Final Results and Notice of AGM

Ukrproduct Group Ltd

25 June 2024

 

25 June 2024

UKRPRODUCT GROUP LIMITED

("Ukrproduct", the "Company" or, together with its subsidiaries, the "Group")

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023

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 2023.

The full 2023 Annual Report and Accounts ("2023 Annual Report") has been posted to shareholders and is available on the Company's website at www.ukrproduct.com. A notice of Annual General Meeting ("AGM") and Proxy Form, will be shortly posted too.

It should be noted that the results and auditor's report set out below reference notes contained in the 2023 Annual Report,  which can be read in full on the Company's website.

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 01 August 2024.

For further information contact:

Ukrproduct Group Ltd
Sergey Evlanchik, Interim Chairman	Tel: [phone]
Oleksandr Slipchuk, Chief Executive Officer	www.ukrproduct.com
Strand Hanson Limited
Nominated Adviser and Broker Rory Murphy, Richard Johnson	Tel: [phone] www.strandhanson.co.uk

Trading

Ukrproduct Group Limited ("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).

In the financial year ended 31 December 2023 ("FY2023"), Ukrproduct continued to face a volatile operating environment due to the challenges of the war in Ukraine. As in 2022, one of the Group's key objectives was to ensure the safety of employees and maintain its operations and assets.

Ukrproduct's consolidated revenue in FY2023 increased by 8.0% in local currency. The general growth in sales was due to a focus on the development of key products, namely processed cheese and processed cheese products, the development of new product categories, snacks and beverages, and the expansion of the Group's presence in retail chains. After currency translation, revenue decreased by 5.4% to £37.0 million year-on-year, due to the 14.1% impact of foreign exchange rates, in particular reflecting the depreciation of the Ukrainian hryvnia against the British pound sterling. 

In the processed cheese and processed cheese product category, sales amounted to £24.9 million, reflecting a revenue increase of 25.7% in local currency compared with the previous year. Sales represented an increase in volume of 12.4%. This was mainly attributable to the increase in export volumes to the Middle East, the focus of marketing campaigns on these product categories and the development of new items.

In FY2023, butter sales amounted to £3.1 million, reflecting a revenue increase of 3.4% in local currency compared with the previous year, although sales represented a decline of 4.3% in volume. The Group took a flexible approach by prioritizing key sales channels, such as exports and major distributors. A significant increase in the purchase price of raw milk and bulk butter in Ukraine during the second half of 2023, rising logistics costs and strengthened market competition led to a decrease in the margins of butter sales.

Sales of spreads decreased to £4.6 million in FY2023 compared with £5.6 million in the prior year. This constituted a decrease in sales of 6.0% in local currency and reduction of 12.9% in volume. The decrease was principally due to the increased competition in the market.

Sales generated from skimmed milk powder decreased significantly by 52.1% in local currency to              £1.1 million, compared with £2.5 million in the previous year. In terms of volume, skimmed milk powder sales decreased by 43.4%, which continues the dramatic decline seen in the previous period. Due to a significant reduction in prices for skimmed milk powder in 2023, the Group minimized its output of this product for sale in favour of utilizing semi-processed milk protein as an ingredient in the production of processed cheese.

Sales of kvass and beverages amounted to £1.8 million in FY2023, corresponding to a growth of 90.2% in local currency and 42.8% in terms of volume, in each instance compared with the previous period. The growth was due to the revival of full sales period in FY2023 whereas in FY2022 the sales season in key kvass sales regions was delayed till June due to the Russian invasion of Ukraine.

In FY2023, the Group's administrative and selling expenses amounted to £4.1 million; a 0.4% increase compared to FY2022. In FY2023 the Group focused on carrying out trade marketing activities, in particular providing discounts to customers and consumers, rather than on advertising campaigns. As a result, marketing costs were reduced by 51.3% compared with the previous year. The changes in other types of expenses were mainly driven by sales dynamics and routine business activities throughout FY2023. In contrast, in FY2022, following the start of the Russian invasion of Ukraine, the Group was forced to temporarily suspend or minimise some of its activities and processes.

Other operating expenses in FY2023 totaled £1.1 million (FY2022: £1.6 million), including losses from impairment of stock of supplementary products that the Group was unable to sell for export due to the blockade of Ukrainian Black Sea ports, as well as minor fines and some VAT losses.

The Group's operations recorded an EBITDA of £2.4 million, representing a strong increase of 32.8% year on year. The Group's EBITDA margin improved from 4.6% to 6.5%.

Finance costs in FY2023 grew by 67.6% year on year, to £0.78 million, primarily driven by increased interest rates and recognized additional interest expenses for the European Bank for Reconstruction and Development ("EBRD") loan for the previous periods. In June 2023, notwithstanding the challenging operating environment due to the war in Ukraine, the EBRD decided to exercise its right under the loan agreement and increased the interest rate on the loan retrospectively from September 2021.

Net profit after tax for FY2023 amounted to £0.4 million, a swing of £1.2 million compared to FY2022 (loss: £0.8m), principally driven by the significantly lower currency translation losses, which are due to the devaluation of the Ukrainian hryvnia against the British pound and Euro.

Financial Position

As at 31 December 2023, Ukrproduct reported net assets of £4.5 million including cash balances of        £0.4 million, compared to net assets of £4.6 million as at 31 December 2022 and cash balances of               £0.4 million.

For the year ended 31 December 2023, the Group continued to be in breach of several provisions of the loan agreement with the EBRD. The Group failed to repay Tranche A (aggregate EUR 2.1 million principal, equivalent to £1.8 million) before the maturity date of 1 December 2022 and has missed interest payments since 1 March 2022. In June 2023 the EBRD notified the Group about a recalculation and an increased interest rate in respect of the aggregate EUR 5.7 million (equivalent to £4.9 million) principal and interest of Tranche A and Tranche B from 1 September 2021.

The Group has been negotiating with the EBRD since June 2021 to potentially restructure the loan repayment and active negotiations are ongoing but have been slowed down owing to the ongoing war in Ukraine. At present, the EBRD has taken no action to accelerate repayment of the loan. The Group resumed repayment of interest to EBRD starting from December 2023.

In January 2024, after the period end, the Group fully repaid the previous working capital loan of UAH 63.8 million (GBP 1.3 million) and arranged a new facility of UAH 70.0 million (GBP 1.4 million), with the same Ukrainian bank, for general working capital purposes. The new facility has a significantly lower interest of 9% (against 20% on the repaid previous facility).

Outlook

The Group continues to make every effort to navigate its strategy in a very challenging business environment, not least ensuring a stable power supply and responding to new challenges. In 2024, the Group expects to focus on maintaining existing production facilities, sustaining sales volumes and ongoing improvement of operational efficiency.

Sergey Evlanchik	Oleksandr Slipchuk
Interim 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 2023, 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 consolidated financial statements:

·   give a true and fair view, of the state of the Group's affairs as at 31 December 2023 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 The consolidated 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 breach of loan covenants. The net current liability, as set out in the consolidated statement of financial position, amounted to £2.73 million as of 31 December 2023. We included the going concern assumption as a key audit matter given both the continuing net current liability position as well as the ongoing Russian military action in Ukraine (Refer note 2.1 b to the consolidated financial statements). Risk of Fraud in Revenue Recognition Revenue is material and an 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's revenue from local and export sales of milk, dairy foods and beverages amounted to £36.99 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 (Refer to note 2.2.11 & 8). Risk of Management Override of Controls Management is in a unique position to perpetrate fraud because of its ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Although the level of risk of management override of controls 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 misstatements due to fraud and thus a significant risk. Also, the Group has voluminous transactions and requires complex calculations. Risk of Non-compliance with Loan Covenants The Group has loans from EBRD and there is a risk that the Group doesn't meet covenants as stated in the loan agreement. Violation of the Group's loan covenants could have a potential material unfavourable impact to the Group. During the review of loan agreements, we noted that there is non-compliance with certain covenants contained within those agreements, particularly on the missed payments of principal and interests (Refer to Note 23 to the consolidated financial statements.) Risk on Subsequent Events Due to the ongoing Russian invasion in Ukraine, there is a risk that the Group hasn't disclosed enough information in relation to subsequent war.

Key Observations Our work performed and our conclusions in respect of going concern have been detailed in the 'Material uncertainty related to going concern section' of our 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, § 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 understanding of the financial reporting process. § We have reviewed opening balances and completeness of journals. § We have reviewed high-risk journals as 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. 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. § We have reviewed the correspondences with EBRD. § We have checked the contract with EBRD in relation to their view and actions on the breach of terms of the loan agreement (loan covenants) and failure to pay interest and capital repayments. Key Observations We have noted a material issue arising from the procedures performed in this area. The specific instance identified by our audit was:  missed principal and interest payments. Our main audit procedures in respect of Subsequent events were as follows: § We have obtained 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. § We have read the minutes of all relevant meetings since the end of the reporting period to identify any relevant subsequent events, to include where applicable: a.   general meetings; 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 consolidated financial statements, which indicates the ongoing full-scale military invasion of Ukraine launched by the Russian Federation, and that the Group is in breach of covenants in respect of its loan agreement with the European Bank for Reconstruction and Development (EBRD). These events have continued after the year end and, along with other matters as set in note 2.1 (b) to the consolidated 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.

In auditing the consolidated financial statements, we have concluded that the use of the going concern basis of accounting in the preparation of the consolidated financial statements is appropriate. In assessing the appropriateness of the going concern assumption used in preparing the consolidated financial statements, our procedures included, amongst others:

§ Assessing the cash flow requirements of the Group over 12 months from expected sign-off of these consolidated financial statements;

§ Understanding what forecast expenditure is committed and what could be considered discretionary;

§ Assessing the liquidity of existing assets on the consolidated 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.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

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 £557,262 which is approximately 1.5% 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 £27,863 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 17, 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.

Phillip Callow

For and on behalf of Moore Stephens Audit & Assurance (Jersey) Limited

1 Waverley Place, Union Street, St Helier, Jersey, Channel Islands

Ukrproduct Group

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2023

(in thousand GBP, unless otherwise stated)

		Note		Year ended		Year ended
				31 December 2023		31 December 2022
				£ '000		£ '000
Revenue		8		36 992		39 111
Cost of sales		9		(30 140)		(32 555)
GROSS PROFIT				6 852		6 556
Administrative expenses		9		(1 569)		(1 342)
Selling and distribution expenses		9		(2 507)		(2 719)
Other operating expenses		9		(1 074)		(1 571)
PROFIT FROM OPERATIONS				1 702		924
Net finance expenses		11		(781)		(466)
Net foreign exchange loss		10		(435)		(1 113)
PROFIT/(LOSS) BEFORE TAXATION				486		(655)
Income tax		13		(96)		(149)
PROFIT/(LOSS) FOR THE YEAR				390		(804)
Attributable to:
Owners of the Parent				390		(804)
Non-controlling interests				-		-
Earnings per share from continuing and total operations:
Basic (pence)		26		0.98		(2.03)
Diluted (pence)		26		0.98		(2.03)
OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified to profit or loss
Currency translation differences				(449)		(550)
OTHER COMPREHENSIVE INCOME, NET OF TAX				(449)		(550)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR				(59)		(1 354)
Attributable to:
Owners of the Parent				(59)		(1 354)
Non-controlling interests				-		-

Ukrproduct Group

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2023

(in thousand GBP, unless otherwise stated)

		Note		As at		As at
				31 December 2023		31 December 2022
				£ '000		£ '000
ASSETS
Non-current assets
Property, plant and equipment		14		7 158		7 916
Intangible assets		15		501		681
				7 659		8 597
Current assets
Inventories		17		2 783		4 296
Trade and other receivables		18		5 400		3 073
Current taxes		19		471		591
Other financial assets		20		38		35
Cash and cash equivalents		21		436		403
				9 128		8 398
TOTAL ASSETS				16 787		16 995
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital Treasury shares		22		4 282 (315)		4 282 (315)
Share premium		23		4 562		4 562
Translation reserve		23		(15 986)		(15 537)
Revaluation reserve		23		5 797		6 005
Retained earnings				6 194		5 597
TOTAL EQUITY				4 534		4 594
Non-Current Liabilities
Deferred tax liabilities		16		392		530
				392		530
Current liabilities
Bank loans		24		5 777		6 116
Short-term payables				609		493
Trade and other payables		25		5 212		5 162
Current income tax liabilities				64		48
Other taxes payable				199		52
				11 861		11 871
TOTAL LIABILITIES				12 253		12 401
TOTAL EQUITY AND LIABILITIES				16 787		16 995

Ukrproduct Group

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2023

(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 2021	4 282	(315)	4 562	6 348	6 057	(14 987)	5 947	-	5 947
Loss for the year	-	-	-	-	(804)	-	(804)	-	(804)
Currency translation differences	-	-	-	-	-	(550)	(550)	-	(550)
Total comprehensive income	-	-	-	-	(804)	(550)	(1 354)	-	(1 354)
Depreciation on revaluation of property, plant and equipment	-	-	-	(343)	343	-	-	-	-
As At 31 December 2022	4 282	(315)	4 562	6 005	5 596	(15 537)	4 593	-	4 593
Profit for the year	-	-	-	-	390	-	390	-	390
Currency translation differences	-	-	-	-	-	(449)	(449)	-	(449)
Total comprehensive income	-	-	-	-	390	(449)	(59)	-	(59)
Depreciation on revaluation of property, plant and equipment	-	-	-	(208)	208	-	-	-	-
As At 31 December 2023	4 282	(315)	4 562	5 797	6 194	(15 986)	4 534	-	4 534

Ukrproduct Group

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2023

(in thousand GBP, unless otherwise stated)

		Note		Year ended		Year ended
				31 December 2023		31 December 2022
				£ '000		£ '000
Cash flows from operating activities
Profit/(Loss) before taxation				486		(655)
Adjustments for:
Exchange differences		10		435		1 113
Depreciation and amortization		9		697		882
Write off of receivables/payables		9		58		1 065
Impairment of inventories		9		627		121
Interest income		11		(6)		(6)
Interest expense on bank loans		11		787		471
Operation cash flow before working capital changes				3 084		2 991
Decrease  in inventories				945		94
Decrease / (Increase) in trade and other receivables				(2 245)		3 116
Decrease in trade and other payables				(366)		(4 986)
Changes in working capital				(1 666)		(1 776)
Cash generated from operations				1 418		1 215
Interest received				6		6
Income tax paid				(106)		(201)
Net cash generated from operating activities				1 318		1 020
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets				(582)		(409)
Repayments of loans issued				(6)		(2)
Net cash used in investing activities				(588)		(411)
Cash flows from financing activities
Interest paid		24		(312)		(292)
Repayments of long term borrowing		24		(4)		-
Net cash used in financing activities				(316)		(292)
Net increase in cash and cash equivalents				414		317
Effect of exchange rate changes on cash and cash equivalents				(381)		(226)
Net increase in cash and cash equivalents including effect of exchange rate changes on cash and cash equivalents				33		91
Cash and cash equivalents at the beginning of the year				403		312
Cash and cash equivalents at the end of the year		21		436		403

These consolidated financial statements were approved and authorised for issue by the Board of Directors on June 24 2024 and were signed on its behalf by Mr. Oleksandr 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 2023 statutory financial statements. Those financial statements  contain no statement under section 113B of the Companies (Jersey) Law 2011. The financial statements for 2023 will be delivered to the Registrar of Companies after adoption at the Company's Annual General Meeting.

EXTRACTS FROM NOTES TO CONSOLIDATED FINANCIAL STATEMENT

The 2023 Annual Report has been posted to shareholders and is available on the Company's website at www.ukrproduct.com. Extracts from some Notes to Consolidated Financial statements are presented below.

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 this report the war is ongoing and the significant general uncertainties inherent to the continued war, which began on 24 February 2022, remain. 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 more than 50 employees joined Ukrainian military forces and territorial defense. Personnel of production facilities and central office remained in their working area or worked remotely. While personnel-related challenges have been manageable so far, the anticipated escalation of conscription efforts in Ukraine heightens operational risks for the Group.

- No critical assets preventing the Group from continuing 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 significantly more expensive in comparison with sea ones. Black Sea ports in Ukraine remain blocked for export activities.

- Due to the constant Russian shelling targeting vital Ukrainian energy infrastructure, the Group has mitigated the possible disruptions to its operations, by equipping its key assets with diesel generators.

The Group repaid a short-term loan of UAH 63.8 million (GBP 1.3 million)  and signed a new facility with a Ukrainian bank for working capital needs in the amount UAH 70.0 million (GBP 1.4 million) in January 2024. 

For the year ended 31 December 2023, the Group continued to be in breach of several provisions of the loan agreement with the EBRD. The Group failed to repay Tranche A (aggregate EUR 2.1 million principal, equivalent to £1.8 million) before the maturity date of 1 December 2022 and has missed interest payments since 1 March 2022. In June 2023 the EBRD notified the Group about a recalculation and an increased interest rate in respect of the aggregate EUR 5.7 million (equivalent to £4.9 million) principal and interest of Tranche A and Tranche B from 1 September 2021.

The Group has been negotiating with the EBRD since June 2021 to potentially restructure the loan repayment and negotiations are ongoing. At present, the EBRD has taken no action to accelerate repayment of the loan. The Group reverted to the payment of interest for the long-term credit from the EBRD starting from December 2023.

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 to the Group and thus believes that the application of the going concern assumption for the preparation of these consolidated financial statements is appropriate.

3. Bank loans

As at 31 December 2023 the Group has two loans: the loan from Creditwest Bank in the amount of GBP 1.314 thousand (in UAH 63.684 million) and the loan from the EBRD in the amount of                              GBP 4.463 thousand (in EUR 5.127 thousand).

For the year ended 31 December 2023, the Group continued to be in breach of several provisions of the loan agreement with the EBRD. The Group failed to repay Tranche A (aggregate EUR 2.1 million principal, equivalent to £1.8 million) before the maturity date of 1 December 2022 and has missed interest payments since 1 March 2022. In June 2023 the EBRD notified the Group about a recalculation and an increased interest rate in respect of the aggregate EUR 5.7 million (equivalent to £4.9 million) principal and interest of Tranche A and Tranche B from 1 September 2021.

Fixed assets with a net book value of GBP 2.330 thousand at 31 December 2023 (2022: GBP 2.446 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.

Bank	Currency	Type	Opening date	Termination date	Interest rate	Limit	As At 31 December 2023	As at 31 December 2022
						£ '000	£ '000	£ '000
EBRD	EUR	Loan	31.03.2011	01.12.2024	1% - 10.975%	7 225	4 463	4 665
Creditwest Bank	UAH	Credit line	05.02.2018	05.02.2024	20%	1 341	1 314	1 451
Total							5 777	6 116

The average interest rate as at 31 December 2023 was 13.6% (2022: 7.7%).

4. SUBSEQUENT EVENTS

At the time of publication of the annual report the war, which began on 24 February 2022, is ongoing. The Group continues to operate. The management of the Group controls all its operations.

The Group repaid the short-term loan of UAH 63.8 million (GBP 1.3 million) and signed a new facility with a Ukrainian bank for working capital needs in the amount of UAH 70.0 million (GBP 1.4 million) in January 2024. 

As at 31 December 2023 the Group had been in breach of loan covenants with EBRD. Ukrproduct has been in negotiations with the EBRD to potentially restructure the loan repayment schedule since June 2021. The negotiations with EBRD are ongoing.

In February 2024 Linkstar Limited, subsidiary of the Company, started the procedure of strike-off.

As of 19 June 2024 Jack Rowell has retired from the Board following a 19 year tenure as Chairman. After Jack Rowell retired from the Board Sergey Evlanchik agreed to become Interim Chairman on a temporary basis, in addition to his role as Executive Director of Ukrproduct

 

END