principles to quality claims requires the
Group’s management to make determinations about
the future matters that may, at the time of determi-
nation, 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 2015:
Adoption of new and revised International Financial
Reporting Standards
The following standards were adopted by the Group
on 1 January 2015:
— Amendments to IFRSs — “Annual Improve-
ments to IFRSs 2010–2012 Cycle”
— Amendments to IFRSs — “Annual Improvements
to IFRSs 2011–2013 Cycle”
The adoption of new or revised standards did not
have any effect on the consolidated financial position
or performance of the Group and any disclosures in
the Group’s consolidated financial statements.
Standards and Interpretations in issue
but not effective
At the date of authorization of these consolidated
financial statements, the following Standards and
Interpretations, as well as amendments to the Stand-
ards were in issue but not yet effective:
Standards and Interpretations.
Effective for annual period beginning on or after.
66
Annual Report 2015
IFRS 9 “Financial Instruments”
Not yet adopted in the EU
IFRS 15 “Revenue from contracts with customers”
including amendments to IFRS 15: Effective date of IFRS 15 Not yet adopted in the EU
IFRS 14 “Regulatory Deferral Accounts”
IFRS 16 “Leases”
Not yet adopted in the EU
Not yet adopted in the EU
Amendment to IFRS 10, IFRS 12 and IAS 28:
Investment Entities: Applying the consolidation exception Not yet adopted in the EU
Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture Not yet adopted in the EU
Amendments to IAS 12: Recognition of Deferred
Tax Assets for Unrealised Losses
Not yet adopted in the EU
Amendments to IAS 7: Disclosure Initiative
Not yet adopted in the EU
Amendments to IAS 27: Equity Method
in Separate Financial Statements
Not yet adopted in the EU
Amendments to IAS 1: Disclosure Initiative
Not yet adopted in the EU
Amendments to IAS 16 and IAS 38: Clarification of
Acceptable Methods of Depreciation and Amortisation Not yet adopted in the EU
Amendments to IFRS 11: Accounting for
acquisitions of Interests in Joint Ventures
Not yet adopted in the EU
Amendments to IAS 16 and IAS 41: Bearer plants
Not yet adopted in the EU
Amendments to IFRSs — “Annual Improvements
to IFRSs 2012–2014 Cycle”
Not yet adopted in the EU
Management is currently evaluating the impact of the adoption of IFRS 9 “Financial Instruments” and IFRS 16
“Leases”. For other Standards and Interpretations management anticipates that their adoption in future peri-
ods will not have a material effect on the consolidated financial statements of the Group in future period.
Annual Report 2015
67
5. FINANCIAL RISK
MANAGEMENT
a) Principal financial instruments
The principal financial instruments used by the Group,
from which financial instrument risk arises, are as
follows:
The principal risks facing the Group’s business are
credit risk, liquidity risk and market risk, including
fair value or cash flow interest-rate risk and foreign
exchange risk. The main purpose of the Group’s
risk management programme is to evaluate, monitor
and manage these risks and to minimise potential
adverse effects on the Group’s financial performance
and shareholders. The Chief Executive Officer of the
Group is in charge of risk management and intro-
duction of all policies as approved by the Board of
Directors.
•
•
•
•
•
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
31.12.2015
£’000
year ended
31.12.2014
£’000
FINANCIAL ASSETS
Loans and receivables:
— trade and other receivables (excluding non-financial assets)
1 322
— cash and cash equivalents
— other financial assets
FINANCIAL LIABILITIES
Held at amortised cost:
— non-current bank loans
— current bank loans
— overdrafts
— trade and other payables (excluding non-financial liabilities)
68
Annual Report 2015
93
11
1 426
3 206
3 060
61
1 239
7 566
3 080
215
108
3 403
4 728
2 110
344
2 311
9 493
(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 determi-
nation 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 imple-
mentation 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
necessary. The overall objective of the Board is to
set polices that seek to reduce risk as far as possible
without unduly affecting the Group’s competitiveness
and flexibility. Further details regarding these policies
are laid out below.
(c) Credit risk
Credit risk is the risk that a counterparty will not be
able to meet its obligations in full when due. Ukrprod-
uct 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 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 com-
mercial relationship with the Group, a new customer
is offered the terms that are substantially tighter
than those for the existing customers and stipulate,
as a rule, the cash-on-delivery payments terms and
no-returns policy (quality-related claims exempted). If
the relationship progresses successfully, the terms are
gradually relaxed to fall in line with the Group’s normal
business practices and local specifics as required
by the market. The Group’s periodic review includes
external ratings, when available, and in some cases
bank references. Purchase limits are established for
each customer, which represents the maximum open
amount without requiring approval from the CEO.
These limits are reviewed quarterly. Customers that
fail to meet the Group’s benchmark creditworthiness
may transact with the Group on a prepayment basis
only.
Quantitative disclosures of the credit risk exposure
in relation to Trade and other receivables, which are
neither past due nor impaired, are made in note 18.
The Group does not rate trade receivables by category
or recoverability as the Group’s historical default rates
have been negligible in the past (less than 0.01%);
Annual Report 2015
69
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 increas-
ingly with the modern-format retailers whose cred-
itworthiness 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 enhance-
ments.
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 indi-
vidual limits are exceeded. The Group’s procedure for
recovery of the trade receivables past due includes the
following steps:
— identification of the date and exact amount of
the receivable past due, termination of all further
deliveries and forwarding to the customer of the
details of the amount due and the notice of the
failure to pay — 3 days after the past due date;
— delivery to the customer of the formal claim for
the amount overdue and the visit of the represent-
ative of the commercial credit control department
to the customer premises — 2 weeks thereafter;
— filing a claim to the commercial court for repay-
ment of the amount overdue and late payment
fees — 2 weeks thereafter;
— obtaining a court order for repayment of the
amount due and collaboration with bailiff — 2
weeks thereafter.
As a result of the credit control and risk assessment
procedures, the Group does not expect any significant
losses from non-performance by the counterparties
at the reporting date from any of the financial instru-
ments 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 worthi-
ness 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.
70
Annual Report 2015
Cash at bank and short term deposits are kept on the accounts in the following banks:
Bank
JSC OTP Bank
Bank of Cyprus
PJSC Raiffeisen Bank Aval
Other
UBS AG
year ended
31.12.2015
Rating
Baa1
Caa2
Caa3
Caa3
year ended
31.12.2014
Rating
A2
Caa3
Caa3
Caa2
year ended
31.12.2015
£’000
52
29
6
4
—
91
year ended
31.12.2014
£’000
116
88
—
3
4
211
The Group uses Moody’s ratings.
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 assess-
ment policy.
The Group’s exposure to credit risk, where the carrying value of financial assets is unsecured,
is as shown below:
Year ended
31.12.2015, £’000
Carrying Value
Year ended
31.12.2015, £’000
Maximum exposure
(unsecured)
Year ended
31.12.2014, £’000 31.12.2014, £’000
Carrying Value
Year ended
Maximum exposure
(unsecured)
Trade receivables
1 313
Loans issued
11
1 324
1 313
11
1 324
3 039
108
3 147
3 039
108
3 147
(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 dif-
ferent liquidity requirement profiles. As the Group’s
Annual Report 2015
71
products have short- and long-cycled production,
the liquidity risk of each plant is monitored and
managed centrally by the Group Treasury function.
Each plant has a cash facility based on cash budg-
ets 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 projections on a monthly basis as
well as information regarding the daily cash balances
at each plant and overall. In the ordinary course of
business, the Group relies on a combination of the
available overdraft facilities and cash balances to fund
the on-going liquidity needs. Capital expenditures are
usually funded through longer-term bank loans. In
case of the inadequate cash balances and the over-
draft facilities 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 ongo-
ing continuity of the business.
Maturities of the Group’s financial instruments are
disclosed further in the notes 18, 25 of these finan-
cial statements.
(e) Market risk
Market risk may arise from the Group’s use of inter-
est bearing, tradable and foreign currency financial
instruments. Market risk comprises fair value inter-
est rate risk, foreign exchange risk and commodity
price risk and is further assessed below:
(i) Cash flow and fair value interest-rate risk
As the Group has no significant interest-bearing
assets, the Group’s income and operating cash flows
are substantially independent of changes in market
interest rates. The Group’s interest-rate risk arises
only from overdrafts, and is considered to be insig-
nificant. The Group analyses the interest rate expo-
sure 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 maximum reasonably possible expectation of
changes in interest rates) would cause a change
in interest expense by GBP 75,624 (2014: GBP
505,610).
(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, bulk and spreads
to the various markets around the world. The pri-
mary currency for export sales is the US Dollar.
The Group’s established corporate policy towards
minimising the potential foreign exchange risk is to
require the customers to pay for the export ship-
ments of the skimmed milk powders in full and in
advance. The Group’s purchases of the raw milk,
semi-processed materials and other components of
the manufacturing cost are made in Ukraine and are
entirely Hryvnia-denominated. All outstanding bal-
72
Annual Report 2015
ances of trade payables by the Group are in Hryvnias.
Currency analysis is provided in Note 29.
The Group has a long-term loan from European Bank
of Reconstruction and Development (“EBRD”) for the
purpose of modernization of Starokonstantinovskiy
Molochniy Zavod SC. This debt is denominated in
Euro. Therefore, the Group is exposed to the ex-
change rate risk that lies in the possibility of Euro
(EUR) appreciation against Hryvna (UAH). The sen-
sitivity analysis shows that EUR appreciation against
Hryvna by 20% would cause exchange rate loss of
GBP 1,141,824 (2014 by 5%: GBP 294,000).
(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 domes-
tic 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 459,596 in 2016. The
first stage of the modernisation project of Starokon-
stantinovskiy Molochniy Zavod SC financed by the
European Bank of Reconstruction and Development
(“EBRD”) was completed and it is expected that
it will allow greater utilisation and efficiency of its
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 external events. When
controls fail to work, operational risks can damage
goodwill, have legal consequences or lead to finan-
cial losses. The Group can not expect that all oper-
ational 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 earn-
ings 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 grow-
ing capital are:
Annual Report 2015
73
— to safeguard the Group’s ability to continue as a
going concern, so that it can continue to provide
returns for shareholders and benefits for other
stakeholders,
— to identify the appropriate mix of debt, equity and
partner sharing opportunities in order to balance
the highest returns to shareholders overall with the
most advantageous timing of investment flows,
— to provide an adequate return to shareholders by
delivering the products in demand by the cus-
tomers at prices commensurate with the level of
risk and expectations of shareholders.
The Group sets the amount of capital it requires in
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 char-
acteristics of the current trading environment. The
Group’s core assets consist predominantly of the
property, plant and equipment – the resources that
have proven their ability to withstand the competitive
erosion and inflationary pressure.
In order to maintain or adjust the capital structure,
the Group may issue new shares, adjust the amount
of dividends paid to shareholders, repay the debt, re-
turn capital to shareholders or sell assets to improve
the cash position. Historically, the first three meth-
ods were used to achieve and support the desired
capital structure. The Group monitors capital on the
basis of the net debt to equity ratio (D/E ratio). This
ratio is calculated as net debt to shareholder equity.
Net debt is calculated as total debt (as shown in the
balance sheet) less cash and cash equivalents.
Traditionally, the Group’s conservative strategy was
to maintain the D/E ratio at 0.6 (60%) maximum. The
Directors believe that for the Group, as an operating
company and a public entity, the maintenance of
the prudent debt policy is crucial in preserving the
capital of the business.
However as at December 31, 2015 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
1.83. In management’s opinion this excessive D/E
ratio is the result of force-majeur circumstances.
The D/E ratios at 31 December 2015 and At 31 December 2015 were as follows:
Total debt
Less: Cash and cash equivalents
Net debt
Total equity
D/E ratio
74
Annual Report 2015
year ended
31.12.2015
£’000
year ended
31.12.2014
£’000
6 327
(93)
6 234
3 081
202,3%
7 182
(215)
6 967
7 572
92,0%
7. SEGMENT INFORMATION
At 31 December 2015, 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 and other — resale of third-party goods and processing services and processing services.
Annual Report 2015
75
The segment results for the year ended 31 December 2015 are as follows:
Branded Beverages Non-branded Distribution Un-allo- Total
products
£’000
products
£’000
services
£’000
cated
£’000
£’000
£’000
SALES
Gross profit
Administrative expenses
13 329
1 442
(507)
868
400
(75)
Selling and distribution expenses
(1 085)
(190)
Other operating expenses
—
(4)
PROFIT FROM OPERATIONS
Finance expenses, net
(150)
—
Loss from exchange differences —
PROFIT BEFORE TAXATION
Taxation
(150)
—
131
—
—
131
—
5 502
440
(87)
(165)
(9)
179
—
—
179
—
PROFIT FOR THE YEAR
(150)
131
179
Segment assets
5 854
1 104
2 893
Unallocated corporate assets
Unallocated deferred tax
—
—
—
—
—
—
CONSOLIDATED TOTAL ASSETS
5 854
1 104
2 893
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred tax
988
—
—
—
—
—
CONSOLIDATED TOTAL LIABILITIES 988
—
Other segment information:
Depreciation and amortisation
Capital expenditure
—
287
—
—
50
—
—
—
—
—
—
200
—
459
32
(9)
(19)
—
4
—
—
4
—
4
4
—
—
4
—
—
—
—
—
—
—
—
—
20 158
2 314
(431)
(1 109)
(3)
(1 462)
(1 076)
(1 089)
(1 510)
(1 346)
(768)
(768)
(1 733)
(1 733)
(4 011)
(3 847)
(59)
(59)
(4 070)
(3 906)
—
9 855
1 592
1 592
45
45
1 637
11 492
—
988
6 958
6 958
466
466
7 424
8 412
—
—
—
537
—
The unallocated corporate liabilities represent bank loans, overdrafts and accruals.
76
Annual Report 2015
The segment results for the year ended 31 December 2014 are as follows:
Branded Beverages Non-branded Distribution Un-allo- Total
products
£’000
products
£’000
services
£’000
cated
£’000
£’000
£’000
SALES
Gross profit
Administrative expenses
20 948
1 497
3 985
(947)
644
(183)
Selling and distribution expenses
(1 837)
(409)
Other operating expenses
—
—
PROFIT FROM OPERATIONS
1 201
52
Finance expenses, net
—
Income from exchange differences —
—
—
PROFIT BEFORE TAXATION
1 201
52
Taxation
—
—
PROFIT FOR THE YEAR
1 201
52
Segment assets
Unallocated corporate assets
Unallocated deferred tax
9 196
1 345
—
—
—
—
7 969
1 550
(301)
(506)
—
743
—
—
743
—
743
4 341
—
—
CONSOLIDATED TOTAL ASSETS
9 196
1 345
4 341
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred tax
1 985
—
—
—
—
—
—
—
—
CONSOLIDATED TOTAL LIABILITIES 1 985
—
—
Other segment information:
Depreciation and amortisation
Capital expenditure
426
244
119
3
321
162
1 462
274
(38)
(41)
—
195
—
—
195
—
195
52
—
—
52
—
—
—
—
—
—
—
—
31 876
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
8 125
10 110
—
79
866
488
Annual Report 2015
77
Secondary reporting format — geographical segments:
Sales by country (consignees)
Ukraine
Netherlands
Moldova
Nigeria
Azerbaijan
Georgia
Mexico
Turkey
Turkmenistan
Other countries
Total
year ended
31.12.2015
£’000
16 286
1 030
797
554
449
314
261
204
154
109
year ended
31.12.2014
£’000
26 297
2 049
1 170
644
408
382
378
204
—
344
20 158
31 876
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.
78
Annual Report 2015
8. REVENUE
For the years ended 31 December 2015 and 31 December 2014, 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
31.12.2015
£’000
year ended
31.12.2014
£’000
20 859
13 930
943
5 502
484
(701)
20 158
33 201
22 055
1 687
7 970
1 489
(1 325)
31 876
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.
Annual Report 2015
79
9. EXPENSES BY NATURE
For the years ended 31 December 2015 and 31 December 2014, items of expenses were presented as follows:
Cost of sales
Including:
year ended
31.12.2015
£’000
(17 844)
year ended
31.12.2014
£’000
(25 423)
Raw materials and consumables used,
cost of goods sold, manufacture overheads etc.
(16 059)
Wages and salaries, social security cost (Note 12)
(1 381)
Depreciation (Note 11)
Administrative expenses
Including:
Wages and salaries, social security costs (Note 12)
PR, nominated broker, secretary, legal services etc.
Lease and current repair and maintenance
Security
Communication
Bank service
Amortisation and depreciation (Note 11)
Taxes and compulsory payments
(404)
(1 109)
(559)
(176)
(58)
(52)
(40)
(36)
(25)
(22)
IT materials, household expenses, reading materials
(18)
Audit fees
Other
(14)
(109)
(22 504)
(2 193)
(726)
(1 963)
(1 077)
(283)
(101)
(92)
(58)
(73)
(46)
(43)
(22)
(40)
(128)
80
Annual Report 2015
year ended
31.12.2015
£’000
(1 462)
year ended
31.12.2014
£’000
(2 797)
Selling and distribution expenses
Including:
Wages and salaries, social security costs (Note 12)
Delivery costs
Promotion
Amortisation and depreciation (Note 11)
Lease and current repair and maintenance
Impairment of inventories
Packaging
Veterinary certificates, medical examination, permits
Other
(448)
(414)
(179)
(104)
(93)
(78)
(52)
(43)
(51)
Other operating expenses
(1 089)
Including:
Impairment of trade receivables
Profit / (loss) on disposal of non-current assets
Impairment of non-current asset
Impairment of inventories
Amortisation and depreciation (Note 11)
Wages and salaries, social security costs (Note 12)
Other
(805)
(19)
(179)
(28)
(4)
(2)
(52)
(966)
(787)
(578)
(85)
(140)
(76)
(53)
(68)
(44)
(508)
(73)
(17)
—
(284)
(9)
(1)
(124)
Annual Report 2015
81
10. NET FINANCE COSTS
For the years ended 31 December 2015 and 31 December 2014,
financial income/(expenses) were presented as follows:
Finance income
Interest income
Total interest income
Finance expense
Interest expense on bank loans
Total finance expense
year ended
31.12.2015
£’000
1
1
(769)
(769)
Net finance expense recognised in income statement
(768)
11. DEPRECIATION AND AMORTISATION
For the years ended 31 December 2015 and 31 December 2014,
amortization and depreciation were presented as follows:
year ended
31.12.2015
£’000
(404)
(25)
(104)
(4)
(537)
Cost of sales
Administrative expenses
Selling and distribution expenses
Other operating expenses
Total depreciation and amortization
82
Annual Report 2015
year ended
31.12.2014
£’000
4
4
(765)
(765)
(761)
year ended
31.12.2014
£’000
(726)
(46)
(85)
(9)
(866)
12. EMPLOYEE BENEFIT EXPENSES
For the years ended 31 December 2015 and 31 December 2014,
employee benefit expenses were presented as follows:
Wages and salaries
(including key management personnel)
Social security costs
Average number of employees
Wages and salaries of operating personnel
Wages and salaries of administrative personnel
Wages and salaries of distribution personnel
Wages and salaries of personnel related
to other operating expenses
year ended
31.12.2015
£’000
(1 825)
(565)
(2 390)
1 132
year ended
31.12.2015
£’000
(1 381)
(559)
(448)
(2)
(2 390)
year ended
31.12.2014
£’000
(3 251)
(986)
(4 237)
1 423
year ended
31.12.2014
£’000
(2 193)
(1 077)
(966)
(1)
(4 237)
Wages and salaries of key management personnel:
For the year ended 31 December 2015, remuneration
of the Group’s key management personnel amounted
to GBP 235,000 (2014: GBP 235,000).
Key management personnel received only short term
benefits during the years ended 31 December 2015
and 31 December 2014.
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).
Annual Report 2015
83
13. INCOME TAX EXPENSES
For the years ended 31 December 2015 and 31 December 2014,
income tax expenses were presented as follows:
31 December
2015
£’000
31 December
2014
£’000
Current tax charge — Ukraine
Current tax charge — non-Ukraine
Deferred tax relating to the origination
and reversal of temporary differences
Total income tax expenses
52
—
7
59
53
—
(8)
45
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% (2014: 18%).
The numerical reconciliation between tax charge and the product of accounting profit multiplied by the appli-
cable tax rate(s) is provided in the following table.
Profit before tax:
Ukraine
Cyprus
Other (BVI, Jersey, loss before tax in Ukraine)
Profit before tax, total
year ended
31.12.2015
£’000
146
13
(4 006)
(3 847)
year ended
31.12.2014
£’000
795
(26)
(4 202)
(3 433)
84
Annual Report 2015
Tax calculated at domestic tax rates applicable
to profits in the relevant countries
Ukraine (2015: 18%, 2014: 18%)
Cyprus (10%)
BVI, Jersey (0%)
year ended
31.12.2015
£’000
26
1
—
27
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
33
(1)
—
32
Tax charge
Ukraine
Cyprus
BVI, Jersey
The weighted average applicable tax rate
Ukraine
Cyprus
BVI, Jersey
59
—
—
59
18%
8%
Nil
-1%
year ended
31.12.2014
£’000
—
143
—
143
(98)
—
—
(98)
45
—
—
45
18%
0%
Nil
-4%
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 prac-
tice of taxation and implementation of regulations
are well established, documented with a sufficient
degree of clarity and adhered to by the taxpayers.
Nevertheless, there remain certain risks in relation to
the Ukrainian tax system: few court precedents with
regard to tax related issues exist; different opinions
regarding legal interpretation may arise both among
and within government ministries and regulatory
agencies; tax compliance practice is subject to
review and investigation by a number of authorities
with overlapping responsibilities.
Generally, tax declarations remain subject to inspec-
tion for an indefinite period. In practice, however,
the risk of retroactive tax assessments and penalty
charges decreases significantly after three years. The
Annual Report 2015
85
fact that a year has been reviewed does not preclude
the Ukrainian tax service performing a subsequent
inspection of that year.
with sufficient regularity to ensure that the carrying
amount does not differ materially from fair value.
The Group has accomplished assets revaluation in
2015 for the effective evaluation date 31 December
2015. The revaluation was carried by an independent
evaluator “BGS-aktyvy” Ltd (Ukraine) using Net As-
sets Value method and Market method. Discounted
Cash Flow Method was used for test for reasonable
assets profitability. The revaluation was accom-
plished for the assets used in process of production.
Office equipment was not revaluated The revaluation
led to assets value increase for 17%
The fair value of land, property, plant and equipment
as at 31.15.15 was determined by independent ap-
praiser in accordance with IFRS and IVS. The Valuer
used the following methods for the calculation of fair
values: comparative, income and cost approaches.
The Group’s management believes that it has ade-
quately provided for tax liabilities in the accompany-
ing financial statements; however, the risk remains
that those relevant authorities could take different
positions with regard to interpretive issues.
During the period under review, the Ukrainian com-
panies within the Group paid royalties and interest
charges on the outstanding credits and bonds to
another Group company — Solaero Global Alterna-
tive Fund Limited (Cyprus). These payments were
not taxable in Ukraine due to the existing Double
Taxation Treaty between Ukraine and Cyprus.
14. PROPERTY, PLANT
AND EQUIPMENT
In accordance with IAS 16 “Property, Plant and
Equipment”, the Group carries out revaluations,
The hierarchy of inputs used in determining the fair value of the assets of the Group as at 31 December 2015
were as follows:
Hierarchy of inputs
Fair value (revaluation result),
thousand GBP
Land
Buildings
Plant and machinery
Vehicles
Other PPE
Total
86
Annual Report 2015
Level 2
Level 3
Level 3
Level 2
Level 2
148
2 157
3 701
616
598
7 220
When performing the valuation using these meth-
ods, the key assumptions and judgment applied by
the independent valuer were as follows:
in 2016 to 22.4% in 2020 was used, for the beverage
segment in the range from 28.1% in 2016 to 22.3%
in 2020.
— Choice of information sources for construction
cost analysis (actual costs recently incurred
by the Group, specialised reference materials,
estimates for cost of various equipment ect.
— Determination of comparatives for replacement
cost of certain equipment, as well as corre-
sponding adjustments required to take into
account difference in technical characteristics
and condition of new and existing equipment.
— Selection of market data when determining
market value where it is available (land plots,
vehicles).
— Determination of applicable cumulative price
indices or changes in foreign exchange rates
which would most reliably reflect the change in
fair value of assets revaluated using indexation of
carrying amounts.
The fair values obtained using Depreciated Replaced
Cost method (DRC) are validated using DCF models
and are adjusted if the values obtained using income
approach are lower than those obtained using DRC
or indexation carrying amount (i.e. there is economic
obsolescence).
The recoverable amount of the cash-generating unit
was determined on the basis of value-in use. The
amount of value in use for the cash generating unit
was determined on the basis of the most recent
budget estimates prepared by management and
application of the income approach of valuation. For
the diary segment discount rate in range from 23.8%
The main factors that formed Group assets value
were the following
— economic recession in 2014-2015 characterized
by triple devaluation of national currency, econo-
my shrank 35-40%, loss of territory (involuntary
sales closing in Donetsk, Lugansk districts and
Crimean Peninsula as a result), price conjuncture
aggravation in the world market.
— company management does not expect signif-
icant increase of diary market and is guided by
predicted Asian and East African market in-
crease.
— There is no aging of equipment.
The Group is divided into two cash-generating units
(CGU)
Diary production
Diary productions consists of production assets for
butter, cheese, protein and skimmed diary products:
— Production assets of SE Starokostyantynivski
Diary Plant abd two other units in Zhytomir and
Letychiv;
— Group vehicle park used for raw materiak and
end product transportation;
”Nash Molochnik”, ”Vershkova Dolyna” and
—
“Narodny product” trade marks.
Annual Report 2015
87
Increase of law material price – Forecast is obtained
from published index for Ukraine.
Predicted increase data – The data are based on
published industry research in Ukraine.
Assumption regarding business segment – Using
the data on industry for increase factors these as-
sumptions are important as management estimates
the changability of the unit position in comparison
with competitors in the period forcasted.
Industry forecast is not used for kvass (beverage)
sales forecasting, as the Group produces the unique
product “Live Kvass” that has no competitors in
Ukraine by its nature. the model is based on own
dinamic forecast of the management. Brand devel-
opement plans include:
— Extension of brand presence in distribution net-
works;
— Kvass in kegs sales increase;
— Exstension of beverage product range (produc-
tion of white kvass, several kinds of Uzvar)
As for estimated value from usinf both CGU, man-
agement consieders any possible changes in any
of key positions mentioned above cannot lead to
significant excess of unit aquisition cost compared
to the amount of its expected compensation.
Beverage production
Beverage production combines the production assets
of Live kvass “Arseniivsky”. It consists of:
— Production assets of “Zhyvyi Kvass” LTD and,
— “Arseniivsky” Trade mark.
Main assumptions used in utility value calculation
Utility value calculation for production both diary
products and bweverages is sensitive to he following
assumptions:
Gross profit margin — Gross profit margin is based
on 2015 budget value and takes into consideration
trends of value indexes for 2016-2020
Discount rate — Discount rate posturizes current
market estimated risks, specific for each CGU,
inclusive of cash cost and individual risks and
corresponding assets excluded from the cash flow
valuation. Discount rate calculation based on spe-
cific Group circumstances and operational segment
and is issued from Weighted Average Capital Cost
(WACC). WACC takes into account both loan and
owned capital. The value of owned capital is calculat-
ed on the basis of predicted return on investment of
group investors. Specific segment risks are included
in usage of separate facts of beta-testing. Beta fac-
tors are estimated annualy using generally accessible
market data. WACC is used in the model for both
CGU in amount mentioned above.
Production value increase — is derived from pub-
lished consumer price index for Ukraine or world
price tendencies for export product groups.
88
Annual Report 2015
As at 31 December 2015 and 31 December 2014, property, plant and equipment were presented as follows:
r
e
d
n
u
s
t
e
s
s
A
n
o
i
t
c
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r
t
s
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n
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B
i
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h
c
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n
a
t
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a
P
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e
l
c
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,
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t
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m
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n
e
m
l
a
t
o
T
COST OR VALUATION
At 1 January 2014
Additions
Transfers to/from AUC
Disposals
Exchange differences on translation
to the presentation currency
£’000
£’000
£’000
£’000
£’000
£’000
1 653
9 692
12 869
3560
1 254
29 028
593
(1 716)
(11)
(472)
—
384
(12)
—
859
(28)
(3 650)
(4 940)
—
18
(124)
(957)
38
455
(60)
631
—
(235)
(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
223
(7)
353
(6)
85
(62)
704
124
(54)
10 843
790
(134)
(874)
(808)
(488)
(256)
(2 426)
At 31 December 2014
29
2 876
3 759
1 891
518
9 073
Cost or valuation
At 1 January 2015
Additions
Transfers to/from AUC
Elimination of depreciation
Gain on revaluation
Disposals
Exchange differences on translation
to the presentation currency
47
221
(56)
(21)
—
(5)
(23)
6 414
8 760
—
(58)
—
(76)
2 497
—
(112)
947
—
303
18 665
221
1
(2 245)
(2 981)
(1 420)
(365)
(7 032)
40
—
543
(1)
361
(32)
99
(16)
1 043
(54)
(1 845)
(2 543)
(677)
(286)
(5 374)
At 31 December 2015
162
2 306
3 702
617
682
7 469
Annual Report 2015
89
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
i
y
r
e
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h
c
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M
d
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a
t
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a
P
l
s
e
l
c
i
h
e
V
,
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
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h
t
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m
l
a
t
o
T
£’000
162
£’000
2 306
£’000
3 702
£’000
617
£’000
682
£’000
7 469
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Depreciation charge
Elimination of depreciation
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2015
29
1
(21)
—
(9)
0
Net book amount at 31 December 2015 162
Net book amount at 31 December 2014 18
Net book amount at 31 December 2013 1 624
2 876
3 759
1 891
130
253
48
518
56
9 073
488
(2 245)
(2 981)
(1 420)
(365)
(7 032)
—
(2)
(19)
(12)
(33)
(760)
(1 029)
(500)
(146)
(2 444)
1
2 305
3 538
6 158
—
3 702
5 001
8 649
—
617
606
1 204
51
631
429
550
52
7 416
9 592
18 185
As a result of the revaluation fixed assets consists of
loss at the P&L for the amount of GBP 70 thousand
and Gain on revaluation at the Other Comprechensive
income GBP 1,113 thousand . Total Gain on revalua-
tion GBP 1,043 thousand.
As at December 31, 2015 the Group has no contrac-
tual commitments on purchase of property, plant
and equipment.
Fixed assets with a net book value of GBP 5,125
thousand At 31 December 2015 (2014: GBP 8,446
thousand) were pledged as collateral for loans.
Borrowing costs for the tranches from EBRD for the
second stage of reconstruction of SE Starokostian-
tynivskyi Molochnyi Zavod was capitalised during
March-December of 2014. They amounted to GBP
32 thousand (2013: 34 thousand). Average rate for
EBRD loan 7,094% used to determine the amount
of borrowing costs eligible for capitalisation. During
the 2015, interest on the loan was not capitalized,
because all the equipment was put into operation at
the end of 2014.
As at December 31, 2015 any prepayments for
property, plant and equipment were included within
90
Annual Report 2015
Assets under construction in the amount of GBP 5
thousand (2014: GBP 8 thousand)
As at December 31, 2015 fully depreciated assets
included within property, plant and equipment with
the original cost of GBP 214 thousand (2013: GBP
565 thousand)
It’s impracticable to provide information about the
carrying amounts of all classes of assets, except of-
fice 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 2014
Additions
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2014
ACCUMULATED AMORTISATION
At 1 January 2014
Amortisation charge for the year
Disposals
Exchange differences on translation
to the presentation currency
31
41
(5)
(21)
46
28
3
—
(19)
862
—
—
692
—
—
(137)
(189)
725
503
239
47
—
(173)
286
26
—
8
104
—
(104)
—
—
—
—
—
—
1 689
41
(109)
(347)
1 274
553
76
—
(184)
At 31 December 2014
12
113
320
—
445
Annual Report 2015
91
Computer
software
£’000
Trade marks
Customer list
Goodwill Total
£’000
£’000
£’000
£’000
COST OR VALUATION
At 1 January 2015
Additions
Disposals
Impairment loss
Exchange differences on translation
to the presentation currency
At 31 December 2015
ACCUMULATED AMORTISATION
At 1 January 2015
Amortisation charge for the year
Impairment loss
Disposals
Exchange differences on translation
to the presentation currency
At 31 December 2015
46
1
(2)
16
29
12
11
(1)
4
26
Net book amount At 31 December 2015 3
Net book amount at 31 December 2014 34
Net book amount at 31 December 2013 3
725
—
—
(36)
761
113
30
—
25
168
593
612
623
503
—
—
(503)
—
—
320
8
(312)
—
(16)
—
—
183
406
—
—
—
—
—
—
—
—
—
—
—
—
1 274
1
(2)
(503)
(20)
791
445
49
(312)
(1)
13
194
596
829
104
1 136
The remaining amortization periods of the intangible
assets are as follows:
Acquired intangible assets
— Computer software 1–10 years;
— Trademarks 11–18 years;
— Customer list 0 years.
The intangible asset “Customer list” represents the
captive individual suppliers of raw milk. In Ukraine,
where about 80% of the entire milk comes from in-
dividual producers, the existing supplier base is very
92
Annual Report 2015
important for the dairy producers and thus is valua-
ble. The acquired asset “Customer list” was recog-
nised in the accounts on the basis of the Purchase
Price Allocation (PPA) exercise conducted within
the 12-month period following the acquisitions of
two plants. The asset was valued by an independent
valuer Uvecon using the sales comparison method
and depreciated replacement cost (DRC) methods
(for tangible assets) and income and cost advan-
tage methods (intangible assets). An impairment of
customer list as of 31 December 2015 was caused
by Group’s transition to more favorable terms of raw
materials purchases outside the region, in which
customer list is located.
The Group performed its annual impairment test in
December 2015 and 2014. The Group considers the
relationship between its market capitalisation and its
book value, among other factors, when reviewing for
indicators of impairment. As at 31 December 2015,
the market capitalisation of the Group was below the
book value of its equity, indicating a potential impair-
ment of goodwill and impairment of the assets of the
operating segment. In addition, the overall decline in
construction and development activities around the
world, as well as the ongoing economic uncertainty,
have led to a decreased demand in both the trade-
mark “Zhyviy Kvas” and Group of the trademarks
“Diary segment” CGUs.
Trademark “Zhyviy Kvas”
The recoverable amount of the trade mark “Zhyviy
Kvas” CGU, GBP 346 thousand as at 31 December
2015, has been determined based on a value in use
calculation using cash flow projections from financial
budgets approved by senior management covering a
five-year period. The projected cash flows have been
updated to reflect the decreased demand for prod-
ucts and services. The discount rate applied to cash
flow projections is 25.8% (2014: 29.7%). The growth
rate used to extrapolate the cash flows of the unit
beyond the five-year period is 5%. It was concluded
that the fair value exceeded costs of disposal did not
exceed the value in use.
Group of the trademarks “Diary segment”
The recoverable amount of the fire trademarks
“Diary segment” CGU, GBP 235 thousand as at 31
December 2015, is also determined based on a value
in use calculation using cash flow projections from
financial budgets approved by senior management
covering a five-year period. The projected cash flows
have been updated to reflect the decreased demand
for products and services. The pre-tax discount rate
applied to the cash flow projections is 25.8% (2014:
29.7%). The growth rate used to extrapolate the cash
flows of the unit beyond the five-year period is 2-7%.
The impairment coefficient is 8.27. As a result of the
analysis, management did not identify an impairment
for this CGU.
Annual Report 2015
93
16. DEFERRED TAX ASSETS AND LIABILITIES
For the year ended 31 December 2015, deferred tax assets and liabilities were presented as follows:
As at
31.12.2015
£’000
(2)
—
(12)
—
302
—
As at
31.12.2014
£’000
(66) —
636
—
42 —
—
39
—
(15)
—
(20)
—
(36)
62
255
— —
—
(2)
(46)
—
—
(110)
—
466
— —
22
(283)
(2) —
302
—
Deferred tax assets at the beginning of the year
Deferred tax liability at the beginning of the year
Deferred tax asset recognised in income
statement during the year
Deferred tax liability recognised in income
statement during the year
Reduction in deferred tax due to decrease
in property, plant and equipment revaluation
reserve because of amortisation
Increase in deferred tax due to increase in property,
plant and equipment revaluation reserve
Exclusion from Group
Exchange differences on translation
to the presentation currency
Deferred tax assets at the end of the year
Deferred tax liability at the end of the year
17. INVENTORIES
As at the reporting dates inventories were presented as follows:
Finished goods
Raw materials
Work in progress
Other inventories
94
Annual Report 2015
As at
31.12.2015
£’000
As at
31.12.2014
£’000
677
307
158
354
1 496
942
571
31
541
2 085
During 2015, GBP 14,411 thousand (2014: GBP 19,752 thousand) was recognised as an expense in cost of
sales. Inventories with a net book value of GBP 901 thousand At 31 December 2015 (2014:GBP 840 thousand)
were pledged as collateral for loans.
18. TRADE AND OTHER RECEIVABLES
As at the reporting dates receivables were presented as follows:
Long-term receivables
—
As at
31.12.2015
£’000
Trade receivables
Other receivables
Prepayments
1 313
9
164
1 486
As at
31.12.2014
£’000
—
3 039
93
542
3 674
The Group’s management believes that the carrying value for trade and other receivables is a reasonable ap-
proximation of their fair value. The amount of overdue but unimpaired accounts receivable is insignificant and
is not disclosed in this note.
Maturity of trade receivables as at 31 December 2015 and 31 December 2014 is presented as follows:
Total
£’000
1 313
3 039
Neither past
due nor
impaired
£’000
1 194
2 277
<30
days
£’000
24
162
Past due but not impaired
61-90
30-60
days
days
£’000
£’000
18
63
107
179
91-120
days
£’000
—
202
>120
days
£’000
14
112
2015
2014
Provisions were created for impaired trade and other receivables and holiday allowance.
Annual Report 2015
95
For the year ended 31 December 2015, deferred tax assets and liabilities were presented as follows:
Impaired trade and other receivables
at the beginning of the year
As at
31.12.2015
£’000
220
—
Holiday allowance at the beginning of the year
—
Accrual
Use of allowances
Effect of translation to presentation currency
Impaired trade and other receivables
at the end of the year
836
(7)
(102)
947
Holiday allowance at the end of the year
—
42
52
(137)
92
—
49
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
31.12.2015
£’000
268
66
14
348
As at
31.12.2014
£’000
123 —
—
40
239
878
(14)
(827)
(128)
(49)
220 —
—
42
As at
31.12.2014
£’000
1 081
80
16
1 177
96
Annual Report 2015
20. OTHER FINANCIAL ASSETS
Loans and receivables
As at
31.12.2015
£’000
Loans issued to related parties
—
Loans issued to third parties
Loans issued to employees
3
8
11
As at
31.12.2014
£’000
—
86
22
108
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 current taxes were presented as follows:
Cash — in UAH
Bank — in UAH
Bank — in other currencies
As at
31.12.2015
£’000
1
11
81
93
As at
31.12.2014
£’000
4
27
184
215
Annual Report 2015
97
22. SHARE CAPITAL
As at the reporting dates share capital was presented as follows:
AUTHORISED
As at
31.12.2015
Number ’000
As at
31.12.2015
£’000
As at
31.12.2014
Number ’000
As at
31.12.2014
£’000
Ordinary shares of 10p each
60 000
6 000
60 000
6 000
ISSUED AND FULLY PAID AT BEGINNING AND END OF THE YEAR
As at
31.12.2015
Number ’000
As at
31.12.2015
£’000
As at
31.12.2014
Number ’000
As at
31.12.2014
£’000
39 673
—
39 673
3 967
—
3 967
39 673
—
39 673
3 967
—
3 967
HELD AS TREASURY SHARES
As at
31.12.2015
Number ’000
As at
31.12.2015
£’000
As at
31.12.2014
Number ’000
As at
31.12.2014
£’000
3 145
—
3 145
315
—
315
3 145
—
3 145
315
—
315
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
At end of the year (excluding shares
held as treasury shares)
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
At end of the year
As at 31 December 2015 and 31 December 2014 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.
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 ac-
cordingly 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.
98
Annual Report 2015
23. OTHER RESERVES
At the reporting date other reserves were presented as follows:
Share
premium
£’000
Translation Revaluation
reserve
£’000
reserve other reserves
£’000
£’000
Total
At 1 January 2014
4 562
(6 768)
3 636
Own shares acquisition
—
—
—
Depreciation on revaluation of property, —
plant and equipment
—
(162)
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
—
—
—
—
—
—
—
(21)
—
At 31 December 2014
4 562
(13 768)
3 453
—
(86)
Depreciation on revaluation of property, —
plant and equipment
Gain on revaluation of property,
plant and equipment
Reduction of revaluation reserve
—
—
Exchange differences on translation —
to the presentation currency
—
913
913
—
(88)
(1 526)
—
(88)
(1 526)
1 430
—
(162)
—
(21)
—
(5 753)
(86)
—
(7 000)
—
(7 000)
At 31 December 2015
4 562
(15 294)
4 192
(6 540)
Annual Report 2015
99
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
Retained earnings
Translation
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.
Cumulative net gains and losses recognised in the consolidated
income statement.
Amount of all foreign exchange differences arising from the translation
of the financial information of foreign subsidiaries.
24. BANK LOANS
AND OVERDRAFTS
As at 31, December 2015, the Group had received
EUR 8.3 mln of an EUR 11 mln credit line facility
from the European Bank for Reconstruction and
Development (EBRD) for the financing of a project
to increase energy efficiency and productivity of the
Starokonstantinovskiy Molochniy Zavod SC plant.
By 31 December 2015 Group broke the covenants
and during 2015 was in breach of repayments of the
EBRD loans. According to the agreement terms the
bank had the right to demand repayment of the loans
in full or partly. Nevertheless beginning with 2015
Group had been negotiating about the new terms of
the repayment and in December 2015 The Bank’s
Operations Committee has approved the terms of the
proposed restructuring (the “Restructuring”),
including extension of the Maturity Date to 1 Decem-
ber 2024 amd 12 month capital repayment holiday,
but by 31 December 2015 the process of restructur-
ation was not complete. Group requested a waiver
about not application of penalties for covenant
violation, but it was not received as the process of
restructuration proceeded successfully and the loan-
er bank found no grounds for providing it. On this
basis Group reflected EBRD loan as a long-term loan,
excluding the part of the loan to be paid in 2015 and
2016. By the date of approval of the accounts the
agreement had been signed, operating and long-term
parts of the loan will be corrected by 30 June 2016.
Guarantees under EBRD facility agreement are the
enterprises of the Group that are jointly and severally
responsible together with the borrower: Moloch-
nik LLC; Milk investments Private Enterprise SC;
Starkon-Moloko LLC; Ukrproduct Group CJSC; Zhiviy
Kvas LLC.
100
Annual Report 2015
Guarantees under OTP bank facility agreement are
the enterprises of the Group that are jointly and
severally responsible together with the borrower:
Avtopark Starokonstantinov LLS; Favorit-Konsulting
Private Enterprise; Invest Garantiya Private Enter-
prise; Krasilovsky Molochny Zavod Private Enter-
prise SC; ATP Centr LLC; Ukrproduct Group CJSC.
Bank
Currency Type
Opening
date
Termination
date
Interest
rate
Limit
£’000
As at
As at
31.12.2015 31.12.2014
£’000
£’000
EBRD
OTP Bank
EUR
UAH
OTP Bank
USD
Loan
Credit
line
Credit
line
31.03.2011 10.12.2018
≈ 7,03%
8 118
5 357
30.05.2011 09.06.2017
26,15%
30.05.2011 09.06.2017
12,42%
1 126
909
—
Aval Bank
UAH
Overdraft 31.05.2013 29.02.2016
22,0%
141
61
5 693
1 001
144
344
6 327
7 182
The average interest rate as at 31 December 2015 was 10.42% (2014: 9.34%).
Maturity of financial liabilities
On demand
In less than 1 year*
In more than 1 year*
year ended
31.12.2015
£’000
year ended
31.12.2014
£’000
61
3 060
3 206
6 327
344
2 110
4 728
7 182
Annual Report 2015
101
Interest rate profile of financial liabilities
On demand
Expiry within 1 year
Expiry in more then 1 years
Floating rate
Fixed rate
£’000
—
3 060
3 206
6 266
£’000
61
—
—
61
As at
31.12.2015
£’000
As at
31.12.2014
£’000
61
3 060
3 206
6 327
344
2 110
4 728
7 182
The currency profile of the Group’s financial liabilities is as follows:
UAH
USD
EUR
Floating
rate liabilities
£’000
Fixed rate
liabilities
£’000
Total as at
31.12.2015
£’000
Total as at
31.12.2014
£’000
909
5 357
6 266
61
—
—
61
970
—
5 357
6 327
1 345
144
5 693
7 182
The book value and fair value of financial liabilities are as follows:
Book value as at
31.12.2015
£’000
Fair value as at
31.12.2015
£’000
Book value as at
31.12.2014
£’000
Fair value as at
31.12.2014
£’000
Bank loans
Bank overdrafts
6 266
61
6 327
6 266
61
6 327
6 838
344
7 182
6 838
344
7 182
*extendable according to 3-year agreement with bank.
102
Annual Report 2015
25. TRADE AND OTHER PAYABLES
At the reporting date trade and other payables were presented as follows:
Trade payables
Other payables
Prepayments received
Accruals
Interests payable
Provisions
31.12.2015
£’000
979
260
9
109
180
49
31.12.2014
£’000
1 942
371
42
158
29
41
1 586
2 583
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
Year ended
31.12.2015
£’000
(3 906)
Year ended
31.12.2014
£’000
(3 478)
Weighted number of ordinary shares in issue
39 673 049
39 673 049
Basic earnings per share, pence
Diluted average number of shares
Diluted earnings per share, pence
(9,85)
(8,77)
39 402 447
39 629 619
(9,91)
(8,78)
Annual Report 2015
103
27. DIVIDENDS
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 2015.
28. SHARE-BASED PAYMENTS
The Company operates an equity-settled share based remuneration scheme for employees.
2015 Weighted
average exercise
price
Number
2014 Weighted
average exercise
price
Number
Outstanding at beginning of the year
0,100
130 290
0,100
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
Comprehensive Income in 2015.
104
Annual Report 2015
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%
29. CURRENCY ANALYSIS
Currency analysis for the year ended 31 December 2015 is set out below:
ASSETS
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
Total assets
LIABILITIES
Bank borrowings
Trade and other payable
Current income tax liabilities
Other taxes payable
Total Liabilities
UAH
USD
GBP
EUR
Total
1 460
348
11
12
1 831
970
1 258
18
15
2 261
24
—
—
81
105
—
8
—
—
8
—
—
—
—
—
—
—
—
—
—
2
—
—
—
2
5 357
320
—
—
1 486
348
11
93
1 938
6 327
1 586
18
15
5 677
7 946
Annual Report 2015
105
Currency analysis for the year ended 31 December 2014 is set out below:
ASSETS
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
Total assets
LIABILITIES
Bank borrowings
Trade and other payable
Current income tax liabilities
Other taxes payable
Total Liabilities
UAH
USD
GBP
EUR
Total
2 909
1 177
108
31
4 225
1 345
2 346
14
29
3 734
763
—
—
184
947
144
47
—
—
191
—
—
—
—
—
—
—
—
—
—
2
—
—
—
2
5 693
190
—
—
3 674
1 177
108
215
5 174
7 182
2 583
14
29
5 883
9 808
34 % strengthening of Hryvnia rate against the
following currencies as At 31 December 2015 and
2014, would increase /decrease the amount of profits
/or losses for the period by the amounts mentioned
below. This analysis was conducted based on the as-
sumption that all other variables, in particular, inter-
est 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 2015
£’000
Effect on income
before tax in 2014
£’000
34%
27%
-34%
-27%
33
(1 532)
(33)
1 532
378
(2 941)
(378)
2 941
USD
EUR
USD
EUR
106
Annual Report 2015
30. RELATED PARTY
TRANSACTIONS
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or
operational decisions as defined by IAS 24 “Related
Party Disclosures”. In considering each possible relat-
ed party relationship, attention is directed to the sub-
stance of the relationship, not merely the legal form.
Transactions and balances between the Group com-
panies and other related parties are set out below.
Remuneration of key management personnel is
disclosed in note 12.
Sales of goods and services to related parties and
purchases from related parties are summarised
below. All sales and purchases were with related
parties under common control of the ultimate benefi-
ciaries of the Company.
Sales
Administrative expences
Other operational incomes
Other operational expences
Year ended
31.12.2015
£’000
Year ended
31.12.2014
£’000
—
25
—
683
38
—
27
Balances due from/(to) related parties at each period end are shown below.
Receivables and prepayments
Loans issued
Trade and other payables
As at
31.12.2015
£’000
As at
31.12.2014
£’000
23
—
9
64
—
(73)
Annual Report 2015
107
In 2015, 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 regulatory acts affecting the
activities of Ukrainian enterprises may be subject to
changes and amendments within a short period of
time. As a result, assets and operating activity of the
Group may be exposed to the risk in case if any unfa-
vourable changes take place in political and econom-
ic 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, lo-
cal and national tax legislation are constantly chang-
ing. Provisions of various legislative and regulatory
legal acts are not always clearly-worded, and their
interpretations depend on the opinion of tax authori-
ty officers and the Ministry of Finance. It is common
practice for disagreements between local, regional
and republican taxation authorities to arise. A system
of fines and penalties for claimed or revealed viola-
tions 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 percentage of the payroll to
the Pension Fund to finance the benefits. The only
obligation of the Group with respect to this pension
plan is to make the specified contributions from sala-
ries. As At 31 December 2015 and 2014 the Group
had no liabilities for supplementary pensions, health
care, insurance benefits or retirement indemnities to
its current or former employees.
(d) Compliance with covenants
The Group is subject to certain covenants related
primarily to its borrowings. Non-compliance with
such covenants may result in negative consequences
for the Group. Group’s management is confident that
as At 31 December 2015 the Group is not in breach
of its loan agreements.
The amount of uncancellable lease commitments is
insignificant.
108
Annual Report 2015
As of December 31, 2015 the Group does not pos-
sess any finance lease and hire purchase commit-
ments, capital commitments and guarantees.
(a) EBRD — breach of loan covenants
The Loan Agreement was signed 24 June 2016. This
new Loan Agreement was discussed during 2015
and first half of the 2016 in respect of new terms
of its Loan Agreement. Terms suggest new repay-
ment schedule up to 1 December 2024. Company
gained grace period till 01/03/2017. Beginning with
01/03/2017 Company will pay tranches according
to the new 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.
(b) Foreign exchange rates
Post year end, the Ukrainian Hryvnia continued to
devalue against the US Dollar. In particular according
is the National Bank to Ukraine the following are key
exchange rates:
Currency
UAH/GBP
UAH/USD
UAH/EUR
19 June
2016
33,39
24,85
27,56
Annual Report 2015
109
110
Annual Report 2015
CORPORATE
ADVISERS
Annual Report 2015
111
GROUP SECRETARY
UK LEGAL ADVISERS
Bedell Secretaries Limited
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
NOMINATED ADVISER
AND BROKER
ZAI Corporate Finance Ltd
Staple Court,
11 Staple Inn,
London WC1V 7QH
INDEPENDENT
AUDITORS
Baker Tilly Channel Islands Limited
PO Box 437, 1st Floor,
1st Floor, Kensington Chambers
46/50 Kensington Place
St Helier, Jersey JE4 0ZE
Gowlings WLG
4 More London
London
SE1 2AU United Kingdom
JERSEY LEGAL
ADVISERS
Bedell Cristin
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
PRINCIPAL BANKERS
UBS SA
40 rue du Rhone
CH-1211 Geneva
Switzerland
REGISTRARS
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen B63 3DA
112
Annual Report 2015
SHAREHOLDER
INFORMATION
Annual Report 2015
113
REGISTERED OFFICE
PO BOX 75
26 NEW STREET
ST HELIER
JERSEY JE2 3RA
REGISTERED NUMBER 88352 IN JERSEY
FINANCIAL CALENDAR
31 December 2015
Financial year end
30 June 2016
Announcement of full year 2015 results
25 July 2016
Annual General Meeting
ANALYSIS OF SHAREHOLDING
AT 31 DECEMBER 2015
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
29
24
14
101
34
29
24
14
100,00%
61,505
638,175
2,901,521
39,216,648
42,817,849
0,14
1,49
6,78
91,59
100.00
114
Annual Report 2015
As at December 31, 2015 the founding shareholders
Messrs 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 as 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, Halesow-
en, B63 3DA. The registrar will assist with enquir-
ies regarding any change of circumstances (e.g.
name, address, bank account details, bereavement,
lost certificates, dividend payment and transfer
of shares). All correspondence should be clearly
marked “Ukrproduct Group Ltd” and quote the full
name and address of the registered holder of the
shares.
INVESTOR RELATIONS
Sergiy Shpak
Phone: +380-44-232-96-02
Fax: +380-44-289-16-30
Email : sergiy.shpak@ukrproduct.com
Annual Report 2015
115