REG - Ukrproduct Group Ltd - Final Results and Notice of AGM
29/09/2022 07:00
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RNS Number : 0818B Ukrproduct Group Ltd 29 September 2022
29 September 2022
UKRPRODUCT GROUP LIMITED
("Ukrproduct", the "Company" or, together with its subsidiaries, the "Group")
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
NOTICE OF AGM
Ukrproduct Group Limited (AIM: UKR), one of the leading Ukrainian producers
and distributors of branded dairy foods and beverages (kvass), today announces
its audited results for the year ended 31 December 2021.
The 2021 Annual Report and Accounts ("2021 Annual Report"), a notice of Annual
General Meeting ("AGM") and a Proxy Form, have been posted to shareholders and
copies are available on the Company's website at www.ukrproduct.com
(http://www.ukrproduct.com/) . (http://www.ukrproduct.com/) .
The Company's shares were temporarily suspended from trading on AIM on 1 July
2022, as the Company was not able to publish and post the 2021 Annual Report
by 30 June 2022. As a result of this announcement, restoration to trading of
the Company's shares is expected to take effect at 7:30 am this morning.
The AGM will be held at the 6th floor, office 36, 8 Sikorsky Street, Kyiv,
Ukraine, 04112 at 4:00 pm (Kyiv time) / 2:00 pm (London time) on 3 November
2022.
The interim results for the 6 months to 30 June 2022 are expected to be
released by 4:30pm tomorrow.
For further information contact:
Ukrproduct Group Ltd
Jack Rowell, Non-Executive Chairman Tel: +44 1534 814814
Alexander Slipchuk, Chief Executive Officer www.ukrproduct.com (http://www.ukrproduct.com/)
Strand Hanson Limited
Nominated Adviser and Broker Tel: +44 20 7409 3494
Rory Murphy, Richard Johnson www.strandhanson.co.uk (http://www.strandhanson.co.uk/)
Chairman and Chief Executive Statement
Trading
Ukrproduct Group Ltd ("Ukrproduct", the "Company" or, together with its
subsidiaries, "the Group") is one of the leading Ukrainian producers and
distributors of branded dairy foods and beverages (kvass).
During 2021, Ukrproduct experienced several global challenges. There was an
acute, ongoing shortage of dairy raw materials, and an increase in imports of
dairy products from abroad which hampered the development of the Ukrainian
dairy products market. Rising costs of raw materials and consumables, energy
and transport created additional problems. Increases in selling prices could
not keep pace with the growth in costs and this affected manufacturers in
2021. Manufacturers were forced to raise selling prices in stages and over
time, as they faced resistance from retailers.
For FY 2021, consolidated sales stood at £52.0 million, down 6.3% from the
previous year (2020: £55.5 million), though in local currency it grew 0.6%.
Due to an increase of 18% in the price of raw milk over the period, the Group
limited the volume of raw milk procured and used previously purchased,
semi-finished products for production. The Group also suspended operations at
its minor production facility in Letychiv due to the rise in raw milk prices
in its captive raw milk zone.
Despite the challenging situation and limited marketing activities, Ukrproduct
exceeded its expectations in sales of branded dairy products in 2021 achieving
7% growth compared to 2020. This increase in sales was delivered following a
revision of the Company's marketing strategy with renewed focus on processed
cheese and processed cheese products, where sales have grown by 24% and 98%
respectively. The overall Group market share in processed cheese and processed
cheese products in Ukraine increased from 14% in 2020 to 21% in 2021.
Also in 2021, the Group resumed cooperation with the largest national retail
chain in Ukraine, ATB-Market LLC, for the production of Private Label Cheese.
However, due to a significant increase in costs as a result of the above noted
factors, the sales margin of processed cheese and other processed cheese
products decreased from 20.2% and 7.5% in 2020 to 16.0% and 6.4% in 2021,
respectively.
In order to maintain profitability in the Company's key segment, butter,
Ukrproduct reduced low-margin sales of packaged butter in retail chains in the
second half of 2021 and utilised the butter in the production of processed
cheeses. This led to a 46.3% decrease in sales of packaged butter in 2021, but
allowed for a significant increase in the category's margin (from 7.4% in 2020
to 10.6% in 2021), which almost maintained the gross margin at 2020 levels.
The Group increased sales of spreads by 8.1% in 2021, despite the market
contraction in Ukraine. However, a significant increase in the cost of
vegetable fats (up 35% compared to 2020) led to a decrease in sales margin
from 19.9% in 2020 to 14.7% in 2021.
An additional factor contributing to the slight growth of turnover in 2021 (in
local currency) was an increase in sales of kvass and beverages of 5.8% in
volume and 5.9% in value. Ukrproduct continued to increase its range of
products in 2021, launching several new drinks into the market during the
year.
The Group expanded its exports in 2021 both in terms of geographic locations
and penetration in existing markets, which resulted in an increase in sales of
exported branded products by 55.5% in volume (from 3,600 tons in 2020 to 5,600
tons in 2021), and by 60.5% in value (from $7.1 million in 2020 to $11.4
million in 2021). The main growth was delivered in the processed cheese
category, sales of which increased 2.4 times in volume (from 1,900 tons in
2020 to 4,600 tons in 2021) and 2.6 times in value (from $3.2 million in 2020
to $8.4 million in 2021).
In 2021, the Group minimized production and export of skimmed milk powder,
instead using the raw milk in the production of other semi-processed products.
The export of spreads declined significantly compared to 2020 due to cost
inflation, the impact of COVID-19 lockdowns on transportation, and a
reluctance by major customers including retailers to pass on the respective
price increases.
Additionally, Ukrproduct undertook a number of initiatives to improve its
operational cost efficiency, including optimised energy consumption and
production standards complemented with increased productivity. The Group was
also successful in maintaining the same level of logistical costs as in 2020
due to further optimisation of transportation routes and processes. This was a
material achievement offsetting fuel inflation in 2021.
In 2021, the Group operating expenses rose by 12.0% compared to 2020, mainly
driven by increases in salaries, legal and audit costs, marketing and fuel
expenses.
These trading headwinds were significant and meant the Group's EBITDA in 2021
level reduced by 21.6% to £1.1 million compared with the prior year, with the
EBITDA margin decreasing from 2.6% in 2020 to 2.2% in 2021.
The consolidated net profit of Ukrproduct for 2021 amounted to £0.4 million
compared with a net loss of £1.2 million loss in 2020.
Financial Position
As at 31 December 2021, Ukrproduct reports net assets of £5.9 million
including cash balances of £0.3 million compared to net assets of £5.3
million as of 31 December 2020 with a cash balances of £0.2 million.
For the year ended 31 December 2021, the Group was in breach of several
provisions of the loan agreement with the European Bank for Reconstruction and
Development ("EBRD"), missed some repayments and the bank has not issued a
waiver for the breaches. The Company have been holding negotiations with the
EBRD to potentially restructure the loan repayment schedule since June 2021.
At this current stage the active phase of negotiations with EBRD have been
slowed owing to the ongoing war in Ukraine. At present the EBRD has taken no
action to accelerate repayment of the loan.
Outlook
Trading in 2022 has been severely affected by the Russian invasion of Ukraine
and the ongoing war. Dairy processing enterprises will not have the
opportunity to maximize production capacity in 2022. For the first 5 months of
2022 raw material supply for processing was down to 2.9 million tons (16%
lower than last year). Ukrainian regions have experienced a loss of production
capacity in the occupied territory and in the war zone. Moreover, damaged
infrastructure, and increases in fuel prices complemented with fuel shortages,
have impacted transportation and adversely affected logistics costs, both on
the supply and distribution side. As the Ukrainian sea ports have been
blockaded by the Russian Navy, there is increased pressure on the remaining
routes for export. Ukrproduct expects to make provisions for some of its sales
to distributors, which operate in the regions engaged in military activities
and cannot pay on time.
Jack Rowell Alexander Slipchuk
Non-Executive Chairman Chief Executive Officer
INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF UKRPRODUCT GROUP LIMITED
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 2021, the consolidated statement of changes in
equity, consolidated statement of cash flows and notes to the financial
statements including 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 2021 and of its results for the year then ended;
· have been properly prepared in accordance with IFRS as adopted by the
European Union; and
· have been prepared in accordance with the requirements of the
Companies (Jersey) Law 1991.
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.
An overview of the scope of our audit
During our audit planning, we determined materiality and assessed the risks of
material misstatement in the consolidated financial 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.
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 on these matters.
Key Audit Matter How the matter was addressed in the audit
Going Concern In assessing the appropriateness of the going concern assumption used in
preparing the financial statements, our procedures included, amongst others:
§ Assessing the cash flow requirements of the Group over 12 months from
The financial statements have been prepared on a going concern basis as expected signoff of these consolidated;
discussed in note 2. The Group is in a net current liability position due to a
breach of loan covenants. The net current liability presented in the § Understanding what forecast expenditure is committed and what could be
Consolidated Balance Sheet totalled was in the amount of £3.8m as at 31 considered discretionary;
December 2021. We included the going concern assumption as a key audit matter
given both the continuing net current liability position as well as the § Assessing the liquidity of existing assets on the statement of financial
ongoing Russian military action in Ukraine (refer note 2.1 b to the financial position that can be used to repay the Group's obligations;
statements).
§ Considering the terms of the EBRD and other bank loan and trade finance
facilities and the amount available for drawdown as well as the probability of
EBRD agreeing to restructure the facilities;
§ Considering the impact of the ongoing military conflict in Ukraine to the
Group's operations and the Group's business continuity plan, if any; and,
§ Considering potential downside scenarios and the resultant impact on
available funds.
Key Observations
In our opinion, a material uncertainty exists that may cast significant doubt
as to the ability of the Group to continue as a going concern. This has been
highlighted in our Material uncertainty related to going concern paragraph of
the audit report.
Our main audit procedures in respect of revenue recognition were as follows:
§ 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 employed by the Group;
§ We performed sample based tests of details over the accuracy and occurrence
of sales during the year specially responsive to the risk of fraud in
revenue occurrence;
§ We performed analytical procedures, including gross profit margin analysis
and obtained explanations for significant variances as compared to the
previous year;
§ We tested a sample of journal entries relating to income recognition by
reference to supporting documents;
§ We performed sales cut-off procedures for a sample of revenue transactions
at the year end in order to conclude on whether they were recognized in the
correct accounting period; and,
Risk of fraud in revenue recognition § We reviewed the disclosures related to revenue included in the notes to the
consolidated financial statements.
Revenue is material and an important determinant of the Group's performance
and profitability. This gives rise to inherent risk that revenue recognised is Key Observations
overstated in order to present more profitable results for the year. The
Group's revenue from local and export sales of milk, dairy foods and beverages We did not note any material issues arising from the procedures performed in
amounted to £51.90 million, excluding the charge of bonuses. Given the this area.
magnitude of the amount and the inherent
risk of revenue overstatement, we consider revenue recognition to be a key
audit matter (Refer to note 2.2.11 & 8).
Material uncertainty related to going concern
We draw attention to note 2.1 (b), in the financial statements, which
indicates that the Russian Federation launched a full-scale military invasion
of Ukraine, and the Group is in breach of covenants in respect of funding
received from the European Bank for Reconstruction and Development (EBRD); -
these events have continued after the year end. These events and conditions,
along with other matters as set in note 2.1 (b) to the financial statements,
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.
Our application of materiality
We define materiality as the magnitude of misstatements in the consolidated
financial statements that makes it probable 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 £520,000 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.
Communication of misstatements to the Board:
We agreed with the Directors that any misstatement above £26,000 identified
during our audit will be reported, together with any misstatement below that
threshold that, in our view, warranted reporting on qualitative grounds.
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 3 to
17 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.
In connection with our audits of the consolidated financial statements, our
responsibility is to read the other information identified above when it
becomes available and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements, or our
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
· the financial statements are not in agreement with the accounting
records and returns; or
· 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.
In preparing the consolidated financial 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
Our objectives are to obtain reasonable assurance about whether the financial
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 is a high 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.
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 and 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 and the AIM Rules for Companies by making inquiries of
management. We corroborated 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.
• 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 to
fraud. We also 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 procedures also included testing a
risk-based 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.
Ukrproduct Group
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
(in thousand GBP, unless otherwise stated)
Note Year ended Year ended
31 December 2021 31 December 2020
£ '000 £ '000
8 51 985
Revenue 55 508
Cost of sales 9 (47 457) (50 778)
GROSS PROFIT 4 528 4 730
Administrative expenses 9 (1 415) (1 205)
Selling and distribution expenses 9 (2 751) (2 464)
Other operating expenses 9 (192) (223)
PROFIT FROM OPERATIONS 170 838
Net finance expenses 11 (440) (486)
Net foreign exchange gain (loss) 10 599 (1 547)
PROFIT/(LOSS) BEFORE TAXATION 329 (1 195)
Income tax сredit 13 110 35
PROFIT/(LOSS) FOR THE YEAR 439 (1 160)
Attributable to:
Owners of the Parent 439 (1 160)
Earnings per share from continuing and total operations:
Basic (pence) 26 1.11 (2.92)
Diluted (pence) 26 1.11 (2.92)
OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified to profit or loss
Currency translation differences 244 (494)
Items that will not be reclassified to profit or loss
Gain on revaluation of property, plant and equipment - 3 758
244 3 264
OTHER COMPREHENSIVE INCOME, NET OF TAX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 683 2 104
Attributable to:
Owners of the Parent 683 2 104
Non-controlling interests - -
Ukrproduct Group
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021
(in thousand GBP, unless otherwise stated)
Note As at As at
31 December 2021 31 December 2020
£ '000 £ '000
ASSETS
Non-current assets
Property, plant and equipment 14 9 795 9 934
Intangible assets 15 809 598
10 604 10 532
Current assets
Inventories 17 4 655 7 317
Trade and other receivables 18 6 763 6 115
Current taxes 19 920 214
Other financial assets 20 40 27
Cash and cash equivalents 21 312 156
12 690 13 829
TOTAL ASSETS 23 294 24 361
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 22 4 282 4 282
Treasury (315) (315)
shares
Share premium 23 4 562 4 562
Translation reserve 23 (14 987) (15 231)
Revaluation reserve 23 6 348 7 031
Retained earnings 6 057 4 935
5 947 5 264
TOTAL EQUITY 5 947 5 264
Non-Current Liabilities
Liabilities for right-of-use assets - 13
Deferred tax liabilities 16 796 1 029
796 1 042
Current liabilities
Bank loans 24 6 039 6 628
Short-term payables 587 467
Trade and other payables 25 9 829 10 947
Current income tax liabilities 41 -
Other taxes payable 55 13
16 551 18 055
TOTAL LIABILITIES 17 347 19 097
TOTAL EQUITY AND LIABILITIES 23 294 24 361
Ukrproduct Group
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
(in thousand GBP, unless otherwise stated)
Attributable to owners of the parent
Share capital Treasury shares Share premium Revaluation reserve Retained earnings Translation reserve Total Non-con-trolling interests Total Equity
£ '000 £ '000 £ '000 £ '000 £ '000 £ '000 £ '000 £ '000 £ '000
As At 31 December 2019 4 282 (315) 4 562 3 437 5 931 (14 737) 3 160 - 3 160
Profit for the year - - - - (1 160) - (1 160) - (1 160)
Other comprehensive income - - - - - - - - -
Currency translation differences - - - - - (494) (494) - (494)
Total comprehensive income - - - - (1 160) (494) (1 654) (1 654)
Reduction of revaluation - - - (98) - - (98) (98)
Gain on revaluation of property, plant and equipment - - - 3 856 - - 3 856 - 3 856
Depreciation on revaluation of property, plant and equipment - - - (164) 164 - - - -
As At 31 December 2020 4 282 (315) 4 562 7 031 4 935 (15 231) 5 264 - 5 264
Profit for the year - - - - 439 - 439 - 439
Other comprehensive income - - - - - - - - -
Currency translation differences - - - - - 244 244 - 244
Total comprehensive income - - - - 439 244 683 - 683
Reduction of revaluation reserve - - - - - - - - -
Gain on revaluation of property, plant and equipment - - - - - - - - -
Depreciation on revaluation of property, plant and equipment - - - (683) 683 - - - -
As At 31 December 2021 4 282 (315) 4 562 6 348 6 057 (14 987) 5 947 - 5 947
Ukrproduct Group
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021
(in thousand GBP, unless otherwise stated)
Note Year ended Year ended
31 December 2021 31 December 2020
£ '000 £ '000
Cash flows from operating activities
Profit/(Loss) before taxation 329 (1 195)
Adjustments for:
Exchange difference 10 (599) 1 547
Depreciation and amortization 9 1 003 618
Profit/ (Loss)on disposal of non-current assets 9 10 (4)
Profit on revaluation 9 - 225
Write off of receivables/payables 9 192 (53)
Impairment of inventories 9 (41) (42)
Interest income 11 - (2)
Interest expense on bank loans 11 441 488
Operation cash flow before working capital changes 1 335 1 582
Decrease / (Increase) in inventories 2 703 (2 246)
(Increase) / Decrease in trade and other receivables (1 558) 1 232
(Decrease) / Increase in trade and other payables (1 118) 1 662
Changes in working capital 27 648
Cash generated from operations 1 362 2 230
Interest received - 2
Income tax paid 12 (2)
Net cash generated from operating activities 1 374 2 230
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets (723) (688)
Proceeds from sale of property, plant and equipment - 13
Repayments of loans issued (11) (3)
Net cash used in investing activities (734) (678)
Cash flows from financing activities
Interest paid 24 (379) (494)
Decrease in short term borrowing - -
Repayments of long term borrowing 24 (161) (525)
Net cash used in financing activities (540) (1 019)
Net Increase in cash and cash equivalents 100 533
Effect of exchange rate changes on cash and cash equivalents 56 (608)
Cash and cash equivalents at the beginning of the year 156 231
Cash and cash equivalents at the end of the year 21 312 156
Nature of Financial Information
The financial information contained in this announcement does not constitute
statutory accounts as defined under section 113 of the Companies (Jersey) Law
1991 but has been extracted from the Group's 2021 statutory financial
statements. It contained no statement under section 113B of the Companies
(Jersey) Law 2011. The financial statements for 2021 will be delivered to the
Registrar of Companies after adoption at the Company's Annual General Meeting.
EXTRACTS FROM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
2. Going concern
On 24 February 2022, the Russian Federation launched a full-scale military
invasion of Ukraine (Note 32). Having examined
the existing and potential implications of the war for the Ukraine located
businesses, the management of the Group have identified several points of
specific concern that require careful analysis and assessment. They include,
but are not limited to, the following:
- risks related to safety of personal;
- risk of physical destruction of the production assets;
- risks of disruption of the supply and distribution chains;
- risk of liquidity and limited access to financing.
In preparing these financial statements, the Directors have assessed the
Group's ability to continue as a going concern. The Company performed an
analysis of the future cash flows and budgets for the next 12 months based on
the known facts and events applying to them, including multiple scenarios as
the result of the ongoing war with Russian Federation. The analysis revealed
that the Group would continue to maintain sufficient cash resources as well as
stable flow of revenues in due course. The Group fully complies with all
sanctions rules and regulations regarding Russia and Belarus.
Management is taking steps to secure the supply chain which is vital for
operational continuity. The Group concluded contracts with new alternative
suppliers, where necessary and developed new logistics routes. The central
warehouse was moved to the one of Group's main plant at Zhytomyr, away from
the line of active hostilities. Major customers have not been affected by the
hostilities and continue to cooperate and fulfil their contractual obligations
with the Group. The military action had no critical impact on the local
distribution. The share of sales in the most affected regions does not exceed
15%.
Selling, general and administrative and other operating expenses, as well as
CAPEX, have been reduced to the minimum required to meet the primary needs of
the Group's core business.
The management is exploring various opportunities to attract additional
financing to support Group's the liquidity under different state aid programs.
In addition the following key assumptions were used for the forecasts: no
further significant progression of Russian troops into the territory of
Ukraine that could severely affect the Group's assets, production facilities
located in the uncontrolled territories remaining physically undamaged and
being able to continue operating; remaining logistic routes will continue to
be available; maintain sales level to cover operational expenses level and
debt servicing.
For the year ended 31 December 2021, the Group was in breach of several
provisions of the loan agreement with EBRD, missed some repayments and the
bank has not issued a waiver for the breaches. The Company has been holding
negotiations with the EBRD to potentially restructure the loan repayment
schedule since June 2021. At this current stage the active phase of
negotiations with EBRD have been slowed owing to the ongoing war in Ukraine.
At present the EBRD has taken no action to accelerate repayment of the loan.
The financial statements are prepared using the going concern basis
assumption.
2. Bank Loans and short-term payables
As at 31 December 2021 the Group has two loans: the loan from Creditwest Bank
in the amount of 1.735 thousand GBP (in UAH 63.9 million) and the loan from
the EBRD in the amount of 4.304 thousand GBP (in EUR 5.127 thousand).
In March 2021 the Group made a principal payment at the amount of EUR
65 435 and an interest payment of EUR 32 240. The Group agreed to defer the
principal amount payment of EUR 200 000 due to the loan terms.
On 1 June 2021, Ukrproduct entered discussions with the EBRD to potentially
restructure the loan repayment schedule as a result of pressure on the working
capital requirements. The Group settled the interest amount due June 2021,
however it did not repay the quarterly loan tranche due on that date. In
September 2021 with reference to the loan agreement, the Group settled the
payment of interest in the amount of EUR 28 582 and overdue principal in the
amount of EUR 107 200. In December 2021 the Group settled only the interest in
the amount of EUR 29 899.
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. At present the EBRD has taken no action to accelerate
repayment of the loan.
Bank Currency Type Opening date Termination date Interest rate Limit As At 31 December 2021 As at 31 December 2020
£ '000 £ '000 £ '000
EBRD EUR Loan 31.03.2011 30.11.2024 5-7% 7 070 4 304 4 956
Creditwest Bank Ukraine UAH Credit line 05.02.2018 05.02.2021 15.89% 2 095 1 735 1 672
Total 6 039 6 628
The average interest rate as at 31 December 2021 was 11% (2020: 11%).
SUBSEQUENT EVENTS
(a) EBRD - breach of loan covenants
As at 31 December 2021 the Group had been in breach of loan covenants with
EBRD. As at the date of this announcement, the EBRD has taken no action to
accelerate either repayment of the EBRD loan, or its put right.
(b) War
On 24 February 2022, the Russian Federation launched a full-scale military
invasion of Ukraine. The ongoing military attack has caused and continues to
cause significant casualties, population displacement, infrastructure damage
and disruption to economic activity in Ukraine. Seaports and airports are
closed and damaged. Export through seaports is completely frozen. This raises
significant pressure on other means of alternative transportation for export
operation. The situation remains highly volatile and the outlook highly
uncertain.
On 15 March 2022, the Verkhovna Rada of Ukraine adopted the Law of Ukraine
"On amendments to the Tax Code of Ukraine and other legislative acts of
Ukraine concerning the effect of regulations for the period of martial law"
№ 2120-IX in order to support Ukrainian business for the period of martial
law. The key innovation is that all companies can now waive VAT and income tax
(CIT) by switching to a 2% sales tax. For automotive fuel, the excise tax is
reset to zero, and the VAT rate is reduced from 20% to 7%.
As of the date of this report, the Group continues to operate. The management
of the Group controls all its operations. The Group's production facilities
are located in Khmelnytskyi and Zhytomyr regions, where missiles attacks have
been incurred. As a result, the Group's business activities have been
affected as follows:
- none of the Group's critical facilities or infrastructure has
suffered any significant damage;
- as at 23 September 2022 all the Group's assets are located in the
de-occupied territories;
- the Group does not have a labor shortage and has managed to retain
its staff. Office staff work remotely, while production staff work at their
sites;
- the Group have lost sales of dairy products in the occupied
territories;
- Black Sea ports in Ukraine remain blocked for export activities.
Alternative logistics chains for dairy products exports by other means of
transportations have been developed;
- the Group concluded contracts with new alternative suppliers.
As of June 2022 the price of energy-intensive products increased by up to
90.9% because of the war and overall input prices are expected to rise
considerably. The higher prices of these inputs will translate into higher
production costs.
War has interrupted regular economic and livelihood activities and has
constrained income flows. In January 2022 Ukraine experienced elevated levels
of food price inflation prior to the outbreak of the war. In June 2022,
consumer inflation accelerated to 21.5% yoy, up from 18% in May. Concerns
exist that the continuation of hostilities and war-induced disruptions could
keep food inflation levels persistently high in Ukraine, thus decreasing the
purchasing power of local populations adversely affect the Group's net sales.
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