Annual Report
Ukrproduct Group
Annual Report 2016
29 June 2017
1
Table of Contents
Annual Report
Chairman and Chief Executive Statement........................................................................................3
The Board of Directors ..................................................................................................................... 5
Remuneration Committee Report ..................................................................................................... 7
Corporate Governance Report .......................................................................................................... 9
Corporate Social Responsibility Report ......................................................................................... 11
Directors’ Report ............................................................................................................................ 13
Statement of Directors’ Responsibility .......................................................................................... 18
Independent Auditors' Report......................................................................................................... 19
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ....................................... 21
CONSOLIDATED STATEMENT OF FINANCIAL POSITION................................................. 22
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ................................................. 23
CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................ 24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ........................................... 25
Corporate advisers .......................................................................................................................... 67
Shareholder Information ................................................................................................................ 68
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Annual Report
Chairman and Chief Executive Statement
During 2016 Ukrproduct has continued to face the headwinds induced by the political
situation and the Ukrainian economy. Currency weakness continued with a contracted
geographic market place and intense competition. Consumers are low in spending power and
confidence.
In this challenging context Ukrproduct's response is to focus on cash; ensure the product
offering is competitive; focus on viable customers affording acceptable margins and thereby
cash production. Ukrproduct seeks further to underpin the trading effort with cost/productivity
improvements.
Trading
Overall revenues increased by only 3% in hryvna terms given product mix. Gross margins
improved in most product lines apart from skimmed milk powder (SMP).
Branded products were given more focus with key categories butter and spreads showing
improved volume and margins. Margins on processed cheese were maintained on slightly
lower revenues. Private label made improved gross profits on significantly reduced volumes
as marginal contracts were terminated. Those retained and developed reflected the quality
demanded by the retailer and commensurate margins. The kvass beverage continued to make
a strong gross profit contribution. This category offers opportunities and the product offering
has been extended with white kvass and healthy rosehip drinks being test marketed.
The exchange rate depreciation has facilitated good overall development of the export
business not least to CIS countries. Towards the end of the year, growth of domestic dairy
prices in the Ukraine provided some constraint, however exports of branded products
increased by one thousand tons in 2016.
Skimmed milk powder has been a negative in terms of available prices being historically low
across the world, particularly in the first half of the year. Spare capacity at our
Starokonstantyniv facility has however afforded opportunities for profitable contract
processing. In this regard in 2016 Ukrproduct maintained its approved supplier status with
Danone, a major international company, confirming that the company’s products meet high
international quality requirements.
Finances
Total revenues for year were stable at £20m. In local currency terms Hryvna revenues overall
grew by 3% to UAH 693m.
In difficult markets gross margins generally showed some improvement subject to SMP
which given global pricing showed a shortfall of £0.6m year on year. Note however that SMP
is a by-product of butter production & the net profitability of butter/SMP together is healthy.
Given significant cost reductions EBITDA moved into positive territory at 1.9% (2015 minus
4%). The operating loss was sizeably reduced to £0.195m (2015 - operating loss £1.346m).
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Annual Report
Interest charges fell by £145,000 given husbandry of cash & the restructuring of EBRD debt.
Though reduced, exchange differences continued to be negative at £0.743m (2015 -
£1.733m). This, together with significantly reduced other operating expenses of £0.17m (2015
£1.089m), resulted in a loss for the year of £1.484m (2015 - loss £3.906m).
Cash
The balance of cash at 31st December 2016 stood at £175,000 (2015 - £93,000). In the
challenging trading environment Ukrproduct group’s business model gives a firm focus to
cash management.
The Group's cash levels are currently expected to be sufficient to meet current debt levels in
the short & medium term, given the deferral of the OTP Bank principal repayment announced
in June.
Restructuring of the EBRD loan was finalised in 2016. The revised terms require the loan to
be repaid over a longer period & at more favourable interest rates and the first two capital
repayments were made as scheduled after the period end. Discussions however continue with
EBRD, as discussed more fully in the Going Concern section, following financial loan ratio
covenant breaches and subsequent waivers.
Outlook
Ukrproduct will continue to work towards profitability with cash flow remaining the priority.
Plans as defined above will continue to be implemented with due emphasis on growth
opportunities in Beverages & Export.
The new year has started encouragingly. Sales revenues & gross margins are ahead of last
year at this stage and the first two tranches of capital repayments to EBRD have been made. A
capital reorganisation to simplify the group structure is being implemented as required by
EBRD.
Jack Rowell
Chairman
Alexander Slipchuk
Chief Executive Officer
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Annual Report
The Board of Directors
As of the date of the approval of the 2016 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 25 July 2016.
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 Officer
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 Federation, and
acquired initial stakes in the companies that later became part of Ukrproduct Group. Later in
1998, Alexander
the
the executive positions at
Starakonstantinovskiy Dairy plants, Ukrproduct’s two main operating assets.
the Molochnik and
took on
Sergey Evlanchik
Executive Director
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
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Annual Report
1994 in the Far East of the Russian Federation. After the recess of the Russian and Ukrainian
equity markets in 1998, Mr Evlanchik refocused his activities on business development in the
industrial sector of Ukraine, particularly within the dairy industry, where he joined the
companies that would subsequently form Ukrproduct Group in 2004. Sergey then led the
Group to its successful listing on the AIM market of the London Stock Exchange in 2005. 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 Economics (Russia) and
earned a degree in “Logistics and Supply Chains Management”.
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Annual Report
Remuneration Committee Report
This report is prepared by the Remuneration Committee of the Board and sets out the Group’s
policy on the remuneration of the Directors, with a description of service agreements and
remuneration packages for each Director.
Remuneration Committee
The Remuneration Committee comprises one non-executive Director, Jack Rowell. This
Committee is scheduled to meet at least twice per annum to advise the Board on the Group’s
remuneration strategy and to determine the terms of employment and total remuneration of
the respective Executive Directors of the Group and of its subsidiary companies, including the
granting of share options. Among others, the objective of this Committee is to attract, retain
and motivate Executives capable of delivering the Group’s objectives. The Remuneration
Committee is also responsible for the evaluation of the performance of Executive Directors.
The Remuneration Committee held two meetings during 2016.
Remuneration Policy
The Group’s remuneration policy is to provide remuneration packages which:
are designed to attract, motivate and retain high calibre Executives;
are competitive and in line with comparable businesses;
are rooted in practices exercised in countries where the Group operates;
intend to align the interests of the Executives with those of the shareholders by
means of fixed and performance related remuneration; and
set challenging performance targets and motivate Executives to achieve those
targets both in the short and long-term.
Base salary
The Committee on an annual basis reviews base salaries of the respective Executive Directors
of the company and its subsidiaries, taking into account job responsibilities, competitive
market rates and the performance of the Executive concerned. Consideration is also given to
the cost of living and the Director’s professional experience. While determining the base
salaries, the Committee also considers general aspects of the employment terms and
conditions of employees elsewhere in the Group.
Incentive bonus plans and equity arrangements
The Committee continues to plan 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.
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Annual Report
Service contracts
The appointments of the respective Executive Directors of the company and its subsidiaries
are valid for an indefinite period and may be terminated with three months notice given by
either party at any time. The company or subsidiary’s policy for compensation for loss of
office is to provide compensation which reflects the Group’s or that subsidiary company’s
contractual obligations.
Bonus Scheme
The Committee has established a cash bonus scheme for Executive Directors based on the
overall performance of the Group and/or respective subsidiary company and attainment of the
operating profit targets.
Non-executive directors
The appointments of non-executive Directors are valid for an indefinite period and may be
terminated with three months notice given by either party at any time. The decision to re-
appoint, as well as the determination of the fees of the non-executive Directors, rests with the
Board. The non-executive Directors may accept appointments with other companies, although
any such appointment is subject to the Board’s approval and terms and conditions of Service
Agreements.
Directors’ remuneration
Details of the Directors’ cash remuneration are outlined below:
Annual
Salary/fee
Bonus
2016
£ 000
2015
£ 000
2016
£ 000
2015
£ 000
Non-cash
compensation
2015
2016
£ 000
£ 000
Total cash
remuneration
2015
£ 000
2016
£ 000
40,0
40,0
15,0
95,0
52,5
67,5
9,9
129,9
23,2
33,75
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
40,0
40,0
15,0
95,0
52,5
67,5
9,9
129,9
23,2
33,75
Executive
Alexander Slipchuk
Sergey Evlanchik
Yuriy Hordiychuk
Non-executive
Dr Jack Rowell
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 date of this report these options were not
exercised and had lapsed. The details of the options outstanding at 31 December 2016 are
shown below.
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Annual Report
Directors
Share Options
Jack Rowell
130,290
Exercise
Price, pence
10.0
Exercise Period
to 05/02/2017
Corporate Governance Report
Corporate Governance Policy
Effective corporate governance is a priority of the Board and outlined below are details of
how the Company has applied the principles set out in The UK Corporate Governance Code
(the "Code") revised in April 2016 by the Financial Reporting Council. Under the rules of
AIM, a market operated by the London Stock Exchange, the company is not required to
comply with the Code and the Board considered that the size of the Group does not warrant
compliance with all of the Code’s requirements. The Board fully supports the principles on
which the Code is based and seeks to comply with best practice in such respects as they
consider appropriate for a Group of its size and nature. The Board has a wide range of
experience directly relevant to the Group and its activities and its structure ensures that no one
individual or group dominates the decision making process.
The Board
The Board consists of one non-executive and three Executive Directors. The roles of the
Chairman of the Board and the Chief Executive of the Group are held separately with a clear
division of responsibility between them. The Chairman of the Board is an independent non-
executive Director.
Within the scope of the corporate governance procedures, the Board meets regularly to
consider the financial results, budgets, and major items of capital expenditure of all the
Group’s companies. This body is also responsible for formulating, reviewing and approving
the Group’s strategy and the phases of its development.
The Board met four times during 2016.
Board Committees
The Board is assisted by the Audit and Remuneration Committees.
Audit Committee
The Audit Committee consists of one non-executive Director, Jack Rowell. The member of
the Audit Committee has relevant financial experience. This Committee, inter alia, is
responsible for reviewing the Annual and Interim financial statements, in addition to the
systems of internal control and risk management, and also for ensuring the integrity of the
financial information reported to the shareholders.
The Audit Committee met twice during 2016.
Remuneration Committee
The Remuneration Committee comprises one non-executive Director, Jack Rowell. This
Committee is scheduled to meet at least twice per annum to advise the Board on the Group’s
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Annual Report
remuneration strategy and to determine the terms of employment and total remuneration of
the Executive Directors, including the granting of share options. Among others, the objective
of this Committee is to attract, retain and motivate Executives capable of delivering the
Group’s objectives. The Remuneration Committee is also responsible for the evaluation of the
performance of Executive Directors.
The Remuneration Committee held two meetings during 2016.
Relations with shareholders
The Group maintains regular contact with its institutional and private shareholders, fund
managers, financial analysts and brokers through a series of presentations, conference calls
and meetings. All corporate materials, including annual reports, financial results statements
and other information, are available on the Group’s website www.ukrproduct.com
The Chief Executive Officer and other Directors holds conference calls and meetings with
major shareholders on a regular basis. The Board believes that it is essential to discuss with its
major shareholders and keep them updated with regards to the Group’s financial performance,
strategy and business developments. The Chairman is also accessible to major shareholders, if
such meetings are required.
The Board invites all shareholders to attend the company’s Annual General Meeting and
encourages them to exercise their voting right and participate with questions.
Internal Control
The Group adheres to comprehensive and strictly regulated budgeting and reporting
procedures that are aimed at more efficient internal control and risk management. The Board
is responsible for the Group’s system of internal control and for reviewing its effectiveness,
however, it is recognised that any control system can only provide reasonable and not
absolute assurance against material misstatement or loss.
The principal elements of the internal control system are as follows:
documented policies, procedures and authorisation levels;
clearly defined lines of responsibility in the organisational structure of the Group;
a management structure which facilitates ease of communication both vertically and
horizontally;
annual budgeting and monthly reporting procedures.
The annual budgets consist of monthly budgets, which are updated each month once actual
figures become available. Due to the dynamic development of the macroeconomic
environment of the country the Group operates in, variances in actual figures for sales, prices
and other underlying assumptions from those forecasted may occur. Hence, the budget is
flexed to better reflect the future of the Group. Such variances by each company within the
Group are discovered and recommendations for further actions are formulated.
The internal control system is further enforced by the Group’s internal audit department. The
main objectives of the internal audit function are to ensure the safety of the Group’s assets
and the reliability of accounting records. The internal audit department is responsible for
auditing the financial statements and accounting procedures of the companies within the
Group, as well as for disclosing and reducing various types of risks related to Group
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Annual Report
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.
Corporate Social Responsibility Report
Corporate Social Responsibility
The Board is committed to developing and implementing corporate social responsibility
(CSR) policies aimed at:
Promoting equality and fairness among employees, partners and suppliers
Ensuring safe working conditions
Maintaining the Group’s corporate reputation and dedication to business ethics
Supporting the communities in which the Group operates
Establishing long-term and healthy relationships with the Group’s partners, customers and
other affiliated parties.
The main elements of the Group’s approach towards fulfilling the above objectives are as
follows:
Employees
The Group is committed to ensuring equal opportunities to all its employees, both current and
prospective. Each employee’s efforts are highly valued and the Board believes that a diverse
mix of the workforce facilitates innovation, efficiency and teamwork. As a matter of corporate
policy, regular training and development workshops are conducted for Ukrproduct’s staff.
These are aimed at all employee groups, including managerial, technical and production
personnel. The training programmes encourage staff to progress up the career ladder and are
central to the Group’s continuing growth and success.
Health and safety
Management at business units within the Group are responsible for developing and
maintaining the underlying practices that provide for a safe working environment. Special
attention is given to the production facilities, where the equipment, including lighting, air
conditioning, workspace and other constituents, undergo constant reviews and improvements.
Regular monitoring is carried out to ensure that the required standards are met and that
employees use the provided communication channels to further improve their surrounding
working conditions.
Customers
Customer satisfaction is at the core of the Group’s business model. Therefore, the Board is
keen to continue supplying the customers with high quality, affordable products required by
current market demands. The Group’s segmentation practices are aimed at segregating
various customer groups in order to meet their respective needs with maximum efficiency. In
addition, regular market research and surveys are conducted to ensure maximum value is
consistently offered to customers.
Environment
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Annual Report
The Group recognises the importance of good environmental practices and seeks to minimise
any negative impact that its operations or products might have on the production sites and
surrounding areas. The Group adopted the environmental laws and regulations of Ukraine to
reduce, control and eliminate various types of pollution and to protect natural resources.
Ukrproduct monitors and controls all its production facilities regularly in order to ensure that
air quality is not adversely impacted by its operations. The Group focuses on cutting water
and energy consumption, as well as reducing the volumes of waste. Collection and processing
of waste have been organised through the local waste collection plants. The Group’s
development programme puts specific emphasis on acquiring and installing only the most
advanced and environmentally-friendly production and auxiliary equipment.
Food safety
Food safety is one of key priorities for the Group. Ukrproduct is committed to produce high
quality and safe food and ensures that high standards are maintained within its supplier base.
The certified food safety management system in compliance with ISO 22000 was
implemented by the Group. This system provides the possibility to fully monitor all
production stages - from forage control and sound health of the cattle to the final product
distribution.
Community support
The Group is keen to further enhance and maintain its partnership with local communities by
supporting their initiatives and charitable events. The Group contributes cash donations and
gifts, as well as employee time, by encouraging staff to participate as volunteers.
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Annual Report
Directors’ Report
The Directors present their report and the audited consolidated financial statements of
Ukrproduct Group Ltd (referred to as the company and together with its subsidiaries as “the
Group”) for the year ended 31 December 2016.
Principal Activities and business review
Ukrproduct Group Ltd (the “company” or “Ukrproduct”) is a holding company for a group of
food and beverages businesses located in Ukraine. The principal activities of Ukrproduct
Group are the production and distribution of highly branded dairy foods and beverages
(kvass) in Ukraine and the export of milk powder. The Group is one of the leading branded
food producers in Ukraine with its own nationwide distribution network. More detailed
commentary on the Group’s activities during the year, its financial performance, future plans,
and prospects are outlined in the Chairman and Chief Executive Statement.
Results and Dividends
The results of the Group for the year are set out on page 21 and show a net loss for the year
of GBP 1.484 million (2015: GBP 3.906 million).
The Board has decided not to recommend the payment of a dividend in respect of the year
ended 31 December 2016 (2015:Nil).
Directors
Details of members of the Board of Directors are shown on page 5
The Directors’ interests in the share capital of the company as at 31 December 2016 and 31
December 2015 are shown below:
Executive
Sergey Evlanchik
Alexander Slipchuk
Non-executive
Dr Jack Rowell
Powers of the Directors
Shares
2016
2015
Share options
2016
2015
14,967,133
14,939,133
14,967,133
14,939,133
-
-
-
-
118,690
118,690
130,290
130,290
Subject to the Company’s Memorandum and Articles of Association, Companies (Jersey)
Law 1991, as amended and any directions given by special resolution, the business of the
company shall be managed by the Directors who may exercise all such powers of the
company. The rules in relation to the appointment and replacement of Directors are set out in
the company’s Article’s of Association.
Financial Risks Facing the Group
The principal risks of the business are credit risk, liquidity risk and market risk, including fair
value or cash flow interest-rate risk and foreign exchange risk. The main purpose of the
Group's risk management programme is to evaluate, monitor and manage these risks and to
minimise potential adverse effects on the Group's financial performance and shareholders.
The Chief Financial Officer of the Group is in charge of risk management and introduction of
all policies as approved by the Board of Directors.
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Annual Report
For further details of the Group’s risk management please see note 5 on page 44
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 2016 was 907 (2015: 1,132).
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
The Group incurred a loss of GBP 1,484 thousand for the year ended 31 December 2016,
decreasing retained earnings at that date to GBP 4,427 thousand. In addition, due to
significant devaluation of Ukrainian Hryvnia the principal amounts of loans denominated in
foreign currencies has increased. As at 31 December 2016 loans, denominated in foreign
currency, had the following amount outstanding: GBP 969 thousand owing to OTP bank and
GBP 6,193 thousand owing to EBRD (Note 24). Interest under these loan agreements is paid
according to a fixed schedule annexed to the relevant loan agreement.
An amended Loan Agreement and Restatement Deed with the EBRD was signed in June 2016
and details announced on 30 June 2016 with the new terms becoming effective on 24 October
2016. As per the new terms, the principal amount is divided into two parts - Tranche A in the
amount of 4,000 thousand EUR with a maturity date of 01 December 2022 and Tranche B in
the amount of 3,259 thousand EUR with a maturity date of 30 November 2024.
The Group gained a capital repayment holiday until 01 March 2017 with quarterly capital
repayments on Tranche A commencing on that date and increasing in amount on an annual
basis until 1 December 2022. The first two payments have been made in full as scheduled.
Tranche B is ordinarily due for repayment in a single bullet payment on 1 December 2024
assuming no early repayment of Tranche A or events of default.
Despite the repayments being made as scheduled, the Group breached financial covenants as
at 31 December 2016 and 31 March 2017. The Board notified EBRD in advance of covenant
breaches of the Loan and EBRD provided waivers in respect of the breached covenants dated
08 May 2017 and 24 May 2017 respectively. Due to the fact that the date of the waivers
receipt was later than the reporting date, under IAS 1 Presentation of Financial Statements the
Group was required to classify the EBRD loan in full as a current liability. In the
consolidated statement of financial position the current liabilities exceed current assets due to
the EBRD loan reclassification.
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Annual Report
The Board believes that EBRD will not demand accelerated repayment of the loan due to the
breach of the covenants as at 31 December 2016 and as at 31 March 2017. Going forward if
the Group anticipates a breach of the financial ratio covenants under the amended EBRD loan
agreement it is expected that EBRD would grant a waiver in advance of the reporting period
deadline.
The Group has entered into a variation of the loan agreement with OTP Bank under which
the principal loan repayment date has been extended from 9 June 2017 due to 9 Sep 2017.
The principal amount outstanding under this agreement is Ukrainian Hryvnia UAH 32,300
thousand (approximately GBP 969 thousand).
The consolidated financial statements have been prepared on a going concern basis, because
management believes that it has employed sufficient and appropriate measures to underpin its
cost cutting strategy including but not limited to: reconstruction of manufacturing facilities in
Starokonstantinov operation, reducing the number of subsidiaries and streamlining business
processes to minimise non-value adding activities and related costs, and by development of its
export capacity.
The political and economic situation has become less volatile than in 2015. The government
of Ukraine is aiming at rapprochement with the European Union with many reforms being
carried out in various fields.
The Group's strategic goal is the development of export sales in world markets, in particular
Asia and Africa. CIS markets also remain strategically important markets for the Group to
develop and sales into Kazakhstan have commenced.
The Group is also looking to expand our domestic sales in Ukraine driven in part by the
introduction of new products and the renewal of the existing product portfolio. The Group
continues to increase volumes throughput in its dairies through close cooperation with farmers
and cooperatives, thereby increasing the capacity utilization.
Annual General Meeting
Ukrproduct’s AGM will be held on July 20, 2017. The Notice of AGM and agenda will be
sent to shareholders no less than 21 days prior to the date of the meeting.
Auditors
Baker Tilly Isle of Man LLC was appointed as the Group’s auditors for the 2016 financial
year by the resolution of the Directors held on September 08, 2016. A resolution to reappoint
them will be proposed at the forthcoming AGM.
Statement as to disclosure of information to the auditor
All of the current Directors have taken the necessary steps to make themselves aware of any
information needed by the Group's auditors for the purposes of their audit and to establish that
the auditors are aware of that information. The directors are not aware of any relevant audit
information of which the auditors are unaware.
Jack Rowell
Chairman
29 June 2017
15
Ukrproduct Group Limited
Consolidated financial statements
For the year ended
31 December 2016
CONTENTS
Page.
CHAIRMAN AND CHIEF EXECUTIVE STATEMENT
THE BOARD OF DIRECTORS
REMUNERATION COMMITTEE REPORT
CORPORATE GOVERNANCE REPORT
CORPORATE SOCIAL RESPONSIBILITY REPORT
DIRECTORS REPORT
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
INDEPENDENT AUDITOR'S REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to consolidated financial statements
SHAREHOLDER INFORMATION
-
17
-
STATEMENT OF DIRECTORS RESPONSIBILITIES FOR
THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
The directors are responsible for the preparation of the consolidated financial statements in accordance with applicable Jersey law and other regulations and
enactments in force at the time. The Companies (Jersey) Law 1991, as amended requires the directors to prepare financial statements for each year in accordance
with Generally Accepted Accounting Principles. Under that law, the directors have elected to prepare the consolidated financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union. Under company Law, the directors must not approve the consolidated
financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of its profit or loss for the period ended.
In preparing these consolidated financial statements, the directors are required to:
-
select suitable accounting policies and then apply them consistently;
-
make judgments and estimates that are reasonable and prudent;
-
state that the financial information complies with IFRS, subject to any material departures disclosed and explained in the consolidated financial statements; and
-
prepare the consolidated financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The board of directors confirms that the Group has complied with the above mentioned requirements in preparing its consolidated financial statements.
The directors are also responsible for:
-
implementing and maintaining an efficient and reliable system of internal controls in the Group;
-
keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group;
-
-
taking reasonable steps to safeguard the assets of the Group and to prevent and detect fraud and other irregularities; and
the maintenance and integrity of the Group's website.
On behalf of the Directors:
Alexander Slipchuk
Chief Executive Officer
2017
-
18
-
INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITOR‟S REPORT TO THE MEMBERS OF UKRPRODUCT GROUP LIMITED
We have audited the 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 2016 which comprise the Consolidated Statement of Financial Position, Consolidated Statement of Comprehensive Income, Consolidated
Statement of Changes in Equity, Consolidated Statement of Cash Flows and related notes. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards as adopted by the EU.
This report is made solely to the group‟s members in accordance with the terms of our engagement letter dated 20th September 2016, and also in accordance with
Article 113A of the Companies (Jersey) Law 1991, as amended. Our audit work has been undertaken so that we might state to the group‟s members those matters we
are required to state to them in an auditor‟s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the group and the group‟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 Directors‟ Responsibilities Statement set out on page 18 the directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board‟s (APB‟s) Ethical
Standards for Auditors.
Scope of the audit of the consolidated financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the 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 company‟s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the
trustees; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify
material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
Opinion on consolidated financial statements
In our opinion the consolidated financial statements:
-
-
-
give a true and fair view of the state of the group‟s affairs as at 31 December 2016, and of its loss for the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies (Jersey) Law, 1991 as amended.
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19
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INDEPENDENT AUDITOR‟S REPORT TO THE MEMBERS OF UKRPRODUCT GROUP LIMITED (Continued)
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
As described in Note 2.1(b) to the consolidated financial statements, the Group incurred a loss of £1,484k for the year ended 31 December 2016. 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.
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 included any adjustments that would result if the Group was unable to continue as a going concern.
European Bank for Reconstruction and Development
We also draw attention to Note 2.1(b) and to Note 24 of the consolidated financial statements which refer to the non-observance during the year, and post year end,
by the Group of the terms of the loan agreement with the European Bank for Reconstruction and Development (“EBRD”).
OTP Bank financing
We also draw attention to Note 2.1(b) and Note 24 of the consolidated financial statements which refer to the maturity of external financing arrangements with
OTP Bank on 9 September 2017. We understand management are seeking to revise the terms of this agreement prior to this date.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:
-
-
-
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proper accounting records have not been kept; or
proper returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
we have not received all the information and explanations which to the best of our knowledge and belief are necessary for the purposes of our audit.
Robert Kirkham
For and on behalf of Baker Tilly Isle of Man LLC
Chartered Accountants
PO Box 95
2a Lord Street
Douglas
Isle of Man
29 June 2017
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20
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Ukrproduct Group
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
Note
31 December 2016
31 December 2015
year ended
year ended
£ „000
£ „000
#
8
9
9
9
9
11
10
13
26
Revenue
Cost of sales
GROSS PROFIT
Administrative expenses
Selling and distribution expenses
Other operating expenses
LOSS FROM OPERATIONS
Net finance expenses
Foreign exchange loss, net
LOSS BEFORE TAXATION
Income tax expenses
LOSS FOR THE YEAR
Attributable to:
Owners of the Parent
Non-controlling interests
Earnings per share:
Basic
Diluted
OTHER COMPREHENSIVE INCOME:
Items that may be subsequently reclassified to profit or loss
Currency translation differences
Items that will not be reclassified to profit or loss
Gain on revaluation of property, plant and equipment
Income tax in respect of revaluation reserve
OTHER COMPREHENSIVE INCOME, NET OF TAX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Attributable to:
Owners of the Parent
Non-controlling interests
20 190
(18 071)
2 119
(930)
(1 367)
(17)
(195)
(623)
(743)
(1 561)
77
(1 484)
(1 484)
-
(3,74)
(3,74)
513
-
-
513
(971)
(971)
-
20 158
(17 844)
2 314
(1 109)
(1 462)
(1 089)
(1 346)
(768)
(1 733)
(3 847)
(59)
(3 906)
(3 906)
-
9,85
9,91
(1 526)
1 113
(200)
(613)
(4 519)
(4 519)
-
The notes on pages 27 - 76 are an integral part of these consolidated financial statements.
-
21
-
Ukrproduct Group
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 December 2016
(in thousand GBP, unless otherwise stated)
As at
As at
Note
31 December 2016
31 December 2015
£ „000
£ „000
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current taxes
Other financial assets
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Share premium
Translation reserve
Revaluation reserve
Retained earnings
Non-controlling interests
TOTAL EQUITY
Non-Current Liabilities
Bank loans
Long-term payables
Deferred tax liabilities
Current liabilities
Bank loans
Trade and other payables
Current income tax liabilities
Other taxes payable
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
14
15
16
17
18
19
20
21
22
23
23
23
24
16
24
25
7 511
656
-
8 167
1 855
2 507
230
18
175
4 785
12 952
3 967
4 562
(14 781)
3 935
4 427
2 110
-
2 110
-
441
363
804
7 162
2 854
10
12
10 038
10 842
12 952
7 417
596
46
8 059
1 496
1 486
348
11
93
3 434
11 493
3 967
4 562
(15 294)
4 192
5 655
3 082
-
3 082
3 206
-
466
3 672
3 121
1 586
18
14
4 739
8 411
11 493
The notes on pages 27 - 76 are an integral part of these consolidated financial statements.
-
22
-
Ukrproduct Group
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
AS AT 31 December 2016
(in thousand GBP, unless otherwise stated)
Attributable to owners of the parent
Share capital
Share premium
Revaluation
reserve
£ „000
£ „000
£ „000
Retained
earnings
£ „000
Translation
reserve
£ „001
Total
£ „000
Non-controlling
interests
Total Equity
£ „000
£ „000
As At 1 January 2015
3 967 4 562 3 453 9 358 (13 768)
7 572
- 7 572
Loss for the year
Other comprehensive income
Gain on revaluation of property, plant and equipment
Currency translation differences
Total comprehensive income
Depreciation on revaluation of property, plant and equipment
Reduction of revaluation reserve
As At 31 December 2015
Loss for the year
Other comprehensive income
Currency translation differences
Total comprehensive income
- - - (3 906)
- (3 906)
-
(3 906)
- - 913
- - 913
- - - -
(1 526) (1 526)
- - 913 (3 906) (1 526) (4 519)
-
913
- (1 526)
-
(4 519)
- - -
86
- - (86)
- 28
- - (88) 116
3 967 4 562 4 192 5 654 (15 294) 3 081
- 28
-
3 081
-
- - - (1 484)
- (1 484)
- (1 484)
- - - - 513 513
- - - (1 484)
513 (971)
-
513
- (971)
Depreciation on revaluation of property, plant and equipment
Reduction of revaluation reserve
As At 31 December 2016
- - (248) 248
- - (9)
9
3 967 4 562 3 935 4 427 (14 781) 2 110
- - - -
- - -
-
-
2 110
The notes on pages 27 - 76 are an integral part of these consolidated financial statements.
-
23
-
Ukrproduct Group
CONSOLIDATED STATEMENT OF CASH FLOWS
AS AT 31 December 2016
(in thousand GBP, unless otherwise stated)
Cash flows from operating activities
Loss before taxation
Adjustments for:
Exchange difference
Depreciation and amortisation
Loss/(Profit) 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) in inventories
(Increase) / decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Changes in working capital
Cash generated from operations
Interest received
Income tax paid
Net cash generated by / (used in) operating activities
Cash flows from investing activities
Purchases of 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
Interest paid
(Decrease) / increase in short 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
year ended
year ended
Note
31 December 2016
31 December 2015
£ „000
£ „000
(1 561)
(3 847)
10
9
9
9
11
11
21
743
589
25
32
120
(3)
(1)
624
568
(472)
(933)
1 122
(283)
285
1
(32)
254
(217)
17
(11)
(211)
(372)
(63)
(435)
(392)
474
93
175
1 733
537
(4)
857
78
(3)
(1)
769
119
(127)
890
(404)
359
478
1
169
648
(259)
18
66
(175)
(607)
(76)
(683)
(210)
88
215
93
These consolidated financial statements were approved and authorised for issue by the Board of Directors on 29 June 2017 and were
signed on its behalf by:
The notes on pages 27 - 76 are an integral part of these consolidated financial statements.
Alexander Slipchuk
Chief Executive Officer
2017
-
24
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
1.
GROUP AND PRINCIPAL ACTIVITIES
(a) Introduction
The Company is a public limited liability entity registered in Jersey with a registered office at 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands.
The Group's overall management and production facilities are based in Ukraine, with the HQ in Kyiv. The Group commands leading positions in the Ukrainian
processed cheese and packaged butter markets and owns a range of widely recognisable trademarks in Ukraine, including “Nash Molochnik” (translated as Our
Dairyman), “Narodniy Product” (People‟s Product) “Molendam” and “Vershkova Dolina” (Creamy Valley). The average number of employees of the Group during
the year ended 31 December 2016 was 918 (2015: 1,132).
(b) Ukrainian environment
The Group conducts its operations mainly in Ukraine. The Ukrainian economy while deemed to be of market 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 2016 and up to 31 December 2016, the Ukrainian Hryvnia (the “UAH”) depreciated
against major foreign currencies (by approximately 10% calculated based on the National Bank of Ukraine (the “NBU”) exchange rate of UAH to EUR, by
approximately 13 % calculated based on the National Bank of Ukraine (the “NBU”) exchange rate of UAH to USD, by approximately -5% calculated based on the
National Bank of Ukraine (the “NBU”) exchange rate of UAH to GBP). From 31 December 2016 to the date of the issuance of these financial statements, the UAH
depreciated against EUR by 3%, against USD by 0% and GBP by 4%.The NBU eased restrictions on purchase of foreign currencies, cross border settlements
(including repayment of dividends), and reduced the percentage conversion of foreign currency proceeds into UAH. The known and estimated 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 committed 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 governance, 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 international
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.
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.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1.
Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for property, plant and equipment 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
(а) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and
Interpretations issued by the International Accounting Standards Board (IASB), as adopted by the European Union (collectively "IFRS").
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its
judgment in the process of applying the Group‟s accounting policies. Further information is provided in note 3.
(b) Going concern
The Group incurred a loss of GBP 1,484 thousand for the year ended 31 December 2016, decreasing retained earnings at that date to GBP 4,427 thousand. In
addition, due to significant devaluation of Ukrainian Hryvnia the principal amounts of loans denominated in foreign currencies has increased. As at 31 December
2016 loans, denominated in foreign currency, had the following amount outstanding: GBP 969 thousand, GBP 6,193 thousand (Note 24). Interest under these loan
agreements is paid according to a fixed schedule annexed to the relevant loan agreement.
An amended Loan Agreement and Restatement Deed with the EBRD was signed in June 2016 and details announced on 30 June 2016 with the new terms becoming
effective on 24 October 2016. As per the new terms, the principal amount is divided into two parts - Tranche A in the amount of 4,000 thousand EUR with a
maturity date of 01 December 2022 and Tranche B in the amount of 3,259 thousand EUR with a maturity date of 30 November 2024.
The Group gained a capital repayment holiday until 01 March 2017 with quarterly capital repayments on Tranche A commencing on that date and increasing in
amount on an annual basis until 1 December 2022. The first two payments have been made in full as scheduled. Tranche B is ordinarily due for repayment in a
single bullet payment on 1 December 2024 assuming no early repayment of Tranche A or events of default.
Despite the repayments being made as scheduled, the Group breached financial covenants as at 31 December 2016 and 31 March 2017. The Board notified EBRD in
advance of covenant breaches of the Loan and EBRD provided waivers in respect of the breached covenants dated 08 May 2017 and 24 May 2017 respectively. Due
to the fact that the date of the waivers receipt was later than the reporting date, under IAS 1 Presentation of Financial Statements the Group was required to classify
the EBRD loan in full as a current liability. In the consolidated statement of financial position the current liabilities exceed current assets due to the EBRD loan
reclassification.
The Board believes that EBRD will not demand accelerated repayment of the loan due to the breach of the covenants as at 31 December 2016 and as at 31 March
2017. Going forward if the Group anticipates a breach of the financial ratio covenants under the amended EBRD loan agreement it is expected that EBRD would
grant a waiver in advance of the reporting period deadline. The Group has entered into a variation of the loan agreement with OTP Bank under which the principal
loan repayment date has been extended from 9 June 2017 to 9 September 2017. The principal amount outstanding under this agreement is Ukrainian Hryvnia UAH
32,300 thousand (approximately GBP 969 thousand).
The consolidated financial statements have been prepared on a going concern basis, because management believes that it has employed sufficient aappropriate
measures to underpin its cost cutting strategy including but not limited to: reconstruction of manufacturing facilities in Starokonstantinov operation, reducing he
number of subsidiaries and streamlining business processes to minimise non-value adding activities and related costs, and by development of its export capacity.
The political and economic situation has become less volatile than in 2015. The government of Ukraine is aiming at rapprochement with the European Union with
many reforms being carried out in various fields.
The Group's strategic goal of development of export sales in world markets, in particular Asia and Africa. CIS markets also remain strategically important arkets for
the company to develop and sales into Kazakhstan have commenced.
The Group is also looking to expand our domestic sales in Ukraine driven in part by the introduction of new products and the renewal of the existing product
portfolio. The Group continues to increase volumes throughput in its dairies through close cooperation with farmers and cooperatives, thereby increasing the
capacity utilization.
The Group incurred a loss of GBP 1,484 thousand for the year ended 31 December 2016, decreasing retained earnings at that date to GBP 4,427 thousand. In
addition, due to significant devaluation of Ukrainian Hryvnia the principal amounts of loans denominated in foreign currencies has increased. As at 31 December
2016 loans, denominated in foreign currency, had the following amount outstanding: GBP 969 thousand, GBP 6,193 thousand (Note 24). Interest under these loan
agreements is paid according to a fixed schedule annexed to the relevant loan agreement.
An amended Loan Agreement and Restatement Deed with the EBRD was signed in June 2016 and details announced on 30 June 2016 with the new terms becoming
effective on 24 October 2016. As per the new terms, the principal amount is divided into two parts - Tranche A in the amount of 4,000 thousand EUR with a
maturity date of 01 December 2022 and Tranche B in the amount of 3,259 thousand EUR with a maturity date of 30 November 2024.
The Group gained a capital repayment holiday until 01 March 2017 with quarterly capital repayments on Tranche A commencing on that date and increasing in
amount on an annual basis until 1 December 2022. The first two payments have been made in full as scheduled. Tranche B is ordinarily due for repayment in a
single bullet payment on 1 December 2024 assuming no early repayment of Tranche A or events of default.
Despite the repayments being made as scheduled, the Group breached financial covenants as at 31 December 2016 and 31 March 2017. The Board notified EBRD in
advance of covenant breaches of the Loan and EBRD provided waivers in respect of the breached covenants dated 08 May 2017 and 24 May 2017 respectively. Due
to the fact that the date of the waivers receipt was later than the reporting date, under IAS 1 Presentation of Financial Statements the Group was required to classify
the EBRD loan in full as a current liability. In the consolidated statement of financial position the current liabilities exceed current assets due to the EBRD loan
reclassification.
The Board believes that EBRD will not demand accelerated repayment of the loan due to the breach of the covenants as at 31 December 2016 and as at 31 March
2017. Going forward if the Group anticipates a breach of the financial ratio covenants under the amended EBRD loan agreement it is expected that EBRD would
grant a waiver in advance of the reporting period deadline. The Group has entered into a variation of the loan agreement with OTP Bank under which the principal
loan repayment date has been extended from 9 June 2017 to 9 September 2017. The principal amount outstanding under this agreement is Ukrainian Hryvnia UAH
32,300 thousand (approximately GBP 969 thousand).
The consolidated financial statements have been prepared on a going concern basis, because management believes that it has employed sufficient aappropriate
measures to underpin its cost cutting strategy including but not limited to: reconstruction of manufacturing facilities in Starokonstantinov operation, reducing he
number of subsidiaries and streamlining business processes to minimise non-value adding activities and related costs, and by development of its export capacity.
The political and economic situation has become less volatile than in 2015. The government of Ukraine is aiming at rapprochement with the European Union with
many reforms being carried out in various fields.
The Group's strategic goal of development of export sales in world markets, in particular Asia and Africa. CIS markets also remain strategically important arkets for
the company to develop and sales into Kazakhstan have commenced.
The Group is also looking to expand our domestic sales in Ukraine driven in part by the introduction of new products and the renewal of the existing product
portfolio. The Group continues to increase volumes throughput in its dairies through close cooperation with farmers and cooperatives, thereby increasing the
capacity utilization.
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25
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.1.
Basis of preparation (continued)
(c) Consolidation principles
The consolidated financial statements comprise the financial statements of Ukrproduct Group Limited and its subsidiaries as at 31 December 2016.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that
such control ceases.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
- Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
- Exposure, or rights, to variable returns from its involvement with the investee
- The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the
voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
- The contractual arrangement with the other vote holders of the investee
- Rights arising from other contractual arrangements
- The Group‟s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and 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 control of the subsidiary. Assets,
liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group
gains control until the date the Group ceases to control the subsidiary.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full on consolidation. A
change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction, that is, as transactions with owners in their
capacity as owners. Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling
interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling
interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
the Group‟s accounting policies.
If the Group loses control over a subsidiary, it:
- Derecognises the assets (including goodwill) and liabilities of the subsidiary
- Derecognises the carrying amount of any non-controlling interests
- Derecognises the cumulative translation differences, recorded in equity
- Recognises the fair value of the consideration received
- Recognises any investment retained in the former subsidiary at its fair value at the date when control is lost
- Recognises any surplus or deficit in profit or loss
- Reclassifies the parent‟s share of components previously recognised in other comprehensive income to profit or loss.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of
the assets transferred, the liabilities incurred to the former owners of the 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 profits or losses and net assets not owned by the Group. Non-controlling interests are presented separately from
parent share capital in equity in the Consolidated statement of financial position.
Consolidated financial statements of the Group include following companies:
Group's company
Country of
incorporation
Molochnik LLC*
Starokonstantinovskiy
Molochniy Zavod SC******
Starkon-Moloko LLC******
Ukraine
Ukraine
Ukraine
Effective ownership ratio
As at 31 December
2016
100%
100%
100%
2015
100%
100%
100%
Principal activities
Holder of some assets
Production
Owner of property & equipment
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26
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.1.
Basis of preparation (continued)
(c) Consolidation principles (continued)
Group's company
Country of
incorporation
Krasilovsky Molochny Zavod
Private Enterprise SC******
Molochaia Dolina LLC******
Zhiviy Kvas LLC******
Milk Investments Private
Enterprise SC******
Invest Garantiya Private
Enterprise******
Business Invest Management
LLC******
Favorit-Konsulting Private
Enterprise******
Avtopark Starokonstantinov
LLC******
ATP Centr LLC******
Ukrprodexport Private
Enterprise SC******
Lider-Product LLC****
Premierproduct-Jitomir Private
Enterprise SC**
Alternatyvni investytsiyi
UCVF***
Ukrproduct Group CJSC
LinkStar Limited
Solaero Global Alternative
Fund Limited
Dairy Trading Corporation
Limited
Reliable Logistics Services
LTD
St. Invest Holding LTD
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Cyprus
Cyprus
BVI
BVI
BVI
Ukrproduct Group LTD
Jersey
Effective ownership ratio
As at 31 December
2016
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
-
100%
100%
100%
100%
100%
100%
100%
2015
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Principal activities
Owner of land assets
Owner of land assets
Production
Owner of equipment
Owner of equipment
Owner of equipment
Owner of equipment
Owner of fleet of vehicles
Owner of fleet of vehicles
Export operations
Sales & Distribution
Sales & Distribution
Asset management
Holder of some assets and operating
companies
Holder of Group's trademarks and
assets
Holder of Group's trademarks and
assets
Export operations
Holder of distribution network
Holder of distribution network
Parent company traded on AIM
-
27
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.1.
Basis of preparation (continued)
(c) Consolidation principles (continued)
* 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
(d) Reorganisation
In order to reduce costs, the Group continues to actively restructure the group with the following being noted:
1) Premierproduct-Jitomir was withdrawn from the Group by selling to a 3rd party, the loss on disposal was GBP 3,000. Net liabilities of the company at the
time of sale amounted to GBP -35,610.
2) Also in 2016, Ukrprodexport Private Enterprise SC merged with Starokonstantinovskiy Molochniy Zavod SC with all assets and liabilities as a result of the
restructuring of the Group. There was no impact on the financial result. In 2016 the restructuring plan was approved by EBRD and secured in the agreement.
In the first half of 2017 the following entities have been or are planned to be mergered with Starokonstantinovskiy Molochniy Zavod SC: Avtopark
Starokonstantinov LLC, Milk Investments Private Enterprise SC, Starkon-Moloko LLC, Invest Garantiya Private Enterprise, Favorit-Konsulting Private Enterprise,
ATP Centr LLC, Business Invest Management LLC and Reliable Logistics Services LTD.
(e) Accounting for acquisitions of companies under common control
Acquisitions of controlling interests in companies that were previously under the control of the ultimate beneficiaries of the Company are accounted for as if the
acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date on which control was obtained by the ultimate
beneficiaries of the Company. The assets and liabilities acquired are recognised at their book values. The components of equity of the acquired companies are added
to the same components within Group equity except that any share capital of the acquired companies is recorded as a part of merger reserve. The cash consideration
for such acquisitions is recognised as a liability to or a reduction of receivables from related parties, with a corresponding reduction in equity, from the date the
acquired company is included in these consolidated financial statements until the cash consideration is paid.
No goodwill is recognised where the Group acquires additional interests in the acquired companies from the ultimate controlling shareholders. The difference
between the share of net assets acquired and the cost of investment is recognised directly in equity.
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28
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies
Significant accounting policies given below have been consistently applied by the Group in the preparation of these financial statements, unless otherwise stated.
2.2.1. Foreign currency transactions
(а) Functional and presentation currency
The Ukrainian Hryvnia is the currency of the primary economic environment in which the majority of the Group companies operate.
Transactions in currencies that differ from the functional currency are considered to be foreign currency transactions.
Management has considered what would be the most appropriate presentation currency for consolidated IFRS financial statements and has concluded that the
Group should use British Pounds Sterling (hereinafter “GBP” or £) as the Group‟s presentation 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 predominantly in the UK.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items
are re-measured. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income, except when deferred in equity as
qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses are presented in the income statement within "Foreign
exchange loss, net ".
The financial results and financial position of the Group's companies are translated into the presentation currency as follows:
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-
-
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-
-
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 separate component of
equity;
Income and expenses for each income statement are translated at monthly average exchange rates; and
All resulting exchange differences are recognised as a separate component of equity within "Translation reserve".
The principal UAH exchange rates used in the preparation of Consolidated financial statements are as follows:
Currency
UAH/GBP
UAH/USD
UAH/EUR
31 December 2016
Average exchange rate for 2016
31 December 2015
Average exchange rate for 2015
33,32
27,19
28,42
34,62
25,59
28,31
35,53
24,00
26,22
33,34
21,81
24,19
-
Foreign currency can be freely converted within Ukraine at a rate close to the rate of the National Bank of Ukraine. At present, the UAH is not a freely
convertible currency outside Ukraine.
2.2.2. Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held on call with banks and other short-term highly liquid investments with original maturities of three
months or less. Bank overdrafts are included in current liabilities in the Consolidated Statement of Financial Position.
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29
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
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:
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-
raw and other materials (including main and auxiliary operating supply and materials);
work in progress (including semi finished products);
finished goods;
other inventories (including fuel, packaging, building materials, spare parts, other materials, goods of little value and high wear goods).
The cost of finished goods and semi finished products comprises raw materials, direct labour, other direct costs and related production overheads (based on normal
operating capacity) but excludes borrowing costs. The cost of raw materials and other inventories comprises all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location and condition.
At each reporting date the Group analyses inventories to determine whether they are damaged, obsolete or slow-moving or whether their net realisable value has
declined. The net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. The Group periodically
checks inventories to determine whether they are damaged, obsolete or slow-moving or if their net realisable value has declined for any other reason and reduces
accordingly the value of inventory to properly reflect in the Consolidated Statement of Comprehensive Income within Cost of sales.
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30
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
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 information because it better reflects the value in use of such assets to the
Group.
All significant categories of property, plant and equipment are subsequently carried at fair value at the date of revaluation,
less any subsequent accumulated
depreciation and subsequent accumulated impairment losses. Changes in fair value are recognised in equity (the "Revaluation reserve"). An appropriate transfer is
made from the revaluation reserve to the retained earnings when assets are expensed through the income statement (e.g. through depreciation, impairment or sale).
Subsequent costs that increase future economic benefits of the item of property, plant and equipment also increase its carrying amount. Otherwise, the Group
recognises subsequent costs as expenses of the period in which they were incurred. The Group classifies costs, associated with property, plant and equipment, for the
following categories: repairs and maintenance; capital repairs, including modernisation.
(b) Impairment of property, plant and equipment
At each reporting date the Group assesses the carrying value of its property, plant and equipment to determine whether there is any evidence that the assets have lost
part of their value as a result of impairment. If such evidence exists, the expected recoverable amount of such an asset is calculated to determine the amount of
impairment loss, if any. In case it is not practicable to determine the expected recoverable amount of a separate asset, the Group determines the expected
recoverable amount of a cash generating unit, to which the asset belongs.
When, according to estimates, the expected recoverable amount of an asset (or a cash generating unit) is lower than its carrying value, the carrying value of an asset
(or a cash generating unit) is reduced to its expected recoverable amount. Impairment losses are immediately 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 immediately recognised as income.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in profit and loss on disposal of non-current assets.
(c) Depreciation and useful life
Depreciation of an asset begins when it becomes available for use. Depreciation of an asset terminates with the termination of its recognition. Depreciation does not
terminate when an asset is idle or if it is removed from active use and is intended for disposal, unless it is already fully depreciated.
Depreciation is applied to all items of property, plant and equipment with the exception of land. The Group calculates the depreciation using the straight line
method to allocate their cost or revalued amounts to their residual values over their estimated useful lives. As of 1 January 2011 the Group applied the production
method of depreciation to all production equipment as management considered this method to be the most appropriate for the production assets.
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31
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.4. Property, plant and equipment (continued)
(c) Depreciation and useful life (continued)
Terms of useful lives by groups of property, plant and equipment (except for those depreciated under production method) are listed below:
Group of property, plant and equipment
Buildings
Plant and machinery
Vehicles
Instruments, tools and other equipment
Useful life
7 - 62 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. As at 31
December 2016 the management of the Group has changed useful life for buildings from 10-50 years to 7-62 years. Impact of any changes arising from estimates
made in prior periods is recorded as a change in an accounting estimate.
2.2.5. Assets under construction
Assets under construction are reported at their cost of construction including costs charged by third parties and the capitalisation of the Group's material costs
incurred. No depreciation is charged on assets during construction. Upon the completion, the Group assesses whether there is any indication that an asset may be
impaired. If any such indication exists, the Group performs impairment testing as described in note 2.2.20. Unless an indication of impairment exists, 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.
2.2.6. Intangible assets
(а) Recognition and measurement of intangible assets
Intangible assets are recognised at historical cost less accumulated amortisation and accumulated impairment losses.
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:
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Computer software licenses;
Trademarks.
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.
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 exchanged for a similar
asset, the value of the acquired asset is equal to the value of the disposed asset.
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32
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.6. Intangible assets (continued)
(b) Amortisation and useful life
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 Statement of Comprehensive Income.
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 (11-18 years). The amortisation expense is included within Selling and Distribution expenses in the Consolidated
Statement of Comprehensive Income.
(c) Business combinations and goodwill
The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree
and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the
contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts
by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer‟s previously held equity interest in the acquiree is remeasured to fair
value as at the acquisition date through profit and loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the
contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 ''Financial Instruments: Recognition and
Measurement" either in profit or loss or as change to other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured
until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the consideration transferred over the Group‟s net identifiable assets acquired and liabilities assumed. If this
consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
Goodwill is not amortised but is subject to testing for impairment as at the reporting date or more frequently, if events or changes in circumstances indicate the
possibility of reducing its usefulness. At the acquisition date, goodwill is allocated to each asset or group of assets that generate cash, and benefits from which are
expected to be received upon consolidation. The amount of impairment is determined by assessing the recoverable amount, which may be obtained for a cash
generating asset (group of cash generating assets) to which goodwill relates. Where the recoverable amount is less than the book value of cash generating asset
(group of cash generating assets), impairment is recognised.
2.2.7. Financial assets
The Group classifies its financial assets as: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available for-sale
financial assets. Management determines the classification of financial assets at initial recognition and re-evaluates this designation at every reporting date.
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33
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.7. Financial assets (continued)
(і) Financial assets at fair value through profit or loss
This category comprises only “in-the-money” derivatives. They are carried at the reporting date at fair value with changes in fair value recognised in the income
statement. The Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.
(іі) Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the
provision of goods and services to customers (trade receivables), but also incorporate other types of contractual monetary asset. They are carried at 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.
(iii) Financial assets held to maturity
The Group has not classified any of its financial assets as held to maturity.
(iiii) Available-for-sale (AFS) financial assets
The Group has not classified any of its financial assets as AFS.
(а) Initial recognition
Financial assets at fair value through profit and loss are initially recorded at fair value. All other financial assets are initially recorded at fair value plus transaction
costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between
fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose
inputs include only data from observable markets.
All purchases and sales of financial instruments that require delivery within the time frame established by regulation or market convention (“regular way” purchases
and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial instrument. All other purchases and sales are 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 determination of future cash flows is based on optimal management estimations and the discounting rate is market
rate for similar financial instruments predominated as at reporting date. If the price model is used entering figures are based on average market data predominated as
at reporting date.
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34
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.7. Financial assets (continued)
(c) Subsequent measurement
Subsequent to initial recognition all financial assets at fair value through profit or loss and all available-for-sale instruments are measured at fair value, except that any
instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at cost, including transaction
costs, less impairment losses.
Loans and receivables are measured at amortised cost less impairment losses. amortised cost is calculated using the effective interest rate method. Premiums and
discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the
instrument.
(d) Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or
a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after
the initial recognition of the asset (an incurred „loss event‟) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of
financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant
financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and
where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that
correlate with defaults.
(e) Derecognition
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all
risks and rewards of ownership.
2.2.8. Financial liabilities
The Group classifies its financial liabilities into categories depending on the purpose for which the liability was acquired. The Group has not classified any of its
liabilities at fair value through profit and loss.
Financial liabilities held at amortised cost include the following items:
Trade payables and other short-term monetary liabilities, which are recognised at amortised cost.
Bank borrowings, overdrafts, promissory notes and bonds issued by the Group are initially carried at fair value, being the amount advanced net of any transaction
costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate
method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet.
"Interest expense" in this context includes initial transaction costs and interest payable on redemption, as well as any interest or coupon payable while the liability is
outstanding.
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35
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.8. Financial liabilities (continued)
(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 amortised cost at effective interest rate method.
Borrowings and liabilities initially recognised at fair value less transaction costs, are subsequently measured at amortised cost; any difference between the amount of
received resources and the sum of repayment is represented as interest cost using the effective interest rate method during the period, when borrowings were
received.
(c) Derecognition
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
2.2.9. Share capital
The ordinary shares are classified as share capital. The difference between the fair value of consideration received and the nominal value of issued share capital is
recognised as share premium.
2.2.10. Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is
measured simultaneously with an increase in asset or decrease in liabilities, which causes the increase in shareholders' equity (excluding the capital increase through
contributions from members of the enterprise), provided that the amount of income can be reasonably estimated. Revenue is reflected in the amount of the fair
value of assets received.
Revenue is the amount of cash or cash equivalents received or receivable. However, in case of delay in receipt of cash or cash equivalents, the fair value of the
consideration may be less than received or the nominal amount of cash expected to be received. When the arrangement effectively constitutes a financing
transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. Revenue (proceeds) from sale of
products (goods, works and services) is not corrected by an amount of related doubtful and uncollectible receivables. The amount of such debt is recognised as
expenses of the Group.
Revenue comprises the invoiced value of sales of goods and services net of value added tax, rebates and discounts after eliminating sales within the Group. Revenues
and expenses are recognised on an accruals basis.
(а) Revenue from sale of goods (products)
Revenue from the sale of goods (products) is recognised when all the following conditions are satisfied:
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-
-
-
the significant risks and rewards of ownership of the goods have passed to the buyer;
the Group is no longer involved in the management to the extent that is usually associated with ownership, and has no control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
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36
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.10. Revenue recognition (continued)
(b) Revenue from rendering of services
The revenue from rendering of services is recognised when all the following conditions are satisfied:
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-
-
-
the amount of revenue can be reliably measured;
inflow of economic benefits related to the transaction is probable;
the stage of completion of the transaction at the end of the reporting period can be measured reliably; and
the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
2.2.11. Expenses recognition
Expenses are recognised by the Group when the following conditions are met: the amount of expenses can be reliably measured, it is probable that future 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 calculated by allocating its value on a systematic basis over respective
reporting periods.
Writing off of deferred expenses is made on a straight-line basis within the periods to which they relate, during which the receipt of economic benefits is expected.
Expenses which were incurred in the reporting period but relate to production of semi-finished products which will be further processed to finished goods and sold
in future reporting periods, are accounted for in the current period in the item "Work-in-progress", included within "Inventories" in the Consolidated Statement of
Financial Position.
2.2.12. Financial expenses
Interest expenses and other costs on borrowings to finance construction or production of qualifying assets are capitalized during the period of time that is required
to complete and prepare the asset for its intended use. All other 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 domestic sales and imports of goods, works and services and, 0% on export of goods and provision of works or
services to be used outside Ukraine.
VAT output equals the total amount of VAT collected within a reporting period, and arises on the earlier of the date of shipping goods to a customer or the date of
receiving payment from the customer. VAT input is the amount that a taxpayer is entitled to offset against 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.
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
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 Consolidated
Income Statement for the year comprises current tax and changes in deferred tax.
Current tax is the amount of income tax payable/recoverable in respect of taxable profit/tax loss for the period determined in accordance with rules established by
the tax authorities in respect of which income tax shall be paid/refundable.
Current tax liabilities and assets are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and laws that have
been enacted, or substantively enacted, by the reporting date.
Deferred tax assets and liabilities are calculated in respect of temporary differences using the liability method. Deferred income taxes are provided on all temporary
differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except in situations where the deferred
tax arising on initial recognition of goodwill or of an asset or liability in a transaction that is not a deal to merge companies and which, at the time of its commission,
has no effect on accounting or taxable profit or loss.
Assessment of deferred tax liabilities and deferred tax assets reflects the tax consequences that would arise depending on the ways in which the Group assumes the
reporting date of 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 provisions of the legislation enacted, or declared (and practically adopted) at that date.
Deferred income taxes are recognised for all temporary differences associated with investments in subsidiaries and associated companies and joint activities, except
in cases where the Group controls the timing of the reversal of temporary differences, and where there is a significant probability that the temporary 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 Consolidated Statement of Comprehensive Income
over the vesting period. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately
before and after the modification, is also charged to the income statement over the remaining vesting period. Where equity instruments are granted to persons other
than employees, the income statement is charged with the fair value of goods and services received. Where fair value of goods and services received from persons
other than employees is difficult to identify, the fair value of the instruments granted is charged to the income statement over the vesting period. The fair value of
options to be expensed is determined on the basis of adjusted Black-Scholes model as set out in note 28.
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38
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Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.16. Pension costs
The Group contributes to the Ukrainian mandatory state pension scheme, social insurance and employment funds in respect of its employees. The Group's pension
scheme contributions are expensed as incurred and are included in staff costs. The Group does not operate any other pension schemes.
2.2.17. Share issue costs
All qualifying transaction costs in respect of the issue of shares are accounted for as a deduction from share premium, net of any related tax deduction. Qualifying
transaction costs include 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.
2.2.18. Leases
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. Leases other than finance leases are classified as
operating leases.
(а) Group as a lessee
Operating lease expenses are recognised as expenses in the period to which they relate, on a straight‐line basis over the lease period.
(b) Group as a lessor
Operating lease income is recognised in "Other operating income" as income in the period to which it relates, over the lease term on a systematic and rational basis.
2.2.19. Impairment of assets
In respect of all assets, the Group conducts the following procedures ensuring accounting for these assets at an amount, not exceeding their recoverable amount:
-
-
at each reporting date the condition of these assets is analyzed for impairment.
in case any impairment indicators exist, the amount of expected recovery of such asset is calculated to determine the amount of losses from impairment, if any. If
it is impossible to determine the amount of losses from impairment of a separate asset, the Group determines the amount of estimated 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 market estimates of time value of money and risks related to the
asset.
If according to estimates the amount of expected recovery of assets (or a cash-generating unit) is less than its book value, the book value of asset (or a cash-
generating unit) is reduced to the amount of expected recovery. Losses from impairment are recognised as expenses directly in the Consolidated Statement of
Comprehensive Income.
-
39
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.20. Contingent liabilities and assets
Contingent liabilities are potential liabilities of the Group arising from past events the existence of which will be confirmed only by the occurrence or non-
occurrence of one or more future events, which are not under the complete control of the Group, or current obligations resulting from past events are not
recognised in the financial reporting in connection with the fact that the Group does not consider an outflow of resources embodying economic benefits, and
required to settle liabilities as probable, or the value of liabilities can not be reliably determined.
The Group does not recognise contingent liabilities in the financial statements. The Group discloses information about contingent liabilities in the notes to the
financial statements except when the probability of outflow of resources required to settle the obligation, is unlikely.
Contingent assets are not recognised in the consolidated financial statements, but disclosed in the Notes where there is a sufficient probability of future economic
benefits.
2.2.21. 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".
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)
b)
c)
d)
e)
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);
associates are companies whose activities are significantly influenced by the Group, but are neither subsidiaries, nor joint ventures of the investor;
individuals, directly or indirectly holding ordinary shares that give them a possibility to significantly influence the Group's activities;
key management personnel are persons having authority and responsibility for planning, managing and controlling the activities of the Group, including directors
and senior officials (as well as the non-executive director and close relatives of these individuals); and
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.
2.2.22. Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that the 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 advantageous 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 measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to the fair value 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.
-
40
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
2.2.
Significant accounting policies (continued)
2.2.23. Dividends
Equity dividends are recognised in the consolidated financial statements when they become legally payable. Interim dividends are recognised when they are paid.
In the case of final dividends, this is when approved by the shareholders at the AGM.
3.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Group's consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these
assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
In the process of applying the Group's accounting policies, management has made the following judgments, which have the most significant effect on the amounts
recognised in the financial statements:
(а) Estimates of fair value of property, plant and equipment based on revaluation
The Group is required, periodically as determined by the directors, to conduct revaluations of its property, plant and equipment. Such revaluations are conducted by
independent valuers who employ the valuation methods in accordance with International Valuation Standards such as cost method, comparison (market) method
and revenue (income) method.
(b) Useful lives of intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management‟s estimates of the
period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Due to the long life of certain assets, changes to the
estimates used can result in significant variations in the carrying value. Further information is contained in notes 14 and 15.
(d) Inventory
The Group reviews the net realisable value of, and demand for, its inventory on a quarterly basis to ensure recorded inventory is stated at the lower of cost or net
realisable value. Factors that could impact estimated demand and selling prices are the timing and success of future technological innovations, competitor actions,
supplier prices and economic trends. Further information is contained in note 17.
-
41
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
3.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)
(e) Legal proceedings
In accordance with IFRS the Group only recognises a provision where there is a present obligation from a past event, a transfer of economic benefits is probable
and the amount of costs of the transfer can be estimated reliably. In instances where the criteria are not met, a contingent liability may be disclosed in the notes to
the financial statements. Realisation of any contingent liabilities not currently recognised or disclosed in the financial statements could have a material effect on the
Group‟s financial position. Application of these accounting principles to legal cases requires the Group‟s management to make determinations about various factual
and legal matters beyond its control. The Group reviews outstanding legal cases following developments in the legal proceedings and at each reporting date, in order
to assess the need for provisions in its financial statements. Among the factors considered in making decisions on provisions are the nature of litigation, claim or
assessment, the legal process and potential level of damages in the jurisdiction in which the litigation, claim or assessment has been brought, the progress of the case
(including the progress after the date of the financial statements but before those statements are issued), the opinions or views of legal advisers, experience on similar
cases and any decision of the Group‟s management as to how it will respond to the litigation, claim or assessment.
(f) Income taxes
The Group is subject to income tax in several jurisdictions and significant judgment is required in determining the provision for income taxes. During the ordinary
course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognises tax liabilities
based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognised when, despite the Group‟s belief that its tax return
positions are supportable, the Group believes that certain positions are likely to be challenged and may not be fully sustained upon review by tax authorities. The
Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and
interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent
that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such
determination is made. Further information is contained in notes 13 and 16.
(g) Quality claims
The Group supplies consumers and industrial customers in Ukraine with dairy products manufactured in accordance with the current laws, food safety standards and
technical requirements of the relevant Ukrainian authorities. The Group voluntarily applies non-domestic standards – ISO and HASSP – to some of the Group‟s
operations. For the industrial customers both domestically and outside of Ukraine, the food products are manufactured to the technical specifications agreed with
the buyers in advance of the sale. In instances where the quality criteria and/or technical specifications are not met or the delivery of products are made close to
expiry date, a quality claim may arise and the corresponding contingent liability may be disclosed in the notes to the financial statements. Realisation of any such
contingent liabilities not currently recognised or disclosed in the financial statements could have a material effect on the Group‟s financial position. Application of
these accounting principles to quality claims requires the Group‟s management to make determinations about the future matters that may, at the time of
determination, be beyond management‟s control. Among the factors considered in making decisions on quality claims provisions are: the nature of the claim, the
quantifiable variances in quality giving rise to a claim, the potential loss from satisfying the claim and any decision of the Group‟s management as to how it will
respond to the claim.
(e) Transfer pricing
Starting from 1 September 2013 the Tax Code of Ukraine introduced new, based on the OECD transfer pricing guidelines, rules for determining and applying fair
market prices, which significantly changed transfer pricing (“TP”) regulations in Ukraine. The Group exports Skimmed milk powder and performs intercompany
transactions, which may potentially be in the scope of the new Ukrainian TP regulations. The Group has submitted the controlled transaction report for the year
ended 31 December 2015 within the required deadline, and has prepared all necessary documentation on controlled transactions for the year ended 31 December
2016 as required by legislation and plans to submit report. Management believes that the Group has been in compliance with all requirements of effective tax
legislation and currently is assessing the possible impact of the introduced amendments.
-
42
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
4.
ADOPTION OF NEW AND REVISED IFRS
4.1. New and amended standards and interpretations
Adoption of new and revised IFRSs
During the current year the Company adopted all the new and revised International Financial Reporting Standards (IFRS) that are relevant to its operations and are
effective for accounting periods beginning on 1 January 2016.
International Financial Reporting Standards (IFRS)
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Amendments resulting from September 2014 Annual Improvements to IFRSs
IFRS 7 Financial Instruments: Disclosures
Amendments resulting from September 2014 Annual Improvements to IFRSs
IFRS 11 Joint Arrangements
Amendments regarding the accounting for acquisitions of an interest in a joint
operation
IFRS 12 Disclosure of Interests in Other Entities
Amendments regarding the application of the consolidation exception
IFRS 14 Regulatory Deferral Accounts
Original issue
International Accounting Standards (IASs)
IAS 1 Presentation of Financial Statements
Amendments resulting from the disclosure initiative
IAS 16 Property, Plant and Equipment
Amendments regarding the clarification of acceptable methods of depreciation and
amortisation
Amendments bringing bearer plants into the scope IAS 16
IAS 19 Employee Benefits
Amendments resulting from September 2014 Annual Improvements to IFRSs
IAS 27 Separate Financial Statements (as amended in 2011)
Amendments reinstating the equity method as an accounting option for
investments in in subsidiaries, joint ventures and associates in an entity's separate
financial statements
IAS 28 Investments in Associates and Joint Ventures
Amendments regarding the application of the consolidation exception
IAS 34 Interim Financial Reporting
Amendments resulting from September 2014 Annual Improvements to IFRSs
IAS 38 Intangible Assets
Amendments regarding the clarification of acceptable methods of depreciation and
amortisation
September 2014 Annual periods beginning on or after 1 January 2016
September 2014 Annual periods beginning on or after 1 January 2016
May 2014
Annual periods beginning on or after 1 January 2016
December 2014 Annual periods beginning on or after 1 January 2016
January 2014
Annual periods beginning on or after 1 January 2016
December 2014 Annual periods beginning on or after 1 January 2016
May 2014
Annual periods beginning on or after 1 January 2016
June 2014
Annual periods beginning on or after 1 January 2016
September 2014 Annual periods beginning on or after 1 January 2016
August 2014
Annual periods beginning on or after 1 January 2016
December 2014 Annual periods beginning on or after 1 January 2016
September 2014 Annual periods beginning on or after 1 January 2016
May 2014
Annual periods beginning on or after 1 January 2016
At the date of approval of these financial statements a number of new standards, amendments to standards and interpretations that are effective for annual periods
beginning after 1 January 2017, and have not been applied in preparing these financial statements are listed below:
International Financial Reporting Standards (IFRS)
IFRS 2 Share-based Payment
Amendments to clarify the classification and measurement of share-based payment
transactions
IFRS 4 Insurance Contracts
Amendments regarding the interaction of IFRS 4 and IFRS 9
IFRS 9 Financial Instruments
Finalised version, incorporating requirements for classification and measurement,
impairment, general hedge accounting and derecognition.
June 2016
Annual periods beginning on or after 1 January 2018
September 2016 An entity choosing to apply the overlay approach
retrospectively to qualifying financial assets does so
when it first applies IFRS 9. An entity choosing to
apply the deferral approach does so for annual periods
beginning on or after 1 January 2018.
July 2014
Effective for annual periods beginning on or after 1
January 2018
Amendments regarding the interaction of IFRS 4 and IFRS 9
IFRS 12 Disclosure of Interests in Other Entities
See under IFRS 4
Amendments resulting from Annual Improvements 2014–2016 Cycle (clarifying
IFRS 15 Revenue from Contracts with Customers
Original issue
Amendments to defer the effective date to 1 January 2018
Clarifications to IFRS 15
International Accounting Standards (IASs)
IAS 7 Statement of Cash Flows
Amendments as result of the Disclosure initiative
IAS 12 Income Taxes
Amendments regarding the recognition of deferred tax assets for unrealised losses
IAS 28 Investments in Associates and Joint Ventures
Amendments resulting from Annual Improvements 2014-2016 cycle (clarifying
certain fair value measurements)
IAS 40 Investment Property
Amendments to clarify transfers or property to, or from, investment property
December 2016 Annual periods beginning on or after 1 January 2017
May 2014
Applies to an entity's first annual IFRS financial
statements for a period beginning on or after 1 January
2018 (see below)
September 2015 Annual periods beginning on or after 1 January 2018
Annual periods beginning on or after 1 January 2018
April 2016
January 2016
Annual periods beginning on or after 1 January 2017
January 2016
Annual periods beginning on or after 1 January 2017
December 2016 Annual periods beginning on or after 1 January 2018
December 2016 Annual periods beginning on or after 1 January 2018
-
43
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
5. FINANCIAL RISK MANAGEMENT
The principal risks facing the Group‟s business are credit risk, liquidity risk and market risk, including fair value or cash flow interest-rate risk and foreign exchange
risk. The main purpose of the Group's risk management programme is to evaluate, monitor and manage these risks and to minimise potential adverse effects on the
Group's financial performance and shareholders. The Chief Executive Officer of the Group is in charge of risk management and introduction of all policies as
approved by the Board of Directors.
(а) Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
-
-
-
-
-
trade and other receivables
loans issued
cash and cash equivalents
bank loans and overdrafts
trade and other payables
The principal financial instruments are as follows:
Financial assets
Loans and receivables:
- trade and other receivables (excluding non-financial assets)
- cash and cash equivalents
- other financial assets
Financial liabilities
Held at amortised cost:
- non-current bank loans
- long-term payables
- current bank loans
- overdrafts
- trade and other payables (excluding non-financial liabilities)
- interest payable
(b) General objectives, policies and processes
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
2 390
175
18
2 583
-
441
7 162
-
2 594
23
10 220
1 322
93
11
1 426
3 206
-
3 060
61
1 239
180
7 746
The Group's overall risk management programme recognises the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's
financial performance. Risk management is carried out by the Group Chief Executive Officer (CEO) under policies approved by the Board of Directors (the
"Board"). The Group CEO identifies and evaluates financial risks in close co-operation with the Group's operating units. The Board provides broad guidance and
operating principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk, and
investing excess liquidity.
The Board has overall responsibility for the determination of the Group‟s risk management objectives and polices and, whilst retaining ultimate responsibility for
them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the group‟s
finance function. The Board receives monthly updates from Head of Internal Audit through which it reviews the effectiveness of the processes put in place and the
appropriateness of the objectives and policies it sets. The Group‟s internal operating auditors review the risk management policies and processes and report their
findings to CEO and the Audit Committee, if and when 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.
-
44
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
5.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Credit risk
Credit risk is the risk that a counterparty will not be able to meet its obligations in full when due. Ukrproduct Group is mainly exposed to credit risk from credit sales
to customers in Ukraine. The Group manages its credit risk through the Group‟s risk assessment policy by evaluating each new customer before signing a contract
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
their own balance sheet being the main indicators of creditworthiness. While starting the commercial relationship with the Group, a new customer is offered the
terms that are substantially tighter than those for the existing customers and stipulate, as a rule, the cash-on-delivery payments terms and no-returns policy (quality-
related claims exempted). If the relationship progresses successfully, the terms are gradually relaxed to fall in line with the Group‟s normal business practices and
local specifics as required by the market. The Group‟s periodic review includes external ratings, when available, and in some cases bank references. Purchase limits
are established for each customer, which represents the maximum open amount without requiring approval from the CEO. These limits are reviewed quarterly.
Customers that fail to meet the Group‟s benchmark creditworthiness may transact with the Group on a prepayment basis only.
Quantitative disclosures of the credit risk exposure in relation to Trade and other receivables, which are neither past due nor impaired, are made in note 18. The
Group does not rate trade receivables by category or recoverability as the Group‟s historical default rates have been negligible in the past (less than 5%); essentially
all trade receivables due to the Group had been recovered. In the future, the default rate on trade receivables overdue is expected to remain stable or even fall
because in Ukraine the Group deals increasingly with the modern-format retailers whose creditworthiness is conducive to the payment discipline required by the
Group.
Maximum exposure to the Trade and other receivables component of credit risk at the reporting date is the fair value of Trade and other receivables. There is no
collateral held as security or other credit enhancements.
The Group‟s credit controllers monitor the utilisation of the credit limits on a daily basis by customer and apply the delivery stop orders immediately if the individual
limits are exceeded. The Group‟s procedure for recovery of the trade receivables past due includes the following steps:
-
-
-
-
identification of the date and exact amount of the receivable past due, termination of all further deliveries and forwarding to the customer of the details of the
amount due and the notice of the failure to pay - 3 days after the past due date
delivery to the customer of the formal claim for the amount overdue and the visit of the representative of the commercial credit control department to the
customer premises- 2 weeks thereafter
filing a claim to the commercial court for repayment of the amount overdue and late payment fees - 2 weeks thereafter
obtaining a court order for repayment of the amount due and collaboration with bailiff - 2 weeks thereafter.
As a result of the credit control and risk assessment procedures, the Group does not expect any significant losses from non-performance by the counterparties at the
reporting date from any of the financial instruments currently employed in the business.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. The Group reviews the banks and financial institutions it
deals with to ensure that standards of credit worthiness are maintained.
Maximum exposure to the cash and cash equivalents and deposits with banks and financial institutions component of credit risk at the reporting date is the fair value
of the cash balances due from such banks and financial institutions. There is no collateral held as security or other credit enhancements.
Cash at bank and short term deposits are kept on the accounts in the following banks:
Bank
Year ended
31 December 2016
Year ended
31 December 2015
JSC OTP Bank
Bank of Cyprus
PJSC Raiffeisen Bank Aval
Other
Rating
Baa1
Caa2
Ca
Caa3
Rating
Baa1
Caa2
Caa3
Caa3
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
56
2
83
20
161
52
29
6
4
91
-
45
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
5.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Credit risk (continued)
The Group does not enter into derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate such risks if it is sufficiently
concentrated.
The Group is also exposed to a credit risk with regard to loans issued to third parties, related parties and employees. This risk is considered to be low and is managed
according to the Group's risk assessment policy.
The Group‟s exposure to credit risk, where the carrying value of financial assets is unsecured, is as shown below:
Year ended
31 December 2016
£ „000
Carrying Value
Year ended
31 December 2016
£ „000
Maximum exposure
(unsecured)
Year ended
31 December 2015
£ „000
Carrying Value
Year ended
31 December 2015
£ „000
Maximum exposure
(unsecured)
175
2 390
18
2 583
175
2 390
18
2 583
93
1 313
11
1 417
93
1 313
11
1 417
Cash and cash equivalents
Trade receivables
Other financial assets
(d) Liquidity risk
Liquidity risk is a function of the possible difficulty to be encountered in raising funds to meet financial obligations. The Group‟s policy is to ensure that it will
always have sufficient cash to enable it to meet its obligations as they fall due by maintaining the minimum cash balances and agreed overdraft facilities. The Group
also seeks to reduce liquidity risk by fixing interest rates and hence cash flows on substantially all of its borrowings.
The Group‟s operating divisions (plants) have different liquidity requirement profiles. As the Group‟s products have short- and long-cycled production, the liquidity
risk of each plant is monitored and managed centrally by the Group Treasury function. Each plant has a cash facility based on cash budgets with the Group
Treasury. The cash budgets are set locally and agreed by the 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 overdraft 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 ongoing continuity of the business.
(e) Market risk
Market risk may arise from the Group‟s use of interest bearing, tradable and foreign currency financial instruments. Market risk comprises fair value interest rate risk,
foreign exchange risk and commodity price risk and is further assessed below:
(i) Interest-rate risk
The Group's interest-rate risk arises only from short-term credits, and is considered to be insignificant. The Group analyses the interest rate exposure on a year basis.
A sensitivity analysis is performed by applying various interest rate scenarios to the borrowings. A change of interest rate by 1 percentage points (being the maximum
reasonably possible expectation of changes in interest rates) would cause decrease in interest expense by GBP -9,700 ( increase 2015: 7%-GBP 75,624).
-
46
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
5.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(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 primary currency
for export sales is the US Dollar. The Group's established corporate policy towards minimising the potential foreign exchange risk is to require the customers to pay
for the export shipments of the skimmed milk powders in full and in advance. The Group‟s purchases of the raw milk, semi-processed materials and other
components of the manufacturing cost are made in Ukraine and are entirely Hryvnia-denominated. All outstanding balances of trade payables by the Group are in
Hryvnias. Currency analysis is provided in Note 29.
The Group has a long-term loan from European Bank of Reconstruction and Development ("EBRD") for the purpose of modernization of Starokonstantinovskiy
Molochniy Zavod SC. This debt is denominated in Euro. Therefore, the Group is exposed to the exchange rate risk that lies in the possibility of Euro (EUR)
appreciation against Hryvna (UAH). The sensitivity analysis shows that EUR appreciation against Hryvna by 4% would cause exchange rate loss 4% of GBP 240
thousand (2015 by 20%: GBP 1,142 thousand).
(iii) Commodity price risk
The Ukraine economy has been characterized by high rates of inflation. The Group tends to experience inflation-driven increase in certain costs, including salaries
and rents, fuel costs which are sensitive to rises in the general price level in Ukraine. In this situation, due to competitive pressures, it may not be able to raise the
prices charged for products and services sufficiently to preserve operating margins. Accordingly, high rates of inflation in Ukraine could increase the Group's cost
and decrease its operating margins.
The Group controls the prices for branded products through timely changes of sales prices according to the market development and competition.
The Group is also exposed to commodity price risk for skimmed milk powder ("SMP"). The price for this product is determined by the world and domestic 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 13% change in the SMP prices would lead to the change in Gross Profit of GBP 437 thousand in 2017. The first stage of the modernisation project of
Starokonstantinovskiy 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 financial losses. The Group can not expect that all operational risks have been eliminated, but with the help of control system and by
monitoring the reaction to potential risks, the Group may manage such risks. The control system provides an effective separation of duties, access rights, approval
and verification, personnel training, and valuation procedures.
6.
CAPITAL MANAGEMENT POLICIES
The Group‟s definition of the capital is ordinary share capital, share premium, accumulated retained earnings and other equity reserves. The Directors view their role
as that of corporate guardians responsible for preservation and growth of the capital, as well as for generation of the adequate returns to shareholders.
The Group‟s objectives when maintaining and growing capital are:
-
to safeguard the Group's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders,
-
-
to identify the appropriate mix of debt, equity and partner sharing opportunities in order to balance the highest returns to shareholders overall with the most
advantageous timing of investment flows,
to provide an adequate return to shareholders by delivering the products in demand by the customers at prices commensurate with the level of risk and
expectations of shareholders.
The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of the current trading environment. The Group‟s core assets consist predominantly of the property, plant and
equipment – the resources that have proven their ability to withstand the competitive erosion and inflationary pressure.
-
47
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
6.
CAPITAL MANAGEMENT POLICIES (CONTINUED)
In order to maintain or adjust the capital structure, the Group may issue new shares, adjust the amount of dividends paid to shareholders, repay the debt, return
capital to shareholders or sell assets to improve the cash position. Historically, the first three methods were used to achieve and support the desired capital structure.
The Group monitors capital on the basis of the net debt to equity ratio (D/E ratio). This ratio is calculated as net debt to shareholder equity. Net debt is calculated
as total debt (as shown in the balance sheet) less cash and cash equivalents.
Traditionally, the Group's conservative strategy was to maintain the D/E ratio at 0.6 (60%) maximum. The Directors believe that for the Group, as an operating
company and a public entity, the maintenance of the prudent debt policy is crucial in preserving the capital of the business.
However as at December 31, 2016 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 3.52. In management's opinion this excessive D/E ratio is the result of force-majeur circumstances.
The D/E ratios at 31 December 2016 and At 31 December 2015 were as follows:
Total debt
Less: Cash and cash equivalents
Net debt
Total equity
D/E ratio
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
7 603
(175)
7 428
2 110
352,0%
6 327
(93)
6 234
3 081
202,3%
-
48
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
7.
SEGMENT INFORMATION
At 31 December 2016, the Group was organised internationally into four main business segments:
1)
2)
3)
4)
Branded products – processed cheese, hard cheese, packaged butter and spreads
Beverages – kvass, other beverages
Non-branded products – skimmed milk powder, other skimmed milk products
Distribution services and other – resale of third-party goods and processing services.
The segment results for the year ended 31 December 2016 are as follows:
Sales
Gross profit
Administrative expenses
Selling and distribution expenses
Other operating expenses
Profit from operations
Finance expenses, net
Loss from exchange differences
Profit before taxation
Taxation
Loss for the year
Segment assets
Unallocated corporate assets
Consolidated total assets
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred tax
Consolidated total liabilities
Depreciation and amortisation
Branded
products
Beverages
Non-branded
products
Distribution
services and other
Un-allocated
Total
£ „000
£ „000
£ „000
£ „000
£ „000
£ „000
13 947
1 901
(584)
(1 123)
-
194
-
-
194
-
194
8 047
-
8 047
2 641
-
-
2 641
322
890
440
(109)
(231)
(3)
97
-
-
97
-
97
1 361
-
1 361
-
-
-
-
56
4 828
(338)
75
123
(21)
(161)
-
-
(161)
-
(161)
3 063
-
3 063
-
-
-
-
211
525
116
(36)
(48)
-
32
-
-
32
-
32
-
-
-
-
-
-
-
-
-
-
(276)
(88)
7
(357)
(623)
(743)
(1 723)
77
(1 646)
-
481
481
-
7 838
363
8 201
-
20 190
2 119
(930)
(1 367)
(17)
(195)
(623)
(743)
(1 561)
77
(1 484)
12 471
481
12 952
2 641
7 838
363
10 842
589
The unallocated corporate liabilities represent bank loans, overdrafts and accruals.
-
49
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
7.
SEGMENT INFORMATION (CONTINUED)
The segment results for the year ended 31 December 2015 are as follows:
Sales
Gross profit
Administrative expenses
Selling and distribution expenses
Other operating expenses
Profit from operations
Finance expenses, net
Income from exchange differences
Profit before taxation
Taxation
Loss for the year
Segment assets
Unallocated corporate assets
Unallocated deferred tax
Consolidated total assets
Segment liabilities
Unallocated corporate liabilities
Unallocated deferred tax
Consolidated total liabilities
Depreciation and amortisation
Branded
products
Beverages
Non-branded
products
Distribution
services and other
Un-allocated
Total
13 329
1 442
(507)
(1 085)
-
(150)
-
-
(150)
-
(150)
5 854
-
-
5 854
988
-
-
988
287
868
400
(75)
(190)
(4)
131
-
-
131
-
131
1 104
-
-
1 104
-
-
-
-
50
5 502
440
(87)
(165)
(9)
179
-
-
179
-
179
2 893
-
-
2 893
-
-
-
-
200
459
32
(9)
(19)
-
4
4
4
4
4
-
-
-
-
-
-
-
-
-
-
-
-
(431)
(3)
(1 076)
(1 510)
(768)
(1 733)
(4 011)
(59)
(4 070)
-
1 592
45
1 637
-
6 958
466
7 424
-
20 158
2 314
(1 109)
(1 462)
(1 089)
(1 346)
(768)
(1 733)
(3 847)
(59)
(3 906)
9 855
1 592
45
11 492
988
6 958
466
8 412
537
Secondary reporting format - geographical segments:
Sales by country (consignees)
Year ended
31 December 2016
£ „000
Sales by country (consignees)
Ukraine
Moldova
Georgia
Nigeria
Malaysia
Egypt
Netherlands
Azerbaijan
Kazakhstan
Other countries
Total
14 044
1 179
1 001
885
579
545
567
528
177
685
20 190
Ukraine
Netherlands
Moldova
Nigeria
Azerbaijan
Georgia
Mexico
Turkey
Turkmenistan
Other countries
Total
Year ended
31 December 2015
£ „000
16 286
1 030
797
554
449
314
261
204
154
109
20 158
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.
-
50
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
REVENUE
8.
For the years ended 31 December 2016 and 31 December 2015, 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 December 2016
£ „000
Year ended
31 December 2015
£ „000
20 783
14 422
960
4 828
573
(593)
20 190
20 859
13 930
943
5 502
484
(701)
(20 158)
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.
EXPENSES BY NATURE
9.
For the years ended 31 December 2016 and 31 December 2015, items of expenses were presented as follows:
Year ended
31 December 2016
Cost of sales
Including:
£ „000
(18 071)
Year ended
31 December 2015
£ „000
(17 844)
Raw materials and consumables used, cost of goods sold, manufacture overheads etc.
(16 262)
(16 059)
Wages and salaries, social security costs (Note 12)
Depreciation
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
Taxes and compulsory payments
IT materials, household expenses, reading materials
Audit fees
Amortisation and depreciation
Other
Selling and distribution expenses
Including:
Wages and salaries, social security costs (Note 12)
Delivery costs
Promotion
Lease and current repair and maintenance
Impairment of inventories
Amortisation and depreciation
Veterinary certificates, medical examination, permits
Packaging
Other
Other operating expenses
Including:
Impairment of trade receivables
Impairment of inventories
Impairment of non-current assets
Profit / (loss) on disposal of non-current assets
Amortisation and depreciation
Wages and salaries, social security costs (Note 12)
Other*
Including:
other operating incomes
other operating expenses
net operations
(1 381)
(404)
(1 109)
(559)
(176)
(58)
(52)
(40)
(36)
(22)
(18)
(14)
(25)
(109)
(1 462)
(448)
(414)
(179)
(93)
(78)
(104)
(43)
(52)
(51)
(1 089)
(805)
(28)
(179)
(4)
(4)
(2)
(67)
(1 311)
(498)
(930)
(383)
(192)
(74)
(48)
(41)
(39)
(21)
(15)
(14)
(10)
(93)
(1 367)
(333)
(285)
(212)
(174)
(120)
(79)
(62)
(57)
(45)
(17)
(40)
(28)
-
(25)
(2)
(1)
79
1 596
(1 584)
12
Expense item Other* in the category of expenses Other operating expenses consists of net on operations GBP 12,000, which were classified as income from other
operating activities, as these are export sales of the attracted products, which is not the main activity of the company.
10.
FOREIGN EXCHANGE LOSS, NET
For the years ended 31 December 2016 and 31 December 2015 item foreign exchange loss, net consists of:
exchange difference in trade and other receivables
exchange difference in trade and other payables
exchange difference in short and long credits
effect of exchange rate changes and restatements on cash and cash equivalents
Total foreign exchange loss, net
(15)
(320)
(461)
53
(743)
(81)
(56)
(1 536)
(60)
(1 733)
-
51
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
11.
NET FINANCE COSTS
For the years ended 31 December 2016 and 31 December 2015, financial income/(expenses) were presented as follows:
Finance income
Interest income
Total interest income
Finance expense
Interest expense on bank loans
Total finance expense
Net finance expense recognised in income statement
12. EMPLOYEE BENEFIT EXPENSES
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
1
1
(624)
(624)
(623)
1
1
(769)
(769)
(768)
For the years ended 31 December 2016 and 31 December 2015, 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
Wages and salaries of key management personnel:
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
(1 690)
(340)
(2 030)
918
(1 825)
(565)
(2 390)
1 132
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
(1 311)
(385)
(333)
(1)
(2 030)
(1 381)
(559)
(448)
(2)
(2 390)
For the year ended 31 December 2016, remuneration of the Group's key management personnel amounted to GBP 118,218 (2015: GBP 235,000).
Key management personnel received only short term benefits during the years ended 31 December 2016 and 31 December 2015.
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).
-
52
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
13.
INCOME TAX EXPENSES
For the years ended 31 December 2016 and 31 December 2015, income tax expenses were presented as follows:
Current tax charge - Ukraine
Current tax charge - non-Ukraine
Deferred tax relating to the origination and reversal of temporary differences
Total income tax expenses
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
(41)
1
(37)
(77)
52
-
7
59
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% (2015: 18%).
The numerical reconciliation between tax charge and the product of accounting profit multiplied by the applicable tax rate(s) is provided in the following table.
Profit before tax:
Ukraine
Cyprus
Other (BVI, Jersey)
Profit before tax, total
Tax calculated at domestic tax rates applicable to profits in the relevant
countries
Ukraine (2016: 18%, 2015: 18%)
Cyprus (10%)
Tax calculated at domestic tax rates applicable to net income not subject to tax
and expenses not deductible for tax purposes
Ukraine
Cyprus
Tax charge
Ukraine
Cyprus
The weighted average applicable tax rate
Ukraine
Cyprus
BVI, Jersey
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
223
(413)
(1 371)
(1 561)
40
-
40
(118)
1
(117)
(78)
1
(77)
18%
Nil
Nil
-3%
146
13
(4 005)
(3 846)
26
1
27
33
(1)
32
59
-
59
18%
8%
Nil
-1%
There are a number of laws related to various taxes imposed by both central and regional governmental authorities. Although laws related to these taxes have not
been in force for significant periods, the practice of taxation and implementation of regulations are well established, documented with a sufficient degree of clarity
and adhered to by the taxpayers. Nevertheless, there remain certain risks in relation to the Ukrainian tax system: few court precedents with regard to tax related issues
exist; different opinions regarding legal interpretation may arise both among and within government ministries and regulatory agencies; tax compliance practice is
subject to review and investigation by a number of authorities with overlapping responsibilities.
Generally, tax declarations remain subject to inspection for an indefinite period. In practice, however, the risk of retroactive tax assessments and penalty charges
decreases significantly after three years. The fact that a year has been reviewed does not preclude the Ukrainian tax service performing a subsequent inspection of
that year.
The Group's management believes that it has adequately provided for tax liabilities in the accompanying financial statements; however, the risk remains that those
relevant authorities could take different positions with regard to interpretive issues.
-
53
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
13.
INCOME TAX EXPENSES (CONTINUED)
During the period under review, the Ukrainian companies within the Group paid royalties and interest charges on the outstanding credits to another Group company
– Solaero Global Alternative 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, with sufficient regularity to ensure that the carrying amount does
not differ materially from fair value. An independent valuation of the Group's property, plant and equipment was undertaken by BGS Assets LLC as at 31 December
2015 . As at 31 December 2016, it is the Group's opinion that the values appraised in the prior year remain appropriate.
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 and 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.
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 2017 budget value and takes into consideration trends of value indexes for 2018-2021
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 specific 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 calculated on the basis of predicted return on
investment of group investors. Cost of loan capital is based on attracted funds to which interest Group undertakes to process is carried. Specific segment risks are
included in usage of separate facts of beta-testing. Beta factors are estimated annualy using generally accessible market data. WACC is used in the model for both
CGU in 22,6%.
Production value increase – is derived from published consumer price index for Ukraine or world price tendencies for export product groups.
Increase of law material price – Forecast is got from published index for Ukraine.
Predicted increase data – The data are based on published industry research in Ukraine and management estimates.
Assumption regarding business segment – Using the data on industry for increase factors these assumptions are important as management estimates the changability
of the unit position in comparison with competitors in the period forcasted.
Gain in sales in categories of butter and processed cheese by means of segment growth mainly in domestic market and increase of export amount by developing of
brands "Nash Molochnik", "Narodny Product". Hard cheese produced by the Group will be exported to Asian and East African markets.
Industry forecast is not used for kvass (beverage) sales forecasting, as the Group produces the unique product "Zhyviy Kvass" that has no competitors in Ukraine by
its nature. The model is based on own dynamic forecast of the management. Brand developement plans include:
- Extension of brand presence in distribution networks;
- Kvass in kegs sales increase;
- Extension of beverage product range (production of white kvass)
As for estimated value from using both CGU, management considers 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.
-
54
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
14.
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
As at 31 December 2016 and 31 December 2015, property, plant and equipment were presented as follows:
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
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Depreciation charge
Elimination of depreciation
Disposals
Exchange differences on translation to the presentation
At 31 December 2015
Cost or valuation
At 1 January 2016
Additions
Transfers to/from AUC
Disposals
Exchange differences on translation to the presentation
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Depreciation charge
Disposals
Exchange differences on translation to the presentation
At 31 December 2016
Net book amount At 31 December 2016
Net book amount at 31 December 2015
Net book amount at 31 December 2014
r
e
d
n
u
s
t
e
s
s
A
n
o
i
t
c
u
r
t
s
n
o
C
£ „000
d
n
a
d
n
a
L
s
g
n
i
d
l
i
u
B
£ „000
y
r
e
n
i
h
c
a
M
d
n
a
t
n
a
l
P
£ „000
s
e
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i
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£ „000
r
e
h
t
o
d
n
a
s
l
o
o
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,
s
t
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e
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I
t
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e
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i
u
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e
£ „000
l
a
t
o
T
£ „000
47
221
(56)
(21)
-
(5)
(24)
162
29
1
(21)
-
(9)
-
162
205
(131)
-
14
250
-
-
-
-
-
250
162
18
6 414
-
(58)
(2 245)
40
-
(1 845)
2 306
2 876
130
(2 245)
-
(760)
1
2 306
-
5
(3)
152
2 460
1
134
-
7
142
2 318
2 305
3 538
8 760
-
(76)
(2 981)
543
(1)
(2 543)
3 702
3 759
253
(2 981)
(2)
(1 029)
-
3 702
-
32
(7)
247
3 974
-
215
(1)
8
222
3 752
3 702
5 001
2 497
-
(112)
(1 420)
361
(32)
(677)
617
1 891
48
(1 420)
(19)
(500)
-
617
-
23
(44)
40
636
-
112
(4)
4
112
524
617
606
947
-
303
(365)
99
(16)
(286)
682
518
56
(365)
(12)
(146)
51
682
-
71
(23)
47
777
51
75
(21)
5
110
667
631
429
18 665
221
1
(7 032)
1 043
(54)
(5 375)
7 469
9 073
488
(7 032)
(33)
(2 444)
52
7 469
205
-
(77)
500
8 097
52
536
(26)
24
586
7 511
7 417
9 592
As at 31 December 2016 the Group has no contractual commitments on purchase of property, plant and equipment.
Fixed assets with a net book value of GBP 5,366 thousand At 31 December 2016 (2015: GBP 5,125 thousand) were pledged as collateral for loans.
As at 31 December 2016 any prepayments for property, plant and equipment were included within Assets under construction in the amount of GBP 62 thousand
(2015: GBP 5 thousand)
As at 31 December 2016 fully depreciated assets included within property, plant and equipment with the original cost of GBP 32 thousand (2015: GBP 214
thousand)
It‟s impracticable to provide information about the carrying amounts of all classes of assets, except office equipment if they were measured using the cost model
without undue cost and efforts.
-
55
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
15.
INTANGIBLE ASSETS
As at the reporting dates intangible assets were presented as follows:
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
Cost or valuation
At 1 January 2016
Additions
Disposals
Exchange differences on translation to the presentation currency
At 31 December 2016
Accumulated amortisation
At 1 January 2016
Amortisation charge for the year
Disposals
Exchange differences on translation to the presentation currency
At 31 December 2016
Net book amount At 31 December 2016
Net book amount at 31 December 2015
Net book amount at 31 December 2014
The remaining amortization periods of the intangible assets are as follows:
-
-
Computer software 1-10 years;
Trademarks 11-18 years;
Computer
software
£ „000
Trade marks
Customer list
£ „000
£ „000
Total
£ „000
46
1
(2)
(16)
29
12
11
(1)
4
26
29
-
(3)
2
28
26
1
(3)
3
27
1
3
34
725
-
-
36
761
113
30
-
25
168
761
-
-
159
920
168
52
-
45
265
655
593
612
503
-
-
(503)
-
-
320
8
(312)
-
(16)
-
-
-
-
-
-
-
-
-
-
-
-
-
183
1 274
1
(2)
(503)
20
790
445
49
(312)
(1)
13
194
790
-
(3)
161
948
194
53
(3)
48
292
656
596
829
-
56
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
15.
INTANGIBLE ASSETS (CONTINUED)
The Group performed its annual impairment test in December 2016 and 2015. 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 2016, the market capitalisation of the Group was below the book value
of its equity, indicating a potential impairment 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 trademark “Zhyviy Kvas” and
Group of the trademarks “Diary segment” CGUs.
Trademark “Zhyviy Kvas”
The recoverable amount of the trade mark “Zhyviy Kvas” CGU, GBP 3 156 thousand as at 31 December 2016, 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 recovering demand for products and services. The discount rate applied to cash flow projections is 25.1% (2015: 25.8%). The growth rate used
to extrapolate the cash flows of the unit beyond the five-year period is 0 %. As a result of the analysis, management did not identify an impairment for this CGU.
Group of the trademarks “Diary segment”
The recoverable amount of the three trademarks “Diary segment” CGU, GBP 3 618 thousand as at 31 December 2016, 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 recovering for products and services. The pre-tax discount rate applied to the cash flow projections is 25.1% (2015: 25.8%). The
growth rate used to extrapolate the cash flows of the unit beyond the five-year period is 0 %. As a result of the analysis, management did not identify an impairment
for this CGU.
16.
DEFERRED TAX ASSETS AND LIABILITIES
For the year ended 31 December 2016, deferred tax assets and liabilities were presented as follows:
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
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:
As at
31 December 2016
£ „000
(46)
-
-
-
46
-
-
-
-
-
466
-
(28)
(55)
-
(20)
-
363
As at
31 December 2015
£ „000
(2)
-
(12)
-
-
62
(2)
(46)
-
-
302
-
39
(20)
255
(110)
-
466
Finished goods
Raw materials
Work in progress
Other inventories
As at
As at
31 December 2016
31 December 2015
£ „000
£ „000
1 006
312
107
430
1 855
677
307
158
354
1 496
During 2016, GBP 15,261 thousand (2015: GBP 14,411 thousand) was recognised as an expense in cost of sales. Inventories with a net book value of GBP 360
thousand At 31 December 2016 (2015:GBP 901 thousand) were pledged as collateral for loans.
-
57
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
18.
TRADE AND OTHER RECEIVABLES
As at the reporting dates receivables were presented as follows:
Trade receivables
Other receivables
Prepayments
As at
As at
31 December 2016
31 December 2015
£ „000
£ „000
2 390
-
117
2 507
1 313
9
164
1 486
The Group‟s management believes that the carrying value for trade and other receivables is a reasonable approximation of their fair value. The amount of overdue
but unimpaired accounts receivable is insignificant and is not disclosed in this note.
Maturity of trade receivables as at 31 December 2016 and 31 December 2015 is presented as follows:
Total
£ „000
2 390
1 313
Neither past
due nor
impaired
£ „000
1 366
1 194
<30
days
£ „000
109
24
Past due but not impaired
61-90
days
£ „000
91-120
days
£ „000
30-60
days
£ „000
23
63
588
18
291
-
>120
days
£ „000
13
14
2016
2015
Provisions were created for impaired trade and other receivables and holiday allowance.
For the year ended 31 December 2016, provisions were presented as follows:
Impaired trade and other receivables at the beginning of the year
Holiday allowance at the beginning of the year
Accrual / (Reversal)
Use of allowances
Effect of translation to presentation currency
Impaired trade and other receivables at the end of the year
Holiday allowance at the end of the year
19.
CURRENT TAXES
As at the reporting dates current taxes were presented as follows:
VAT receivable
Current income tax prepayments
Other prepaid taxes
20. OTHER FINANCIAL ASSETS
Loans and receivables
Loans issued to related parties
Loans issued to third parties
Loans issued to employees
As at
31 December 2016
£ „000
As at
31 December 2015
£ „000
947
-
(696)
-
36
287
-
-
49
50
(86)
39
-
52
220
-
836
(7)
(102)
947
-
-
42
52
(137)
92
-
49
As at
As at
31 December 2016
31 December 2015
£ „000
£ „000
138
89
3
230
268
66
14
348
As at
As at
31 December 2016
31 December 2015
£ „000
£ „000
8
6
4
18
-
3
8
11
Loans issued are short term in nature, repayable on demand and are interest free.
-
58
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
21.
CASH AND CASH EQUIVALENTS (EXCLUDING BANK OVERDRAFTS)
As at the reporting dates cash and cash equivalents were presented as follows:
Cash in hand - on UAH
Cash in bank - on UAH
Bank - in other currencies
22.
SHARE CAPITAL
As at the reporting dates share capital was presented as follows:
As at
As at
31 December 2016
31 December 2015
£ „000
£ „000
14
98
63
175
1
11
81
93
Ordinary shares of 10p each
60 000
6 000
60 000
6 000
As at
As at
As at
As at
31 December 2016
31 December 2016
31 December 2015
31 December 2015
Number '000
£ „000
Number '000
£ „000
Authorised
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
At end of the year
Issued and fully paid at beginning and end of the year
As at
As at
As at
As at
31 December 2016
31 December 2016
31 December 2015
31 December 2015
Number '000
£ „000
Number '000
£ „000
39 673
-
39 673
3 967
-
3 967
39 673
-
39 673
3 967
-
3 967
Held as treasury shares
As at
As at
As at
As at
31 December 2016
31 December 2016
31 December 2015
31 December 2015
Number '000
£ „000
Number '000
£ „000
3 145
3 145
315
315
3 145
3 145
315
315
As at 31 December 2016 and 31 December 2015 the Company held a total of 3 144 800 Ordinary Shares as treasury shares and the total number of Ordinary Shares
in issue (excluding shares held as treasury shares) was 39 673 049
Subsequent events is disclosed in note 32.
-
59
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
23. OTHER RESERVES
At the reporting date other reserves were presented as follows:
At 1 January 2015
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
At 31 December 2015
Depreciation on revaluation of property, plant and equipment
Reduction of revaluation reserve
Exchange differences on translation to the presentation currency
At 31 December 2016
Share premium
Translation reserve
Revaluation reserve
Total other reserves
£ '000
£ '000
£ '000
£ '000
4 562
-
-
-
-
4 562
-
-
-
4 562
(13 768)
-
-
-
(1 526)
(15 294)
-
-
513
(14 781)
3 453
(86)
913
(88)
-
4 192
(248)
(9)
-
3 935
(5 753)
(86)
913
(88)
(1 526)
(6 540)
(248)
(9)
513
(6 284)
The following describes the nature and purpose of each reserve within owners‟ equity.
Reserve
Description and purpose
Share premium
Revaluation
Retained earnings
Translation
Amount subscribed for share capital in excess of nominal value.
Gains arising on the revaluation of the Group‟s property. The balance on this reserve is wholly undistributable.
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 2016 the Group has two loans: a loan from OTP Bank in the amount of 969 thousand GBP with a maturity date of 09 September 2017 and
EBRD in the amount of 6,193 thousand GBP ( in EUR 7,259 thousand) . As at 31 December 2016, the Group has restructured the loan with 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.
An amended Loan Agreement and Restatement Deed with the EBRD was signed in June 2016 and details announced on 30 June 2016 with the new terms
becoming effective on 24 October 2016. As per the new terms, the principal amount is divided into two parts - Tranche A in the amount of 4,000 thousand EUR
with a maturity date of 01 December 2022 and Tranche B in the amount of 3,259 thousand EUR with a maturity date of 30 November 2024.
The Group gained a capital repayment holiday until 01 March 2017 with quarterly capital repayments on Tranche A commencing on that date and increasing in
amount on an annual basis until 1 December 2022. The first two payments have been made in full as scheduled. Tranche B is ordinarily due for repayment in a
single bullet payment on 1 December 2024 assuming no early repayment of Tranche A or events of default.
Despite the repayments being made as scheduled, the Group breached financial covenants as at 31 December 2016 and 31 March 2017. The Board notified EBRD
in advance of covenant breaches of the Loan and EBRD provided waivers in respect of the breached covenants dated 08 May 2017 and 24 May 2017 respectively.
Due to the fact that the date of the waivers receipt was later than the reporting date, under IAS 1 Presentation of Financial Statements the Group was required to
classify the EBRD loan in full as a current liability. In the consolidated statement of financial position the current liabilities exceed current assets due to the EBRD
loan reclassification.
The Board believes that EBRD will not demand accelerated repayment of the loan due to the breach of the covenants as at 31 December 2016 and as at 31 March
2017. Going forward if the Group anticipates a breach of the financial ratio covenants under the amended EBRD loan agreement it is expected that EBRD would
grant a waiver in advance of the reporting period deadline. The Group has entered into a variation of the loan agreement with OTP Bank under which the principal
loan repayment date has been extended from 9 June 2017 to 9 September 2017. The principal amount outstanding under this agreement is Ukrainian Hryvnia UAH
32,300 thousand (approximately GBP 969 thousand).
Guarantees, corporate rights in pledge under EBRD facility agreement are the enterprises of the Group that are jointly and severally responsible together with the
borrower: Molochnik LLC; Milk Investments Private Enterprise SC; Starkon-Moloko LLC; Ukrproduct Group CJSC; Zhiviy Kvas LLC.
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 Enterprise; Krasilovsky Molochny Zavod Private Enterprise SC; ATP Centr
LLC; Ukrproduct Group CJSC
-
60
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
24.
BANK LOANS AND OVERDRAFTS (CONTINUED)
Bank
Currency
Type
Opening date
Termination date
Interest rate
EBRD
EUR
Loan
31.03.2011
10.12.2018
5-7%
OTP Bank
UAH
Credit line
30.05.2011
09.09.2017*
26,84%
Aval Bank
UAH
Overdraft
31.05.2013
29.02.2016
22,0%
Additional agreement will be signed with the loan repayment date of 9 September 2017.
The average interest rate as At 31 December 2016 was 6,57% (2015: 10,42%).
Limit
£ „000
7 080
1 200
141
As At 31 December
2016
As at 31 December
2015
£ „000
£ „000
6 193
969
-
7 162
5 357
909
61
6 327
Maturity of financial liabilities
On demand
In less than 1 year
In more than 1 year
Interest rate profile of financial liabilities
On demand
Expiry within 1 year
Expiry in more then 1 years
The currency profile of the Group's financial liabilities is as follows:
UAH
EUR
The book value and fair value of financial liabilities are as follows:
Bank loans
Bank overdrafts
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
-
7 162
-
7 162
61
3 060
3 206
6 327
Floating rate
£ '000
Fixed rate
£ '000
As at
As at
31 December 2016
31 December 2015
£ „000
£ „000
-
969
-
969
-
6 193
-
6 193
-
7 162
-
7 162
61
3 060
3 206
6 327
Floating rate liabilities
Fixed rate liabilities
£ '000
£ '000
Total as At 31
December 2016
£ '000
Total as at 31
December 2015
£ '000
969
-
969
-
6 193
6 193
969
6 193
7 162
970
5 357
6 327
Book value as At 31
December 2016
Fair value as At 31
December 2016
Book value as at 31
December 2015
Fair value as at 31
December 2015
£ '000
£ '000
£ '000
£ '000
7 162
-
7 162
7 162
-
7 162
6 266
61
6 327
6 266
61
6 327
-
61
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
TRADE AND OTHER PAYABLES
25.
At the reporting date trade and other payables were presented as follows:
Trade payables
Other payables
Prepayments received
Accruals
Interests payable
Provisions
As at
As at
31 December 2016
31 December 2015
£ „000
£ „000
2 364
230
85
100
23
52
2 854
979
260
9
109
180
49
1 586
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
Weighted number of ordinary shares in issue
Basic earnings per share, pence
Diluted average number of shares
Diluted earnings per share, pence
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
(1 484)
39 673 049
(3,74)
39 629 619
(3,74)
(3 905)
39 673 049
(9,85)
39 402 447
(9,91)
-
62
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
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 2016.
28.
SHARE-BASED PAYMENTS
The Company operates an equity-settled share based remuneration scheme for employees.
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Lapsed during the year
Change in option terms
Outstanding at the end of the year
Exercisable at the end of the year
2016 Weighted average
exercise price
2015 Weighted average
exercise price
£
Number
£
Number
0,100
-
-
-
-
-
0,100
0,100
130 290
-
-
-
-
-
130 290
130 290
0,100
-
-
-
-
-
0,100
0,100
130 290
-
-
-
-
-
130 290
130 290
During the period under review the Company did not grant options to any parties.
All options granted to the Directors are exercisable over a period of four years. 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 2016.
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.
-
63
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
29. CURRENCY ANALYSIS
Currency analysis for the year ended 31 December 2016 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
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
1 502
230
18
112
1 862
969
2 539
10
12
3 530
996
-
-
55
1 051
-
26
-
-
26
-
-
-
3
3
-
65
-
-
65
-
-
6
8
14
6 193
224
-
-
6 417
2 507
230
18
175
2 930
7 162
2 854
10
12
10 038
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
-
-
5 677
1 486
348
11
93
1 938
6 327
1 586
18
15
7 946
14 % strengthening of Hryvnia rate against the following currencies as At 31 December 2016 and 2015, would increase /decrease the amount of profits /or losses
for the period by the amounts mentioned below. This analysis was conducted based on the assumption that all other variables, in particular, interest rates, remained
unchanged. The change of GBP exchange rate does not have impact on the result as all the balances in GBP are attributable to the Group‟s companies where GBP is
a functional currency.
USD
EUR
USD
EUR
30. RELATED PARTY TRANSACTIONS
Increase/ decrease in
rate
Effect on income before
tax in 2016
Effect on income before
tax in 2015
£ „000
£ „000
14%
11%
-14%
-11%
144
(704)
(144)
704
33
(1 532)
(33)
1 532
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or
operational decisions as defined by IAS 24 "Related Party Disclosures". In considering each possible related party relationship, attention is directed to the substance
of the relationship, not merely the legal form.
Transactions and balances between the Group companies and other related parties are set out below. Remuneration of key management personnel is disclosed in
note 12.
-
64
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
30. RELATED PARTY TRANSACTIONS (CONTINUED)
Sales of goods and services to related parties and purchases from related parties are summarised below. All sales and purchases were with related parties under
common control of the ultimate beneficiaries of the Company.
Sales
Cost of sales
Administrative expenses
Other operational expenses
Balances due from/(to) related parties at each period end are shown below.
Receivables and prepayments
Other financial assets
Trade and other payables
Year ended
31 December 2016
£ „000
Year ended
31 December 2015
£ „000
1
4
14
1
-
-
25
-
As at
As at
31 December 2016
31 December 2015
£ „000
£ „000
26
8
2
23
-
9
In 2016, 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 unfavourable changes
take place in political and economic environment.
(b) Taxation
As a result of the unstable economic environment in Ukraine, the Ukrainian tax authorities pay increasing attention to business communities. In this regard, local and
national tax legislation are constantly changing. Provisions of various legislative and regulatory legal acts are not always clearly-worded, and their interpretations
depend on the opinion of tax authority officers and the Ministry of Finance. It is common practice for disagreements between local, regional and republican
taxation authorities to arise. A system of fines and penalties for claimed or revealed violations exists in corresponding regulatory legal acts, laws and decisions.
Penalties include confiscation of amount in dispute (in case of law violation) as well as fines. These facts create tax risks, which means that the Group may be
exposed to the risk of additional tax liabilities, fines and penalties. These risks far exceed risks in countries with advanced tax systems.
(c) Retirement and other liabilities
Employees of the Group receive pension benefits from the Pension Fund, a Ukrainian Government organization in accordance with the applicable laws and
regulations of Ukraine. The Group is required to contribute a specified percentage of the payroll to the Pension Fund to finance the benefits. The only obligation of
the Group with respect to this pension plan is to make the specified contributions from salaries. As At 31 December 2016 and 2015 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. As at 31 December 2016 and as at 31 March 2017 the Group had been in breach of certain covenants regarding the loan with EBRD. But EBRD have
provided waivers in respect of these breaches and therefore no further commitments /contingencies have arisen. The covenants breached included: Debt Service
Coverage Ratio and Bank Debt to EBITDA ratio. The effective date of the waivers are 8 May 2017 in respect of 31 December 2016 and 24 May 2017 in respect of
31 March 2017.
(e) Other
The amount of uncancellable lease commitments is insignificant.
As of 31 December 2016 the Group does not possess any finance lease and hire purchase commitments, capital commitments and guarantees.
-
65
-
Ukrproduct Group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousand GBP, unless otherwise stated)
32. SUBSEQUENT EVENTS
(a) EBRD - breach of loan covenants
As at 31 December 2016 the Group had been in breach of certain covenants regarding the loan with EBRD, the Group was still in breach of these convenants as at
31 March 2017 however EBRD have provided waivers in respect of these breaches on 8 and 24 May 2017 and therefore no further commitments/contingencies
have arisen. The covenants breached included Debt Service Coverage Ratio and Bank Debt to EBITDA ratio.
(b) Reorganisation
In the first half of 2017 the following entities have been or are planned to be merged with Starokonstantinovskiy Molochniy Zavod SC: Avtopark Starokonstantinov
LLC, Milk Investments Private Enterprise SC, Starkon-Moloko LLC, Invest Garantiya Private Enterprise, Favorit-Konsulting Private Enterprise, ATP Centr LLC,
Business Invest Management LLC and Reliable Logistics Services LTD.
(c) Foreign exchange rates
Post year end, the Ukrainian Hryvnia continued to devalue against the EUR, GBP. As for USD Ukrainian Hryvnia strengthened. In particular, according to the
National Bank of Ukraine the following are key exchange rates:
Currency
UAH/GBP
UAH/USD
UAH/EUR
29 June 2017
33,28
26,08
29,41
-
66
-
Corporate advisers
Group secretary
Bedell Secretaries Limited
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Jersey legal advisers
Bedell Cristin
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Nominated adviser and broker
Principal bankers
ZAI Corporate Finance Ltd
UBS SA
New Liverpool House
4th Floor
15 – 17 Eldon Street
London EC2M 7LD
40 rue du Rhône
CH-1211 Geneva
Switzerland
Independent auditors
Registrars
Baker Tilly Isle of Man LLC
Neville Registrars Limited
PO Box 95
2a Lord Street
Douglas
Isle of Man, IM99 1HP
UK legal advisers
Gowlings WLG
4 More London
London
SE1 2AU United Kingdom
Neville House
18 Laurel Lane
Halesowen B63 3DA
67
Annual Report
Shareholder Information
Registered Office
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Registered Number
88352 (Jersey)
Financial Calendar
31 December 2016
Financial year end
29 June 2017
Announcement of full year 2016 results
20July 2017
Annual General Meeting
Analysis of shareholding – at 31 December 2016
Size of shareholdings
Number of
holders
% of total
Total holdings,
shares
% of total
Up to 5,000 shares
5,001 to 50,000 shares
50,001 to 200,000 shares
Over 200,000 shares
Total
34
30
23
13
100
34
30
23
13
100,00%
61,599
566,719
2,458,714
39,730,817
42,817,849
0,14
1,32
5,74
92,79
100.00
As at December 31, 2016 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, Halesowen, B63 3DA. The registrar will assist with
enquiries regarding any change of circumstances (e.g. name, address, bank account details,
bereavement, lost certificates, dividend payment and transfer of shares). All correspondence should be
clearly marked “Ukrproduct Group Ltd” and quote the full name and address of the registered holder
of the shares.
Investor Relations
Sergiy Shpak
Phone: +380-44-232-96-02
Fax: +380-44-289-16-30
Email : sergiy.shpak@ukrproduct.com
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