2
TABLE OF
CONTENTS
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41
CHAIRMAN AND CHIEF EXECUTIVE
STATEMENT
THE BOARD OF DIRECTORS
REMUNERATION COMMITTEE
REPORT
CORPORATE GOVERNANCE REPORT
CORPORATE SOCIAL
RESPONSIBILITY REPORT
DIRECTORS’ REPORT
STATEMENTS OF DIRECTORS’
RESPONSIBILITIES
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF
CASH FLOWS
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
ANNUAL RЕPORT 2020 4
5
CHAIRMAN AND CHIEF
EXECUTIVE STATEMENT
recognition and substantial market shares
for its products.
decline was mainly attributed to the negative
foreign exchange differences of £1.5 million.
Trading
(“Ukrproduct”,
the
Ukrproduct Group Ltd
“Company” or, together with its subsidiaries,
“the Group”) is one of the leading Ukrainian
producers and distributors of branded dairy
foods and beverages (kvass).
including Ukraine.
The outbreak of COVID-19 had an unprecedented
global impact on economic activities in most
countries,
Due to the
COVID-19 pandemic, the Ukrainian economy
contracted by 4.4 percent in 2020 compared to
the previous year according to the National Bank
of Ukraine. Until February 2020, the Ukrainian
economy was still in a robust macroeconomic
state with declining public debt, falling inflation
and optimistic growth forecasts, but the outbreak
of the pandemic turned it around. However , the
dairy industry withstood the blow of the pandemic
and a number of lockdowns in 2020, largely due
to the products being considered necessities
by the consumer. Nevertheless, Ukrproduct has
taken all measures to safeguard the wellbeing
of its employees and managed to steer through
its
this volatile environment, maintaining
performance without interruptions and adapting
to the changing market requirements.
The introduction of lockdown in Ukraine had a
negative impact on the imports of butter and
other products, with such imports reducing
significantly as a result of, firstly, the initial
devaluation of the hryvnia against the dollar,
and, secondly, the lockdown-related logistical
issues in respect of customs requirements.
Overall, the launch of the lockdown measures
in Ukraine did not materially impact the
Group’s sales due to the strong brands’
Moreover, unlike smaller competitors, as the
Group delivers most of its products to consumers
through food retailers, which remained open
lockdown, Ukrproduct was able to
during
utilize this competitive advantage and adapt its
procurement processes and supply chains to
the shift in how demand is met so maintaining
volumes, whereas many competing dairy
processors had to reduce their business.
Though the bottled sales of kvass grew in 2020
the overall sales revenues for beverages were
at the levels of 2019 - at £1.7 million, which was
due to the quarantine measures that suspended
distribution over all food channels with the
exception of the food and drink retailers. The
sales of kvass produced a strong recovery in
the second half of the year that helped partial
catch up on the annual budget targets.
For FY 2020, the Group reports an improvement
in revenue by 11.1% up to £55.5 million (UAH 1.9
billion) compared with £50 million (UAH 1.6 billion)
in FY 2019. The growth was delivered via revision
of the Company’s sales strategy, with spreads
and processed cheese sales demonstrating the
most pronounced increases of 132.8% and 79.9%
respectively. However, the gross profit remained at
a similar level to 2019, amounting to £4.7 million
(UAH 165 million), whilst the annual operating
profit declined by 43.7% to £0.84 million (UAH
29.3 million), compared with £1.5 million (UAH
49.1 million) in FY 2019. Despite an increase in
sales, the Company recorded a net loss of £1.16
million (UAH 40.5 million), compared to the profit
of £2.031 million (UAH 66.9 million) in 2019. This
Financial Position
As of 31 December 2020, Ukrproduct reports
net assets of £5.3 million (UAH 202 million)
compared to £3.2 million (UAH 104 million) as
of 31 December 2019 including cash balances
of £0.16 million (UAH 6.0 million) compared to
£0.23 million (UAH 7.1 million) respectively.
quarterly loan tranche due on that date. At the
same time Ukrproduct is seeking to increase
its working capital facility provided locally in
Ukraine. The Group’s management continues to
have discussions with the EBRD and at present
the EBRD has taken no action to accelerate
repayment of the loan. Though the Company
is hopeful that an agreement can be reached in
due course that works for both parties.
Outlook
For the year ended 31 December 2020, the
Group was in breach of several provisions of
the loan agreement with the European Bank
for Reconstruction and Development (“EBRD”)
and the bank has not issued a waiver for the
breaches. Though to 31 May 2021 the Group
serviced its debt on time in accordance with
the loan agreements with its lenders, on 1 June
2021 the Company entered discussions with
the EBRD to potentially restructure the loan
repayment schedule as a result of pressure
on the working capital requirements of the
business due to increased raw milk costs
and an increase in volumes required to meet
demand. Ukrproduct also notified the EBRD that
although the Company had settled the interest
amount due on 1 June 2021, it did not repay the
Looking ahead, whilst COVID-19 creates
significant economic uncertainty, Ukrproduct
expects to utilize its experience gained during
the pandemic, most notably from remote
working, to streamline and optimize certain
administrative and operational processes.
Ukrproduct plans to pursue stronger margins
and to further increase sales of processed
cheese and spreads, as well as to improve
margins of packaged butter by a continuous
upgrade into the premium market segment.
However, the raw milk price trends in Ukraine
will be fundamental for the dairy processing
industry overall. The Group is looking into
the most efficient ways of procuring raw milk,
which is subject to local competition that has
been strengthening and thus increasing prices.
Jack Rowell
Non-Executive Chairman
24 June 2021
Alexander Slipchuk
Chief Executive Officer
24 June 2021
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 6
2020
THE BOARD OF
DIRECTORS
ANNUAL RЕPORT 2020 8
9
THE BOARD OF DIRECTORS
NAME
Jack Rowell
POSITION
DATE APPOINTED
Non-Executive Chairman
November 2004
Sergey Evlanchik
Executive Director
Alexander Slipchuk
Chief Executive Officer
Yuriy Hordiychuk
Chief Operational Officer
April 2008
November 2004
January 2013
All directors were
re-elected at
Annual General
Meeting
on 30 July 2020
All directors
were re-elected
at Annual General
Meeting
on 30 July 2020
Jack Rowell
Alexander Slipchuk
Non-Executive Chairman
Chief Executive Officer
Jack 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,
Jack 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
is responsible for the
Group’s overall performance and strategy
implementation and is a founder of Ukrproduct.
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 the Group. In 1998, Alexander took on the
executive positions at the Molochnik and the
Starokostyantynivskyi Dairy plants, Ukrproduct’s
two main operating assets.
Sergey Evlanchik
Executive Director
Yuriy Hordiychuk
Chief Operational Officer
Sergey Evlanchik studied at Vladivostok State
University of Economics & Service in the Russian
Federation and at Oxford University in the UK,
where he received his MBA degree. Together with
Alexander Slipchuk, he established the equity-
trading group, Alfa-Broker in 1994 in the Far East
of the Russian Federation. After the recess of the
Russian and Ukrainian equity markets in 1998,
Mr Evlanchik refocused his activities on business
development in the industrial sector of Ukraine,
particularly within the dairy industry, where he
joined the companies that would subsequently
form the Ukrproduct group in 2004. Sergey then
led the Group to its successful listing on the AIM
market of the London Stock Exchange in 2005.
Yuriy Hordiychuk has been with the Group
since 2002. Firstly, he was Director of the
Provision of Raw Materials then in 2005,
he was promoted to Director of Production,
before, in 2008, being promoted to General
Director of the Company and, ultimately, in
2013, being appointed as Chief Operational
Officer.
Yuriy has more than ten years of experience
of administrative activity and a degree in
“Production Organization Management”.
In 2006, Mr. Hordiychuk graduated with
an MBA from the School of Economics
(Russia) and earned a degree in “Logistics
and Supply Chains Management”.
SENIOR MANAGEMENT
Volodymyr Vardzielov
Chief Financial Officer
Volodymyr Vardzielov has been with the Group since April 2018
as Chief Financial Officer. He has a Master`s degree in Finance
and possesses 25 years’ professional experience in finance roles,
including 16 years in managerial positions.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 10
11
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 board members were invited to discuss
issues on the Remuneration Committee, three
meetings took place during 2020.
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
those
motivate Executives
targets both in the short and long-term.
to achieve
job
into account
Base salary
The Committee on an annual basis reviews
base salaries of the respective Executive
Directors of the Company and its subsidiaries,
responsibilities,
taking
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.
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 Group’s policy, including for individual
subsidiaries, for compensation for loss of
office is to provide compensation that reflects
the Group’s or a subsidiary’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. No bonus awards
were made for FY 2020.
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, terms, and conditions of
Service Agreements.
Directors’ remuneration
Details of the Directors’ cash remuneration are
outlined below:
Executive
Alexander Slipchuk
Sergey Evlanchik
Yuriy Hordiychuk
Non-Executive
Jack Rowell
General manager
Yuriy Hordiychuk*
Annual
salary/fee
2019
2020
Bonus
2020
2019
Non-cash
compensation
2019
2020
Total cash
remuneration
2019
2020
£ 000
£ 000
£ 000
£ 000
£ 000
£ 000
£ 000
£ 000
45.0
35.0
15.0
95.0
22.5
45.0
35.0
15.0
95.0
22.8
13.3
14.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45.0
35.0
15.0
95.0
22.5
45.0
35.0
15.0
95.0
22.8
13.3
14.5
*This relates to fees paid to Yuriy Hordiychuk for general management services under a separate contract to his
service contract.
Share based payments
As at 31 December 2020 there are no outstanding options issued by Group
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 2020
CORPORATE
GOVERNANCE
REPORT
14
15
CORPORATE
GOVERNANCE REPORT
Corporate Governance Policy
As an AIM-quoted company, the Company
is required to apply a recognised corporate
governance code, demonstrating how the Group
complies with such corporate governance code
and where it departs from it.
The Directors of the Company have formally
made the decision to apply the Quoted
Companies Alliance Corporate Governance
Code (the “QCA Code”). The Board recognises
the principles of the QCA Code, which focuses
on the creation of medium to
long-term
value for shareholders without stifling the
entrepreneurial spirit in which small to medium
sized companies, such as UPG, have been
created. The Company will provide annual
updates on its compliance with the QCA Code
in its Annual Report.
The key governance related matter
that
occurred during the financial year ended 31
December 2020 was the formal adoption of the
QCA Code.
The Board
The Board consists of three Executive Directors
and one Non-Executive Chairman, being
the Chairman, reflecting a blend of different
experience and backgrounds. The Board
considers Jack Rowell to be classified as an
independent Non-Executive Director under the
QCA guidelines.
The Board meets four times a year. At these
quarterly meetings the Board, inter alia,
discusses the implementation of strategy,
reviews financial progress and evaluates
the individual and collective accountability
of the Board.
The Group’s day-to-day operations are managed
by the Executive Directors. All Directors have
access to the Company Secretary and any
Director needing
independent professional
advice in the furtherance of their duties may
obtain this advice at the expense of the Group.
The Board is satisfied that it has a suitable
balance between independence on the one
hand, and knowledge of the Company on the
other, to enable it to discharge its duties and
responsibilities effectively, and that all Directors
have adequate time to fill their roles.
Details of the current Directors, their roles
and background are set out on the Company’s
website
http://ukrproduct.com/en/
kompaniya/management-structure/.
at
The role of the Chairman is to provide leadership
of the Board and ensure its effectiveness on all
aspects of its remit to maintain control of the
Group. In addition, the Chairman is responsible
for the implementation and practice of sound
corporate governance. The Chairman is considered
independent and has adequate separation from
the day-to-day running of the Group.
The role of the Chief Executive Officer is for
the strategic development of the Group and
for communicating it clearly to the Board and,
once approved by the Board, for implementing
it. In addition, the Chief Executive Officer is
responsible for overseeing the management of
the Group and its executive management.
Application of the QCA Code
It is the Board’s job to ensure that the Group
is managed for the long-term benefit of all
shareholders and other stakeholders with
effective
efficient decision-making.
Corporate governance is an important part
of that job, reducing risk and adding value to
the Group. The Board will continue to monitor
the governance framework of the Group as it
grows.
and
The Company remains committed to listening
its
to, and communicating openly with,
shareholders to ensure that its strategy, business
model and performance are clearly understood.
The AGM is a forum for shareholders to engage
in dialogue with the Board. The results of the
AGM will be published via RNS and on the
Company’s website. Regular progress reports
are also made via a Regulatory Information
Service. The point of contact for shareholders
is Volodymyr Vardzielov, CFO –
Volodymyr.Vardzielov@ukrproduct.com.
The Company’s management maintains a
close dialogue with local communities and
its workforce. Where issues are raised, the
Board takes the matters seriously and, where
appropriate, steps are taken to ensure that these
are integrated into the Company’s strategy.
Both the engagement with local communities
and the performance of all activities in an
environmentally and socially
responsible
way are closely monitored by the Board and
ensure that ethical values and behaviours are
recognised.
Corporate Governance Committees
The Board has two committees comprising the
following:
The Audit Committee
The Audit Committee consists of Jack Rowell
terms of
(Non-Executive Chairman). The
reference of the Audit Committee are to assist
all the Directors in discharging the individuals
of appropriate ability and experience and to
help in promoting the following:
• The Group’s financial and accounting
systems provide accurate and up-to-date
information on its current financial position,
including all significant issues and going
concern;
• The
integrity of the Group’s financial
statements and any formal announcements
relating
financial
reviewing significant
performance and
financial reporting judgments contained
therein are monitored;
the Group’s
to
• The Group’s published financial statements
represent a true and fair reflection of
this position; and taken as a whole are
balanced and understandable, providing the
information necessary for shareholders to
assess the Group’s performance, business
model and strategy;
• The external audit
in an
independent, objective thorough, efficient and
effective manner, through discussions with
management and the external auditor; and
• A recommendation is made to the Board for
it to put to shareholders at a general meeting,
in relation to the reappointment, appointment
and removal of the external auditor and
to approve the remuneration and terms of
engagement of the external auditor.
is conducted
Remuneration Committee
The Remuneration Committee consists of Jack
Rowell (Non-Executive Chairman). The terms of
reference of the Remuneration Committee are to:
• recommend to the Board a framework for
including
rewarding senior management,
Executive Directors, bearing in mind the need
to attract and retain individuals of the highest
calibre and with the appropriate experience; and
the
remuneration package are competitive and
help in promoting the Group.
elements of
• ensure
that
the
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 16
17
Nominations Committee
Given the Company’s size, the Board has not considered it appropriate to have a
Nominations Committee.
Internal control
The Directors acknowledge their responsibility for the Group’s system of internal
control, which is designed to ensure adherence to the Group’s policies whilst
safeguarding the assets of the Group, in addition to ensuring the completeness
and accuracy of the accounting records. Responsibility for implementing a system
of internal financial control is delegated to Volodymyr Vardzielov, the CFO. The
essential elements of the Group’s internal financial control procedures involve:
• Strategic business planning: strategic business planning is undertaken
annually. This includes financial budget for the following year.
• Performance review: the Directors aim to monitor the Group’s performance
through the preparation of monthly management accounts and regular
reviews of expenditure and projections.
• The internal control system: the internal control system is further enforced
by the Group’s internal audit department with the main objectives of ensuring
the safety of the Group’s assets and the reliability of accounting records.
Departure from the QCA Code
In accordance with the AIM Rules for Companies, the Company departs from the
QCA Code in the following ways:
Principle 5: “Maintain the board as a well-functioning, balanced team led by the
chair.”
The Company does not comply with the recommendation of Principle 5 that the
Board should have at least two independent non-executive directors. The Company
only has one Non-Executive Director, the Chairman, who is considered independent,
but has three Executive Directors. The Executive Directors have valuable industry
knowledge and are integral to the running of the business. The Chairman has an
extensive business experience at the Board level especially in the Food industry.
Principle 7 – “Evaluate board performance based on clear and relevant
objectives, seeking continuous improvement.”
The Board is small and extremely focussed on implementing the Company’s
strategy. However, given the size and nature of the Company, the Board does not
consider it appropriate to have a formal performance evaluation procedure in
place, as described and recommended in Principle 7 of the QCA Code. The Board
will closely monitor the situation as it grows.
Jack Rowell
Chairman
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.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 18
19
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
including
facilities, where the equipment,
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.
to reduce, control and eliminate various types
of pollution and to protect natural resources.
its
Ukrproduct monitors and controls all
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.
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.
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 of fully
monitoring all production stages - from
forage control and sound health of the cattle
to the final product distribution.
Environment
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
Community support
The Group is keen to further enhance and
maintain its partnership with local communities
by supporting their initiatives and charitable
events. The Group contributes cash donations
and gifts, as well as employee time, by
encouraging staff to participate as volunteers.
ANNUAL RЕPORT 2020
ANNUAL RЕPORT 2020 2020
DIRECTORS’
REPORT
22
DIRECTORS’ REPORT
The Directors present their report and the audited
consolidated financial statements of Ukrproduct
Group Ltd (referred to as the “Сompany” and
together with its subsidiaries, “the Group”) for
the year ended 31 December 2020.
Principal Activities and Business Review
Ukrproduct is a holding company for a group
of food and beverages businesses located in
Ukraine. The principal activities of the Group are
the production and distribution of highly branded
dairy foods and beverages (kvass) in Ukraine and
for 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 the page 36. The Company recorded a
net financial result of negative £1.16 million,
compared to the profit of £2.031 million in
2019. The effect of exchange rate led to the
Group reporting a loss overall by £1.5 million.
The Board has decided not to recommend the
payment of a dividend in respect of the year
ended 31 December 2020.
Directors
Details of members of the Board of Directors
are shown on page 8.
The Directors’ interests in the share capital of
the company as at 31 December 2020 and 31
December 2019 are shown below:
Powers of the Directors
Subject to the Company’s Memorandum and
Articles of Association, Companies (Jersey)
Law 1991, as amended and any directions
given by special resolution, the business of the
company shall be managed by the Directors who
may exercise all such powers of the company.
The rules in relation to the appointment and
replacement of Directors are set out in the
Сompany’s Article of Association.
Financial Risks Facing the Group
The principal financial 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.
further details of
risk
For
management please see Note 5 on page 67-72.
the Group’s
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
incentive
competitive
schemes. The Directors also consider it a
remuneration and
Executive
Sergey Evlanchik
Alexander Slipchuk
Yuriy Hordiychuk
Non-executive
Jack Rowell
Shares
2020
2019
Share options
2020
2019
14,967,133
14,939,133
-
14,967,133
14,939,133
-
138,690
138,690
-
-
-
-
-
-
-
-
23
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 2020 was 860 (2019: 844).
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
These consolidated financial statements have
been prepared on the assumption that the
Group is able to continue its operations on a
going concern basis for the foreseeable future.
For the year ended 31 December 2020, net
loss amounted to £1.16 million, including the
exchange difference loss of £1.5 million (2019:
net profit of £2.031 million after the exchange
difference gain of £1.081 million).
For the year ended 31 December 2020, the
Group was in breach of several provisions of
the loan agreement with the European Bank
for Reconstruction and Development (“EBRD”)
and the bank has not issued a waiver for the
breaches. Though to 31 May 2021 the Group
serviced its debt on time in accordance with
the loan agreements with its lenders, on 1 June
2021 the Company entered discussions with
the EBRD to potentially restructure the loan
repayment schedule as a result of pressure
on the working capital requirements of the
business due to increased raw milk costs
and an increase in volumes required to meet
demand. Ukrproduct also notified the EBRD
that although the Company had settled the
interest amount due on 1 June 2021, it did not
repay the quarterly loan tranche due on that
date. At the same time Ukrproduct is seeking
to increase its working capital facility provided
locally in Ukraine.
The Group’s management continues to have
discussions with the EBRD and at present
the EBRD has taken no action to accelerate
repayment of the loan. Though the Company
is hopeful that an agreement can be reached
in due course that works for both parties, the
management is seeking to secure sufficient
additional funding from the local banks to
refinance the existing loan on more competitive
terms. To the best of their knowledge the Board
has a reasonable expectation that the Group
has sufficient liquidity to continue its operations
going forward and to apply the going concern
basis in preparation of the financial statements.
Overall, the Company’s management has been
implementing a number of steps focused
on margin improvement and working capital
replenishment that include, but are not limited
to, the actions described below. Ukrproduct
undertakes ongoing optimisation of the raw
milk supply and its settlement scheme that
is complemented with optimisation of the
products’ portfolio aimed at increasing the
overall margin and turnover. Additionally, the
Group’s management is introducing new cost
efficiency initiatives in procurement, processing,
distribution, marketing and logistics as well as
carefully reducing overhead.
in dairy processing,
The Company has
launched new B2B
partnerships (as well as developing existing
logistics and
ones)
distribution to capitalise on economy of
scale. Moreover, Ukrproduct continues to
introduce new dairy products and beverages
appealing
to shifting consumer demand,
which is complemented by focused marketing
and promotion efforts, while export trading is
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 24
25
being developed with new packaging to adapt
to international consumer requirements. On a
daily basis the management team is engaged
in proactive negotiation with retailers and
other trading partners in order to reflect input
costs volatility in the current pricing of its end
products on shelves, however, this process is
challenging and takes time.
The Board acknowledges that COVID-19 had
a modest impact on the balance sheet and
overall performance of the Group in FY2020
and Ukrproduct has already taken a set of the
relevant measures to adapt to the changing
marketplace. As a part of the going concern
assessment the Company performed a broad
analysis of the future cash flows and budgets,
applying to them multiple scenarios and
stress tests including but not limited to the
potential impact of COVID-19 on the future
trading performance. The analysis revealed
that the Group would continue to maintain
sufficient cash resources as well as stable
flow of revenues in due course. Finally, to
the best of their knowledge the management
does not believe that COVID-19 has a direct
negative financial impact on its operations
and closely monitors the pandemic evolution
and its potential pressure on the markets,
consumers etc.
Annual General Meeting
Ukrproduct’s AGM will be held on 22 July 2021.
The Notice of AGM will be sent to shareholders
no less than 21 days prior to the date of the
meeting.
Auditors
Moore Stephens Audit & Assurance (Jersey)
Limited was appointed as the Group’s auditors
for the 2020 financial year by the resolution of
the Directors held on 30 July 2020. 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.
STATEMENTS OF DIRECTORS’
RESPONSIBILITIES
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
International Financial
in accordance with
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
statements, the directors are required to:
• select suitable accounting policies and
these consolidated financial
then apply them consistently;
• make judgments and estimates that are
reasonable and prudent;
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
Jack Rowell
Chairman
24 June 2021
• state
that
the
financial
information
Group’s website.
On behalf of the Directors:
24 June 2021
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 2020
INDEPENDENT
AUDITOR’S
REPORT
28
29
Independent auditor’s report
to the shareholders of
UKRPRODUCT GROUP
LIMITED
Report on the Audit of the Financial Statements Opinion
Report on the Audit
of the Financial Statements
Opinion
We have audited the consolidated financial statements of Ukrproduct Group Limited
and its subsidiaries (the “Group”) which comprise the consolidated statement of
comprehensive income, the consolidated statement of financial position as at 31
December 2020, the consolidated statement of changes in equity, consolidated
statement of cash flows and notes to the financial statements including a summary
of significant accounting policies. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting
Standards (‘IFRS’) as adopted by the European Union.
In our opinion the financial statements:
• give a true and fair view of the state of the Group’s affairs as at 31
December 2020 and of its results for the year then ended;
• have been properly prepared in accordance with the IFRS as adopted by
the European Union; and
• have been prepared in accordance with the requirements of the
Companies (Jersey) Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report. We are independent of the Group in
accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Jersey, including the FRC’s Ethical Standard
as applied to listed entities, and we have fulfilled our ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Material uncertainty related to going concern
We draw attention to note 2.1 (b), in the
financial statements, which indicates that the
Group is in breach of covenants in respect
of funding received from European Bank for
Reconstruction and Development (EBRD) and
that such breaches have continued after the
year end. These events or conditions, along
with other matters as set in note 2.1 (b), indicate
that a material uncertainty exists that may
cast significant doubt on the Group’s ability to
continue as a going concern. Our opinion is not
modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that,
in our professional judgment, were of most
significance in our audit of the consolidated
financial statements of the current period and
include the most significant assessed risks of
material misstatement (whether or not due to
fraud) we identified, including those which had
the greatest effect on the overall audit strategy;
the allocation of resources in the audit; and
directing the efforts of the engagement team.
These matters were addressed in the context
of our audit of the financial statements as a
whole, and in forming our opinion thereon, and
we do not provide a separate opinion these
matters.
Key Audit Matter
How the matter was addressed in the audit
Risk of fraud in revenue recognition
Our main audit procedures in respect of revenue
recognition were as follows:
and
Revenue
an
is material
important determinant of the Group’s
performance and profitability. This
gives rise to inherent risk that revenue
recognised is overstated in order to
present more profitable results for the
year. The Group generates revenue
from local and export sales of milk,
dairy foods and beverages amounted
to £55.50 million, excluding the charge
of bonuses. Given the magnitude of
the amount and the inherent risk of
revenue overstatement, we consider
revenue recognition to be a key audit
matter.
• We obtained an understanding of the policies and
procedures applied to revenue recognition, as well
as compliance therewith, including an analysis of
the effectiveness of the design and implementation
of controls related to revenue recognition processes
employed by the Group;
• We performed tests of details for accuracy and
occurrence of sales transaction during the year;
• We performed analytical procedures, including gross
profit margin analysis and obtained explanations for
significant variances as compared to previous year;
• We performed journal entries testing for accounts
related to identified risks of material misstatement
and verified them to supporting documentations;
• We performed sales cut-off procedures for a
sample of revenue transactions at year end in order
to conclude on whether they were recognized in the
correct accounting period; and,
• We reviewed the disclosures included in the notes
to the consolidated financial statements.
• Key Observations
We did not note any material issues arising from the
procedures performed in this area.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 30
31
it probable
that makes
Our application of materiality
We define materiality as the magnitude of
misstatements in the consolidated financial
statements
that
the economic decisions of a reasonably
knowledgeable person would be changed or
influenced. We use materiality to determine
the scope of our audit and the nature, timing
and extent of our audit procedures and to
evaluate the results of that work. Materiality was
determined as follows:
Consolidated financial statements as a whole:
Materiality was calculated at £555k which
is approximately 1% of Total Revenue. This
benchmark is considered the most appropriate
because, based on our professional judgement,
we considered that this is the primary measure
used by the users of the consolidated financial
statements in assessing the performance of
the Group.
the Directors
Communication of misstatements to the Board:
that any
We agreed with
misstatement above £28k
identified during
our audit will be reported, together with any
misstatement below that threshold that, in our
view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
During our audit planning, we determined
materiality and assessed the risks of material
in the consolidated financial
misstatement
statements
including the consideration of
where Directors made subjective judgements,
for example, in respect of the assumptions
that underlie significant accounting estimates
and their assessment of future events that are
inherently uncertain. We tailored the scope of
our audit in order to perform sufficient work
to enable us to provide an opinion on the
consolidated financial statements as a whole
taking into account the Group, its accounting
processes and controls and the industry in
which it operates.
Other information
The Directors are responsible for the other
information. The other information comprises
the information included in the annual report set
out on page 4 to 25 other than the consolidated
financial statements and our auditor’s report
thereon. Our opinion on the consolidated
financial statements does not cover the other
information and we do not express any form of
assurance conclusion thereon.
information
statements, or our
In connection with our audits of the consolidated
financial statements, our responsibility is to
read the other
identified above
information
when it becomes available and, in doing so,
is
consider whether the other
materially inconsistent with the consolidated
financial
knowledge
obtained in the audits or otherwise appears
to be materially misstated. If we identify such
material inconsistencies or apparent material
misstatements, we are required to determine
whether there is a material misstatement of the
consolidated financial statements or a material
misstatement of the other information. If, based
on the work we have performed, we conclude
that there is a material misstatement of this other
information, we are required to report that fact
.
We have nothing to report in this regard.
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:
• adequate accounting records have not
been kept, or
• returns adequate for our audit have not been
received from branches not visited by us; or
in
financial statements are not
agreement with the accounting records
and returns; or
• the
• we have not received all the information
and explanations we require for our audit.
Responsibilities of directors for the
consolidated financial statements
As explained more fully in the Statement of
Directors’ Responsibilities on page 18, the
Directors are responsible for the preparation
of the consolidated financial statements which
give a true and fair view, and for such internal
control as the Directors determine is necessary
to enable the preparation of consolidated
financial statements that are free from material
misstatement, whether due to fraud or error.
the consolidated financial
In preparing
statements, the Directors are responsible for
assessing the Group’s ability to continue as
a going concern, disclosing, as applicable,
matters related to going concern and using the
going concern basis of accounting unless the
directors either intend to liquidate the Group
or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
to obtain reasonable
Our objectives are
the financial
assurance about whether
statements are free from material misstatement,
whether due to fraud or error, and to issue an
auditor’s report that includes our opinion.
Reasonable assurance
level of
assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will
always detect a material misstatement when it
exists. Misstatements can arise from fraud or
error and are considered material if, individually
or in the aggregate, they could reasonably be
expected to influence the economic decisions of
users taken on the basis of these consolidated
financial statements.
is a high
Explanation as to what extent the audit was
considered capable of detecting irregularities,
including fraud
The objectives of our audit, in respect to fraud,
are; to identify and assess the risks of material
misstatement of the financial statements due
to fraud; to obtain sufficient appropriate audit
evidence regarding the assessed risks of
material misstatement due to fraud, through
designing and
implementing appropriate
responses; and to respond appropriately to
fraud or suspected fraud identified during the
audit. However, the primary responsibility for
the prevention and detection of fraud rests
with both those charged with governance of
the entity and management.
Our approach was as follows:
• We obtained an understanding of the
legal and regulatory frameworks that are
applicable to the Group and determined that
the most significant are those that relate
to the Companies (Jersey) Law 1991 & the
AIM Rules for Companies. We also reviewed
the laws and regulations applicable to the
Group that have an indirect impact on the
financial statements.
• We gained an understanding of how the
Group
is complying with Companies
(Jersey) Law 1991 & the AIM Rules
inquiries of
for Companies by making
management. We
our
inquiries through our review of minutes of
Board of Directors meetings and the review
of various correspondence examined in the
context of our audit and noted that there
was no contradictory evidence.
corroborated
• We assessed the susceptibility of the
Group’s financial statements to material
misstatement, including how fraud might
occur, by meeting with management to
understand where they considered there
was susceptibility
fraud. We also
to
considered performance targets and their
propensity to influence management to
manage earnings and revenue by overriding
internal controls. We performed specific
procedures to respond to the fraud risk
of inappropriate revenue recognition. Our
included a risk-based
procedures also
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 32
33
sample of journal entries that may have
been posted with the intention of overriding
internal controls to manipulate earnings.
These procedures were designed to provide
reasonable assurance that the financial
statements were free from fraud or error.
• Based on this understanding, we designed
specific appropriate audit procedures to
identify instances of non-compliance with
laws and regulations. This included making
enquiries of management and
those
charged with governance and obtaining
additional corroborative evidence as
required.
A further description of our responsibilities for
the audit of the financial statements is located
on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report
Use of our report
This report is made solely to the Group’s
shareholders as a body, in accordance with
Article 113A of the Companies (Jersey) Law
1991. Our audit work has been undertaken so
that we might state to the Group’s shareholders
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
shareholders as a body, for our audit work, for
this report, or for the opinions we have formed.
Phillip Callow
For and on behalf of Moore Stephens
Audit & Assurance (Jersey) Limited
1 Waverley Place
Union Street
St Helier
Jersey
Channel Islands
JE4 8SG
24 June 2021
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 34
2020
CONSOLIDATED
STATEMENT
ANNUAL RЕPORT 2020 36
37
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
(in thousand GBP, unless otherwise stated)
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2020
(in thousand GBP, unless otherwise stated)
Revenue
Cost of sales
GROSS PROFIT
Administrative expenses
Selling and distribution expenses
Other operating (expenses) /income
PROFIT FROM OPERATIONS
Net finance expenses
Net foreign exchange gain (loss)
(LOSS) / PROFIT BEFORE TAXATION
Income tax сredit
(LOSS) / PROFIT FOR THE YEAR
Attributable to:
Owners of the Parent
Earnings per share:
Basic (pence)
Diluted (pence)
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
OTHER COMPREHENSIVE INCOME, NET OF TAX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Attributable to:
Owners of the Parent
Non-controlling interests
Note
8
9
9
9
9
11
10
13
26
26
Year ended
31 December
2020
£ ‘000
55 508
(50 778)
4 730
(1 205)
(2 464)
(223)
838
(486)
(1 547)
(1 195)
35
(1 160)
Year ended
31 December
2019
£ ‘000
49 961
(45 233)
4 728
(1 137)
(2 175)
74
1 490
(578)
1 081
1 993
38
2 031
(1 160)
2 031
(2.92)
(2.92)
5.12
5.12
(494)
3 758
2 104
2 104
2 104
-
165
-
165
2 196
2 196
-
The notes on pages 42 – 99 are an integral part of these consolidated financial statements.
Note
As at 31 December
2020 £ ‘000
As at 31 December
2019 £ ‘000
ASSETS
Non-current assets
Property, plant and equipment
Intangible 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
TOTAL EQUITY
Non-Current Liabilities
Liabilities for right-of-use assets
Deferred tax liabilities
Current liabilities
Bank loans
Short-term payables
Trade and other payables
Other taxes payable
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
14
15
17
18
19
20
21
22
23
23
23
16
24
25
9 934
598
10 532
7 317
6 115
214
27
156
13 829
24 361
5 264
3 967
4 562
(15 231)
7 031
4 935
1 042
13
1 029
6 628
467
10 947
13
18 055
19 097
24 361
6 994
493
7 487
5 071
7 257
310
31
231
12 900
20 387
3 160
3 967
4 562
(14 737)
3 437
5 931
310
68
242
7 213
441
9 245
18
16 917
17 227
20 387
These consolidated financial statements were approved and authorised for issue by the Board of Directors
on 24 June 2021 and were signed on its behalf by:
The notes on pages 42 – 99 are an integral part of these consolidated financial statements.
Alexander Slipchuk
Chief Executive Officer
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 38
39
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
(in thousand GBP, unless otherwise stated)
Attributable to owners of the parent
e
r
a
h
S
l
a
t
i
p
a
c
e
r
a
h
S
i
m
u
m
e
r
p
n
o
i
t
a
u
a
v
e
R
l
e
v
r
e
s
e
r
i
d
e
n
a
t
e
R
i
s
g
n
n
r
a
e
n
o
i
t
a
l
s
n
a
r
T
e
v
r
e
s
e
r
l
a
t
o
T
-
n
o
c
-
n
o
N
g
n
i
l
l
o
r
t
s
t
s
e
r
e
t
n
i
y
t
i
u
q
E
l
a
t
o
T
£ ‘000 £ ‘000
4 562
3 967
-
-
£ ‘000
3 619
-
£ ‘000
3 718
2 031
£ ‘000
(14 902)
-
£ ‘000
964
2 031
£ ‘000
-
-
£ ‘000
964
2 031
-
-
-
-
-
-
-
-
-
165
165
2 031
165
2 196
(182)
182
-
-
3 967
-
-
4 562
-
-
3 437
-
-
5 931
(1 160)
-
(14 737)
-
-
3 160
(1 160)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(494)
(494)
(1 160)
(494)
(1 654)
(98)
3 856
-
-
(164)
164
-
-
-
(98)
3 856
-
3 967
4 562
7 031
4 935
(15 231)
5 264
-
-
-
-
-
-
-
-
-
-
-
165
2 196
-
3 160
(1 160)
-
(494)
(1 654)
(98)
3 856
-
5 264
As At 31 December 2018
Profit for the year
Other comprehensive
income
Currency translation
differences
Total comprehensive
income
Depreciation on revaluation
of property, plant and
equipment
As At 31 December 2019
Profit for the year
Other comprehensive
income
Currency translation
differences
Total comprehensive
income
Reduction of revaluation
reserve
Gain on revaluation
of property, plant and
equipment
Depreciation on revaluation
of property, plant and
equipment
As At 31 December 2020
The notes on pages 42 – 99 are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
(in thousand GBP, unless otherwise stated)
Cash flows from operating activities
(Loss) / Profit before taxation
Adjustments for:
Exchange difference
Depreciation and amortization
(Loss)/Profit on disposal of non-current assets
(Loss)/ Profit on revaluation
Write off of receivables/payables
Impairment of inventories
Interest income
Interest expense on bank loans
Operation cash flow before working capital changes
Increase in inventories
Decrease / (Increase) in trade and other receivables
Increase in trade and other payables
Changes in working capital
Cash / generated from operations
Interest received
Income tax paid
Net cash / generated from 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 in short term borrowing
Repayments of long term borrowing
Net cash used in financing activities
Net Increase / (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
Note
Year ended
31
December
2020
£ ‘000
Year ended
31
December
2019
£ ‘000
(1 195)
1 993
10
9
9
9
9
9
11
11
24
24
21
1 547
618
(4)
225
(53)
(42)
(2)
488
1 582
(2 246)
1 232
1 662
648
2 230
2
(2)
2 230
(688)
13
(3)
(678)
(494)
-
(525)
(1 019)
533
(608)
231
156
(1 081)
636
7
-
(118)
(28)
(1)
579
1 987
(1 309)
(3 973)
4 210
(1 072)
915
1
2
918
(297)
28
(3)
(272)
(530)
(21)
(347)
(898)
(252)
302
181
231
The notes on pages 42 – 99 are an integral part of these consolidated financial statements.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020
40
2020
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
ANNUAL RЕPORT 2020 42
43
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
(in thousand GBP, unless otherwise stated)
1. GROUP AND PRINCIPAL ACTIVITIES
(a) Introduction
Ukrproduct Group Limited (“the Company”) is
a public limited liability company 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 2020 was 860 (2019: 844).
(b) Share capital
Significant shareholders of the Company as at
31 December are as follows:
Ukrproduct Group
Year
ended 31
December
2020
Year
ended 31
December
2019
Slipchuk Alexander
34.89%
34.89%
Evlanchik Sergey
34.96%
34.96%
As at 31 December 2020, 7.34% of the
Company’s issued share capital was held in
treasury.
(c) Ukrainian environment
The global Covid-19 pandemic and crisis
have hit Ukraine hard and darkened the
outlook. Until February 2020, the economy
was still in a robust macroeconomic state,
with declining public debt, falling inflation and
positive growth forecasts. However, since the
outbreak of the pandemic and the introduction
of strict quarantine measures, the situation
has changed fundamentally. Ukraine’s GDP
contracted 4%, after growing by 3.2% in 2019
according to State Statistics Service оf Ukraine.
The National Bank of Ukraine (the NBU) states
the reduction in investment as the key factor
in the fall in GDP. Throughout the year, gross
fixed capital formation declined significantly
(by 24.4% in 2019) across nearly all sectors.
The contribution of net exports to the change in
GDP in 2020 remained positive (2.4 pp). Lower
energy and higher iron and grain commodity
prices resulted in the most favourable terms
of trade for Ukraine for the last decade. The
import declined by 9.6% due to weak consumer
demand in H1, as well as declining investment
demand and restrictions on international travel
during the year.
Economic activity recovered
in H2 2020
supported by a number of measures to
mitigate the impact of COVID-19. Moreover, the
full-scale lockdown has been replaced by an
adaptive quarantine in June 2020 that enabled
many services to return to normal functioning.
According to data compiled by the State
Statistics Service of Ukraine inflation in Ukraine
amounted at 5% in 2020 For comparison
previous years’ inflation amounted to 4.1% in
2019; 9.8% in 2018; 13.7% in 2017; 12.4% in
2016; 43.3% in 2015 and 24.9% in 2014.
During most of the year, inflation was below
the 5% ± 1 pp target range. Falling global
energy prices, as well as declining demand for
nonstable goods and services, kept inflation
low. A weaker hryvnia affected consumer prices
with a certain lag. With inflationary pressures
easing significantly and business activity
declining in H1 2020, the NBU loosened its
monetary policy to help the economy recover
while returning inflation to the target. The key
policy rate was brought to an all-time low of 6%.
Thanks to the NBU’s monetary support, which
helped reduce the cost of funding, and the
government’s fiscal stimulus, which supported
domestic consumption, the economy began to
recover in Q3 2020.
In 2020 hryvnia devaluated by 16.2% after two
years of strengthening by 16.9% in 2019 and by
1.4% in 2018.
The labor migration of Ukrainians has increased
due to a visa-free regime with the European
Union. The shortage of professional workers in
many industries caused a visible rise in wages
for the necessary personnel in Ukraine in 2020
In 2020 Ukraine produced 8 million 23.5
thousand tons of milk, which is 4.1% less than
in 2019 - according to the State Statistics
Committee. The share of the industrial sector
in the total milk supply is 29%, the remaining
71% is produced by households. According to
the results of 2020, milk processing enterprises
received 3 million 511.8 thousand tons of milk,
which is 7.6% less than in the same period
last year. At the same time, the distribution
of raw milk materials into grades in the total
milk supply showed an increase in the share
of “extra” and “migration” of the second grade
to the first according to the data of of the
Association of Milk Producers.
It is noted that along with the reduction that
is observed in most dairy products, there is
also a change in the structure of manufactured
products. Thus,
there was a noticeable
reduction in the production of drinking milk
of different fat content, the volume of which
decreased by 8%. At the same time, its share
in the structure of production decreased from
46% in 2019 to 43% in 2020. Low profitability is
the main reason of decrease in the production.
Thus, the share of raw materials in the total
weight of revenues for processing increased
from 20.5 to 26.9%, or 885.1 thousand tons
in physical terms. The percentage of higher
grade decreased from 27.1% to 26.6% (875.9
thousand tons). And the first, on the contrary,
increased from 27.3% to 41.4% (1 million 361.9
thousand tons). The share of the second grade
decreased sharply from 23.3 to 4.6% (150.5
thousand tons).
Milk prices were record high, which increased
cost production for the processing industry.
As per Infoagro information, in 2019 dairy
producers had profitability at 50%, although in
2020 even the most effective companies had
profitability from milk production only at about
25%, and many farms worked at loss at all.
The year ended with the establishment of
the weighted average price of three varieties
at 11.64 UAH /kg. The cost of extra grade
averages 12.15 UAH / kg, the highest - 11.7
UAH/ kg, the first - 11.08 UAH/ kg. Price for
milk from households is valued at about UAH
7.00/kg on average, excluding VAT.
The production of the main exchange-traded
dairy products, which are sold
in foreign
markets, has multidirectional dynamics. In
particular, skimmed milk powder in 2020 was
produced by 4.3% more than last year - 28.2
thousand tons, while the amount of butter
produced (up to 85% fat) remains 3% lower.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 44
45
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 significant items of property, plant and
equipment which have been measured using
revaluation model. The consolidated financial
statements are presented in British Pounds
Sterling (GBP) and all values are rounded to
the nearest thousand (£000) except where
otherwise indicated.
(a) Statement of compliance
These consolidated financial statements have
been prepared in accordance with International
Financial Reporting Standards, International
Interpretations
Accounting Standards and
issued by
International Accounting
the
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
For the year ended 31 December 2020, net
loss amounted to £1.16 million, including the
exchange difference loss of £1.5 million (2019:
net profit of £2.031 million after the exchange
difference gain of £1.081 million).
For the year ended 31 December 2020, the
Group was in breach of several provisions of
the loan agreement with the European Bank
for Reconstruction and Development (“EBRD”)
and the bank has not issued a waiver for the
breaches. Though to 31 May 2021 the Group
serviced its debt on time in accordance with
the loan agreements with its lenders, on 01
the EBRD
June 2021 the Company entered discussions
with
to potentially restructure
the loan repayment schedule as a result of
pressure on the working capital requirements
of the business due to increased raw milk
costs and an increase in volumes required to
meet demand. Ukrproduct also notified the
EBRD that although the Company had settled
the interest amount due on 1 June 2021, it did
not repay the quarterly loan tranche due on that
date. At the same time Ukrproduct is seeking
to increase its working capital facility provided
locally in Ukraine.
The Group’s management continues to have
discussions with the EBRD and at present
the EBRD has taken no action to accelerate
repayment of the loan. Though the Company
is hopeful that an agreement can be reached
in due course that works for both parties, the
management is seeking to secure sufficient
additional funding from the local banks to
refinance the existing loan on more competitive
terms. To the best of their knowledge the Board
has a reasonable expectation that the Group
has sufficient liquidity to continue its operations
going forward and to apply the going concern
basis in preparation of the financial statements.
Overall, the Company’s management has been
implementing a number of steps focused
on margin improvement and working capital
replenishment that include, but are not limited
to, the actions described below. Ukrproduct
undertakes ongoing optimisation of the raw
milk supply and its settlement scheme that
is complemented with optimisation of the
products’ portfolio aimed at increasing the
overall margin and turnover. Additionally, the
Group’s management is introducing new cost
efficiency initiatives in procurement, processing,
distribution, marketing and logistics as well as
carefully reducing overhead.
partnerships (as well as developing existing ones)
in dairy processing, logistics and distribution
to capitalise on economy of scale. Moreover,
Ukrproduct continues to introduce new dairy
products and beverages appealing to shifting
consumer demand, which is complemented by
focused marketing and promotion efforts, while
export trading is being developed with new
packaging to adapt to international consumer
requirements. On a daily basis the management
team is engaged in proactive negotiation with
retailers and other trading partners in order to
reflect input costs volatility in the current pricing
of its end products on shelves, however, this
process is challenging and takes time.
The Board acknowledges that COVID-19 had
a modest impact on the balance sheet and
overall performance of the Group in FY2020
and Ukrproduct has already taken a set of the
relevant measures to adapt to the changing
marketplace. As a part of the going concern
assessment the Company performed a broad
analysis of the future cash flows and budgets,
applying to them multiple scenarios and
stress tests including but not limited to the
potential impact of COVID-19 on the future
trading performance. The analysis revealed
that the Group would continue to maintain
sufficient cash resources as well as stable
flow of revenues in due course. Finally, to
the best of their knowledge the management
does not believe that COVID-19 has a direct
negative financial impact on its operations
and closely monitors the pandemic evolution
and its potential pressure on the markets,
consumers etc.
(c) Consolidation principles
The consolidated financial statements comprise
the financial statements of Ukrproduct Group
Limited and its subsidiaries as at 31 December
2020.
The Company has
launched new B2B
Subsidiaries are consolidated from the date of
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 46
47
acquisition, being the date on which the Group
obtains control, and continue to be consolidated
until the date that such control ceases.
control until the date the Group ceases to
control the subsidiary.
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:
intra-group balances,
All
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
- The contractual arrangement with the other
goodwill) and liabilities of the subsidiary;
- Derecognises the carrying amount of any
vote holders of the investee;
non-controlling interests;
from other contractual
- Derecognises the cumulative translation
- Rights arising
arrangements;
transferred, the
incurred to the
liabilities
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
Ukraine
Ukraine
SC****
Effective ownership
ratio
As at 31 December
2019
2020
100%
100%
Principal activities
Holder of some assets
100%
100%
Production
Krasilovsky Molochny Zavod Private
Ukraine
100%
100%
Owner of land assets
Enterprise SC****
Molochaia Dolina LLC****
Zhiviy Kvas LLC****
Alternative Investments MCVIF**
Ukrproduct Group LLC
Ukraine
Ukraine
Ukraine
Ukraine
100%
100%
100%
100%
100%
100%
100%
100%
Owner of land assets
Production
Asset management
Holder of some
assets and operating
companies
differences, recorded in equity;
Linkstar Limited
Cyprus
100%
100%
Holder of Group’s
- The Group’s voting rights and potential
- Recognises
the
fair value of
the
trademarks and assets
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
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
Solaero Global Alternative Fund Limited
Cyprus
100%
100%
Holder of Group’s
Dairy Trading Corporation Limited
Ukrproduct Group LTD
BVI
Jersey
100%
100%
Export operations
trademarks and assets
Parent company traded
on AIM
* The companies are held through Ukrproduct Group LLC which is a 100%-owned subsidiary of the Company.
** Subsidiaries of Solaero Global Alternative Fund Limited, the Group’s holder of trademarks and assets.
**** Subsidiaries of Alternative Investments MCVIF.
Alternative Investments MCVIF is a limited life entity and is due to cease to exist on 5 April 2022.w
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 48
49
2.1. Basis of preparation (continued)
(d) Reorganisation
During 2020
reorganised.
the Group has not been
interests
controlling
(e) Accounting for acquisitions of companies
under common control
Acquisitions of
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
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
the ultimate controlling
shareholders. The difference between the
share of net assets acquired and the cost of
investment is recognised directly in equity.
included
from
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.
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 Consolidated Statement
of Comprehensive Income within “Net foreign
exchange gain (loss)”.
The financial results and financial position of
the Group’s companies are translated into the
presentation currency as follows:
2.2.1. Foreign currency translation and
transactions
(a) Functional and presentation currency
- 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
into the
items are translated
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;
- Income and expenses for each Statement
of Comprehensive Income 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:
2.2.3. Inventories
Inventories are stated at the lower of cost and
net realisable value. Cost is determined using
the weighted average method. Net realisable
value is the estimated selling price in the
ordinary course of business less applicable
variable selling expenses.
The Group identifies the following types of
inventories:
- raw and other materials (including main and
auxiliary operating supply and materials);
- work in progress (including semi-finished
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
Currency
UAH/GBP
UAH/USD
UAH/EUR
31
December
2020
38.44
28.27
34.74
Average exchange rate
for 2020
31 December
2019
Average exchange
rate for 2019
34.91
26.99
30.85
31.02
23.69
26.42
32.96
25.82
28.92
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
investments
with original maturities of three months or
less. Bank overdrafts are included in current
liabilities in the Consolidated Statement of
Financial Position.
liquid
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
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 50
51
inventories
price in the ordinary course of business, less
applicable variable selling expenses. The
to
Group periodically checks
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
2.2.4. Property, plant and equipment
(a) 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 reporting 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 Consolidated
Statement of Comprehensive Income (e.g. through
depreciation, impairment or sale).
Subsequent costs
future
economic benefits of the item of property,
increase
that
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
immediately
recognised as income.
impairment
loss
the
is
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 of property, plant and
equipment
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
and assets under construction. 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. The Group has applied
the production method of depreciation to
all production equipment as management
considered this method to be the most
appropriate for the production assets.
Terms of useful lives by groups of property, plant
and equipment (except for those depreciated
under production method) are listed below:
Group of property, plant and
equipment
Buildings
Plant and machinery
Vehicles
Instruments, tools and other
equipment
Useful life
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. 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 under construction. Upon
completion, the Group assesses whether there
is any indication that an asset may be impaired.
indication exists, the Group
If any such
performs impairment testing as described in
Note 2.2.19. 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
(a) Recognition and measurement of
intangible assets
Intangible assets are recognised at historical
less accumulated amortisation and
cost
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:
• 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.
intangible asset
An
is derecognised at
disposal, or when the Group no longer expects
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 52
53
receipt from this asset of any economic
benefits. The profit from cancellation or
disposal is defined by the difference between
net proceeds on the sale and the carrying
value of intangible assets. If the intangible
asset is exchanged for a similar asset, the
value of the acquired asset is equal to the
value of the disposed asset.
(b) 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.
transferred
consideration
(c) Business combinations and goodwill
The
the
for
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
includes the fair
consideration transferred
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
the separation of
date. This
includes
embedded derivatives in host contracts by
the acquiree.
(group of cash generating assets), impairment
is recognised.
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 IFRS 9
‘’Financial Instruments” 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
2.2.7. Financial assets
The Group classifies its financial assets in the
following measurement categories:
• those to be subsequently measured at fair
value (either through other comprehensive
income (“FVOCI”), or through profit or loss
(“FVPL”), and
• those to be measured at amortised cost.
The classification depends on the Group’s
business model for managing the financial
assets and the contractual terms of the cash
flows.
Three measurement categories into which the
Group classifies its debt financial assets are as
follows:
1) Amortised cost: assets that are held for
collection of contractual cash flows where
those cash flows represent solely payments of
principal and interest are measured at amortised
cost. Interest income from these financial
assets is included in finance income using
the effective interest rate method. Any gain
or loss arising on derecognition is recognised
directly in profit or loss and presented in other
operating income / (expenses). Impairment
losses are presented in other operating income
/ (expenses) or as a separate line item in the
consolidated income statement, if material.
2) Fair value through other comprehensive
income: Assets that are held for collection
of contractual cash flows and for selling the
financial assets, where the assets cash flows
represent solely payments of principal and
interest, are measured at FVOCI. Movements
in the carrying amount are taken through
other comprehensive income, except for the
recognition of impairment gains or losses,
interest revenue and foreign exchange gains
and losses which are recognised in profit or
loss. Interest income from these financial
assets is included in profit or loss using the
effective interest rate method. Impairment
are presented in other operating income /
(expenses) or as a separate line item in the
consolidated statement of comprehensive
income, if material.
3) Fair value through profit or loss: Assets that
do not meet the criteria for amortised cost or
FVOCI are measured at FVPL. A gain or loss
on a debt investment that is subsequently
measured at FVPL is recognised in profit or
loss and presented net within other operating
income / (expenses) in the period in which it
arises.
(a) 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 consolidated statement of comprehensive
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 54
55
income for trading investments; and recognised
in equity for assets classified as assets that are
held for collection of contractual cash flows
and for selling the financial assets.
(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.
(c) Subsequent measurement
After initial recognition, the Group measure a
financial asset at:
(a) amortised cost;
(b) fair value through other comprehensive
income; or
(c) fair value through profit or loss.
Financial assets at amortised cost 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 use a three-stage impairment model,
based on whether there has been a significant
increase in the credit risk of a financial asset
since its initial recognition. These three-stages
then determine the amount of impairment to
be recognised as expected credit losses (ECL)
at each reporting date as well as the amount
of interest revenue to be recorded in future
periods:
(a) Credit risk has not increased significantly
since initial recognition – recognise 12
months ECL, and recognise interest on a
gross basis;
(b) Credit risk has increased significantly
since
recognise
lifetime ECL, and recognise interest on a
gross basis;
recognition –
initial
included
(c) Financial asset is credit impaired (using
IFRS
the criteria currently
9) – IFRS 9 requires that credit losses
on financial assets are measured and
recognised using the ‘expected credit loss
(ECL) approach.
(e) Derecognition
in
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 consolidated statement of
financial position.
“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.
(a) Initial recognition
Financial liabilities are initially recognized at
fair value, adjusted in case of borrowings for
directly attributable transaction expenses.
(b) Subsequent measurement
Trade and other accounts payable initially
recognized at fair value, are subsequently
accounted for at amortized cost at effective
interest rate method.
Borrowings and liabilities initially recognized
at fair value
less transaction costs, are
subsequently measured at amortized 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.
(с) 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 recognized as
share premium.
2.2.10. Treasury shares
The price paid for treasury shares is deducted
from Companies’ shareholders’ equity until
the shares are cancelled or reissued. When
treasury shares are sold or reissued, the
amount received is recognized as an increase
in equity. Treasury stock is held at cost until
retired or reissued. Legal, brokerage, and
other costs to acquire shares are not included
in the cost of treasury stock. When treasury
stock is reissued, any gains are included as
part of additional paid-in capital. Losses upon
reissuance reduce additional paid-in capital
to the extent that previous net gains from the
same class of stock have been recognized and
any losses above that are recognized as part of
retained earnings.
2.2.11. Revenue recognition
Revenue is recognized 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 shareholder’s 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
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 56
57
measured reliably; and
- the costs incurred for the transaction and
the costs to complete the transaction can
be measured reliably.
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.
To recognise revenue under IFRS 15, the
Company applies the following five steps:
2.2.14. Value added tax
consideration is determined by discounting
all future receipts using an imputed rate of
interest. Revenue (proceeds) from sale of
products (goods, works and services) is not
corrected by an amount of related doubtful
and uncollectible receivables. The amount of
such debt is recognized as expenses of the
Group.
Revenue comprises the invoiced value of sales
of goods and services net of value added tax,
rebates and discounts after eliminating sales
within the Group. Revenues and expenses are
recognized on an accruals basis.
(a) Revenue from sale of goods (products)
Revenue from the sale of goods (products) is
recognised when all the following conditions
are satisfied:
- the significant risks and rewards of
ownership of the goods have passed to the
buyer;
- definition of the contract with the customer;
- definition of contractual obligations;
- determining the transaction price;
- allocation of prices
contractual
to
obligations;
- determination of
from
fulfillment of contractual obligations.
revenue
the
2.2.12. Expenses recognition
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.
- 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;
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.
- 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.
(b) Revenue from sale of services
The revenue from rendering of services is
recognised when all the following conditions
are satisfied:
- the amount of revenue can be reliably
Writing off 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.
measured;
2.2.13. Financial expenses
- 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
Interest expenses and other costs on borrowings
to finance construction or production of
qualifying assets are capitalized during the
Deferred tax assets and liabilities are calculated
in respect of temporary differences using
the balance sheet 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
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.
tax
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 at that date.
Deferred income taxes are recognised for
all temporary differences associated with
investments in subsidiaries and associated
companies and
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.
joint activities, except
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
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.
2.2.15. Tax
in accordance with
Taxation has been provided for in the financial
statements
relevant
legislation currently in force. The charge for
taxation in the consolidated statement of
comprehensive income 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.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 58
59
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.
2.2.16. 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 consolidated statement
of comprehensive income over the remaining
vesting period. Where equity instruments are
granted to persons other than employees, the
consolidated statement of comprehensive
income 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 consolidated statement
of comprehensive income over the vesting
period. The fair value of options to be expensed
is determined on the basis of adjusted Black-
Scholes model as set out in Note 28.
2.2.17. Pension costs
to
The Group contributes
the Ukrainian
mandatory state pension scheme, social
insurance and employment funds in respect
of its employees. The Group’s pension scheme
contributions are expensed as incurred and
are included in staff costs. The Group does not
operate any other pension schemes.
2.2.18. Share issue costs
All qualifying transaction costs in respect of
the issue of shares are accounted for as a
deduction from share premium, net of any
related tax deduction. Qualifying transaction
costs
include the costs of preparing the
prospectus, accounting, tax and legal expenses,
underwriting fees and valuation fees in respect
of the shares and of other assets.
2.2.19. Leases
Group as a lessee
The Group as a lessee various warehouses and
vehicles. The Group recognizes a lease liability
and a corresponding right-of-use asset at the
commencement date of a lease. A lease is a
contract — or part of a contract — that conveys
a right to control the use of an identified
asset for a period of time in exchange for
consideration. In general, Group splits the
contractual consideration into a lease and a
non-lease component based on their relative
stand-alone prices. For vehicle leases, however,
Group applies the practical expedient not to
make this split but rather accounts for the fixed
consideration as a single lease component. In
addition, payments related to short-term leases
(leases with a term shorter than 12 months)
are recognized on a straight-line basis in profit
or loss.
Right-of-use assets are measured at cost
comprising the following:
- the amount of the initial measurement of
lease liability;
- any lease payments made at or before
the commencement date less any lease
incentives received;
- any initial direct costs, and;
- restoration costs.
Right-of-use assets are generally depreciated
over the shorter of the asset’s useful life and
the lease term on a straight-line basis. If
the group is reasonably certain to exercise
a purchase option, the right-of-use asset is
depreciated over the underlying asset’s useful
life. Payments associated with short-term
leases and of low-value assets are recognised
on a straight-line basis as an expense in profit
or loss.
Group as a lessor
Amounts due from lessees under finance
leases are recorded as receivables at the
amount of the Group’s investment in the
relevant leases. Income from finance leases
is allocated to accounting periods so as to
reflect a constant periodic rate of return on the
Group’s net investment outstanding in respect
of the relevant leases.
Lease income from operating leases where the
group is a lessor is recognised in income on a
straightline basis over the lease term. Initial direct
costs incurred in obtaining an operating lease are
added to the carrying amount of the underlying
asset and recognised as expense over the lease
term on the same basis as lease income. The
respective leased assets are included in the
balance sheet based on their nature
2.2.20. 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
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
to determine
is calculated
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.
2.2.21 Contingent liabilities and assets
Contingent liabilities are potential liabilities
of the Group arising from past events the
existence of which will be confirmed only by the
occurrence or non-occurrence of one or more
future events, which are not under the complete
control of the Group, or current obligations
resulting from past events are not recognised
in the financial statements 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
in the financial statements. The
liabilities
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
remote.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 60
61
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.
Provisions are recognized when the Group has
a present obligation (legal or constructive) as
a result of a past event, it is probable that an
outflow of resources embodying economic
benefits will be required to settle the obligation
and a reliable estimate can be made of the
amount of the obligation
2.2.22. Related parties
A related party is a person or an entity that is
related to the reporting entity:
A person or a close member of that person’s
family is related to a reporting entity if that
person has control, joint control, or significant
influence over the entity or is a member of its
key management personnel.
An entity is related to a reporting entity if,
among other circumstances, it is a parent,
subsidiary, fellow subsidiary, associate, or joint
venture of the reporting entity, or it is controlled,
jointly controlled, or significantly influenced or
managed by a person who is a related party.
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:
a) companies that directly or
indirectly,
through one or more intermediaries, exercise
control over the Group, are controlled by
it, or together with it are under common
control (this includes holding companies,
subsidiaries and fellow subsidiaries of the
parent company);
b) associates are companies whose
activities are significantly influenced by
the Group, but are neither subsidiaries, nor
joint ventures of the investor;
c) individuals, directly or indirectly holding
ordinary shares that give them a possibility
to significantly
the Group’s
activities;
influence
d) key management personnel are persons
having authority and responsibility for
planning, managing and controlling the
activities of the Group, including directors
and senior officials (as well as the non-
executive director and close relatives of
these individuals); and
e) companies, large blocks of shares with
voting rights of which are owned directly
or indirectly by any person described in
paragraphs (c) or (d), or a person influenced
significantly by such persons. This includes
enterprises owned by directors or major
shareholders of the Group, and companies
which have a common key management
member with the Group;
f)the entity, or any member of a group of
which it is a part, provides key management
personnel services to the reporting entity
or to the parent of the reporting entity
2.2.23. Fair value measurement
Fair value is the price that would be received
to sell an asset or paid to transfer a liability
in an orderly transaction between market
participants at the measurement date. The
fair value measurement
is based on the
presumption that the 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.
2.2.24. Dividends
in
recognised
the
Equity dividends are
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 annual general meeting.
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.
the process of applying
the Group’s
In
accounting policies, management has made
the following judgments, which have the most
significant effect on the amounts recognised in
the financial statements:
(a) 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 approach, comparative
(market) approach and revenue (income)
approach.
(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
for continued
reviewed
appropriateness. Due to the long life of certain
assets, changes to the estimates used can
result in significant variations in the carrying
value. Further information is contained in Notes
14 and 15.
(c) 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 affect 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.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 62
63
(d) 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.
(e) 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.
(f) 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
relevant Ukrainian
the
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.
(g) Transfer pricing
The transfer pricing methods, established by
the Tax Code of Ukraine, are in line with the
OECD Guidelines. The Group exports skimmed
milk powder and performs
intercompany
transactions, which is in the scope of the
Ukrainian TP regulations. The Group has
submitted the controlled transaction report
for the year ended 31 December 2019 within
the required deadline, and has prepared all
necessary documentation on controlled
transactions for the year ended 31 December
2020 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.
(h) Impairment of non-financial assets
Management assesses whether there are any
indicators of possible impairment of non-financial
assets at each reporting date. If any events or
changes in circumstances indicate that the current
value of the assets may not be recoverable or the
assets, goods or services relating to a prepayment
will not be received, the Group estimates the
recoverable amount of assets. If there is objective
evidence that the Group is not able to collect all
amounts due to the original terms of the agreement,
the corresponding amount of the asset is reduced
directly by the impairment loss in the consolidated
statement of comprehensive income. Subsequent
and unforeseen changes in assumptions and
estimates used in testing for impairment may lead
to the result different from the one presented in the
consolidated financial statements.
uses
(i) Fair value of financial instruments
The fair value of financial assets and liabilities
is determined by applying various valuation
methodologies. Management
its
judgment to make assumptions based on
market conditions existing at each balance
sheet date. Where the fair values of financial
assets and financial liabilities recorded in the
consolidated statement of financial position
cannot be derived from active markets, they
are determined using valuation techniques
including the discounted cash flows model.
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 consolidated financial
statements are categorized within the fair
value hierarchy as the lowest level input that is
significant to the entire fair value measurement.
4. ADOPTION OF NEW AND REVISED IFRS
Application of new standards
In general, the accounting policy corresponds to
that applied in the previous reporting year. Some
new standards and interpretations have become
mandatory for use from 01 January 2020. Below
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 64
65
there is information on new and revised standards
and interpretations that have been applied by the
Company from 01 January 2020.
Amendments to IAS 1 “Presentation of Financial
Statements” and IAS 8 “Accounting Policies,
Changes in Accounting Estimates and Errors” in
respect to definition of material
the financial statements,
These Amendments clarify the definition of
material by making it more consistent and relevant
to all standards. According to the new definition,
information is considered material if its omission,
misstatement or concealment by other information
in
in accordance
with reasonable expectations, could affect the
decisions of the main users of the financial
statements of general purpose, who make it on the
basis of such financial statements containing the
financial information about the specific reporting
organization. These Amendments did not affect
the Company’s financial statements.
Amendments to IFRS 3 “Business Combinations”
These Amendments clarify that business is
an integrated set of activities and assets must
which include at least a contribution and a
fundamentally meaningful process, which
together can significantly contribute to generating
of income. Herewith, Amendments explains that
the business does not necessarily have to include
all the contributions and processes necessary
to generate an income. The Amendments also
introduce an unrequired “concentration test”,
which simplifies the assessment of whether
the acquired set of activities and assets is a
business. These Amendments did not affect
the Company’s financial statements, but may be
applied in the future if the Company conducts a
business combination.
Amendments to IFRS 7 “Financial Instruments:
Disclosures”, IFRS 9 “Financial Instruments”,
IAS 39 “Financial Instruments: Recognition and
Measurement” - Interest Rate Benchmark Reform
The Amendments provide a number of
to hedging
that are applied
exemptions
relationship that are directly affected by the
base interest rate reform. Base interest rate
reform affects the hedging relationship if its
application results in uncertainties about the
terms and/or amount of cash flows based on
the base
interest rate, on the hedged item or hedging
instrument. The Amendments did not affect the
Company’s financial statements as it does not
have hedging relationship based on interest rates.
Amendments to the Conceptual Framework of
Financial Reporting
The Conceptual Framework for the financial
statements in the new version contains a new
section on valuation, guidance on presentation
of financial results, improved definitions and
recommendations (in particular, the definition
of a liability) and clarification of such important
issues as management functions, prudence and
uncertainty in valuation during the preparation
of the financial statements.
The Amendments did not affect the Company’s
financial statements.
IFRS and Interpretations which are issued but
not yet effective
The Company has not applied the following
IFRS, Interpretations to IFRS and IAS, changes
and amendments to them that have been
issued but are not yet effective.
IFRS 17 “Insurance Contracts”
is a new standard for financial
IFRS 17
statements in respect to insurance contracts
that
and
the
measurement, presentation and disclosure of
establishes
recognition
insurance contracts. IFRS 17 will replace IFRS
4 “Insurance Contracts”, which was issued in
2005.
IFRS 17 becomes effective for reporting
periods beginning on or after 01 January 2023,
with comparative information being required.
Early application is permitted, provided that the
entity also applies IFRS 9 and IFRS 15 on the
date of the first application of IFRS 17 or earlier.
This Standard was not applied to the Company.
to
IFRS 10
Amendments
“Consolidated
Financial Statements” and IAS 28 “Investments
in Associates and Joint Ventures” – Sale or
Distribution of Assets between an Investor and
its Associate or Joint Venture
The Amendments consider the contradictions
between IFRS 10 and IAS 28 in respect to
accounting of the loss of control over a subsidiary
that is sold to an associate or joint venture or is
contributed to them. The Amendments clarify
that the gain or loss arising from the sale or
contribution of assets that is a business, as
defined in IFRS 3, is recognized in full amount in an
agreement between the investor and its associate
or joint venture. However, gains or losses arising
from the sale or contribution of non-business
assets are recognized only to the extent of the
unrelated investors’ interests in associate or joint
venture. The IASB postponed the effective date of
these Amendments indefinitely, however, earlier
application of the Amendments is permitted.
Amendments to IAS 1 “Presentation of Financial
Statements”
In January 2020, the IASB issued Amendments
to IAS 1 in order to clarify issues related to
the classification of current and non-current
liabilities. The Amendments are effective for
periods beginning on or after 01 January 2023.
The Amendments are applied retrospectively,
early application is permitted.
The Amendments may affect the classification
of the liabilities in the Company’s statement of
financial position.
Amendments to IFRS 3 “Business Combinations”
– “Reference to Conceptual Framework”
In May 2020, the IASB issued Amendments to
IFRS 3, which aim is to replace the reference
to the “Framework for the Preparation and
Presentation of Financial Statements” issued
in 1989 with the reference to the “Conceptual
Framework for Financial Reporting” issued
in March 2018 without making significant
changes to the requirements of the standard.
These Amendments shall enter into force for
annual periods beginning on or after 01 January
2022 and shall be applied prospectively.
Amendments to IAS 16 – “Property, Plant and
Equipment” - Proceeds before Intended Use
In May 2020, the IASB issued Amendments to
IAS 16, according to which entities are prohibited
to deduct from the historical cost of an item of
property, plant and equipment any proceeds
from the sale of products manufactured in the
process of delivering of such item to its location
and bringing it into condition, which is required
for its operation in the manner prescribed by
management. Instead, the entity recognizes
proceeds from the sale of such products, as
well as the cost of production of those products,
in profit or loss. These Amendments shall enter
into force for annual periods beginning on or
after 01 January 2022 and shall be applied
retrospectively.
these
Amendments will not have a material impact on
the Company’s financial statements.
Amendments to IFRS 16 “Leases” – “Covid-19-
Related Rent Concessions”
is expected
that
It
On 28 May 2020, the IASB issued Amendments
to IFRS 16 “Leases” – “Covid-19-Related Rent
Concessions”. These Amendment provide an
exemption for tenants from the requirements
in respect to accounting of
of
IFRS 16
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 66
67
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.
(a) Principal financial instruments
The principal financial instruments used by the
Group, from which financial instrument risk
arises, are as follows:
- trade and other receivables;
- other financial assets;
- cash and cash equivalents;
- bank loans;
- trade and other payables.
modifications to lease agreements in the case of
lease concessions that arise as a direct result of
Covid-19 pandemic. As a practical simplification,
the lessee may decide not to analyze whether
the lease concession made by the lessor in
connection with the Covid-19 pandemic is a
modification of the lease agreement.
A lessee that makes such a decision should
consider any change in lease payments due
to a lease concession related to the Covid-19
pandemic, similar to how this change would be
accounted for in accordance with IFRS 16 if it
was not a modification of the lease agreement.
These Amendments are applied to annual
periods beginning on or after 01 June 2020.The
application of these Amendments did not have an
impact on the Company’s financial statements.
Amendments to IAS 37 “Provisions, Contingent
Liabilities and Contingent Assets” - “Onerous
Contracts – Cost of Fulfilling a Contract”
In May 2020, the IASB issued Amendments to
IAS 37, which clarify which costs an entity should
consider when assessing whether a contract is
onerous or unprofitable. These Amendments
provide an application of an approach based
on “costs directly related to the contract”.
Costs directly related to the contract for the
provision of goods or services include both
additional costs for the performance of this
contract and distributed costs directly related
to the performance of the contract. General and
administrative expenses are not directly related
to the contract and are therefore excluded,
except when they are clearly reimbursable by
the contractor under the contract.
These Amendments shall enter into force for
annual periods beginning on or after 01 January
2022. It is expected that these Amendments will
not have a material impact on the Company’s
financial statements.
Interest Rate Benchmark Reform - Phase 2
On 27 August 2020, the IASB published the
“Interest Rate Benchmark
Amendments
Reform” - Phase 2, Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. These
Amendments relate to the following:
changes in contractual cash flows - the
company does not have to derecognize
or adjust the carrying amount of financial
instruments to reflect the changes required
by the reform, but instead needs to update
the effective interest rate in order to reflect
the change in the base interest rate;
hedge accounting
- the company does
not have to stop hedge accounting only
because it makes changes necessary for
the reform if the hedge meets other hedge
accounting criteria; and
disclosure - the company will have to disclose
new risks arising from the reform and how
it manages the transition to alternative
base rates.
The Amendments shall enter into force for
annual periods beginning on or after 01 January
2021, with early application permitted.
“Annual Improvements to IFRS” (cycle for 2018
– 2020 years)
Amendments to IFRS 1 “First-time Adoption of
International Financial Reporting Standards” -
Subsidiary that applies International Financial
Reporting Standards for the first time
Under these Amendments, a subsidiary that
chooses to apply paragraph D16 (a) of IFRS 1
has the right to measure accumulated exchange
differences using the amounts recognized in
the financial statements of the parent company
based on the date of transition of the parent
company to IFRS. These Amendments may
also be applied by associates and joint ventures
that decide to apply paragraph D16 (a) of IFRS
1. These Amendments are effective for annual
periods beginning on or after 01 January 2022.
These Amendments will not have an impact on
the Company’s financial statements.
Amendments to IFRS 9 “Financial Instruments”
- Fees in the “10 per cent” test for derecognition
of financial liabilities
These Amendments clarify which amounts
of commission fees the entity considers
when assessing whether the terms of a new
or modified financial liability differ materially
from the terms of the original financial liability.
Such amounts include only those commission
fees that have been paid or received between
a particular creditor and the borrower and
commission fees paid or received by the creditor
or borrower on behalf of another party. An
entity shall apply these Amendments in respect
to financial liabilities that have been modified
or replaced at the date of commencement (or
after) of the annual reporting period in which the
entity first applied these Amendments. These
Amendments shall enter into force for annual
periods beginning on or after 01 January 2022.
It is expected that these Amendments will
not have a material impact on the Company’s
financial statements.
Amendments to IAS 41 “Agriculture” - Taxation
in Fair Value Measurements
These Amendments eliminate the requirement
in paragraph 22 of IAS 41 that entities do not
include tax-related cash flows in measuring
the fair value of assets within the scope of IAS
41. An entity shall apply these Amendments
prospectively to the fair value measurement at
the date of commencement (or after) of the first
annual reporting period beginning on or after
01 January 2022. Application is allowed until
this date. These Amendments will not have an
impact on the Company’s financial statements
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 68
69
The principal financial instruments are as follows:
Financial assets
Financial assets at amortised cost
- trade and other receivables (excluding non-financial assets)
- cash and cash equivalents
- other financial assets
Financial liabilities
Financial liabilities at amortised cost:
- short-term payables
- current bank loans
- trade and other payables (excluding non-financial liabilities)
- interest payable
Year ended
Year ended
31 December 2020
31 December 2019
£ ‘000
5 689
5 506
156
27
17 386
467
6 628
10 112
179
£ ‘000
7 056
6 794
231
31
15 395
441
7 213
7 570
171
(b) General objectives, policies and processes
risk management
The Group’s overall
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 Group’s
The Board has overall responsibility for
the determination of
risk
management objectives and policies 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 overall objective of the Board
is to set polices that seek to reduce risk
as far as possible without unduly affecting
the Group’s competitiveness and flexibility.
Further details regarding these policies are
laid out below.
(c) Credit risk
Credit risk is the risk that a counterparty will
not be able to meet its obligations in full when
due. The 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.
implemented
According to the Group’s risk assessment
policy,
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
the Group does
assessment procedures,
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
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 70
71
Cash at bank and short term deposits are kept
on the accounts in the following banks:
information is contained in Note 24.
The Group’s operating divisions (plants) have
Bank
JSC OTP Bank
PJSC Raiffeisen Bank Aval
CreditWest
Other
Year ended
31 December 2020
Rating
uaAAA
Aa3.ua
uaAA+
Caa3
Year ended
31 December 2019
Rating
uaAA
A3.ua
uaAA+
Caa3
Year ended
31 December 2020
£ ‘000
8
10
86
37
141
Year ended
31 December 2019
£ ‘000
2
28
189
4
223
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:
different liquidity requirement profiles. As the
Group’s products have short-cycled 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 CEO (and the Board, if requested) receives
rolling quarterly cash flow projections on
information
a monthly basis as well as
regarding the daily cash balances at each
Year ended
31 December 2020
£ ‘000
Carrying Value
Cash and cash equivalents
Trade receivables
Other receivables
Other financial assets
156
4 513
993
27
5 689
Year ended
31 December 2020
£ ‘000
Maximum exposure
(unsecured)
156
4 513
993
27
5 689
Year ended
31 December 2019
£ ‘000
Carrying Value
231
6 664
130
31
7 056
Year ended
31 December 2019
£ ‘000
Maximum exposure
(unsecured)
231
6 664
130
31
7 056
(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. Detailed
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
interest-rate risk arises only
The Group’s
from short-term credits, and is considered
to be insignificant. The Group analyses the
interest rate exposure on a year basis. Detailed
information is contained in Note 24.
is performed by
A sensitivity analysis
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 a decrease in
interest expense by GBP 66 280 (decrease
2019: -1%-GBP 72 130).
(ii) Foreign exchange risk
Regardless of the increase of sales in Ukraine,
the Group’s management believes that currency
risk is rather high. This risk can be expressed
in the growth of currencies of dependent raw
materials (vegetable fats), packaging materials,
energy resources and fuel. The Group does
the best to minimise this risk by replacing raw
materials and other components. An increase
in export sales is another step taken to deal
with exchange risks. All sales are made in a
stable currency.
Purchase of raw milk, main semi-processed
products and other components of the
in Ukraine and
cost price are produced
are represented
in hryvnia. All Group’s
outstanding balances of the trade accounts
payable are in UAH. Currency analysis is
provided in Note 29.
The Group has a long-term loan from the
European Bank of Reconstruction and
Development (“EBRD”) for the purpose of
modernising Starokonstantinovskiy Molochniy
in
Zavod SC. This debt
Euros. 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 UAH
depreciation against EUR by 1% would cause
an exchange rate loss of GBP 190 thousand
(2019 by 3%: GBP 230 thousand).
is denominated
(iii) Commodity price risk
has
tends
increase
economy
Ukrainian
The
been
characterised by high rates of inflation. This
situation can result in higher NBU rates that
will increase the lending rate of Ukrainian
banks. The Group
to experience
inflation-driven
in certain costs,
including salaries and rents, fuel costs that
are sensitive to rises in the general price level
in Ukraine. The management of the Group
believes there exists high risk of Ukrainian
minimum wage growth. 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. Minimization
of risk can be achieved by means of rapid
response to the market-growth rates and
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 72
73
Total debt
Less: Cash and cash
equivalents
Net debt
Total equity
D/E ratio
Year ended
31
December
2020
£ ‘000
Year ended
31
December
2019
£ ‘000
7 095
(156)
6 939
5 264
131.8%
7 654
(231)
7 423
3 160
234.9%
7. SEGMENT INFORMATION
At 31 December 2020, the Group was organised
internationally
into five main business
segments:
1) Branded products – processed cheese,
hard cheese, packaged butter and spreads
2) Beverages – kvass, other beverages
3) Non-branded products – skimmed milk
powder, other skimmed milk products
4) Distribution services and other –resale of
third-party goods and processing services
5) Supplementary products – grain crops
the timeliness of raising prices for finished
products.
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.
(f) Operational risk
Operational risk is a risk arising from systems
failure, human error, fraud or external events.
When controls fail to work, this could have legal
consequences or lead to financial losses. The
Group cannot 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
to
shareholders by delivering the products
in demand by the customers at prices
commensurate with the level of risk and
expectations of shareholders.
return
The Group sets the amount of capital it requires
in proportion to risk. The Group manages its
capital structure and makes adjustments to it
in the light of changes in economic conditions
and the risk characteristics of the current
trading environment. The Group’s core assets
consist predominantly of the property, plant
and equipment – the resources that have
proven their ability to withstand the competitive
erosion and inflationary pressure.
In order to maintain or adjust the capital
structure, the Group may issue new shares,
adjust the amount of dividends paid to
shareholders, repay the debt, return capital to
shareholders or sell assets to improve the cash
position. Historically, the first three methods
were used to achieve and support the desired
capital structure. The Group monitors capital
on the basis of the net debt to equity ratio (D/E
ratio). This ratio is calculated as net debt to
shareholder equity. Net debt is calculated as
total debt (as shown in the statement of financial
position) 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.
As at 31 December 2020, the D/E ratio consists
of approximately 1.31.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 74
75
7. SEGMENT INFORMATION (CONTINUED)
The segment results for the year ended 31 December 2020 are as follows:
The segment results for the year ended 31 December 2019 are as follows:
Branded
products
Beverages
Non-
branded
products
Distribution
services and
other
Supple-
mentary
products
Un-allocat-
ed
Total
Non-
Distribution
Supple-
Beverages
branded
services and
mentary
£ ‘000
34 445
4 159
(787)
£ ‘000
1 659
959
(186)
£ ‘000
6 004
(1 289)
245
(2 035)
(553)
645
-
1 337
-
-
1 337
-
1 337
14 291
-
220
-
-
220
-
220
688
-
(399)
-
-
(399)
-
(399)
2 491
-
-
-
14 291
5 776
688
-
2 491
-
-
-
5 776
-
-
-
-
-
-
£ ‘000
1 647
538
(102)
(263)
-
173
-
-
173
-
173
-
-
-
212
-
-
Sales
Gross profit
Administrative expenses
Selling and distribution
expenses
Other operating expenses
Profit from operations
Finance expenses, net
Loss from exchange
differences
Profit before taxation
Taxation
Profit for the year
Segment assets
Unallocated corporate
assets
Consolidated total assets
Segment liabilities
Unallocated corporate
liabilities
Unallocated deferred tax
Consolidated total
liabilities
Depreciation and
amortisation
(223)
(609)
(486)
(223)
838
(486)
(1 547)
(1 547)
(2 642)
35
(2 607)
-
(1 195)
35
(1 160)
23 029
1 332
1 332
1 332
-
24 361
9 684
12 080
8 384
-
116
-
-
116
-
116
-
-
-
-
-
-
£ ‘000
11 753
363
(69)
£ ‘000
-
-
(306)
£ ‘000
55 508
4 730
(1 205)
(178)
(80)
(2 464)
Sales
Gross profit
Administrative expenses
Selling and distribution
expenses
(1 985)
(406)
Other operating expenses
-
Profit from operations
1 818
Branded
products
£ ‘000
27 255
4 697
(894)
-
-
1 818
-
1 818
13 927
-
-
8 266
£ ‘000
1 647
823
(155)
-
262
-
-
262
-
262
1 423
products
£ ‘000
7 214
(1 534)
293
618
-
(623)
-
-
(623)
-
(623)
3 922
-
-
-
-
-
-
-
-
other
£ ‘000
1 942
403
(77)
products
£ ‘000
11 902
339
(64)
Unallocat-
ed
£ ‘000
-
-
(240)
Total
£ ‘000
49 961
4 728
(1 137)
(170)
(143)
(89)
(2 175)
-
156
-
-
156
-
156
-
-
-
267
-
-
267
-
-
132
-
-
132
-
132
-
-
-
-
-
-
-
-
74
(255)
(578)
74
1 490
(578)
1 081
1 081
248
38
286
-
1 993
38
2 031
19 272
1 115
1115
1 115
-
20 387
8 533
8 166
8 166
242
242
8 408
16 941
-
636
Finance expenses, net
Loss from exchange
differences
Profit before taxation
Taxation
Profit for the year
Segment assets
Unallocated corporate
assets
Unallocated deferred tax
Consolidated total
liabilities
Depreciation and
amortization
-
-
-
Consolidated total assets
13 927
1 423
3 922
Segment liabilities
8 266
Unallocated corporate
1 029
1 029
liabilities
212
-
13 109
19 097
448
117
53
-
-
-
618
The unallocated corporate liabilities represent bank loans, overdrafts and accruals.
349
52
235
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 76
77
9. EXPENSES BY NATURE
For the years ended 31 December 2020 and 31 December 2019, items of expenses were presented
as follows:
Cost of sales
Including:
Year ended
Year ended
31 December 2020
31 December 2019
£ ‘000
(50 778)
£ ‘000
(45 233)
Raw materials and consumables used, cost of goods sold, manufacture
(47 294)
(42 089)
7. SEGMENT INFORMATION (CONTINUED)
Secondary reporting format - geographical segments:
Sales by country
Year ended 31 December
Sales by country
Year ended 31 December
(consignees)
Ukraine
Republic of Iraq
Azerbaijan
Poland
Moldova
Turkey
Kazakhstan
Singapore
Lebanon
Egypt
Uzbekistan
Denmark
Germany
Other countries
2020
£ ‘000
47 325
1 937
1 762
758
619
530
498
477
326
304
197
170
170
435
(consignees)
Ukraine
Azerbaijan
Kazakhstan
Denmark
Mexico
Holland
Moldova
Turkmenistan
Egypt
Georgia
Nigeria
Poland
Canada
Other countries
2019
£ ‘000
43 517
1 021
1 012
965
796
717
523
374
299
260
144
105
85
144
Total
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.
49 961
55 508
Total
The Group has no single customers that exceed 10% of total sales.
8. REVENUE
overheads etc.
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.
Security
Lease and current repair and maintenance
Bank service
Communication
Amortization and depreciation
Audit fees
Taxes and compulsory payments
IT materials, household expenses, reading materials
Other
Selling and distribution expenses
Including:
Delivery costs
Promotion
For the years ended 31 December 2020 and 31 December 2019, sales revenue was presented as
follows:
Wages and salaries, social security costs (Note 12)
Lease and current repair and maintenance
Branded (including bonuses)
Beverages (including bonuses)
Non-branded products
Distribution services (including bonuses)
Supplementary products
Gross revenue
Charge of bonuses
Total revenue (excluding bonuses)
Year ended
31 December 2020
£ ‘000
36 110
1 950
6 004
1 647
11 753
57 465
(1 957)
55 508
Year ended
31 December 2019
£ ‘000
28 626
1 942
7 214
1 942
11 902
51 626
(1 665)
49 961
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.
Packaging
Amortization and depreciation
Veterinary certificates, medical examination, permits
Impairment of inventories
Other
Other operating (expenses)/income
Including:
(Loss)/Profit on revaluation
Impairment of inventories
Impairment of trade receivables
Penalties
Profit / (loss) on disposal of non-current assets
Amortization and depreciation
Wages and salaries, social security costs (Note 12)
Other
(2 977)
(507)
(1 205)
(490)
(209)
(90)
(65)
(49)
(44)
(29)
(38)
(34)
(16)
(141)
(2 464)
(517)
(417)
(394)
(131)
(82)
(78)
(75)
(72)
(698)
(223)
(225)
(42)
(53)
(19)
(4)
(4)
-
124
(2 649)
(495)
(1 137)
(486)
(183)
(95)
(73)
(69)
(40)
(54)
(46)
(43)
(18)
(30)
(2 175)
(587)
(622)
(390)
(148)
(97)
(76)
(73)
(150)
(32)
74
-
(28)
(32)
(29)
7
(11)
(2)
169
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 78
10. NET FOREIGN EXCHANGE GAIN (LOSS)
For the years ended 31 December 2020 and 31 December 2019, net foreign exchange gain (loss),
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 net foreign exchange gain (loss)
11. NET FINANCE EXPENSES
1
32
(1 536)
(44)
(1 547)
(14)
46
1 093
(44)
1 081
For the years ended 31 December 2020 and 31 December 2019, financial income/(expenses)
were presented as follows:
Finance expense
Interest expense on bank loans
Interest expense on lease liabilities
Finance income
Interest income
Net finance expense recognised in the statement of comprehensive
income
12. EMPLOYEE BENEFIT EXPENSES
Year ended
Year ended
31 December 2020
31 December 2019
£ ‘000
£ ‘000
(481)
(7)
2
(486)
(564)
(15)
1
(578)
For the years ended 31 December 2020 and 31 December 2019, employee benefit expenses were
presented as follows:
Wages and salaries (including key management personnel)
Social security costs
Total
Average number of employees
Year ended
Year ended
31 December 2020
31 December 2019
£ ‘000
(3 213)
(648)
(3 861)
860
£ ‘000
(2 929)
(598)
(3 527)
844
79
Year ended
Year ended
31 December
31 December
2020
£ ‘000
(2 977)
(490)
(394)
-
(3 861)
2019
£ ‘000
(2 649)
(486)
(390)
(2)
(3 527)
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
Total
Wages and salaries of key management personnel:
For the year ended 31 December 2020, remuneration of the Group’s key management personnel
amounted to GBP 130.8 thousand (2019: GBP 132.3 thousand).
Key management personnel received only short term benefits during the years ended 31 December
2020 and 31 December 2019. The key management personnel are those persons remunerated by
the Group who are members of the Board of Directors of the Company (Ukrproduct Group Ltd).
13. INCOME TAX EXPENSES
For the years ended 31 December 2020 and 31 December 2019, 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
Year ended
31 December
31 December
2020
£ ‘000
-
1
(36)
(35)
2019
£ ‘000
25
1
(64)
(38)
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% (2019: 18%).
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020
80
81
13. INCOME TAX EXPENSES (CONTINUED)
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.
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
Year ended
Year ended
31 December 2020
31 December 2019
£ ‘000
£ ‘000
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 (2019: 18%, 2018: 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
(2 487)
95
1 197
(1 195)
(448)
(448)
-
(483)
(484)
1
(35)
(36)
1
26%
18%
8%
Nil
3 137
67
(1 102)
2 102
572
565
7
(610)
(604)
(6)
(38)
(39)
1
26%
18%
8%
Nil
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
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
interpretative issues.
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 Price Consulting LLC as at 01
December 2020.
The Group is divided into two cash-generating
units (CGU).
Dairy production
Dairy productions consists of production
assets for butter, cheese, protein and skimmed
dairy products:
- Production assets of SE Starokostyantynivski
Dairy Plant and two other units in Zhytomir
and Letychiv;
- Group vehicle park used for raw material
and 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 value in use
calculation
Value in use calculation for production both
dairy products and beverages is sensitive to
the following assumptions:
Gross profit margin – Gross profit margin is
based on 2020 budget value and takes into
consideration trends of value indexes for 2019-
2022.
Discount rate – Discount rate assumes
current market estimates 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 based on from Weighted
Average Cost of Capital (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. Specific segment risks
are included in usage of separate facts of
beta-testing. Beta factors are estimated
annually using generally accessible market
data. The WACC used in the model for both
CGUs is 21,5%.
Production value increase – is derived from
published consumer price index for Ukraine
or world price tendencies for export product
groups.
Increase of raw material price – forecast is
obtained got from published consumer price
index for Ukraine.
Predicted increase data – the data are based
on published industry research in Ukraine and
management estimates.
Assumption regarding business segment – in
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 82
14. PROPERTY, PLANT AD EQUIPMENT (CONTINUED)
so far as the directors are aware, forecasts in
relation to the growth rate of each business
segment are based on a comparison with
the forecast growth rates of the Group’s
competitors.
The growth of sales of branded products on
the local market is related to the development
of sales of the brands “Nash Molochnik”,
“Arseniivskyi” and “Molendam”. These brand
gave more than 50% of revenue.
is not used for kvass
Industry forecast
(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 management’s
forecasts including sensitivity analysis. Brand
development plans include:
- Extension of brand presence in distribution
networks;
- Kvass in kegs sales increase;
- Extension of beverage product range
(production of white kvass);
The given product is dependent on weather
conditions.
In so far as the directors are aware, the future
cash inflow from each CGU is not expected to
be below its acquisition cost and, therefore, no
impairment considerations have been included
in the valuation.
As at 31 December 2020 and 31 December 2019, property, plant and equipment were presented
as follows:
83
l
a
t
o
T
£ ‘000
7 892
261
-
(96)
1 168
9 225
1 472
571
(67)
255
2 231
9 225
460
-
d
n
a
d
n
a
L
s
g
n
d
i
l
i
u
B
d
n
a
t
n
a
P
l
i
y
r
e
n
h
c
a
M
s
e
l
c
i
h
e
V
,
s
t
n
e
m
u
r
t
s
n
I
r
e
h
t
o
d
n
a
s
l
o
o
t
t
n
e
m
p
u
q
e
i
£ ‘000
£ ‘000
r
e
d
n
u
s
t
e
s
s
A
n
o
i
t
c
u
r
t
s
n
o
C
£ ‘000
39
261
(234)
-
5
£ ‘000
2 445
£ ‘000
4 069
-
35
-
418
-
109
(7)
568
71
2 898
4 739
-
-
-
-
-
71
460
(476)
-
-
-
382
140
-
91
613
591
241
(8)
85
909
2 898
4 739
-
43
(552)
2 002
-
-
336
(904)
1 627
(5)
696
-
45
(10)
92
823
185
71
(16)
34
274
823
-
56
643
-
45
(79)
85
694
314
119
(43)
45
435
694
-
41
(393)
307
(49)
(169)
(2 018)
443
(5)
4 379
(59)
(45)
(641)
(935)
(107)
(110)
(1 838)
10
3 750
4 858
493
1 038
10 149
-
-
-
-
-
613
128
-
(552)
909
247
(4)
435
102
(33)
274
77
(4)
2 231
554
(41)
(904)
(393)
(169)
(2 018)
(162)
(204)
(100)
-
10
71
39
27
3 723
2 285
2 063
44
4 814
3 830
3 478
11
482
259
329
(45)
133
905
549
511
(511)
215
9 934
6 994
6 420
Cost or valuation At 1 January 2019
Additions
Transfers to/from AUC
Disposals
Exchange differences on translation to the
presentation currency
At 31 December 2019
Accumulated depreciation
At 1 January 2019
Depreciation charge
Disposals
Exchange differences on translation to the
presentation currency
At 31 December 2019
Cost or valuation
At 1 January 2020
Additions
Transfers to/from AUC
Elimination due to revaluation
Revaluation increase / (decrease)
Disposals
Exchange differences on translation to the
presentation currency
At 31 December 2020
Accumulated depreciation
At 1 January 2020
Depreciation charge
Disposals
Elimination due to revaluation
Exchange differences on translation to the
presentation currency
At 31 December 2020
Net book value at 31 December 2020
Net book value at 31 December 2019
Net book value at 31 December 2018
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020
84
85
15. INTANGIBLE ASSETS
As at the reporting dates intangible assets were presented as follows:
Computer software
Trademarks
£ ‘000
£ ‘000
Cost or valuation
At 1 January 2019
Additions
Disposals
Exchange differences on translation to the
presentation currency
At 31 December 2019
Accumulated amortization
At 1 January 2019
Amortization charge for the year
Disposals
Exchange differences on translation to the
presentation currency
At 31 December 2019
Cost or valuation
At 1 January 2020
Additions
Disposals
Exchange differences on translation to the
presentation currency
At 31 December 2020
Accumulated amortization
At 1 January 2020
Amortization charge for the year
Disposals
Exchange differences on translation to the
presentation currency
At 31 December 2020
Net book value at 31 December 2020
Net book value at 31 December 2019
Net book value at 31 December 2018
36
36
(8)
5
69
25
1
-
3
29
69
190
-
1
260
29
2
-
5
36
225
40
11
891
-
-
60
951
378
64
-
56
498
951
-
-
45
996
498
62
-
62
622
374
453
513
The remaining amortization periods of the intangible assets are as follows:
- Computer software 1-10 years;
- Trademarks 11-18 years
Total
£ ‘000
927
36
(8)
65
1 020
403
65
-
59
527
1 020
190
-
46
1 256
527
64
-
67
658
598
493
524
14. PROPERTY, PLANT AND
EQUIPMENT (CONTINUED)
As at 31 December 2020 the Group has no
contractual commitments to purchase property,
plant and equipment.
Fixed assets with a net book value of GBP 2.562
thousand at 31 December 2020 (2019: GBP
4.872 thousand) were pledged as collateral for
loans.
As at 31 December 2020 any prepayments for
property, plant and equipment were included
within Assets under construction in the amount
of GBP 20 thousand (2019: GBP 28 thousand).
As at 31 December 2020 fully depreciated
assets have been included within property,
plant and equipment with the original cost of
GBP 130 thousand (2019: GBP 287 thousand).
to provide
impracticable
It’s
information
about the carrying amounts of all classes of
assets, except office equipment, as they were
measured using the cost model without undue
cost and effort.
In 2020, the Group made a revaluation of fixed
assets. An independent valuation of the Group’s
property, plant and equipment was undertaken
by Price Consulting LLC as at 01 December
2020
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 86
87
15. INTANGIBLE ASSETS (CONTINUED)
The Group performed its annual impairment
test in December 2020 and 2019. 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 2020, 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.
Trademark “Zhyviy Kvas”
The recoverable amount of the trademark
“Zhyviy Kvas” CGU, GBP 1 588 thousand as at
31 December 2020, 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 18.2% (2019: 16.7%). 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 within the “Dairy
segment”
The recoverable amount of the three trademarks
within the “Dairy segment” CGU, GBP 1 668
thousand as at 31 December 2020, 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 18.2% (2019: 16.7%). 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 2020, deferred tax assets and liabilities were presented as follows:
As at 31
As at 31
December 2020
December 2019
£ ‘000
£ ‘000
Deferred tax assets at the beginning of the year
Deferred tax liability at the beginning of the year
Deferred tax liability recognised in SOCI during the year
Reduction in deferred tax due to decrease in property, plant and equipment
revaluation reserve because of amortization
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
-
242
-
(36)
825
(2)
-
1 029
-
274
(25)
(39)
-
32
-
242
17. INVENTORIES
As at the reporting dates inventories were presented as follows:
As at
As at
31 December 2020
31 December 2019
Finished goods
Raw materials
Work in progress
Other inventories
Total
£ ‘000
5 060
999
537
721
7 317
£ ‘000
3 269
877
240
685
5 071
During 2020, GBP 30,355 thousand (2019: GBP 28,774 thousand) was recognised as an expense in
cost of sales.
18. TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
Prepayments
Total
As at
As at
31 December 2020
31 December 2019
£ ‘000
4 513
993
609
6 115
£ ‘000
6 664
130
463
7 257
The Group’s management believes that the carrying value for trade and other receivables is a
reasonable approximation of their fair value.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 88
89
18. TRADE AND OTHER RECEIVABLES (CONTINUED)
21. CASH AND CASH EQUIVALENTS (EXCLUDING BANK OVERDRAFTS)
Maturity of trade receivables as at 31 December 2020 and 31 December 2019 is presented as
follows:
As at the reporting dates cash and cash equivalents were presented as follows:
Total
Neither past
Past due but not impaired
2020
2019
£ ‘000
4 513
6 664
due nor
impaired
£ ‘000
4 092
6 073
<30
days
£ ‘000
207
325
30-60
Days
£ ‘000
34
22
61-90
days
£ ‘000
-
2
91-120
days
£ ‘000
-
3
>120
Days
£ ‘000
180
239
Cash on hand - in UAH
Cash in bank - in UAH
Cash in Bank - in other currencies
Total
As at
As at
31 December 2020
31 December 2019
£ ‘000
15
49
92
156
£ ‘000
8
168
55
231
Provisions were created for impaired trade and other receivables and holiday allowance.
22. SHARE CAPITAL
As at
As at
31 December 2020
31 December 2019
£ ‘000
£ ‘000
Impaired trade and other receivables 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
251
41
(29)
14
277
220
61
(1)
(29)
251
19. CURRENT TAXES
VAT receivable
Current income tax prepayments
Other prepaid taxes
Total
20. OTHER FINANCIAL ASSETS
Loans and receivables
Loans issued to third parties
Loans issued to employees
Total
As at
As at
31 December 2020
31 December 2019
£ ‘000
149
63
2
214
£ ‘000
210
77
23
310
As at
As at
31 December 2020
31 December 2019
£ ‘000
21
6
27
£ ‘000
24
7
31
Loans issued are short term in nature, repayable on demand and are interest free.
As at the reporting dates share capital was presented as follows:
As at
As at
As at
As at
31 December 2020
31 December 2020
31 December 2019
31 December 2019
Authorised
Ordinary shares of 10p each
60 000
Number '000
£ ‘000
6 000
Number '000
60 000
Issued and fully paid at beginning and end of the year
As at
As at
As at
£ ‘000
6 000
As at
31 December 2020
31 December 2020
31 December 2019
31 December 2019
Number '000
£ ‘000
Number '000
£ ‘000
Ordinary shares of 10p each
At beginning of the year
Own shares acquired
39 673
-
At end of the year (excluding
39 673
shares held as treasury shares)
3 967
-
3 967
39 673
-
39 673
3 967
-
3 967
Treasury shares
As at
As at
As at
As at
31 December 2020
31 December 2020
31 December 2019
31 December 2019
Number '000
£ ‘000
Number '000
£ ‘000
Ordinary shares of
10p each
At beginning of the
3 145
year
At end of the year
3 145
315
315
3 145
3 145
315
315
As at 31 December 2020 and 31 December 2019 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.
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 90
23. OTHER RESERVES
At the reporting date other reserves were presented as follows:
Share
Translation
Revaluation
Total other
reserve
reserves
At 1 January 2019
Depreciation on revaluation of property, plant and
equipment
Reduction of revaluation reserve
Exchange differences on translation to the
presentation currency
At 31 December 2019
premium
£ '000
4 562
-
-
reserve
£ '000
(14 902)
(182)
-
165
4 562
(14 737)
Depreciation on revaluation of property, plant and
equipment
Reduction of revaluation reserve
Gain on revaluation of property, plant and
equipment
Exchange differences on translation to the
-
-
-
-
-
(494)
-
£ '000
3 619
(182)
-
-
3 437
(164)
(98)
3 856
£ '000
(6 721)
(182)
-
165
(6 738)
(164)
(98)
3 856
(494)
presentation currency
At 31 December 2020
4 562
(15 231)
7 031
3 638
Reserve
Description and purpose
Share premium
Amount subscribed for share capital in excess of nominal value.
Revaluation
Gains arising on the revaluation of the Group’s property. The balance on this reserve is wholly
undistributable.
Translation
Amount of all foreign exchange differences arising from the translation of the financial
information of Group entities to presentation currency
91
24. BANK LOANS AND SHORT-TERM
PAYABLES
As at 31 December 2020 the Group has two loans:
the loan from Creditwest Bank in the amount of
1.673 thousand GBP (in UAH 65.0 million) and
the loan from the EBRD in the amount of 4.955
thousand GBP (in EUR 5.482 thousand).
During 2020, the Group fulfilled its obligations
under the EBRD loan in accordance with the
agreement. The Group completed installments
in accordance with an
of payments and
agreement between all parties, the payment
of the tranche in December was postponed to
subsequent periods.
Fixed assets with a net book value of GBP 2.562
thousand at 31 December 2020 (2019: GBP
3.177 thousand) were pledged as collateral for
loan.
Assets pledged as security for the EBRD loan
include property and land in Starokonstantinov,
equipment for dairy production and production
of hard cheese, as well as trademarks.
The Group classified the loan from the EBRD as
a current liability following the breach of certain
covenants and as no formal waivers were
received by the Group from the EBRD. Though
to 31 May 2021 the Group serviced its debt on
time in accordance to the loan agreements
with its lenders, on 1 June 2021 the Company
entered discussions with the EBRD to potentially
restructure the loan repayment schedule as
a result of pressure on the working capital
requirements of the business due to increased
raw milk costs and an increase in volumes
required to meet demand. Ukrproduct also
notified the EBRD that although the Company
had settled the interest amount due on 1 June
2021, it did not repay the quarterly loan tranche
due on that date. At the same time Ukrproduct
is seeking to increase its working capital
facility provided locally in Ukraine. The Group’s
management continues to have discussions
with the EBRD and at present the EBRD has
taken no action to accelerate repayment of the
loan. Though the Company is hopeful that an
agreement can be reached in due course that
works for both parties.
Bank
Currency
Type
Opening
Termination
Interest
Limit
As At 31
As at 31
date
date
rate
December
December
EBRD
Creditwest Bank
EUR
UAH
Loan
31.03.2011
30.11.2024
5-7%
Credit line
05.02.2018
05.02.2021
15.89%
Ukraine
Total
£ ‘000
7 070
2 095
2020
£ ‘000
4 956
1 672
2019
£ ‘000
5 140
2 073
6 628
7 213
The average interest rate as at 31 December 2020 was 11% (2019: 11%).
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 92
93
24. BANK LOANS AND SHORT-TERM PAYABLES (CONTINUED)
Reconciliation of liabilities arising from financing activities
Maturity of financial liabilities
On demand
In less than 1 year
In more than 1 year
Total
Interest rate profile of financial liabilities
Year ended
Year ended
31 December 2020
31 December 2019
£ ‘000
-
6 628
-
6 628
£ ‘000
-
7 213
-
7 213
On demand
Expiry within 1 year
Expiry in more than 1 year
Total
Floating rate
Fixed rate
As at
As at
31 December 2020
31 December 2019
£ '000
-
4 956
-
4 956
£ '000
-
1 672
-
1 672
£ ‘000
-
6 628
-
6 628
£ ‘000
-
7 213
-
7 213
The currency profile of the Group's financial liabilities is as follows:
UAH
EUR
Total
Floating rate
liabilities
£ '000
-
4 956
4 956
Fixed rate
liabilities
Total as at 31
Total as at 31
December 2020
December 2019
£ '000
1 672
-
1 672
£ '000
1 672
4 956
6 628
£ '000
2 073
5 140
7 213
The book value and fair value of financial liabilities are as follows:
Bank loans
Total
Book value as at
Fair value as at 31
Book value as at 31
Fair value as at 31
31 December 2020
December 2020
December 2019
December 2019
£ '000
6 628
6 628
£ '000
6 628
6 628
£ '000
7 213
7 213
£ '000
7 213
7 213
As at 31
Financing
Accrual
Foreign
Effect from
As at 31
December
cash flows
of
exchange
translation to
December
Bearing loans and borrowings
Interest
2019
£ '000
7 213
540
£ '000
(525)
-
Interest-bearing
loans
and
7 753
(525)
borrowings
25. TRADE AND OTHER PAYABLES
interest
movement
presentation
2020
£ '000
-
-
-
£ '000
8 822
-
8 822
currency
£ '000
(8 882)
(172)
(9 053)
£ '000
6 628
368
6 996
At the reporting date trade and other payables were presented as follows:
As at
As at
31 December 2020
31 December 2019
Trade payables
Prepayments received
Accruals
Interests payable
Provisions
Other payables
Total
£ ‘000
9 412
272
209
179
176
699
10 947
£ ‘000
7 364
1 171
195
171
138
206
9 245
The Group’s management believes that the carrying value for trade and other payables is a
reasonable approximation of their fair value.
For the year ended 31 December 2020, provisions were presented as follows:
Holiday allowance at the beginning of the year
Accrual
Use of allowances
Effect of translation to presentation currency
Holiday allowance at the end of the year
As at
As at
31 December 2020
31 December 2019
£ ‘000
138
251
(180)
(33)
176
£ ‘000
102
217
(197)
16
138
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 94
95
26. EARNINGS PER SHARE
29. CURRENCY ANALYSIS
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.
Currency analysis for the year ended 31 December 2020 is set out below:
Year ended
Year ended
Assets
31 December 2020
31 December 2019
Trade and other receivables
Net profit/loss 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
27. DIVIDENDS
£ ‘000
(1 160)
39 673
(2.92)
39 673
(2.92)
£ ‘000
2 031
39 673
5.12
39 673
5.12
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 2020.
28. SHARE-BASED PAYMENTS
The Company operates an equity-settled share based remuneration scheme for employees. During
2020, the Group did not issue options to the third parties. They were not exercised. There are no
outstanding options issued by the Group.
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
5 241
200
27
64
5 532
1 673
10 473
-
13
12 159
264
14
-
92
370
-
11
-
-
11
2
-
-
-
2
-
28
-
-
28
-
-
-
-
-
4 956
164
-
-
5 507
214
27
156
5 904
6 628
10 675
13
5 120
17 318
Currency analysis for the year ended 31 December 2019 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
6 659
260
31
228
7 178
2 073
7 862
-
18
9 953
135
50
-
2
187
-
18
-
-
18
-
-
-
1
1
-
72
-
-
72
-
-
-
-
-
5 140
122
-
-
6 794
310
31
231
7 366
7 213
8 074
-
18
5 262
15 305
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 96
97
companies and other related parties are set
out below. Remuneration of key management
personnel is disclosed in Note 12.
Alexander Slipchuk and Mr. Sergey Evlanchik.
31. COMMITMENTS AND CONTINGENCIES
29. CURRENCY ANALYSIS (CONTINUED)
3% strengthening of Hryvnia rate against
USD and 18% strengthening of Hryvnia rate
against EUR the following currencies as at
31 December 2020 and 2019, 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,
remained
unchanged. The change of GBP exchange
rate does not have an impact on the result
as all the balances in GBP are attributable
to the Group’s companies where GBP is a
functional currency.
interest
rates,
Sales of goods and services to related parties
and purchases from related parties are
summarised below. All sales and purchases
were with related parties under common
control of the ultimate beneficiaries of the
Company.
Year ended
Year ended
31
31
December
December
2020
£ ‘000
2019
£ ‘000
-
268
18
-
-
-
-
-
Increase/
Effect on
Effect on
Cost of sales
decrease in
income before
income before
Administrative expenses
rate
tax in 2020
tax in 2019
Other operational expenses
Sales
USD
EUR
USD
EUR
3%
18%
-3%
-18%
£ ‘000
11
922
(11)
(922)
£ ‘000
5
(947)
(5)
947
30. RELATED PARTY TRANSACTIONS
A related party is a person or an entity that is
related to the reporting entity:
A person or a close member of that person’s
family is related to a reporting entity if that
person has control, joint control, or significant
influence over the entity or is a member of its
key management personnel.
An entity is related to a reporting entity if,
among other circumstances, it is a parent,
subsidiary, fellow subsidiary, associate, or joint
venture of the reporting entity, or it is controlled,
jointly controlled, or significantly influenced or
managed by a person who is a related party.
Transactions and balances between the Group
Balances due from/(to) related parties at each
period end are shown below.
As at
31
As at
31
December
December
2020
£ ‘000
2019
£ ‘000
Receivables and
prepayments
Other financial assets
Trade and other payables
-
-
5
-
-
14
In 2020, 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 the Group
to related parties and vice versa.
ultimate
The
and
controlling
beneficiaries of the related parties were Mr.
owners
(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) 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 2020 and 2019 the Group
had no liabilities for supplementary pensions,
health care, insurance benefits or retirement
indemnities to its current or former employees.
(c) Compliance with covenants
The Group is subject to a covenant related
primarily to its borrowings. Non-compliance
with such covenants may result in negative
the Group. As at 31
consequences for
December 2020 and as at 31 March 2021 the
Group had been in breach of certain covenants
regarding the loan with the EBRD. Ukrproduct
notified the EBRD that on 1 June 2021 the
Company had settled the due interest amount
without repayment of the next loan tranche.
The Group classified the loan from the EBRD
as a Current Liability following the breach of
certain covenants and no formal waivers were
received by the Group from the bank. To the
best of the Group’s management knowledge,
as of today the EBRD has taken no action to
accelerate repayment of the loan
(d) Litigations and claims
The Group’s operations and financial position
will continue to be affected by Ukrainian
political developments including the application
of existing and future legislation and tax
regulations. Management believes that the
Group has complied with all regulations and
paid or accrued all taxes that are applicable. In
the ordinary course of business, the Group is
subject to various legal actions and complaints.
Management believes that the ultimate liability,
if any, arising from such actions or complaints
will not have a material adverse effect on the
financial condition or the results of the Group’s
operations. Where the risk of outflow of
resources is probable, the Group has accrued
liabilities based on management’s best
estimate.
(e) Other
amount
The
commitments is insignificant.
of
uncancellable
lease
As at 31 December 2020, the Group does not
possess any finance lease and hire purchase
commitments, capital commitments and
guarantees.
32. SUBSEQUENT EVENTS
(a) EBRD – breach of loan covenants
As at 31 December 2020 the Group had been in
breach of one of covenants regarding the loan
with EBRD- debt service coverage ratio. The
Group was still in breach of this covenant as at
31 March 2021, however the Board believes that
the EBRD will not demand accelerated payments
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 98
99
in respect of this breach, therefore no further
commitments or contingencies have arisen.
(c) Foreign exchange rates
(b) Installment
The Group agreed to defer the principal amount
payment of EUR 200 000.00 due on 1 March
2021 under the terms of the loan agreement
with the EBRD, resulting in a principal payment
at the amount of EUR 65 434.57 and an interest
payment of EUR 32 240.41.
On 1 June 2021 the Company entered discussions
with the EBRD to potentially restructure the loan
repayment schedule as a result of pressure on
the working capital requirements of the business
due to increased raw milk costs and an increase
in volumes required to meet demand. Accordingly,
Ukrproduct also notified the EBRD that on 1 June
2021 the Company had settled the due interest
amount without repayment of the next loan
tranche at the amount of EUR 294 0066.00 that
was due under the loan agreement. However, the
Company settled the respective interest payment
of EUR 33 089.98 in full and on time.
Post year end, the Ukrainian Hryvnia has
strengthened against the USD, EUR and GBP.
According to the information provided by the
National Bank of Ukraine, the main exchange
rates are set at the following rates:
Currency
UAH/GBP
UAH/USD
UAH/EUR
24 June 2021
38.15
27.27
32.60
(d) Increase in the statutory capital of a Group
company
On 24 March 2021, there was an increase in the
authorized capital of the Starokonstantinovskiy
Molochniy Zavod SC in the amount of 4.222 k
GBP. 100% of Starokonstantinovskiy Molochniy
Zavod SC belongs to MCNVIF “Alternative
Investments”.
Corporate advisers
Group secretary
Ocorian Ltd
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Nominated adviser and broker
Strand Hanson Limited
26 Mount Row, Mayfair,
London W1K 3SQ,
United Kingdom
Registrars
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen B63 3DA
Shareholder Information
Registered Office
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Registered Number
88352 (Jersey)
Investor Relations
Yuliia Bovsunovska
Phone: +380-44-232-96-02
Fax: +380-44-289-16-30
Email : ir@ukrproduct.com
Principal bankers
UBS SA
40 rue du Rhône
CH-1211 Geneva
Switzerland
ANNUAL RЕPORT 2020ANNUAL RЕPORT 2020 Tel/fax +380 44 232-96-02
Tel/fax +380 44 289-16-30