Final Results

Ukrproduct Group Ltd 10 May 2005 10 May 2005 UKRPRODUCT GROUP LTD ('UPG') Ukrproduct Group is a leading Ukraine-based producer and distributor of branded dairy foods. Preliminary Results for the period ended 31 December 2004 Highlights (2003 - in brackets) • Sales: £27.1 million (£17.6 million) • Gross profit: £4.4 million (£2.4 million) • EBITDA: £2.6 million (£1.4 million) • PBT: £1.7 million (£1.2 million) • Net profit: £1.4 million (£1.1 million) • Margin growth: 16.3% (13.5%) • Earnings per share: 4.8p (3.7p) • Successful admission to AIM • First Ukrainian trading group to be listed in London • Offer oversubscribed, raising £6 million gross • Shares have consistently outperformed the placing price • Increased market leadership in core segments of processed cheese and packaged butter • Largest capacity increase in UPG's history for the production of processed cheese at Molochnik, producing 2,000 tonnes per month • Direct distribution & merchandising programmes launched in five cities each with a population of over 1 million Commenting on the FY2004 results, Sergey Evlanchik, Chief Executive of Ukrproduct Group, said: "The Group has reported significant progress in sales and profits, this growth has continued into the first quarter of 2005. Over the next few years we shall continue to review the efficiency of our operations based on scale, improved logistical and sales capabilities, as well as via penetration of more profitable business segments. Our proven business model, together with our success in a dynamically evolving environment, supports our confidence that we will be able to improve our performance yet further, for the long-term benefit of our shareholders." For more information, contact: Ukrproduct Group May 10 2005 Sergey Evlanchik, CEO +44 (0) 207 831 3113 Dmitry Dragun, FD Thereafter +380 44 502 8014 Financial Dynamics +44 (0) 207 831 3113 Benjamin Foster Charles Watenphul Notes to editors Ukrproduct Group (UPG) is one of Ukraine's leading producers of branded foods. Headquartered in Kyiv and registered in Jersey, the company's main business focuses is the production and distribution of branded food products, namely packaged butter and processed cheese, to wholesale and retail outlets in Ukraine through its own distribution network. UPG also produces skimmed milk powder for export to countries across Europe as well as the Far East. UPG is the market leader in the processed cheese and packaged butter segments, with estimated market shares of 33% and 23% respectively. UPG is one of Ukraine's fastest growing companies within its sector, with compound average sales growth of 58% between 2001-2004. On 11 February 2005,Ukrproduct Group Ltd, became the first Ukrainian trading group to be admitted to AIM. The company successfully placed 27.2% of its share capital at 53.5p per share, giving the company an initial market capitalisation of £22.5 million. CHAIRMAN'S STATEMENT I am delighted to present the first preliminary results of Ukrproduct Group following its listing on the London Stock Exchange's Alternative Investment Market (AIM). The Board and management team have worked hard to sustain the Group's growth going forward and we are confident of our ability to deliver value to shareholders. Overview During 2004, Ukrproduct Group has continued to demonstrate sustained growth. We are maintaining our momentum, and despite the competitive business environment, the Group's proven business model allows us to be a step ahead of the competition. During the year under review, we successfully launched many initiatives to create a strong, integrated food and service group. These included construction of a new cheese producing facility, corporate structuring of the Group and further expansion of our distribution network. The Group successfully achieved the challenging targets set out by the Board and remains one of the most profitable and dynamic food businesses in Ukraine. Net sales have increased by 54% to £27 million, accompanied by improved profit margins. Excellent progress has been made in our core business segments, with estimated further increases of 10 and 6 percentage points respectively to our already leading positions in the Ukrainian processed cheese and packaged butter markets. Strategy Our long-term ability to compete in the constantly changing and evolving business environment will depend crucially on developing the Group's product offering to customers. Having grown organically to become the leader in our core business segments, we now need to pick up the pace of investment in order to remain competitive in the future. On the production side, the Group continues to develop its core capabilities and aims to expand into another attractive area. The Group has for some time been analysing potential investment opportunities in the large, higher-margin and fast-growing hard cheese sector. We intend to secure a foothold in this area during 2006-2007. On the service side, the Group plans to capitalise on its existing distribution network and to develop further the logistics and supply chain management services offered to third parties. This business activity is becoming increasingly important for companies operating in Ukraine, where the supply chain development is in its infancy; due to high domestic economic growth, demand for these services is growing rapidly. We will keep our shareholders informed of any major developments as we continue to pursue the Group's corporate strategy. Governance The current Board was formed during the year to provide overall guidance for the management of the Group. The Board is committed to ensuring best practice in corporate governance, through the monitoring and development of appropriate internal controls. 2004 has been an eventful year for both management and staff, and on behalf of the Board I would like to express my appreciation for their efforts, which are essential to the Group's continuing success. Jack Rowell Non-Executive Chairman CHIEF EXECUTIVE'S STATEMENT 2004 was a breakthrough year for the Group. Continuing modernisation of the plants, expanded geographic coverage of sales, further expansion of the Group's market share and further growth of margins in the core segments are all the welcome hallmarks of a dynamically developing business. The structuring of our activities prior to our admission to AIM allowed your Board to improve the Group's business processes and to attain significant gains in operating efficiency. In May, the Group commenced the construction of a new, state-of-the-art manufacturing facility at Molochnik, the Group's flagship plant for processed cheese in Zhitomyr. The building programme is expected to take a year, after which production capacity will increase to 2,000 tonnes of processed cheese per month. This will be the largest ever capacity increase in the Group's history - and it will strengthen the Group's position as the leading processed cheese manufacturer in Ukraine. Additionally, our rapid expansion necessitated the establishment of Ukrproduct Logistics, the Group's division dedicated both to the logistical support of other Group companies and to the provision of transport and distribution services to third parties. This service component of the Group's business is of growing importance and we are keen to expand this area into a significant profit-generating centre. Operating review Throughout the period, Molochnik performed well, producing 12,300 (2003: 6,700) tonnes of processed cheese and 6,100 (2003: 4,450) tonnes of packaged butter. Our second manufacturing facility at Starakonstaninov produced 3,500 (2003: 2,990) tonnes of skimmed milk powder and 3,100 (2003: 1,700) tonnes of packaged butter. Although Ukrproduct's market position strengthened in all product segments, processed cheese sales did exceptionally well, and we believe our market share is now around 33%. In September 2004, a new regional distribution centre in Kharkiv became operational - another step in the development of our pan-Ukrainian distribution network, which now comprises eight regional depots and a central warehouse in Zhitomyr. The rapid growth of the Group was supported by further development of the existing distribution network and the launch of direct delivery and merchandising programmes in five big cities, each with a population of over 1 million - Dnepropetrovsk, Donetsk, Kyiv, Lviv and Odessa. The Group continued its successful practice of the forward storage of raw milk materials, thereby benefiting from the differentials in protein content and prices, between summer and winter seasons. This practice ensures stability of supply of the raw materials for the whole year. The total amount used in forward storage was 1,700 tonnes in the year under review. In 2005, we plan to increase this figure to 4,000 tonnes in order to satisfy the growing demand. Market The dairy-based foods market in Ukraine continues to register accelerated growth, supported by the sustained growth of consumer purchasing power, as well as by the increasing sophistication of the producers' offerings. Even after years of double-digit growth, per capita consumption of dairy-based foods remains relatively low in Ukraine in comparison with other East European countries. This indicates the potential of this market in the future. Although the competition in our principal segments is gradually increasing, the Group's business model provides a platform for the maintenance of its leading position. Prospects Development of new business opportunities has been a key point of focus for the Board and management team during the year. The growth of the hard cheese market and its relatively high level of fragmentation have created an opportunity for the Group to enter this segment, based on using our traditional strengths in production, quality control, branding and distribution. We are currently assessing options for construction of a brand-new hard cheese plant, to become operational in 2006/2007. As part of the Group's quality improvement plans, we are planning to install a new standardisation line for raw materials at Molochnik in summer 2005. Growing volumes of the distribution throughput (both own produce and third-party goods) require that Ukrproduct constantly upgrade its warehousing facilities. The Group is now preparing a plan for building a new smart hub warehouse near Zhitomyr with a surface area of 20,000 square metres, three quarters of which will be temperature-controlled. We plan to complete this project in 2007. Since the year end, the Company succeeded in raising £6 million gross through a placing of its shares on the London Stock Exchange's Alternative Investment Market (AIM). We intend to use these funds to augment our working capital, to redeem our domestic high-coupon debt and to facilitate the capital expenditure programme, which is essential for our expansion. Outlook We have a clearly defined plan for further development and growth, which is aimed at maximising shareholder value. We will continue to serve our customers by focussing on quality, price, convenience and innovation. The Group has reported significant progress in sales and profits, this growth has continued into the first quarter of 2005. Over the next few years we shall continue to review the efficiency of our operations based on scale, improved logistical and sales capabilities, as well as via penetration of more profitable business segments. Our proven business model, together with our success in a dynamically evolving environment, supports our confidence that we will be able to improve our performance yet further, for the long-term benefit of our shareholders. The year marked a substantial step forward in all Group activities. This step would not have been possible without the commitment and dedication of each of our 1,200 employees. I would like to thank them as a team and each of them personally for their efforts and contribution into sustaining Ukrproduct Group's leading position in our markets. Sergey Evlanchik Chief Executive Officer FINANCIAL REVIEW The year 2004 was yet another period of profitable growth for the Group. The financial position was robust, the underlying business continued to develop dynamically in all segments of operations, and the Group was careful in controlling the costs of expansion. Sales Sales of £27.1 million for the period comprised the following product segments: Processed cheese £10.1 million (£5.8 million) Packaged butter £9.5 million (£7.7 million) Skimmed milk powder £5.4 million (£3.2 million) Other products £1.9 million (£0.8 million) Services £0.2 million (£0.1 million) Sales grew by 54% over the previous year, facilitated mainly by the Group's expanding distribution network, well thought-out branding and promotional strategies. With regards to the sales dynamic, in the year the Group observed the continuing growth of the Ukrainian economy supported by the ongoing structural reforms, prudent monetary policies of the central bank and rising affluence of the consumers. Gross profit Group's gross profit of £4.4 million in 2004 (2003: £2.4 million) has significantly increased in comparison with the previous year, in particular as the result of the increase in the Group's buying power vis-a-vis the suppliers of raw materials. Gross profit margin has also improved significantly, following the Group's successful implementation of the raw materials forward storage programme for season 2004-2005. EBITDA Profit before interest, taxes, depreciation and amortisation of £2.6 million was up nearly 86% over the prior year. The growth in EBITDA was achieved via profitable expansion of the Group's sales, timely mitigation of the seasonal (winter 2004) increase in prices of raw materials, and careful control of the general administrative expenses. PBT Profit before taxes has increased significantly in 2004 to £1.7 million (2003: £1.2 million) albeit at a slower rate than the increase in EBITDA. The main reason for this was the higher depreciation charge in 2004, due to the Group's ongoing modernisation programme and revaluation of fixed assets. Also, the Group incurred greater interest expense, which was necessary to support the continuing growth in the borrowing requirement. Net profit Net profit was recorded at £1.4 million, an increase of 27% over the previous year. There were two reasons for the slower growth in Group's net profit in comparison to Sales and EBITDA. First, an exceptional item in the form of a waiver of debt of the Group to a related party in 2003 - treated as income according to International Accounting Standards - created the higher comparative base for net income in 2003. Second, the Group's effective tax rate has increased in 2004 as a result of corporate structuring and consolidation of tax base in preparation to listing on London Stock Exchange. Earnings per share The Group's earnings per share in FY2004 have been 4.8 pence (2003: 3.7 pence). Earnings per share has been calculated by dividing net profit attributable to the ordinary shareholders (profit for the year) by the weighted average number of shares that would have been in issue if the Enlarged Group had been a legally defined Group at 31 December and had applied the merger method. In the Board's view, such calculation is consistent with IAS/IFRS and provides a suitable basis for comparisons going forward. Cash flow Net cash flow from operating activities was £0.9 million and the Group was cash positive at £0.3 million as of 31 December 2004. The Group's total debt amounted to £2.2 million, with an equity book value of £5.1 million. Capital expenditure During the period under review, the Group purchased property, plant and equipment with a value of nearly £1.6 million (2003: £0.8 million). This expenditure mostly related to the construction of the new processed cheese production facility, acquisition of melting and packaging equipment, upgrade of the production and distribution facilities and various other uses. Dividends The directors are committed to a progressive and balanced dividend policy that aims to reward shareholders adequately whilst at the same time maintaining the Group's cash position necessary to support the continuing growth. In order to support the cash requirements of the Group, the Directors recommend that no dividend be paid for the year 2004. No dividends have been paid out during the year under review. International Accounting Standards and International Financial Reporting Standards (IAS/IFRS) The Group's financial statements for the last four financial years, 2004 inclusive have been prepared in accordance with IAS/IFRS. Dmitry Dragun Chief Financial Officer BALANCE SHEET As at 31 December, £ 000 Notes 2003 2004 Non-current assets Property, plant and equipment 8 1,017 5,023 Intangible assets - 3 Investments 89 83 Deferred tax 6 - 36 Total non-current assets 1,106 5,145 Current assets Inventories 1,607 2,328 Loans issued 9 15 212 Receivables and prepayments 10 2,143 2,029 Cash and cash at bank 132 300 Total current assets 3,897 4,869 Current Liabilities Bank loans and overdrafts 11 (1,008) (1,077) Trade and other payables 12 (1,938) (1,671) Promissory Notes 13 (3) - Current income tax liabilities (119) (253) (3,068) (3,001) Net current assets 829 1,868 Total assets less current liabilities 1,935 7,013 Non-Current Liabilities Long-term loans 14 - (221) Bonds 14 (302) (933) Promissory Note 13 (22) (5) Deferred income tax liabilities 6 - (703) Net assets 1,611 5,151 Capital and reserves attributable to equity holders Share capital 15 3,000 3,000 Merger reserve (1,866) (1,866) Revaluation reserve - 2,020 Retained earnings 409 1,865 1,543 5,019 Minority interest 16 68 132 Total shareholders' equity 1,611 5,151 STATEMENT OF INCOME Year ended 31 December, £ 000 Notes 2003 2004 Revenues 4 17,597 27,115 Costs of sales (15,222) (22,698) Gross profit 2,375 4,417 Other operating income 63 General and administrative expenses (690) (1,045) Selling and distribution expenses (399) (1,070) Other expenses (180) (296) Income from waiver of debt 4 250 - Profit before interest and taxation 4 1,356 2,069 Finance costs - interest payable and similar (94) (312) charges Profit before taxation 1,262 1,757 Income tax expense 6 (146) (301) Profit after taxation 1,116 1,456 Attributable to: Owners 1,111 1,436 Minority interest 5 20 1,116 1,456 Earnings per share basic, pence 7 3.7 4.8 Earnings per share diluted, pence 7 3.7 4.8 CASH FLOW STATEMENT As at 31 December, £ 000 Notes 2003 2004 Cash flow from operating activities Net profit before taxation 1,262 1,757 Adjustments for: Depreciation 62 520 Interest expense 94 305 Income from waiver of debt (250) - 1,168 2,582 Increase in inventories (1,039) (872) Increase in trade and other receivables (1,070) (71) Increase / (decrease) in trade and other payables 839 (349) Cash (used by) /generated from operations (102) 1,290 Interest paid (94) (305) Income tax paid/(refunded) (32) (66) Net cash (used in)/generated by operating activities (228) 919 Cash flows from investing activities Purchase of property, plant and equipment (733) (1,566) Purchase of investments - 1 Proceeds from sale of property, plant and equipment 31 3 Proceeds from sale of investment - (7) Loans (advanced)/repaid 104 (207) Net cash used investing activities (598) (1,776) Cash flows from financing activities Net proceeds from long term borrowing 17 - 232 Proceeds from issue of bonds 17 303 680 Proceeds from issue of shares/additional capital 1,075 - Distribution of profit (914) - Net proceeds from issue of promissory Notes 17 (70) (20) Net proceeds from short term borrowing 17 602 147 Net cash generated by financing activities 996 1,039 Effect of exchanges rate changes and restatements on cash and (86) (14) cash equivalents Net increase in cash and cash equivalents 84 168 Cash and cash equivalents at the beginning of the year 48 132 Cash and cash equivalents at the end of the period 132 300 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share Merger Re- Retained Share-holders ' Minority Total capital reserve earnings equity interest equity Valuation £ 000 £ 000 £ 000 £ 000 £ 000 £ 000 reserve £ 000 Balance at 1 January 2003 309 - - 256 565 118 683 Issue of shares 845 - - - 845 - 845 Purchase of treasury shares (20) - - - (20) - (20) Net profit for the year - - - 1,111 1,111 5 1,116 Reduction in minority - - - 42 42 (42) - interest on issue of new shares Issue of share capital in 3,000 (3,000) - - - - - the Company (Note 15) Elimination of share (1,134) 1,134 - - - - - capital in subsidiaries Distribution of profit - - - (913) (913) - (913) Exchange differences on - - - (87) (87) (13) (100) translation to the presentation currency Balance at 1 January 2004 3,000 (1,866) - 409 1,543 68 1,611 Gain on revaluation of - - 3,073 - 3,073 75 3,148 fixed assets Deferred income tax on gain - - (674) - (674) (17) (690) on revaluation Issue of shares 15 - - - 15 - 15 Issued on acquisition of 15,273 - - - 15,273 - 15,273 Operating Group Merger reserve arising on - (15,288) - - (15,288) - (15,288) an acquisition of Operating Group Net profit for the period - - - 1,436 1,436 20 1,456 Depreciation on revaluation - - (154) 158 4 (4) - of fixed assets Elimination of share issued (15,288) 15,288 - - - - - and merger reserve on acquisition of Operating Group Exchange differences on - - (225) (138) (363) (11) (374) translation to the presentation currency Balance at 31 December 2004 3,000 (1,866) 2,020 1,865 5,019 132 5,151 NOTES 1. Group and Principal Activities For the purposes of this financial information the terms the "Operating Group" and "Enlarged Group" have been taken to indicate the companies listed in Note 2 (b). All of these companies have effectively operated as a group under common management and control for a number of years although they did not comprise a statutory group as they had not been linked by a common parent. Following the establishment of a new holding company, Ukrproduct Group Ltd (the 'Company') on 18 May 2004, the companies comprising the Operating Group were brought together on 11 February 2005 following the Company's admission to the Alternative Investment Market of the London Stock Exchange to create a formal group under the ultimate control of this new holding company. The Enlarged Group's main activity is to produce and supply dairy products (butter and cheese) to wholesale and retail outlets in Ukraine. It also produces and exports skimmed milk powder to the markets of Denmark, Russia, Bulgaria, Holland and other countries. The Group is not involved in the retailing of its products. The Enlarged Group's production facilities and management are based in Ukraine. The head office is located in Kyiv. The Enlarged Group has its own distribution network in Ukraine. The average number of employees of the Enlarged Group during the year ended 31 December 2004 was 1,194 people (2003 - 783 people). 2. Significant Accounting Policies The principal accounting policies adopted in the preparation of the combined financial information are set out below: a) Basis of Preparation This financial information is based on the audited non statutory special purpose combined financial information of the Enlarged Group which have been prepared by combining the historical financial information for each of the companies that comprise the Enlarged Group from the accounting records of those companies. The financial information has been prepared in accordance with International Financial Reporting Standards ('IFRS'), including International Accounting Standards ('IAS') and Interpretations issued by the International Accounting Standards Board. The majority of companies making up the Enlarged Group maintain their accounting records in accordance with the Ukrainian regulations. The financial information has been prepared from those accounting records and adjusted as we consider necessary in order to comply with IFRS. Accounting records of the Enlarged Group are maintained in Ukrainian Hryvnas ('UAH' or 'Hryvna' hence), the national currency of Ukraine. The Hryvna has also been adopted as the measurement currency for the purpose of the special purpose combined financial information (see Note 2c). The financial information has been translated into British pounds sterling at the rates given in Note 2(p). The combined financial information has been prepared under the historical cost convention, as modified by the revaluation of property, plant and equipment at fair value in the year ended 31 December 2004. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Enlarged Group's accounting policies. Early adoption of standards In 2003, the Enlarged Group early adopted the IFRS below, which are relevant to its operations. The financial information has been amended as required, in accordance with the relevant requirements. IAS 1 (revised 2003) Presentation of Financial Statements IAS 2 (revised 2003) Inventories IAS 8 (revised 2003) Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 (revised 2003) Events after the Balance Sheet Date IAS 16 (revised 2003) Property, Plant and Equipment IAS 17 (revised 2003) Leases IAS 21 (revised 2003) The Effects of Changes in Foreign Exchange Rates IAS 24 (revised 2003) Related Party Disclosures IAS 27 (revised 2003) Consolidated and Separate Financial Statements IAS 28 (revised 2003) Investments in Associates IAS 32 (revised 2003) Financial Instruments: Disclosure and Presentation IAS 33 (revised 2003) Earnings per Share IAS 39 (revised 2004) Financial Instruments: Recognition and Measurement IFRS 3 (issued 2004) Business Combinations IAS 36 (revised 2004) Impairment of Assets IAS 38 (revised 2004) Intangible Assets The early adoption of IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 32 and 33 (all revised 2003) did not result in substantial changes to the Enlarged Group's accounting policies. In summary: - IAS 1 (revised 2003) has affected the presentation of minority interest and other disclosures. - IAS 2, 8, 10, 16, 17, 27, 28, 32 and 33 had no material effect on the Enlarged Group's policies. - IAS 21 (revised 2003) had no material effect on the Enlarged Group's policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard. The majority of the Enlarged Group entities have the same functional currency as their measurement currency. - IAS 24 (revised 2003) has affected the identification of related parties and some other related party disclosures. The early adoption of IAS 39 (revised 2004) has resulted in a change to the accounting policy relating to the classification of financial assets at fair value through profit or loss. The Enlarged Group has applied the exemptions afforded by IFRS 1 from the requirement to re-state comparative information for 2001 and 2002 for IAS 39 and IAS 32, and has applied previously applicable generally accepted accounting principles to those years. The early adoption of IFRS 3, IAS 36 (revised 2004) and IAS 38 (revised 2004) resulted in a change in the accounting policy for goodwill. However, there has been no goodwill arising as subsidiaries accounted for as acquisitions were so acquired on incorporation. In accordance with the provisions of IFRS 3: - The Enlarged Group ceased amortisation of goodwill from 1 January 2003 - From the year ended 31 December 2003 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment. The Enlarged Group has reassessed the useful lives of its intangible assets in accordance with the provisions of IAS 38. No adjustments resulted from this reassessment. All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. All standards adopted by the Enlarged Group require retrospective application other than: - IAS 16 - the exchange of property, plant and equipment is accounted at fair value prospectively - IAS 21 - prospective accounting for goodwill and fair value adjustments as part of foreign operations. - IFRS 3 - prospectively after 31 March 2004. - IAS 39 requires simultaneous adoption with IAS 32. - IFRS 3 requires simultaneous adoption with IAS 36 and IAS 38. b) Principles of combination and consolidation The combined financial information includes the results of the companies set out in the table below. As described in Note 1 the Enlarged Group is comprised of a number of companies under common management and ultimate ownership but was not linked by a formal ownership structure or a single common parent until 11 February 2005. The Operating Group, which sits within the Enlarged Group, was not linked by a formal ownership structure or a single common parent until 18 May 2004. The special purpose combined financial information has been prepared in order to present the combined results and balances that would have been shown had the Enlarged Group been under the control of a single common parent. Where group companies are formally owned by another group company, they have been consolidated to the highest possible level using the acquisition method, in which share capital of the entity is eliminated against the investment recorded in the parent. As such, the Enlarged Group companies have been treated as if they had been owned from the date of their formation and consideration issued for the investment equaled share capital, goodwill does not arise on acquisition other than incidentally. The combination of companies under common ownership but not linked by a formal ownership structure has been based on the pooling of interests ('merger method'). In applying this method, financial statement items for each group company are combined as if they had been combined from the earliest period, the result being a combination of all group companies' assets, liabilities and reserves. All intra-Enlarged Group transactions and balances are eliminated on combination. Business combinations of entities under common control are outside the scope of IFRS 3 and so the early adoption of that standard does not affect this treatment. Following the formal acquisition of the Enlarged Group companies in May 2004, a combined balance sheet has been prepared as at 31 December 2004. The business combination comprising a number of businesses under common control is outside the scope of IFRS 3 and the balance sheet has been prepared using the pooling of interests method. The results and balances of the following organisations have been combined: Operating Group Country of Deemed Method of combination incorporation group holding 2004 2003 Molochnik OJSC Ukraine 95.2% Acquisition method Merger method Ukrprodexpo SC Ukraine 100% Acquisition method Merger method Starokonstantinovskiy Molochniy Ukraine 100% Acquisition method Acquisition method Zavod SC Agrospetsresursy LLC Ukraine 100% Acquisition method Merger method Togoviy Dim Maslayana SC * Ukraine 100% Acquisition method Acquisition method Togoviy Dim Milko SC * Ukraine 100% Acquisition method Acquisition method Agrospetsresursy Dnipro SC* Ukraine 100% Acquisition method Acquisition method Agrospetsresursy Lviv SC* Ukraine 100% Acquisition method Acquisition method Starkon-Moloko LLC Ukraine 100% Acquisition method Merger method Dairy Trading Corporation USA 100% Merger method Merger method Alfa-Broker Ltd UK 100% Merger method Merger method Intermilk SC Ukraine 100% Acquisition method Merger method Ukrevroprodukt SC* Ukraine 100% Acquisition method Merger method Agrospetsresursy Zhytomyr SC* Ukraine 100% Acquisition method n/a Ukrproduct- Kharkov SC* Ukraine 100% Acquisition method n/a Nash Molochnik Private Enterprise Ukraine 100% Acquisition method n/a SC* Ukrproduct-Logistics Private Ukraine 100% Acquisition method n/a Enterprise Ukrproduct CJSC Ukraine 100% Merger method n/a Enlarged Group All entities within the Operating Group above plus: LinkStar Limited Cyprus 100% Acquisition method n/a Dairy Trading Corporation BVI 100% Merger method Merger method Ukrproduct Group plc UK 100% Acquisition method n/a * Subsidiaries of Agrospetsresursy LLC, the Operating Group's specialised distribution companies. Intermilk SC, Alfa-Broker Ltd and Dairy Trading Corporation (USA) are in the process of solvent liquidation. Between 30 June 2004 and 11 February 2005 Alfa-Broker Ltd transferred its principal business and assets to LinkStar Limited, a company registered in Cyprus. Subsequently, Alfa-Broker Ltd is not to be included as part of the Group going forward. It has therefore been necessary to include the results of Alfa-broker Limited in the combined financial information in order to provide the combined results for the full period under review. LinkStar Limited was acquired by the Company on 11 February 2005 following the Company's listing on the Alternative Investment Market of the London Stock Exchange. c) Translation from measurement to presentation currency and adoption of SIC 30 Management has considered what would be the most appropriate measurement and presentation currencies for this financial information. As a result of this review management has concluded that: (i) Hryvna is the currency of the primary economic environment in which the Enlarged Group operates. Consequently, Hryvna is the most appropriate measurement currency for the Group; (ii) The Enlarged Group should use British pounds sterling as the presentation currency for its IFRS financial statements. Thus management has determined to use the following basis for the translation of Hryvna figures to British pounds for presentation purposes: (i) for current year figures all assets and liabilities are translated at the closing rate existing at the balance sheet date. Income and expense items are translated at an average rate for the period. Equity items other than the net profit or loss for the period that is included in the balance of accumulated profit or loss are translated at the closing rate existing at the balance sheet date. (ii) for comparative figures all assets and liabilities are translated at the closing rate existing at the relevant balance sheet date. Income and expense items are translated at an average rate for the period. Equity items other than the net profit or loss for the period that is included in the balance of accumulated profit or loss are translated at the closing rate existing at the previous balance sheet date. (iii) all exchange differences resulting from the application of the translation methods described above are recognised directly in equity. Actual exchange rates applied in the translation are detailed in Note 2(p) below. (d) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. (e) Property, plant and equipment Figures calculated using the Ukrainian statutory accounting rules, have been adopted as deemed depreciated historical cost for property, plant and equipment as at 1 January 2004. Subsequent additions have been recorded at cost. With effect from 1 January 2004, the Enlarged Group adopted the revaluation model (as defined in IAS 16: Property, Plant and Equipment) for all classes of assets. This change of accounting policy was made on the grounds that management believe that this policy provides more reliable and relevant financial information because it better reflects the value in use of such assets to the Enlarged Group. In accordance with the provisions of that standard, the revaluation model has not been applied retrospectively. All classes of assets as at 1 January 2004 were revalued as at that date by an independent valuer BGS Asset on a depreciated replacement cost basis. Management believes that the carrying value of all additions since 1 January 2004 is not materially different to fair value. Depreciation is applied to all items of property, plant and equipment with the exception of land. Depreciation is calculated on the reducing balance method using the following annual rates: Buildings 5% Plant and machinery 15% Equipment and motor vehicles 25% Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in operating profit. (f) Assets under construction Assets under construction are reported at their cost of construction including costs charged by third parties and the capitalisation of the Enlarged Group's directly attributable costs. No depreciation is charged on assets during construction. Upon completion, all accumulated costs of the asset are transferred to the relevant fixed asset category and subsequently subjected to the applicable depreciation rates from the time the asset is completed and ready for use. (g) Intangible assets - computer software Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specialised software. These costs are amortised over their estimated useful lives (3 years). (h) Investments The Enlarged Group has investments in the equity of Ukrainian companies including investments representing more than 50% of the share capital of the investee company. Other than as referred to under (b) above, where such companies are not expected to become subsidiaries of the proposed holding company, they have been excluded from the combination and are treated as investments. Investments are carried at cost, which management believe is not significantly different from fair value. (i) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. (j) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Enlarged Group will not be able to collect all amounts due according to the original terms of receivables. (k) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. (l) Provisions Provisions for environment restoration, restructuring costs and legal claims are recognised when: the Enlarged Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amounts have been reliably estimated. Restructuring provisions are not recognised for the future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligation may be small. (m) Revenue recognition Revenue recognition for the fair value for the sale of goods and services, net of value added tax, rebates and discounts and after eliminated intra-group sales with the Enlarged Group, is as follows: (i) Sales of goods - own production. Sales of goods are recognised when an Enlarged Group entity has delivered products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured. (ii) Sales of goods - third parties. Sales of goods are recognised when an Enlarged Group entity has delivered products to the customer, the customer has accepted the products, and collectability of the related receivables is reasonably assured. (iii) Sales of services. Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. (iv) Interest income. Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Enlarged Group reduces the carrying amount to its recoverable amount, being the estimated future cashflow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash collected or on a cost-recovery basis as conditions warrant. (n) Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight line basis over the period of the lease. (o) Income taxes Taxation has been provided for in the financial information in accordance with relevant legislation currently in force. The charge for taxation in the statement of income for the year comprises current tax and changes in deferred tax. Current tax is calculated on the basis of the taxable profit for the year, using the tax rates in force at the balance sheet date. Taxes, other than on income, are recorded within operating expenses. Deferred income tax is provided, using the balance sheet liability method, for all temporary differences arising between the tax basis of assets and liabilities and their carrying values for financial reporting purposes except for those difference permanently disallowed. A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. (p) Foreign currency translation Transactions denominated in currencies other than Hrvvna ("foreign currencies") are recorded in Hryvna at the exchange rate ruling on the transaction date. Exchange differences resulting from the settlement of transactions denominated in foreign currency are included in the statement of income using the exchange rate ruling on that date. Monetary assets and liabilities denominated in foreign currency are translated into Hryvna at the official exchange rate at the balance sheet date. Foreign currency gains and losses arising from the translation of assets and liabilities are reflected in the statement of income as foreign exchange translation gains less losses. Income and expense figures have been converted to British pounds for presentation purposes at an average rate of £1 = UAH 9.74 for the year ended 31 December 2004 and £1 = UAH 8.76 for the year ended 31 December 2003. Assets, liabilities and equity items have been converted to pounds for presentation purposes at a closing rate of £1 = UAH 10.18 for the year ended 31 December 2004 and £1 = UAH 9.47 for the year ended 31 December 2003. Exchange differences resulting from conversion to presentational currency are included in retained earnings. (q) Pension costs The Enlarged Group contributed to the Ukrainian state pension scheme, social insurance and employment funds in respect of its employees. The Enlarged Group's pension scheme contributions are expensed as incurred. The contributions are included in staff costs. The Enlarged Group has no other liabilities in respect of pensions or employee retirement benefits. (r) Financial instruments The carrying amounts of the Enlarged Group's financial assets and liabilities (comprising investments, bank and cash balances, trade and other debtors, trade and other creditors and short and long-term borrowings) approximate to their fair values at the date of the transaction. Where the fair value of a financial asset is materially below the carrying amount, the carrying amount is written down to fair value. (s) Borrowing Costs Borrowing costs are recognised as an expense in the period in which they are incurred. (t) Reclassification of 2003 comparative information An amount of £1,866,000 has been reclassified between share capital and merger reserve in the comparative figures. This ensures that the basis of preparation is consistent with the 2004 combined financial information, with Ukrproduct Group Ltd being the holding company of the Enlarged Group as opposed to the summation of the share capital of the Group's subsidiaries which was originally reported upon. The net assets and shareholders' funds of the Enlarged Group are not affected by this reclassification. 3. Financial risk factors The Enlarged Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Enlarged Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Enlarged Group's financial performance. Risk management is carried out by the Enlarged Group Treasurer under policies approved by the Board of Directors. The Enlarged Group Treasurer identifies and evaluates financial risks in close co-operation with the Enlarged Group's operating units. The management board provides broad guidance and operating principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity. Foreign exchange risk Although the Enlarged Group is an international operator, the management believe that the foreign exchange risk is minimal at present and is likely to remain so in the future. The Enlarged Group's international operations consist primarily of the export of skimmed milk powder to the various markets around the world. The primary currency for export sales is the US Dollar. As at 31 December 2004 the principal rate of exchange used for translating foreign currency balances was US$1 = UAH 5.31. As at 31 December 2003 the principal rate of exchange used for translating foreign currency balances was US$1 = UAH 5.48. The Enlarged Group's established corporate policy towards hedging the potential foreign exchange risk is to require the customers to pay for the export shipments of the skimmed milk powder in full and in advance (from one to two months). The Group's export operations have never employed any other payment methods as a matter of corporate principle, and this is expected to continue in the future. Similarly, the Enlarged Group has never been engaged in forward transactions and does not expect to conduct these transactions in the future. The Directors believe that these policies effectively eliminate the foreign exchange risk. The Enlarged Group's export-related obligations in Ukraine, such as payments for raw milk and packaging materials, are all entirely Hryvna-denominated. The UAH/US Dollar exchange rate has been reasonably stable in recent years, and the Directors have no reason to believe that this is likely to change in the future. Price risk The Enlarged Group is exposed to commodity price risk for skimmed milk powder. The price for this product is predominately determined by the world market and the activities of large international trading companies in this market. There is always a risk that the prevailing world marketing price may be insufficient to cover the production costs for skimmed milk powder. Against such a risk, the Group recognises that there is no effective financial hedge, thus the major instrument employed in management of the price risk is the tight control of the operating costs. Credit risk The Enlarged Group has no significant concentrations of credit risk. It has policies in place to ensure that wholesale sales of products both in Ukraine and abroad are made to customers with an appropriate credit history. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, the Enlarged Group's Treasurer aims to maintain flexibility in funding by keeping committed credit lines available. Cash flow and fair value interest-rate risk As the Enlarged Group has no significant interest-bearing assets, the Enlarged Group's income and operating cash flows are substantially independent of changes in market interest rates. The Enlarged Group's interest-rate risk arises from medium to long-term borrowings. Potentially, borrowings issued at variable rates expose the Enlarged Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Enlarged Group to fair value interest-rate risk. Enlarged Group policy is to maintain at least 80% of its borrowings in fixed rate instruments. At 31 December 2004, almost all of borrowings were at fixed rates. 4. Segmental analysis The shareholders of the Enlarged Group put a particular emphasis on enhancing the vertical integration of the Enlarged Group. This emphasis necessitated separation of the product lines into the distinguishable and analysable segments, in order to be able to identify the individual profitability of each segment. Therefore, from 2003, the Enlarged Group has gradually transformed its management reporting and control systems to reflect the segmental information to the extent required by its operating activities and the requirements of IFRS. Ukrainian Accounting Standards do not require the production of the Segmental Information to the same level as that required by IFRS. Year ended 31 December, £ 000 2003 2004 Sales to external customers Butter 7,743 9,512 Cheese 5,807 10,064 Skimmed milk powder 3,167 5,453 Total dairy 16,717 25,029 Services 64 188 Other 816 1,898 17,597 27,115 Year ended 31 December, £ 000 2003 2004 Profit before depreciation, interest and taxation Butter 501 840 Cheese 933 2,187 Skimmed milk powder 466 565 Total dairy 1,900 3,592 Services - 16 Other (7) 27 1,893 3,635 Unallocated corporate expenses (725) (1,049) Unallocated income from waiver of debt 250 - 1,418 2,594 Depreciation Butter 22 159 Cheese 31 286 Skimmed milk 9 46 Total dairy 62 491 Services - 4 Other - 25 62 520 Year ended 31 December, £ 000 2003 2004 Profit before interest and taxation Butter 479 683 Cheese 902 1,904 Skimmed milk 457 519 Total dairy 1,838 3,106 Services - 11 Other (7) 2 1,831 3,119 Unallocated corporate expenses (725) (1,049) Unallocated income from waiver of debt 250 - 1,356 2,070 Year ended 31 December, £ 000 Other information - Segment Assets 2003 2004 Butter 1,225 2,529 Cheese 1,996 4,604 Skimmed milk powder 170 989 Total dairy 3,391 8,121 Services - 50 Other 401 1,145 3,792 9,316 Unallocated corporate assets 1,211 662 Unallocated deferred tax 36 Consolidated total assets 5,003 10,014 Other information - Segment Liabilities Butter 931 380 Cheese 571 1,423 Skimmed milk powder 452 243 Total dairy 1,954 2,046 Services - 22 Other 51 177 2,005 2,245 Unallocated corporate liabilities 1,387 1,915 Unallocated deferred tax - 703 Consolidated total liabilities 3,392 4,863 Year ended 31 December, £ 000 Capital expenditure 2003 2004 Butter 184 301 Cheese 520 1,198 Skimmed milk 60 82 Total dairy 764 1,581 Services - 2 Other 3 36 767 1,619 Unallocated capital expenditure - 19 767 1,638 Year ended 31 December, £ 000 Sales by market 2003 2004 Ukraine 14,565 22,669 Denmark 938 1,921 Russia 412 680 Bulgaria 245 228 Holland 684 205 Japan 91 - Other countries 662 1,412 17,597 27,115 The majority of the Enlarged Group's recognised assets and liabilities are in Ukraine. 5. Expenses by nature Year ended 31 December, £ 000 2003 2004 Depreciation 62 523 Changes in inventories of finished goods and work in 1,039 (873) progress Raw materials and consumables used 13,750 21,298 Employee benefit costs 585 1,373 Other expenses 1,055 2,788 Total cost of goods sold, marketing and distribution costs 16,491 25,109 and administrative expenses 6. Taxation Income tax comprised the following: Year ended 31 December, £ 000 2003 2004 Current tax charge - Ukraine 104 250 Current tax charge - non-Ukraine 42 76 Deferred tax relating to the origination and reversal of - (25) temporary differences Income tax charge for the year 146 301 Differences between IFRS and Ukrainian statutory taxation regulations give rise to certain temporary differences between the carrying value of certain assets and liabilities for financial reporting purposes and for profit tax purposes. The tax effect of the movement on these temporary differences is recorded at the rate of 25% (2003: 25%). Year ended 31 December, £ 000 Reconciliation of tax charge 2003 2004 Profit before tax - Ukraine 384 520 Profit before tax - non-Ukraine 878 1,237 1,262 1,757 Tax calculated at domestic tax rates applicable to profits 325 430 in the relevant countries Net income not subject to tax and expenses not deductible (179) (129) for tax purposes Tax charge 146 301 The weighted average applicable tax rate was 24.5% (2003: 25.7%). The charge is due to the changes in profitability of the companies comprising the Enlarged Group in the respective countries. Year ended 31 December, £ 000 2003 2004 Deferred tax liability at beginning of the period - - Deferred tax recognised in statement of income during the - (25) year Deferred income tax arising on the revaluation of - 690 property, plant and equipment Exchange differences on translation to the presentation - 2 currency Deferred tax asset at end of the period - 36 Deferred tax liability at end of the period - 703 Ukraine currently has a system of taxation broadly similar in scope to those of the developed market economies. There are a number of laws related to various taxes imposed by both central and regional governmental authorities. Although laws related to these taxes have not been in force for significant periods, the practice of taxation and implementation of regulations are well established, documented with a sufficient degree of clarity and adhered to by the taxpayers. Nevertheless, there remain certain risks in relation to the Ukrainian tax system: few court precedents with regard to tax related issues exist; different opinions regarding legal interpretation may arise both among and within government ministries and regulatory agencies; tax compliance practice is subject to review and investigation by a number of authorities with overlapping responsibilities. Generally, tax declarations remain subject to inspection for an indefinite period. In practice, however, the risk of retroactive tax assessments and penalty charges decreases significantly after three years. The fact that a year has been reviewed does not preclude the Ukrainian tax service performing a subsequent inspection of that year. The Enlarged Group's management believes that it has adequately provided for tax liabilities in the accompanying financial information; however, the risk remains those relevant authorities could take different positions with regard to interpretive issues. 7. Earnings per share Basic earnings per share Basic earnings per share has been calculated by dividing net profit attributable to the ordinary shareholders (profit for the year) by the weighted average number of shares that would have been in issue if the Enlarged Group had been a legally defined Group at 31 December and had applied the merger method (Note 2b). Year ended 31 December 2003 2004 Net profit attributable to ordinary shareholders, £ 000 1,111 1,436 Weighted number of ordinary shares in issue 30,000,000 30,000,000 Basic earnings per share, pence 3.7 4.8 Diluted earnings per share There are no potentially dilutive shares in the existence at year end, hence diluted earnings per share has been calculated by dividing the net profit attributable to ordinary shareholders (profit for the year) by the weighted average number of shares that would have been in issue if the Enlarged Group had been a legally defined Group at 31 December and had applied the merger method (Note 2b). 8. Property, plant and equipment Assets under Land and Plant and Vehicles and Total Construction Buildings Machinery equipment £ 000 £ 000 £ 000 £ 000 £ 000 Cost or valuation Opening balance 40 412 439 347 1,238 Revaluation 289 4,130 573 187 5,179 Additions/ transfers from assets 3,110 155 488 881 4,634 under construction Disposals (2,393) (450) (45) (427) (3,315) Exchange differences on (54) (306) (90) 150 (300) translation to the presentation currency Closing balance 992 3,941 1,365 1,138 7,436 Accumulated depreciation Opening balance - 136 50 36 222 Revaluation - 1,471 474 146 2,091 Depreciation charge for the year - 132 90 298 520 Disposals - (115) (23) (41) (179) Exchange differences on - (177) (39) (25) (241) translation to the presentation currency Closing balance - 1,447 552 414 2,413 Net book amount at 31 December 992 2,494 813 724 5,023 2004 Prior year amounts Depreciated cost at 1 January 2003 52 260 42 28 382 Additions in 2003 (7) 73 355 311 732 Disposal in 2003 (14) (1) (16) (31) Depreciation in 2003 (19) (11) (32) (62) Currency exchange differences -5 -23 4 20 -4 Depreciated cost at 31 December 40 277 389 311 1,017 2003 Fixed assets with a net book value of £2,339,288 as at 31 December 2004 (£44,000 at 31 December 2003) were pledged as collateral for loans. The Enlarged Group obtained an estimated market value of all assets as at 1 January 2004 from an independent professional valuer BGS Asset on a depreciated replacement cost basis. The market valuation of the fixed assets of the Group was £4.2 million and the revaluation surplus net of applicable deferred income taxes was credited to other reserves in shareholders' equity. 9. Loans issued Year ended 31 December, £ 000 2003 2004 Related parties 15 201 Other - 11 15 212 Loans issued are denominated in US Dollars and Hryvna, short term in nature, unsecured and interest free. 10. Receivables and prepayments Year ended 31 December, £ 000 2003 2004 Trade debtors 1,283 1,505 Other debtors 144 297 Prepayments 485 221 VAT receivable 210 5 Prepaid profit tax 1 1 Other prepaid taxes 20 - 2,143 2,029 There is no concentration of credit risk with respect to trade receivables as the Enlarged Group has large number of customers, primarily in Ukraine. The carrying value of receivables and prepayments approximates to fair value. 11. Bank loans and overdrafts Bank loans and overdrafts comprise a series of unsecured loans and overdrafts received from Ukrainian banks and denominated in Hryvna and Euro. The weighted average interest rate for the loans outstanding at 31 December 2004 was 18.0% (31 December 2003 - 19.25%). The carrying value of bank loans and overdrafts approximates to fair value. 12. Trade and other payables Year ended 31 December, £ 000 2003 2004 Trade creditors 168 1,427 Other creditors 178 46 Deferred income - 82 Accruals 44 105 VAT and other taxation payable 36 11 1,671 1,938 The carrying value of bank loans and overdrafts approximates to fair value. All balances are repayable on demand. 13. Promissory Notes Promissory Notes are denominated in Hryvna and are interest free. Year ended 31 December, £ 000 2003 2004 Payable within 1 year 3 - Payable in 1-2 years 22 5 Payable in 2-5 years - - Payable in over 5 years - - 25 5 The carrying value of promissory notes approximates to fair value. 14. Long term loans and bonds Long term loans are repayable in 2006 and of these balances with a face value of UAH2,163,000 are interest free. The fair values of the interest free loans are based on cash flows discounted using a rate based on a borrowing rate of 18%. The carrying value of the remainder approximate to fair value. In 2003 the Operating Group company Agrospetsresursy LLC issued bonds denominated in Hryvna with a face value of UAH2,863,000. During the year ended 31 December 2004, this company issued further bonds with a face value of UAH7,137,000. The bonds bear interest at 18% and mature on 8 November 2006. The carrying amounts approximate fair value. 15. Share Capital At 31 December 2004 the Company issued 30,000,000 shares of £0.10 per share at a par value conditional upon admission of the Company to the Alternative Investment Market of the London Stock Exchange. Year ended 31 December, £ 000 2003 2004 Issued share capital 3,000 3,000 16. Minority interest Year ended 31 December, £ 000 2003 2004 Opening balance 118 68 Share of profit/(loss) 5 20 Gain on revaluation - 75 Deferred income tax on gain on revaluation - (17) Reduction in minority interest on issue of new shares (42) - Depreciation on revaluation of fixed assets - (4) Exchange difference on translation to presentation (13) (11) currency Closing balance 68 132 As at 31 December 2004 a minority interest of 4.8% (2003: 4.8%) was held in Molochnik OJSC. 17. Cash flows from financing activities Year ended 31 December, £ 000 2003 2004 Long term loans Gross amount of new loans received - 295 Repayment of loans - (64) Net cash flows from long term borrowings - 232 Bonds Gross amount of new bonds issued 303 783 Repayment of bonds - (103) Net cash flows from bonds 303 680 Promissory Notes Gross amount of new promissory Notes issued 156 120 Repayment of promissory Notes (86) (140) Net cash flows from issue of promissory Notes (70) (20) Short term borrowings Gross amount of new short term borrowings 315 2,858 Repayment of short term borrowings (917) 2,711 Net cash flows from short term borrowings 602 147 18. Events after the Balance Sheet Date On 11 February 2005 the Company was successfully admitted to the Alternative Investment Market of the London Stock Exchange. On this date, the Company issued 11,214,953 ordinary shares for cash consideration of £6 million before share issue costs and completed the legal acquisition of 100% of the share capital of CJSC Ukrproduct Group (Ukraine), Dairy Trading Corporation (BVI) and LinkStar Limited (Cyprus). On the same date, the Company issued 912,028 share options to Directors and 1,302,896 share warrants to the Company's brokers at an exercise price of 53.5 pence each. This information is provided by RNS The company news service from the London Stock Exchange

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