REG - Ukrproduct Group Ltd - Final Results and Notice of AGM
29/06/2023 13:30
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RNS Number : 4198E Ukrproduct Group Ltd 29 June 2023
29 June 2023
UKRPRODUCT GROUP LIMITED
("Ukrproduct", the "Company" or, together with its subsidiaries, the "Group")
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
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 2022.
The 2022 Annual Report and Accounts ("2022 Annual Report") has been posted to
shareholders and is available on the Company's website at www.ukrproduct.com.
(http://www.ukrproduct.com/) A notice of Annual General Meeting ("AGM") and
Proxy Form, will be shortly posted too.
The AGM will be held at the 6th floor, office 36, 8 Sikorsky Street, Kyiv,
Ukraine, 04112 at 5.00 pm (Kyiv time) / 3.00 pm (London time) on 3 August
2023.
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).
While reporting on the results of the financial year 2022, it is necessary to
highlight that the unprovoked and illegal aggression of Russia has completely
obscured the peace and life of all Ukrainians and placed a heavy toll on the
business in Ukraine. The impact of these factors and the resulting
uncertainties on the Company's results, balance sheet and cash flows have been
considered and are reflected in the figures reported. The Group has had to
adjust to the new emergency conditions, the key objectives of which were to
ensure the safety of the employees and to maintain operations and assets.
One of the key challenges for the Group's operations has been the inability to
export goods via Ukrainian Black Sea ports, which significantly reduced the
Group's export operations in the first half of 2022. The Group focused its
efforts on establishing alternative export routes via the border between
Ukraine and the EU.
Ukrproduct's consolidated revenue in FY2022 fell by 19.9% in local currencies.
The general decline in sales in the domestic market is due to a decrease in
the solvency of consumers, the outflow of Ukrainian population and the loss of
part of the Ukrainian sales market due to active hostilities and the temporary
occupation of territories in Ukraine. After currency translation, revenue
decreased by 24.8% to £39.1 million year-on-year, due to the 6% impact of
foreign exchange rates, in particular reflecting the depreciation of the
Ukrainian Hryvnia against the British pound.
In the processed cheese and processed cheese product category, sales amounted
to £22.6 million, reflecting a revenue increase of 5.4% compared with the
previous year on a nominal basis, although sales represented a decline of
18.3% in volume. Sales have fallen due to market trends, the termination of
cooperation with some retail networks and losses of some export sales.
In FY2022, butter sales reduced considerably, on a nominal basis, by 61.6%
compared with the previous year, to £3.4 million. This was due to the planned
butter reduction, especially low-margin contracts. The Company took a flexible
approach by focusing on priority sales channels (export, key distributors),
and benefiting from margin improvements. A significant price increase of
butter in Ukraine and marginality growth assisted to offset much of the volume
decline within the segment.
Sales of spreads increased to £5.6 million in FY2022 compared with £4.4
million in the prior year. This constituted an increase in sales of 35.9%, on
a nominal basis, but reduction of 1.1% in volume. This is mainly attributable
to the losses of some export sales.
Sales generated from skimmed milk powder decreased by 22.1% on a nominal basis
to £2.5 million, compared with £3.4 million in the previous year. In terms
of volume, skimmed milk powder sales decreased by 44.6%, impacted by
difficulties with the Black Sea ports in Ukraine. The Group's skimmed milk
powder sales and exports from Ukraine in the first half of the year reduced by
69% year on year due to the low demand for the supply of skimmed milk powder
to outside countries.
Sales of kvass and beverages amounted to £1.1 million in FY2022,
corresponding to a decline of 33.7% on a nominal basis and 38.3% in terms of
volume, in each instance compared with the previous period. The decrease was
principally due to the late start of the season due to active hostilities in
key kvass sales regions, impacting the period of active sales which was less
than half that achieved in FY2021.
In FY2022, the Group's administrative and selling expenses amounted to £4.1
million; a 2.5% decrease compared to FY2021. The Group optimized costs for
payroll, rents, communication and banks services. The Group's Central
Warehouse was closed, and its functions were transferred to production
warehouses in Zhytomyr. Marketing campaigns were also significantly reduced.
As a result of a 87.6% increase in fuel prices, transport and logistics costs
increased by 26.0% in FY2022 compared to the previous period, to £1.1
million.
Due to the impact of the war, other operating expenses during the reporting
period totaled £1.6 million (2021: £0.2 million), including losses from
impairment of trade receivables, write-off of materials and finish goods,
fines, and VAT losses.
The Group's operations recorded an EBITDA of £1.7 million, representing an
increase of 57.2% year on year. The Group's EBITDA margin improved from 2.2%
to 4.6%. This notable performance was largely attributed to a significant
reduction in marketing and trade marketing activities, several product price
increases, a reduction in the cost of production and an increase in production
efficiency, and a focus on the most profitable product groups.
Net loss after tax for FY2022 amounted to a loss of £0.8 million, a decrease
of £1.2 million compared to FY2021, stemming from the negative currency
translation due to the 26% devaluation of the Ukrainian hryvnia against the
Euro.
Financial Position
As at 31 December 2022, Ukrproduct reported net assets of £4.6 million
including cash balances of £0.4 million compared to net assets of £5.9
million as at 31 December 2021 and a cash balances of £0.3 million.
For the year ended 31 December 2022, the Group was in breach of several
provisions of its loan agreement with the European Bank for Reconstruction and
Development ("EBRD") and missed repayments for which the bank has not issued a
waiver. The Company have been holding negotiations with the EBRD to
potentially restructure the loan repayment schedule since June 2021. These
negotiations with EBRD are ongoing. At present, the EBRD has taken no action
to accelerate repayment of the loan.
Outlook
The Company continues to make every effort to navigate its strategy in a
changing business environment and to respond to new challenges. The Group
expects that in 2023 the focus will be placed on maintenance of the existing
production facilities, maintaining sales volumes and increasing operating
efficiency.
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 2022, 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 United
Kingdom.
In our opinion the financial statements:
· give a true and fair view of the state of the Group's affairs as
at 31 December 2022 and of its results for the year then ended;
· have been properly prepared in accordance with IFRS as adopted by
the United Kingdom; 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:
The financial statements have been prepared on a going concern basis as
discussed in note 2. The Group is in a net current liability position due to a § Assessing the cash flow requirements of the Group over 12 months from
breach of loan covenants. The net current liability presented in the expected signoff of these consolidated;
Consolidated Balance Sheet totalled was in the amount of £3.47m as at 31
December 2022. We included the going concern assumption as a key audit matter § Understanding what forecast expenditure is committed and what could be
given both the continuing net current liability position as well as the considered discretionary;
ongoing Russian military action in Ukraine (refer note 2.1 b to the financial
statements). § Assessing the liquidity of existing assets on the statement of financial
position that can be used to repay the Group's obligations;
§ 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;
Risk of fraud in revenue recognition
§ 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;
Revenue is material and an important determinant of the Group's performance
and profitability. This gives rise to inherent risk that revenue recognised is § We performed analytical procedures, including gross profit margin analysis
overstated in order to present more profitable results for the year. The and obtained explanations for significant variances as compared to the
Group's revenue from local and export sales of milk, dairy foods and beverages previous year;
amounted to £39.11 million, excluding the charge of bonuses. Given the
magnitude of the amount and the inherent § We tested a sample of journal entries relating to income recognition by
reference to supporting documents;
risk of revenue overstatement, we consider revenue recognition to be a key
audit matter (Refer to note 2.2.11 & 8). § 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,
§ We reviewed the disclosures related to revenue 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.
Our main audit procedures in respect of Management Override of Controls were
as follows:
· We have obtained an understanding of the financial reporting
process.
· We have reviewed opening balances and completeness of journals.
· We have reviewed high-risk journals as a part of our testing.
· We have reviewed accounting estimates and potential management
bias.
Key Observations
We did not note any material issues arising from the procedures performed in
this area.
Risk of Management Override of Controls
Management is in a unique position to perpetrate fraud because of management's
ability to manipulate accounting records and prepare fraudulent financial
statements by overriding controls that otherwise appear to be operating Our main audit procedures in respect of foreign exchange results were as
effectively. Although the level of risk of management override of controls follows:
will vary from entity to entity, the risk is nevertheless present in all
entities. Due to the unpredictable way in which such override could occur, it
is a risk of material misstatement due to fraud and thus a significant risk.
Also, the Group has voluminous transactions and requires complex calculations. · We have tested the appropriate calculation of the movement in the
currency translation from functional currency to reporting currency by audit
procedures on all translations included in the consolidation file prepared by
management.
· We have assessed the adequacy of the disclosures relating to
exchange differences in the financial statements.
Risk of Foreign exchange results
Key Observations
The risk in foreign exchange difference is due to the instability of the We did not note any material issues arising from the procedures performed in
Ukrainian Hryvnia (UAH) against to the EUR, USD and GBP. In addition, the this area.
Group's functional currency is UAH, while the Group's financial statements are
presented in GBP. We included the foreign exchange results as a key audit
matter as the ongoing Russian military action in Ukraine (refer note 1c, 2.2.1
and Note 10 to the financial statements).
Our main audit procedures in respect of Non-compliance with loan covenants
were as follows:
· We have recalculated the loan covenant and confirmed that they
are according to the terms of the loan.
Risk of Non-compliance with loan covenants · We have reviewed the correspondences with EBRD.
· We have checked the contact with EBRD in relation to their view
and actions on the breach of terms of the loan agreement (loan covenants) and
The Group has ERBD loans and there is a risk that the group doesn't meet the failure to pay interest and capital repayments.
debt service ratio as per stated in the loan agreement. Continuous of
violating (same breach in prior year) the Group's loan covenants could have a
potential material unfavourable impact to the Group.
Key Observations
We have noted a material issue arising from the procedures performed in this
During the review of loan agreements, we noted that there is non-compliance area. The specific instance identified by our audit was: Debt Service Ratio
with certain covenants contained within those agreements. Please refer note 24
to the financial statements). Based on the agreement, the indicator for debt service ratio should be
">1.2". However, as per our audit re-calculation, the indicator is equal
to 0.8
Our main audit procedures in respect of Subsequent events were as follows:
· We have obtained an understanding of the procedures management
has established to ensure that subsequent events are identified.
· We enquired of management whether any subsequent events have
occurred which might affect the financial statements.
Risk of Subsequent Events · We read minutes of all relevant meetings since the end of the
reporting period to identify any relevant subsequent events, to include where
applicable:
Due to ongoing Russian invasion in Ukraine, there is a risk that the group a. general meetings;
hasn't disclosed enough information in relation to subsequent war.
b. management meetings;
c. board meetings.
· We read all management and interim financial statements produced
since the end of the reporting period.
Key Observations
We did not note any material issues arising from the procedures performed in
this area.
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 £391,108 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 £19,555 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.
Jeff Vincent
For and on behalf of Moore Stephens Audit & Assurance (Jersey) Limited
1 Waverley Place
Union Street
St Helier
Jersey
Channel Islands
JE4 8SG
Ukrproduct Group
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
(in thousand GBP, unless otherwise stated)
Year ended Year ended
31 December 2022 31 December 2021
£ '000 £ '000
39 111 51 985
Revenue
Cost of sales (32 555) (47 457)
GROSS PROFIT 6 556 4 528
Administrative expenses (1 342) (1 415)
Selling and distribution expenses (2 719) (2 751)
Other operating expenses (1 571) (192)
PROFIT FROM OPERATIONS 924 170
Net finance expenses (466) (440)
Net foreign exchange (loss)/gain (1 113) 599
(LOSS)/PROFIT BEFORE TAXATION (655) 329
Income tax сredit (149) 110
(LOSS)/PROFIT FOR THE YEAR (804) 439
Attributable to:
Owners of the Parent (804) 439
Earnings per share from continuing and total operations:
Basic (pence) (2.03) 1.11
Diluted (pence) (2.03) 1.11
OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified to profit or loss
Currency translation differences (550) 244
Items that will not be reclassified to profit or loss
(550) 244
OTHER COMPREHENSIVE INCOME, NET OF TAX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR (1 354) 683
Attributable to:
Owners of the Parent (1 354) 683
Non-controlling interests - -
Ukrproduct Group
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
(in thousand GBP, unless otherwise stated)
As at As at
31 December 2022 31 December 2021
£ '000 £ '000
ASSETS
Non-current assets
Property, plant and equipment 7 916 9 795
Intangible assets 681 809
8 597 10 604
Current assets
Inventories 4 296 4 655
Trade and other receivables 3 073 6 763
Current taxes 591 920
Other financial assets 35 40
Cash and cash equivalents 403 312
8 398 12 690
TOTAL ASSETS 16 995 23 294
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 4 282 4 282
Treasury (315) (315)
shares
Share premium 4 562 4 562
Translation reserve (15 537) (14 987)
Revaluation reserve 6 005 6 348
Retained earnings 5 597 6 057
TOTAL EQUITY 4 594 5 947
Non-Current Liabilities
Deferred tax liabilities 530 796
530 796
Current liabilities
Bank loans 6 116 6 039
Short-term payables 493 587
Trade and other payables 5 162 9 829
Current income tax liabilities 48 41
Other taxes payable 52 55
11 871 16 551
TOTAL LIABILITIES 12 401 17 347
TOTAL EQUITY AND LIABILITIES 16 995 23 294
Ukrproduct Group
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
(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 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
Loss for the year - - - - (804) - (804) - (804)
Other comprehensive income - - - - - - - - -
Currency translation differences - - - - - (550) (550) - (550)
Total comprehensive income - - - - (804) (550) (1 354) - (1 354)
Reduction of revaluation reserve - - - - - - - - -
Gain on revaluation of property, plant and equipment - - - - - - - - -
Depreciation on revaluation of - - - (343) 343 - - - -
As At 31 December 2022 4 282 (315) 4 562 6 005 5 596 (15 537) 4 594 - 4 594
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
(in thousand GBP, unless otherwise stated)
Year ended Year ended
31 December 2022 31 December 2021
£ '000 £ '000
Cash flows from operating activities
(Loss)/Profit before taxation (655) 329
Adjustments for:
Exchange differences 1 113 (599)
Depreciation and amortization 882 1 003
Profit on disposal of non-current assets - 10
Write off of receivables/payables 1 065 192
Impairment of inventories 121 (41)
Interest income (6) -
Interest expense on bank loans 471 441
Operation cash flow before working capital changes 2 991 1 335
Decrease in inventories 94 2 703
Decrease / (Increase) in trade and other receivables 3 116 (1 558)
Decrease in trade and other payables (4 986) (1 118)
Changes in working capital (1 776) 27
Cash generated from operations 1 215 1 362
Interest received 6 -
Income tax paid (201) 12
Net cash generated from operating activities 1 020 1 374
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets ( 409) (723)
Repayments of loans issued (2) (11)
Net cash used in investing activities (411) (734)
Cash flows from financing activities
Interest paid (292) (379)
Repayments of long term borrowing - (161)
Net cash used in financing activities (292) (540)
Net Increase in cash and cash equivalents 317 100
Effect of exchange rate changes on cash and cash equivalents ( 226) 56
Cash and cash equivalents at the beginning of the year 312 156
Cash and cash equivalents at the end of the year 403 312
These consolidated financial statements were approved and authorised for issue
by the Board of Directors on 29 June 2023 and were signed on its behalf by Mr.
Alexander Slipchuk.
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 2022 statutory financial
statements. It contained no statement under section 113B of the Companies
(Jersey) Law 2011. The financial statements for 2022 will be delivered to the
Registrar of Companies after adoption at the Company's Annual General Meeting.
EXTRACTS FROM NOTES TO CONSOLIDATED FINANCIAL STATEMENT
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 the 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
At the time of publication of the annual report the war, which began on 24
February 2022, is ongoing and the significant general uncertainties inherent
to the continued war still exist. The Group's management has analyzed the
observable impact of the war on its business as described below, and has taken
the following actions in response to the current situation:
- For the period after the Russian invasion of Ukraine 58 employees joined
Ukrainian military forces and territorial defense. Personnel of production
facilities and central office remained in their working area or worked
remotely. The Group does not have a labor shortage and has managed to retain
its staff;
- No critical assets preventing the Group to continue operations are damaged
or located in the uncontrolled territories. The Group optimized utilization of
production facilities to meet domestic demand and export orders;
- All of the Group's inventories are in good condition and are in safe
storage.
- Export sales flow via Ukrainian ports was reduced significantly. Alternative
export routes are expanded in length and are significantly more expensive in
comparison with sea. Black Sea ports in Ukraine remains blocked for export
activities.
- During the fourth quarter of 2022, there were severe power outages in
Ukraine caused by Russia's attacks on Ukrainian power generation and
distribution infrastructure. These outages caused temporary instability of
work of the Group. To mitigate the impact on its business, the Group equipped
its key assets with diesel generators. Difficulties with power supply
persisted throughout January 2023 and only began to partially improve in
February 2023.
- 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 loss of the market in the east and south of the country is expected to
be offset partly by increased demand in central and western Ukraine, where a
large number of internally displaced persons temporarily reside.
Management acknowledges that future development of military actions and their
duration represent a single source of material uncertainty which may cast
significant doubt about the Group's ability to continue as a going concern
and, therefore, the Group may be unable to realize its assets and discharge
its liabilities in the normal course of business. Despite the single material
uncertainty relating to the war in Ukraine, management is continuing to take
actions to minimize the impact on the Group and thus believes that application
of the going concern assumption for the preparation of these Consolidated
financial statements is appropriate.
For the year ended 31 December 2022, the Group was in breach of several
provisions of its loan agreement with the EBRD and missed repayments which the
bank has not issued a waiver for. The Company have been holding negotiations
with the EBRD to potentially restructure the loan repayment schedule since
June 2021. The negotiations with EBRD are ongoing. At present the EBRD has
taken no action to accelerate repayment of the loan.
3. Bank loans and short-term payables
As at 31 December 2022 the Group has two loans: the loan from Creditwest Bank
in the amount of 1.451 thousand GBP (in UAH 63.860 million) and the loan from
the EBRD in the amount of 4.665 thousand GBP (in EUR 5.309 thousand).
For the year ended 31 December 2022, the Group was in breach of several
provisions of its loan agreement with the EBRD. With the beginning of the
military aggression of the Russian Federation against Ukraine on 24 February
2022 the Group suspended all the principal payments and interests of EBRD
loans as a result of force majeure circumstances, which the bank has not
issued a waiver for.
Ukrproduct has been in negotiations with the EBRD to potentially restructure
the loan repayment schedule since June 2021. The negotiations with EBRD are
ongoing. 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 2022 As at 31 December 2021
£ '000 £ '000 £ '000
EBRD EUR Loan 31.03.2011 30.11.2024 5-7% 7 347 4 665 4 304
Creditwest Bank Ukraine UAH Credit line 05.02.2018 05.02.2021 15.89% 1 477 1 451 1 735
Total 6 116 6 039
The average interest rate as at 31 December 2022 was 11% (2021: 11%).
SUBSEQUENT EVENTS
(a) EBRD - breach of loan covenants
As at 31 December 2022 the Group had been in breach of loan covenants with
EBRD. The Group was still in breach of this covenant as at 01 June 2023.
Ukrproduct has been in negotiations with the EBRD to potentially restructure
the loan repayment schedule since June 2021. The negotiations with EBRD are
ongoing.
(b) Foreign exchange rates
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 29 June 2023
UAH/GBP 46.31
UAH/USD 36.57
UAH/EUR 40.00
(c) 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.
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 30 June 2023 all the Group's assets are located in the
non-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.
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