Ukrproduct Regulatory News (UKR)

27 June 2018

UKRPRODUCT GROUP LIMITED

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

FINAL RESULTS

ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2017

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 2017.

Copies of the Group's annual report and accounts, incorporating the 2017 Audited Financial Statements, have today been posted to shareholders and will be available on the Company's website at www.ukrproduct.com. Copies will also be available from the Company's head office, 10th Floor, 39-14 Shota Rustaveli St., Kiev 01033, Ukraine.

The Board of Ukrproduct is also pleased to announce that the Notice of Annual General Meeting ("AGM"), along with a Proxy Form, has also been posted to shareholders.

The AGM will be held at the head office of the Company, 10th Floor, 39-41 Shota Rustaveli Street, 01033 Kyiv, Ukraine at 6 pm (Kyiv time) on Thursday, 3 August 2018. Copies of the Notice of AGM and Proxy Form will be available for download on the Company's website at 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.

For further information contact:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

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 current 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. Ukrproduct's securities are traded under the symbol "UKR" on AIM, a market operated by the London Stock Exchange.

Chairman and Chief Executive's Statement

Trading

During the year ended 31 December 2017 ("FY2017"), the Ukrainian economy showed encouraging growth in GDP, with increased wages leading to an improvement in consumer confidence. As a result, whilst the operating environment remains competitive, the Group's trading conditions have improved domestically. In addition, the weakening of the hryvna has provided the Group with additional business development opportunities in its export markets. Ukrproduct's strategy has been to continue to focus on cash generation, ensure that its product offerings and service levels remain competitive, exploit export opportunities and to seek further cost efficiencies.

For FY2017 the Group reports improved revenue of UAH 1.0 billion (approximately £30.5 million) as well as a stronger gross margin, with the Group increasing sales of branded products in its key segments of packaged butter and processed cheese. The Group has also pursued several export opportunities resulting in the doubling of export revenues in FY2017, primarily as a result of increased sales in packaged butter. Private label sales were lower in FY2017 as the Company pursued stronger margin revenue streams. The Group also reports increased kvass beverage sales as new products were introduced to the market in FY2017.

Growth in sales of butter led to more skimmed milk powder being produced as a related product. Whilst the sale of skimmed milk powder itself is lossmaking due to the global market price imposed, the overall milk processing business is profitable.

Ukrproduct's spray drying facility at its Starokonstantyniv plant, which produces powdered milk, afforded the opportunity to enhance profits, by providing a service for drying milk requested by other manufacturers of dairy products, thereby enhancing the Group's profits.

As a result, the Group reports an operating profit of UAH 16.2 million (approximately £0.5 million) in FY2017, compared with an operating loss of UAH 7.4 million (approximately £0.2 million) for the full year ended 31 December 2016 ("FY2016"). The operating profit for FY2017 included lower finance charges related to the outstanding debt with EBRD.

Following the Group's increase in gross profit, the Group recorded an improved EBITDA margin of 3.5%, however, an overall loss £1.1 million for the year is recorded, due to the negative impact of exchange rate differences. 

Financial Position

As at 31 December 2017, the Group reports total liabilities of UAH 428.0 million (approximately £11.3 million), with cash balances of UAH 18.7 million (approximately £0.5 million). However, post year end, the Group's financial position was improved following the UAH 65.0 million (approximately £1.7 million) new loan agreement with PJSC Creditwest Bank ("Creditwest") and the subsequent repayment, in full, of the OTP Bank Loan, and, in March 2018 and June 2018, Ukrproduct made scheduled repayments of €177,175 and €176,529 to EBRD respectively.

Outlook

Ukrproduct will continue to work to enhance its operating profitability and cash flow generation and continue to seek to improve its competitive position in the markets in which it operates. The year 2018 is showing a continued improvement in financial performance.

These consolidated financial statements were approved and authorised for issue by the Board of Directors on 27 June 2018 and were signed on its behalf by Alexander Slipchuk.

Nature of Financial Information

The financial information contained in this announcement does not constitute statutory accounts as defined under section 113 of the Companies (Jersey) Law 1991 but has been extracted from the Group's 2017 statutory financial statements. The auditors have reported on the 2017 financial statements: their report was unqualified but did contain a paragraph that highlighted a material uncertainty related to going concern and non-observance of the terms of the loan agreement with the European Bank of Reconstruction and Development (EBRD). It contained no statement under section 113B of the Companies (Jersey) Law 2011. The financial statements for 2017 will be delivered to the Registrar of Companies after adoption at the Company's Annual General Meeting.

EXTRACTS FROM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for property, plant and equipment which have been measured at fair value. The consolidated financial statements are presented in British Pounds Sterling (GBP) and all values are rounded to the nearest thousand (£000) except where otherwise indicated.

2. Going concern

These consolidated financial statements have been prepared on the assumption that the Group is able to continue its operations on an going concern basis in the near future.

For the year that ended on 31 December 2017, the cumulative losses amounted to £1.115 million (£1.484 million - For the year that ended on 31 December 2016). Although as at 31 December 2017 the Group increased its cash flow from operations and met all European Bank for Reconstruction and Development ("EBRD") covenants but one, overall it has continued to breach the EBRD covenant requirements of the loan with that indicates a significant uncertainty with regard to the Group to continue its operations on a going concern basis.

According to Management, the assumption of the Group's ability to continue its operations on going concern basis is sustainable, as:

1. The Group received waivers from EBRD - in respect of the annual financial statements for 2017 and the first quarter of 2018;

2. The Group continues to repay a loan to EBRD according to the agreement and timely settled the last two tranches after the reporting date;

3. The Company increased its cash flow from operations;

4. During 2017, the Group kept prolonging the loan agreements with OTP Bank. In December 2017, the Group received an offer of for 65.0 million UAH (£1.723 million) from Creditwest Bank Ukraine to allow both the refinancing of its loan with OTP and increase of its working capital. In February 2018, the Group met all requirements of Creditwest Bank Ukraine, signed a loan agreement and refinanced its loan with OTP moving its entire working capital facility to Creditwest Bank Ukraine.

The Group's current strategy is to further expand its export sales worldwide with a focus on Asia and Africa. CIS markets also remain strategically important for the Group not least Kazakhstan where to the Company increased its export volumes. Ukrproduct is also looking to expand domestic sales in Ukraine driven in part by the introduction of new products and rebranding. The Group continues to boost its dairy processing volumes via close cooperation with local farmers and cooperatives, thereby increasing its capacity utilization.

3. Bank Loans and Overdrafts

As at 31 December 2017 the Group has two loans: a loan from OTP Bank in the amount of 856 thousand GBP (in UAH 32,3 million) and EBRD in the amount of 6,178 thousand GBP (in EUR 6,959 thousand).

During 2017, the Group fulfilled its obligations under the EBRD loan in accordance with the agreement. The Group applied instalments of payments and in accordance with an agreement between all parties; the payment of the tranche in December was postponed to subsequent periods.

Fixed assets with a net book value of GBP 4,829 thousand at 31 December 2017 (2016: GBP 5,366 thousand) were pledged as collateral for both loans:

- assets pledged as security for the EBRD loan include property and land in Starokonstantinov, equipment for dairy production and production of hard cheese, as well as TMs. Fixed assets pledged as security total 3,403 thousand GBP. The intangible assets pledged total 213 thousand GBP;

- assets pledged as security for the for the OTP loan include property and land in Zhitomir and in Krasiliv, together with equipment for the production of processed cheese, and the Company's vehicles. Fixed assets pledged as security total 1,426 thousand GBP. Also, inventories with a net book value of GBP 318 thousand at 31 December 2017 (2016: GBP 360 thousand) were pledged as collateral for the OTP loan.

During 2017, the Group prolonged agreement with OTP Bank three times. The last tranche extension with OTP related to the 6 March 2018 loan repayment. In December, the Group received confirmation of expansion of crediting with Creditwest Bank Ukraine for the amount of 65 million UAH. Funds received would be used to settle the outstanding balance with OTP and to open additional budgeting backed by Zhiviy Kvass equipment. The loan term is 3 years, the interest rate - 18%.

In 2018, the Group fulfilled conditions of the Creditwest Bank Ukraine and in February 2018 the first Tranche from Creditwest Bank Ukraine was received and repayment of the loan balance with OTP Bank was carried out. With the refinancing of OTP Bank the pledge was transferred to Creditwest Bank Ukraine. Non-current assets located in Zhytomyr and transport were pledged as collateral for Creditwest Bank Ukraine. Also, to extend the credit line, the Company has provided equipment for production of Zhiviy Kvass.