Ukrproduct Regulatory News (UKR)

FOR IMMEDIATE RELEASE June 30, 2016

FINAL RESULTS

ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2015 AND 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 2015.

Copies of the Group's annual report and accounts, incorporating the 2015 Audited Financial Statements, are being posted to shareholders today and will shortly be available on the Company's website at www.ukrproduct.com. Copies are also available from the Company's head office, 10th Floor, 39-14 Shota Rustaveli St., Kiev 01033, Ukraine.

The Directors of UKR are also pleased to announce that the notice of Annual General Meeting ("AGM") is today being posted to shareholders. The AGM will be held at the offices of Ukrproduct Group Ltd, 10th Floor, 39-41 Shota Rustaveli Street, 01033 Kyiv, Ukraine at 6 pm (Kyiv time) on Monday, 25 July 2016. Copies of the Notice of AGM and Proxy Form will be available for download on the Company website at www.ukrproduct.com.

A copy of the AGM Notice together with further information with regard to the AGM and other related issues is available on Ukproduct's website www.ukrproduct.com, as well as by request at the following address: Bedell Secretaries Limited, Secretary, 26 New Street St. Helier, Jersey JE2 3RA Channel Islands.

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Ukrproduct Group Ltd is one of the leading Ukrainian producers and distributors of branded dairy products and kvass, a traditional fermented beverage. The Group's product portfolio includes processed and hard cheese, packaged butter, skimmed milk powder (SMP) and kvass. Ukrproduct has built a range of recognisable product brands ("Our Dairyman", "People's Product", "Creamy Valley", "Molendam", "Farmer's") that are well known and highly regarded by consumers. The Group reported total assets of approximately GBP 11.5 million as at December 31, 2015 and consolidated revenues of approximately GBP 20.2 million for the twelve months ended December 31, 2015. Ukrproduct's securities are traded under the symbol "UKR" on AIM, a market operated by the London Stock Exchange.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might" the negative of such terms or other similar expressions. These statements are only predictions and they may differ materially from the actual events or results. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in such projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Ukraine, rapid technological and market change in our industry, as well as many other risks specifically related to the Group and its operations.

Chairman and Chief Executive Statement

During 2015 Ukrproduct faced significant headwinds. The Ukrainian economy was under pressure accentuated by the smoking conflict in the East of the country and the weakening of the Ukrainian economy overall. This is reflected in the devaluation of the local currency - hryvna, deterioration of consumer confidence and geographic contraction of the available market. Furthermore the complete closure of the Russian market caused the oversupply of dairy products on the Ukrainian market and further intensified local competition.

The Company sought to defy the increasing challenges of the business environment by revising the regional sales focus, enhancing its sales and operating efficiency as well as adjusting the sales mix in view of changing consumer preferences. This programme was designed to resist pressure on profit margins and overall to create cash. It has been implemented in consultation with the European Bank of Reconstruction and Development.

In dairy domestic market demand shrunk across the Company's key product categories leading to fierce competition. At the same time, average raw milk prices showed a year-on-year increase of circa 16 % prompted by stronger competition for supply on the back of even higher price increases for imported dairy ingredients.

Branded dairy products.

Volumes fell overall given focus on reliable customers only, lack of business in the East and desperate competition. Turnover reduced by 1% compared with 2014. Butter gained marginally as consumers moved from Spreads that contracted. Processed cheese in particular suffered a decline given the competition, as did hard cheese which was impacted by the ban on Ukrainian exports to Russia.

On a positive note the devaluing hryvnia provided Ukrproduct group with an opportunity to increase its export volumes across the range of its dairy products. This helped to mitigate the pressures of the domestic market  

However, overall gross profits faced a significant decline. Wages in real terms fell making it difficult to increase consumer prices in order to fully offset the sharp rise in input costs namely energy and dairy ingredients, not least raw milk. As a result, gross profit of branded dairy products decreased by 41% in hryvna terms mostly owing to the packaged butter and processed cheese categories.

Beverages. Kvass.

The sales of kvass showed only a 1% decrease in 2015 in sales denominated in Ukrainian Hryvna compared to the same period last year due to the strict control over debtors.

Finances.

 Total revenues for the year decreased by 36.8% to £20.158m (2014: £31.876m). In local currency terms, Hryvna revenues overall grew by 8%.

Gross profit margins fell to 11.48% (2014: 20.24%) and despite a significant 30.5% reduction in operating expenses to £3.66m, we are reporting an operating loss of £1.345m (2014: operating profit £1.185m). This was accentuated by negative exchange rate differences amounting to £1.733m (2014: charge £3.857m) resulting in a loss before taxation for the year of £3.746m (2014: £3.433m).

Exports at £ 3.872m accounted for approximately 19.2% (2014: 17.5%) of sales, with domestic sales broken down between regional distributors, national retail chains and wholesale suppliers to other producers (such as Danone and Mondelez).

Cash.

Balances of cash at 31 December 2015 stood at £0.093m (2014: £0.215m).There has been a focus to reduce overdue receivables in order to improve cash generation and to decrease financial costs. New operating procedures and incentives have been introduced across the sales and marketing and finance function resulting in average cash collection period falling from 45 to 39 days, thus releasing cash for operations. The Group's cash levels are sufficient to meet current debt interest obligations in the short and medium term.

As the cost of EBRD euro denominated loan was inflated by the devaluation of hryvnya, the bank undertook a thorough business review as a part of the loan restructuring negotiations. That resulted in the agreement with EBRD to restructure the terms including extension of the maturity date of the loan from 2018 to 2024 and an additional grace period for 2016. The Board believes that these terms provide confidence and are favourable for the Group discharging immediate pressure on cash flows whilst ensuring that the loan will be repaid in full over a longer period of time. The Group has finalised documentation on restructuring of the loan with EBRD and signed the revised Loan Agreement.

The revaluation of assets added £0.9m to the Balance Sheet as at 31st December 2015.

Trading Outlook

 The Company is adapting to this most challenging business environment and is working to restore profitability according to its improvement programme. Sales and marketing activities are concentrated on the non-occupied regions of Ukraine and ex-Soviet countries with a major focus on cash generation instead of revenue. Productivity improvements and cost efficiencies were introduced in warehousing and marketing as well as delivery of material optimization of Zhitomir subsidiary overheads with more to come. In this volatile trading environment working capital is subject to everyday close control to generate more cash as a result of all these initiatives.

In 2015 the Company introduced new beverages - a rosehip-based product and Uzvar - Ukrainian traditional drink brewed from dried fruits. Like kvass new products are positioned as natural drinks for active people practicing a healthy lifestyle. Natural-based beverages are traditionally popular in Ukraine and the Company expects growth in new beverage sales.