Ukrproduct Regulatory News (UKR)

25 Apr 2006 07:02

Ukrproduct Group Ltd25 April 2006 25 April 2006 UKRPRODUCT GROUP LTD ('UPG') Ukrproduct Group Ltd is a leading Ukraine-based producer and distributor of branded dairy foods. Preliminary Results for the year ended 31 December 2005 Highlights (2004 - in brackets)* • Sales: £39.9 million + 47% £27.1 million) • EBITDA: £3.5 million + 34% (£2.6 million) • PBT: £2.3 million + 33% (£1.7 million) • Net profit: £2.0 million + 39% (£1.4 million) • Gross margin:16.9 % (16.3%) • Basic Earnings per share: 5p (4.8p) • Proposed final dividend of 0.5p per share giving 0.85p for the full year • Acquisitions of Jhmerinka & Letichiv providing the necessary increases in production, raw material capacity & expansion of geographic coverage • Maintained market leadership in core segments of processed cheese and packaged butter • Successful introduction of new products • Continued focus on operational improvements * Numbers rounded up. For the complete numbers please refer to the FinancialStatements. Commenting on the FY2005 results, Sergey Evlanchik, Chief Executive ofUkrproduct Group, said: "Ukrproduct Group has delivered strong growth in sales and profits during 2005due to our proven strategy set out at the IPO. UPG will continue to focus ondriving the organic growth of the business by leveraging the strengths of itsoperating, manufacturing and distribution capabilities to take advantage of theopportunities within the dynamic, Ukrainian, FMCG market. Ukraine's currentnegotiations with Russia have created some unpredictability within the Ukrainianeconomy. Nevertheless, current trading is in line with expectations and we seekfurther progress in 2006." For further information: Ukrproduct Group April 25 2006Sergey Evlanchik, CEO, and Dmitry Dragun, CFO +44 20 7831 3113 Thereafter +38 044 502 8014 Financial Dynamics +44 20 7831 3113Ben Foster/ Charles Watenphul Notes to editors Ukrproduct Group Ltd (UPG) is one of Ukraine's leading producers of brandedfoods. Headquartered in Kyiv and registered in Jersey, the company's mainbusiness focuses on the production and distribution of branded food products,namely packaged butter and processed cheese, to wholesale and retail outlets inUkraine through its own distribution network. UPG also produces skimmed milkpowder for export to countries across Europe as well as the Far East. UPG is themarket leader in the processed cheese and packaged butter segments, withestimated market shares of 29% and 21% respectively. UPG is one of Ukraine'sfastest growing companies within its sector, with compound average sales growthof 55% between 2001-2004. On 11 February 2005,Ukrproduct Group Ltd, became the first Ukrainian tradinggroup to be admitted to AIM. The company successfully placed 27.2% of its sharecapital at 53.5p per share, giving the company an initial market capitalisationof £22.5 million. CHAIRMAN'S STATEMENT I am pleased to announce the Group's first annual results as a public companyfollowing our successful admission to AIM in February 2005. The Group hasmaintained its market leading positions within its chosen segments of processedcheese and packaged butter at 29% and 21% respectively. We have continued toimprove the Group's overall operational performance through the continuedmodernisation of our production facilities. Despite a challenging businessenvironment UPG remains one of the most profitable and dynamic FMCG businessesin Ukraine. Results I am delighted to report a year of continued, strong growth for the company.Sales increased by 47% to £39.9 million (2004: £27.1 million) with operatingprofits (EBITDA) increasing by 34% to £3.5 million. Profit before taxes grew by33% to £2.3million. Profit margins improved at the gross level to 16.9% (2004:16.3%). Acquisitions In November 2005 we completed the acquisitions of 100% of the share capital ofJhmerinka Butter & Cheese Plant Ltd and a 62% stake in Letichiv Dairy Plant fora total cash consideration of £1.3 million. The acquisitions provided the Groupwith the necessary increase in production and raw material capacity to meetconsumer demand, as well as expanding the geographic coverage of the Groupthrough the extension of our raw milk supply zone and product coverage. TheGroup is in the process of significantly improving the performance of bothplants through the introduction of improved cost controls, leveraging of thedistribution network and optimisation of the product mix. The plants have beenfully operational since the beginning of April 2006 and expect to have apositive effect on the Group's overall performance. Dividends The Group is committed to a progressive dividend policy whilst maintaining abalance between reinvesting profits and distributing funds to shareholders. As aresult, the Board is recommending a final dividend payment of 0.5 pence perordinary share for the year ended 31 December 2005 which equates to 0.85 penceper ordinary share for the full year. If approved at the AGM, the final dividendwill be paid on 30 June 2006 to shareholders on the register as at 2 June 2006. Strategy Ukrproduct Group remains committed to its strategy of developing itsmarket-leading positions in its two core segments of processed cheese andpackaged butter as well as expanding the Group's product offering. Thefragmented FMCG market in Ukraine also provides the Group with the opportunityto leverage its current strengths in order to react to opportunities as theyarise and further increase its domestic presence. The Group's manufacturing excellence has provided us with a key advantage in theUkrainian FMCG market. We will continue to improve the operating performance ofour plants both in terms of increased quality and efficiency, as evidenced bythe planned redevelopment at Starkon and developments at Jhmerinka and Letichiv. The strength of our brands remain the cornerstone of the business. We willcontinue to invest in each of our core brands whilst analysing futureopportunities across the dairy based product segment that will drive the overallgrowth and profitability of the business. Our distribution network continues to increase in size, furthering thegeographic reach of the group and the growth in the distribution ofnon-competing third party products. During 2006, Ukrproduct will continue tofocus on leveraging the existing strength of the network to ensure that theGroup remains at the forefront of supply chain development in Ukraine. Succession Planning Sergey Evlanchik has decided to step down as chief executive in order todedicate more time to developing other business interests. He has beeninstrumental in UPG's success, establishing the Group as one of the marketleaders in the Ukrainian FMCG sector and in leading the company to its admissionon AIM in February 2005. He will, however, remain closely involved in thedevelopment of the company; allowing UPG to continue to benefit from hisexperience in his new role as an executive director. I am pleased to announcethat Iryna Yevets, currently chief operating officer of UPG, will replace Sergeyas CEO. These changes will take effect from 1June 2006. Iryna Yevets (38) joined Ukrproduct Group in 2002 as Finance Director becomingCOO in 2004. Prior to joining UPG, Iryna founded her own audit company in 1994before becoming chief accountant in 2001 of Latoritsa, one of Ukraine's leadingintegrated food companies. Iryna holds an honours degree in Economics andEngineering from Lviv University and will shortly complete her MBA. Over the last four years she has played a key part in developing the operatingefficiencies of the Group, its distribution network and branded food products.Iryna's in-depth knowledge of the company and market will prove invaluable asUPG furthers its operational development and builds on its market leadingpositions. The Board and I look forward to working even more closely with her inthe future. On behalf of the Board, I would like to convey my appreciation to everyone inthe Group for their help in ensuring the continuing success of the business. Jack RowellChairman 25 April 2006 CHIEF EXECUTIVE'S STATEMENT Introduction 2005 was a dynamic and exciting year for the Group. Not only was it theCompany's first year as a public entity, following its successful admission toAIM, but it was also a year of major changes in Ukraine initiated by the newgovernment following the "Orange revolution" in late 2004. It was a year of significant development for Ukrproduct Group with regards tooperational performance, development of new products and expansion ofUkrproduct's geographic coverage. I am pleased to report that the Group wassuccessful in maintaining its market leading shares in its key business segmentsof processed cheese and packaged butter. Sales grew by 47% to £39.9 million (2004: £27.1 million); profit beforeinterest, taxes, depreciation and amortisation (EBITDA) of £3.5 million was up34% over the prior year. Profit before tax was £2.3million, an increase of 33%.Net profit increased by 39% to reach £2.0 million. Gross profit margin baseexpanded to 16.9% (2004: 16.3%), EBITDA margin decreased from 9.6% in 2004 to8.6% in the year under review, mainly as a result of increasing indirect costs.Net profit margin of 5.0% was broadly in line with the prior year's number of5.3%. As highlighted in the trading update provided to the market in December2005, margins were impacted by high raw material prices and lower prices forskimmed milk powder in the export market. However, we managed to address thisimpact through the introduction of new higher margin products and therenegotiation of raw milk prices as well as through the gradual implementationof increased pricing across our product range. On 11 February 2005, Ukrproduct Group took a major step forward in itsdevelopment plans. Following the restructuring of the Group. UPG wassuccessfully admitted to AIM on the London Stock Exchange. The company raised £6million gross on admission and the Group's market capitalisation based on theplacing price of 53.5p per share was approximately £22 million. We were able to efficiently utilise the funds raised on admission to improve theoperational performance of the Group through the strengthening of its sales anddistribution network, completion of the new processed cheese workshop atMolochnik and the continued investment in the development of new products. Operating review The construction of the Group's new facility for the production of processedcheese at the "Molochnik" plant in Zhytomir was completed on schedule during thesummer. Construction had commenced in May 2004. This plant, the biggest of itskind in Ukraine, allowed the Group to almost double the capacity of "Molochnik"to 2,000 tonnes of processed cheese per month, as well as to develop productionspace for new processed cheese products, cheese spreads. In November 2005 the Group completed the acquisition of 100% of the sharecapital of Jhmerinka Butter & Cheese Plant and 62% of the share capital of theLetichiv Dairy Plant. The Jhmerinka plant, located in the region of Vinnitza,Central Ukraine produces a regional range of well established processed cheesesand packaged butters. According to the official data of the Ukrainian StateCommittee of Statistics, it was the twelfth largest manufacturer of processedcheese in Ukraine in 2005. The Letichiv plant, located in Letichiv, WesternUkraine produces various dairy-based products such as cream, butter and caseinwith the capacity to collect up to 100 tonnes of raw milk per day. Theacquisition of the plant expanded the Group's raw milk zone in the region, whichis central for ensuring the continued supply of raw materials needed for theincrease in production at the Starkon plant. The production and sales of the Group progressed well despite slowing GDP growthand weaker consumer spending. The production of processed cheese increased byalmost 20% to 14,700 tonnes, excluding the effect of acquisitions at the yearend (FY2004: 12,300 tonnes), while the output of packaged butter was maintainedat 9,200 tonnes (FY2004: 9,200 tonnes). The production of milk powder alsoincreased during the year totalling over 3,700 tonnes (FY2004: 3,500 tonnes). Market The Group's core markets in Ukraine continued to demonstrate growth. Theprocessed cheese market is estimated to have grown to nearly 50,000 tonnes in2005, representing an increase of 17% over 2004. UPG's share in the processedcheese segment in 2005 was approximately 29%. During 2005, the packaged buttermarket grew by around 6% year on year with volumes estimated to have reached42,900 tonnes by the year end. Ukrproduct's share of the packaged butter segmentwas approximately 21%. The skimmed milk powder market decreased slightlycompared to 2004 totalling 73,000 tonnes. The Group's share of this outputreached 5.1%. Prospects Taking into account the dynamic growth trends of our core markets in Ukraine,the Board consistently reviews and evaluates potential opportunities that willfurther the development of the Group. We continuously aim to improve the operational efficiency of the Group and itshigh standards of quality. As a result, we are planning to commence themodernisation of the Starkon plant later this year. The majority of this workwill involve the upgrading of equipment and is expected to be completed by theyear end. These developments will increase its operational efficiency helping toreduce costs as well as further increasing the quality of the products producedsuch as milk powder. Alongside the modernisation of Starkon, we plan to install equipment for theproduction of hard ("cheddar") cheese. The construction of the plant is expectedto take 12-18 months with the facility becoming fully operational by the thirdquarter of 2007. The total investment will be funded through a medium to longterm credit facility. The hard cheese sector in Ukraine represents a good opportunity for UPG to entera growing and profitable market enabling the Group to increase its product baseand sales. The hard cheese sector is estimated to be three times larger thanprocessed cheese with an average growth rate of 20% per annum (2001-2005). Thereis an opportunity to deliver additional value through the conversion of the mainby product of the production process, liquid milk derivatives, into skimmed milkpowder. Since 2004, UPG has gained valuable experience in the sale and promotionof third party hard cheese through its distribution network. We plan toleverage the inherent strengths of the Company's unique distribution network,production, branding and quality control to ensure that UPG's domestic entryinto this segment is as successful as possible. We will continue to ensure that the purchasing and forward storage of rawmaterials is as cost effective as possible. The Group believes that this can beachieved through the leveraging of the Company's purchasing power in theKhmelnitsky region, forward sales contracts and increased performance of theStarkon plant. I would like to take this opportunity to welcome Iryna to the role of chiefexecutive. I believe she is the ideal candidate to continue to drive thebusiness forward. I look forward to remaining closely involved in thedevelopment of the company; through my new role as an executive director. I would like to express my gratitude to both the Management team and all of theemployees of the Group who have been instrumental in our achievements anddevelopments. Outlook Ukrproduct Group has delivered strong growth in sales and profits during 2005due to our proven strategy set out at the time of our AIM IPO. UPG will continueto focus on driving the organic growth of the business by leveraging thestrengths of its operating, manufacturing and distribution capabilities to takeadvantage of the opportunities within the dynamic, Ukrainian, FMCG market.Ukraine's current negotiations with Russia have created some unpredictabilitywithin the Ukrainian economy. Nevertheless, current trading is in line withexpectations and we seek further progress in 2006. Sergey EvlanchikChief Executive Officer 25 April 2006 FINANCIAL REVIEW Results Sales have increased by 47% to £39.9 million (2004: £27.1 million) with thelarge part of this increase being achieved through organic growth. By segment,processed cheese accounted for 41% of sales (£16.2 million, 2004: £10.0million), butter for 28% (£11.4 million, 2004: £9.5 million) and milk powdersfor 21% (£8.5 million, 2004: £5.4 million) with the balance made up by thethird-party services. Profit before interest, taxes, depreciation andamortisation (EBITDA) of £3.5 million was up 34% over the prior year. Profitbefore taxes (PBT) was £2.3 million, an increase of 33%. Net profit increased by39% to reach £2.0 million. Gross profit margin base expanded to 16.9% (2004:16.3%), EBITDA margin decreased from 9.6% in 2004 to 8.6% in the year underreview, mainly as a result of costs associated with being a listed company andour investment in Selling & Distribution which underpins our continued growth.Net profit margin is reported at 5.0%, a slight decrease over the prior year'snumber of 5.3%. Acquisitions In November 2005, the Group acquired 100% of the share capital of JhmerinkaButter & Cheese Plant Ltd and a 62% stake in Letichiv Dairy Plant for a totalcash consideration of £1.3 million. The acquisitions were funded through fundsraised at flotation. In the year immediately preceding the acquisition, theplants had aggregated sales of £6 million and operating profits of £0.23million. The Group intends to invest approximately £400K in aggregate capex in2006. The performance of the acquired plants has been improved via a combinationof key personnel changes, introduction of improved cost controls, leveraging ofthe distribution network and optimisation of the product mix. Cash flow The net cash flow from operating activities during the year was a negative £1.2million. This reflected a substantial increase in trade receivables andinventories, the latter predominantly due to our new strategy to forward storesemi-processed dairy materials in order to eliminate the uncertainty in supplyof the materials to the Group's enlarged plants. The underlying cash generationof the Group remained strong, with the cash position increasing comfortably atthe year end. The forward storage of raw materials has been completed which willfurther strengthen the cash flow this year. Capital expenditure Capital expenditure for the year was £3.5 million (2004: £1.6 million) funded bya combination of money raised at flotation and borrowed capital. The main areasof investment were the modernisation of the Group's manufacturing plants,purchasing of new equipment, upgrading of the distribution facilities andincrease in working capital. Bank facilities The Group has a working capital facility of up to £4.5 million provided byUkraine Raiffeisen bank at variable interest rates in both Hryvna and US Dollar.The facility is renewable in May 2008 and has various clauses protecting theGroup from excessive increases in interest rates and occurrence of otherunexpected events. Further funding for working capital needs and projectfinance, if necessary, is available upon request from either the principalbankers or other banking institutions in Ukraine. Earnings per share The basic earnings per share (eps) in the year were 5.0 pence (2004: 4.8 pence),up 4%. The basic eps has been calculated by dividing net profit attributable toordinary shareholders (profit for the year) by the time-weighted average numberof shares in issue throughout the year. The diluted earnings per share was 4.8pence for the year (2004: 4.8 pence). Dividends As a result of the Group's strong performance, the Board is recommending a finaldividend of 0.5 pence per ordinary share for the year ended 31 December 2005which would lead to 0.85 pence per ordinary share for the full year. If approvedat the AGM, the final dividend will be paid on 30 June 2006 to shareholders onthe register as at 2 June 2006. Dmitry DragunChief Financial Officer 25 April 2006 CONSOLIDATED BALANCE SHEETAs at December 31, 2005, £'000 Notes As at 31 As at 31 December 2005 December 2004 (re-stated)AssetsNon-current assetsProperty, plant and equipment 2 9,034 5,023Intangible assets 1551 3Investments 97 83Deferred tax assets 90 36 10,772 5,145Current assetsInventories 4,523 2,328Trade and other receivables 4,068 2,023Other debtors 358 218Cash and cash equivalents 453 300 9,402 4,869Total assets 20,174 10,014 Equity capital and reserves attributable toequity holdersShare capital 4 4,121 3,000Other reserves 5 5,192 607Retained earnings 3,815 1,412 13,128 5,019Minority interest 186 132Total equity 13,314 5,151 LiabilitiesNon-Current LiabilitiesLong term loans 152 221Other long term liabilities - 938Deferred tax liabilities 837 703 989 1,862Current LiabilitiesBank loans and overdrafts 3,042 1,077Trade and other payables 2,606 1,671Current portion of long term liabilities 67 -Current income tax liabilities 156 253 5,871 3,001Total equity and liabilities 20,174 10,014 These financial statements were approved and authorized for issue by the Boardof Directors on April 25, 2006. CONSOLIDATED INCOME STATEMENT For the year ended December 31, 2005, £'000 Notes Year ended 31 Year ended 31 December 2005 December 2004 (re-stated) Revenues 1 39,962 27,115Costs of sales (33,194) (22,698)Gross profit 6,768 4,417Other operating income 594 63General and administrative expenses (2,167) (1,045)Selling and distribution expenses (2,084) (1,070)Other operating expenses (563) (296)Interest income 41 -Interest expenses (244) (312)Profit before taxation 2,345 1,757Income tax expense (337) (301)Profit after taxation 2,008 1,456Attributable to:Equity holders 2,003 1,436Minority interest 5 20 Earnings per share basic, pence 6 5.0 4.8Earnings per share diluted, pence 6 4.8 4.8 UKRPRODUCT GROUP LTD CONSOLIDATED CASH FLOW STATEMENT For the year ended December 31, 2005, £'000 Notes Year ended 31 Year ended 31 December 2005 December 2004Cash flows from operating activitiesNet profit before taxation 2,345 1,757Adjustments for:Exchange difference (594) -Depreciation 2 892 520Interest expense 244 305Interest income (41) -Share based payments 76 - 2,922 2,582(Increase) in inventories (1,507) (872)(Increase) in trade and other receivables (1,026) (71)(Decrease)in trade and other payables (990) (349) Cash (used by)/generated from operations (601) 1,290 Interest paid (244) (305)Interest received 41 -Income tax paid/(refunded) (384) (66)Net cash (used in)/ generated by operating activities (1,188) 919Cash flows from investing activitiesPurchase of property, plant and equipment (3,480) (1,566)Purchase of investments (net of cash acquired) (1,282) 1Proceeds from sale of property, plant and equipment - 3Proceeds from sale of investments - (7)Loans repaid/ (issued) 197 (207)Net cash used in investing activities (4,565) (1,776)Cash flows from financing activitiesNet proceeds/ (repayments) from long term borrowing (99) 232Proceeds/ (repayments) from issue of bonds (964) 680Proceeds from issue of shares 5,519 -Cash paid on liquidation of Ukrproduct Group plc (12) -Fund-raising expenses (361) -Dividends paid 7 (148) -Net proceeds from issue of promissory notes - (20)Net proceeds from short term borrowing 1,656 147Net cash generated by/(used in) financing activities 5,591 1,039Effect of exchange rate changes and restatements on 315 (17) cash and cash equivalentsNet increase/(decrease) in cash and cash equivalents 153 168Cash and cash equivalents at the beginning of the year 300 132Cash and cash equivalents at the end of the year 453 300 1 Segment information At 31 December 2005, the Group was organised on a worldwide basis into threemain business segments: (1) Cheese; (2) Butter; and (3) Milk powders The segment results for the year ended 31 December 2005 are as follows: Cheese Butter Milk Total Services Other Total powders dairy Sales to external customer 16,251 11,374 8,515 36,140 627 3,195 39,962Gross profit 3,794 1,689 972 6,455 110 203 6,768Administrative expenses (966) (599) (148) (1,713) (26) - (1,739)Selling and distribution (1,256) (673) (18) (1,947) (31) - (1,978)expensesUnallocated - - - - - - (503)operating income/expensesInterest income - - - - - - 41Interest expenses - - - - - - (244)Profit before taxation 1,572 417 806 2,795 53 203 2,345Taxation - - - - - - (337)Profit after taxation 1,572 417 806 2,795 53 203 2,008 Segment assets 9,994 5,063 1,558 16,615 243 847 17,705Unallocated corporate assets - - - - - - 2,379Unallocated deferred tax - - - - - - 90Total assets 9,994 5,063 1,558 16,615 243 847 20,174 Segment Liabilities 904 589 162 1,655 54 379 2,088Unallocated corporate - - - - - - 3,935liabilitiesUnallocated deferred tax - - - - - - 837Total liabilities 904 589 162 1,655 54 379 6,860 Other segment information:Depreciation 525 241 89 855 13 - 868Unallocated Depreciation - - - - - - 24Capital expenditure 2,593 686 240 3,519 45 4 3,568Unallocated Capital expenditure - - - - - - 29 The segment results for the year ended 31 December 2004 are as follows: Milk Total Cheese Butter powders dairy Services Other Total Sales to external 10,064 9,512 5,453 25,029 188 1,898 27,115customerGross profit 2,357 1,175 820 4,352 12 53 4,417Other operatingincome/expenses (453) (492) (301) (1,246) (1) (51) (1,298)Unallocatedoperating income/ - - - - - - (1,050)expensesInterest expenses - - - - - - (312)Profit before taxation 1,904 683 519 3,106 11 2 1,757Taxation - - - - - - (301)Profit after taxation 1,904 683 519 3,106 11 2 1,456 Segment assets 4,604 2,529 989 8,122 50 1,145 9,317Unallocated corporate - - - - - - 662assetsUnallocated deferred - - - - - - 35taxTotal assets 4,604 2,529 989 8,122 50 1,145 10,014 Segment Liabilities 1,423 380 243 2,046 22 177 2,245Unallocated corporateliabilitiesand shareholders'equity - - - - - - 1,915Unallocated deferred - - - - - - 703taxTotal liabilities 1,423 380 243 2,046 22 177 4,863Other segmentinformation:Depreciation 286 159 46 491 4 25 520Capital expenditure 1,198 301 82 1,581 2 36 1,619Unallocated Capitalexpenditure - - - - - - 19 Secondary reporting format - geographical segments: Sales by country Year ended 31 Year ended 31 December 2005 December 2004 Ukraine 33,689 22,669Germany 2,179 -Russia 1,376 680Denmark 669 1,921Holland 479 205Bulgaria 431 228Azerbaijan 293 -Poland 184 -Other countries 662 1,412 39,962 27,115 The majority of the Group's recognised assets and liabilities are in Ukraine. 2 Property, plant and equipment Assets under Land and Plant and Vehicles Total Construction Buildings Machinery and equipmentCost or valuationOpening balance 992 3,941 1,365 1,138 7,436Acquisition 3 138 240 204 585Additions/ (Disposals) (144) 1,211 1,157 1,164 3,388Exchange differences on 162 798 364 319 1,643translation to the presentationcurrencyClosing balance 1,013 6,088 3,126 2,825 13,052Accumulated depreciationOpening balance - 1,447 552 414 2,413Acquisition - 63 96 111 270Depreciation charge - 113 219 537 869Disposals - 6 (21) (44) (59)Exchange differences on - 271 127 127 525translation to the presentationcurrencyClosing balance - 1,900 973 1,145 4,018Net book amount at 31 1,013 4,188 2,153 1,680 9,034December 2005 Cost or valuationOpening balance 40 412 439 347 1,238Revaluation 289 4,160 603 187 5,239Additions/ (Disposals) 717 (325) 413 454 1,259Exchange differences on (54) (306) (90) 150 (300)translation to the presentationcurrencyClosing balance 992 3,941 1,365 1,138 7,436Accumulated depreciationOpening balance 0 136 50 36 222Revaluation 0 1,471 474 146 2,091Depreciation charge 0 132 90 298 520Disposals 0 (115) (23) (41) (179)Exchange differences on 0 (177) (39) (25) (241)translation to the presentationcurrencyClosing balance 0 1,447 552 414 2,413Net book amount at 31 992 2,494 813 724 5,023 December 2004 Fixed assets with a net book value of £4,453,000 as at 31 December 2005(£2,339,000 at 31 December 2004) were pledged as collateral for loans. The assets of the Group were revalued in January 2004 according to therevaluation policy. The valuation included a combination of different methodsused by independent appraisers. It was carried out by "Podilia-Expert" LLC(Ukraine), who valued the assets using the cost and comparables method, and by "BGS-Aktiv" LLC (Ukraine), who used the asset cash generating method. The companyexpects to conduct the valuation of the assets of the Group in January-February2007. 3 Acquisition of subsidiaries On 1 November 2005, Ukrproduct Group CJSC acquired 62.2 % of the share capitalof Letichevsky Maslozavod OJSC and 100 % of the share capital of JmerinskyMaslosyrzavod LLC (both are dairy products production plants). This acquisitiongave rise to Goodwill of £1,148,000. If the acquisition had occurred at the beginning of the period (1 January 2005),Group revenue would have been £43,527,000 and profit before tax wouldhave been £2,463,000. Letichevsky Jmerinsky Total Maslozavod Maslosyrzavod OJSC LLCNon-Current AssetsProperty, Plant and equipment 122 234 356Current assetsCash and cash at bank 1 17 18Inventories 16 151 167Receivables and prepayments 519 374 893 536 542 1,078Total assets 658 776 1,434Liabilities -Trade and other payable 484 736 1,220Net assets 174 40 214Minority interest (37.8%) (62) - (62)Net assets acquired 112 40 152 Acquisition price 1,300Goodwill 1,148 Purchase consideration settled in cash 1,300Cash and cash equivalents in subsidiary acquired (18)Cash outflow on acquisition 1,282 These companies have been consolidated into the Group. The management isplanning to appraise the assets acquired within 12 months after the acquisitiondate in order to reflect their fair value in the financial statements of thenext reporting period. 4 Share capital Authorised As at 31 As at 31 As at 31 As at 31 December December December December 2005 2005 2004 2004 Number £ Number £ Ordinary shares of 10p each 50,000 30,000 5,000 3,000 Issued and fully paid 2005 2005 2004 2004 Number £ Number £Ordinary shares of 10p eachAt beginning of the year 30,000 3,000 - -Other issues during the year 11,215 1,121 30,000 3,000 At end of the year 41,215 4,121 30,000 3,000 Issue of shares On 11 February 2005 the common shares of the Company were admitted to theAlternative Investment Market of the London Stock Exchange. The details of theshare offering by the Company are provided below: Number of shares placed with public investors 11,214,953Nominal value of a share, (GBP) 0.1Proceeds from issue of shares, 5,519including:Increase in share capital 1,121Share premium 4,398 5 Other reserves Notes Share Revaluation Merger Share Total premium reserve reserve option equity reserveBalance at 1 January 2004 - - (1,414) - (1,414)Gain on revaluation of fixed - 3,073 - - 3,073assetsDeferred income tax on gain on - (674) - - (674)revaluationMerger reserve arising an - - (15,288) - (15,288)acquisition of Operating GroupNet profit for the period - - - - -Depreciation on revaluation of - (154) - - (154)fixed assetsElimination of shares issued and - - 15,288 - 15,288merger reserve on acquisition of Operating GroupExchange differences on - (224) - (224)translation to the presentationcurrencyBalance at 31 December 2004 - 2,021 (1,414) - 607Issue of shares 4,398 - - - 4,398Fund-raising expenses (361) - - (361)Share based payment (120) - - 196 76Exclusion from Group - - (12) - (12)Depreciation on revaluation of - (108) - - (108)fixed assetsReduction of revaluation reserve - (25) - - (25)Decrease of minority Interest - 28 - - 28Exchange differences on - 336 253 - 589translation to the presentationcurrencyBalance at 31 December 2005 3,917 2,252 (1,173) 196 5,192 The reduction in revaluation reserve is due to sale of property, plant andequipment which have previously been revalued. The following describes thenature and purpose of each reserve within owners' equity. Reserve Description and purpose Share capital Amount subscribed for share capital at nominal value. Share premium Amount subscribed for share capital in excess of nominal value. Revaluation Gains arising on the revaluation of the Group's property (other than investment property). The balance on this reserve is wholly undistributable. Merger Losses arising on the application of the pooling of interests method of consolidation used to account for the merger of Ukrproduct Group Ltd and its subsidiaries. Share option Amount arising from share based payments (issue of share options). Retained earnings Cumulative net gains and losses recognised in the consolidated income statement. Minority interest Portion of the profit or loss and net assets of the subsidiary attributable to equity interests that are not owned, directly or indirectly through the subsidiaries, by the parent. Fund-raising expenses. The Group has entered into equity-settled share-basedtransactions with parties other than employees and has measured the transactionsindirectly at the fair value of the instruments granted. This party was WHIreland who acted as broker of the fund-raising for the Group by placingordinary shares on the London Stock Exchange, section AIM in February 2005. Thefair value of the share-based instruments (warrants) given to the broker as partof consideration was £120,000. Reduction of the revaluation reserve. Reduction of the revaluation reserverelates to sale of those assets that were previously revalued. 6 Earnings per share Basic earnings per share has been calculated by dividing net profit attributableto the ordinary shareholders (profit for the year) by the weighted averagenumber of shares in issue. The diluted earnings per share take into account thepotential exercise of all options and warrants in existence at the date of thisreport. The options were granted to the Directors of the Company on 31 January,2005 and are exercisable until 11 February 2009 at the price of £ 0.535. Thewarrants were granted to the Company's Brokers on 31 January 2005 and areexercisable until 31 January 2008 at the price of £ 0.535. Year ended 31 Year ended 31 December 2005 December 2004 Net profit attributable to ordinary shareholders, £'000 2,003 1,436Weighted number of ordinary shares in issue 39,924,465 30,000,000Basic earnings per share, pence 5.0 4.8Weighted number of WH Ireland warrants 1,152,974 -Weighted number of Directors' option shares 807,082 -Diluted average number of shares 41,884,521 -Diluted earnings per share, pence 4.8 4.8 7 Dividends As at 25 April 2006, the Board of Directors proposed the final dividend paymentof 0.5 pence per ordinary share for the year ended 31 December 2005 in theamount of £200,000 which would lead to 0.85 pence per ordinary share for thefull year in the amount of £150,000. If approved at the AGM, the final dividendwill be paid on 30 June 2006 to the shareholders on the register as at 2 June2006. No tax consequences for the Group will arise out of this transaction asthe Group's parent company is an entity registered under the Jersey laws. This information is provided by RNS The company news service from the London Stock Exchange