Ukrproduct Regulatory News (UKR)

September 26, 2018

UKRPRODUCT GROUP LIMITED

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

UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

Kyiv, Ukraine - September 26, 2018 - Ukrproduct Group Limited ("Ukrproduct", "UPG" or the "Group") (AIM:UKR), one of the leading Ukrainian producers and distributors of branded dairy foods and beverages (kvass), today announces its unaudited interim financial results for the six months ended 30 June 2018. 

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").

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CEO's REPORT

The business environment in Ukraine continues to recover, with the economy growing by 2.5% in 2017. Sectors such as manufacturing and domestic trade grew by over 5% in 2017. Economic growth could improve to 3.5% in 2018 and 4% in 2019*. Consumer demand has improved due to an increase in the minimum wage. As a result, whilst the operating environment remains competitive, the Group's trading opportunities have improved domestically.

Trading

Revenue growth for the six months to 30 June 2018 (the "Period") came predominantly from Beverages, Services and Supplementary products. The Board estimates that Ukrproduct's butter market share in the Ukraine has increased by approximately 1% to 6.5%, whilst market share in processed cheese and processed cheese products has increased by approximately 0.5% to 9%. Consumer demand for processed cheese and processed cheese products is growing, as the price of hard cheese rises. Competition in processed cheese and processed cheese products' market is growing and includes more than 10 key players: 5 of them are making significant investments to product promotion. The Period also saw improved kvass beverage sales, helped by a new cider product: Lemon and Ginger.

During the Period, revenue from export sales increased due to bulk butter shipments, however, export sales of packaged butter and spreads decreased. Skimmed milk products continue to decline given low prices worldwide.

The Group has expanded export sales into non-dairy products - other food commodities (supplementary products). The Company has sufficient experience and opportunities in the export market and has seen profitable operations. These operations make use of third party logistics services and are financed by deferring payment for purchased products.

Finances

The Group earned profit after tax of £408,000 for the Period.

On 7 February 2018, Ukrproduct announced that on 05 February 2018 it entered into an agreement for a new loan facility with Creditwest Bank Ukraine (the "New Loan Agreement"). Under the terms of the New Loan Agreement, UAH 65 million was made available for refinancing purposes and for working capital.

On 9 February 2018, Ukrproduct announced that it had drawn down UAH 32.3 million under the terms of the New Loan Agreement with Creditwest Bank Ukraine in order to fully repay all amounts outstanding to OTP Bank. Accordingly, the Company has no outstanding liabilities to OTP Bank. As at today's date, the Company has fully drawn down the loan available under the New Loan Agreement, which is due for repayment on 5 February 2021, as announced by the Company on 7 February 2018.

As at 30 June 2018, the Group had total liabilities of UAH 522,9 million (approx. £15.1 million) and net assets of UAH 38,8 million (approx. £1.1 million) with cash balances of UAH 4,0 million (approx. £0.1 million). The Group's financial position was improved following the New Loan Agreement. In September 2018 Ukrproduct made a scheduled repayment of €175.809 to EBRD. However, in relation to the Period, The Board notified EBRD in advance of covenant breaches of the Loan and EBRD provided waivers in respect of the breached covenants dated 30 June 2018.

Outlook

In FY2018, it is expected that the Ukrainian economy will continue its recovery from the fall in 2014-2015, but downside risks, largely stemming from mounting domestic political tensions and geopolitical uncertainties, remain significant.

As part of a continuing process, Ukrproduct is evaluating its business in light of the competitive marketplace. Ukrproduct will seek to sustain operational improvement via a strategy focused on cash production, operating efficiency and building profitable sales with a competitive product/service offering.

* Source: The World Bank

UKRPRODUCT GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE PERIOD ENDED 30 JUNE 2018 AND 2017

(in thousand GBP, unless otherwise stated)

UKRPRODUCT GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2018 AND 2017

(in thousand GBP, unless otherwise stated)

UKRPRODUCT GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE PERIOD ENDED 30 JUNE 2018 AND 2017

(in thousand GBP, unless otherwise stated)

UKRPRODUCT GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED 30 JUNE 2018 AND 2017

(in thousand GBP, unless otherwise stated)

UKRPRODUCT GROUP LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2018 AND 2017

(in thousand GBP, unless otherwise stated)

UKRPRODUCT GROUP LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

1. Basis of preparation

The unaudited condensed consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting.

The interim financial statements are unaudited but have been reviewed by the auditors.

The unaudited condensed consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain properties.

The same accounting policies, presentation and methods of computation have been followed in these unaudited condensed consolidated financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2017.

The preparation of the unaudited condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from those estimates.

The comparatives for the six months ended 30 June 2017 are extracted from the Group's consolidated financial statements for the year ended 31 December 2017. The auditor's report for those accounts was unqualified, but did include a paragraph on material uncertainty related to going concern, in respect of the losses incurred by the Group during the year ended 31 December 2017 and surrounding the breach of the loan agreement with the European Bank for Reconstruction and Development (the "EBRD").

Going concern

The unaudited condensed consolidated financial statements have been prepared on a going concern basis which assumes that the Group will be able to meet its liabilities as they fall due, for the foreseeable future.

The Group earned a profit of £408,000 for the six months ended 30 June 2018. Nevertheless, for the same period, the Group generated a negative cash flow from operating activities of £266,000. The Group also has a net current liabilities position of £35,000 as at the period end date.

These conditions represent a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern and, in such case, the Group may be unable to realize its assets and discharge its liabilities in the normal course of business.It is worth noting that the Group held goods for sale that were prepaid as at 30 June 2018. During the subsequent period the Group has sold such prepaid inventories and received Gross Profit in the amount of £418,000.

The loan with EBRD is divided into 2 tranches. Tranche A has a maturity date of 01 December 2022 and interest is payable at a margin of 5% over EURIBOR per annum. Tranche B has a maturity date of 1 December 2024 and is subject to interest at the higher of EURIBOR or 1% per annum before 1 December 2022 after which date interest is charged at a margin of 5% over EURIBOR per annum. Following the restructuring of the loan in 2016 the Group has complied with the new repayment terms. The Board notified EBRD in advance of covenant breaches of the Loan and EBRD provided waivers in respect of the breached covenants as at 30 June 2018.

On 7 February 2018, Ukrproduct announced that a new loan facility with Creditwest Bank Ukraine (the "New Loan Agreement") had been entered into on 5 February 2018. Under the terms of the New Loan Agreement, UAH 65 million was made available for refinancing purposes and for working capital. The interest rate under the New Loan Agreement is fixed at 18% per annum.

On 8 February 2018, Ukrproduct announced that it had drawn down UAH 32.3 million under the terms of the New Loan Agreement with Creditwest Bank Ukraine in order to fully repay all amounts outstanding to OTP Bank. Accordingly, the Group has no outstanding liabilities to OTP Bank. As at today's date, the Group has fully drawn down the loan available under the New Loan Agreement, which is due for repayment on 5 February 2021, as announced by the Group on 7 February 2018.

Based on the existence of these conditions, the condensed consolidated financial statements have been prepared on a going concern basis, because management believes that it has employed sufficient and appropriate measures to underpin its cost cutting strategy including but not limited to increasing volume of export sales and full production capacity.

2. Write-off of inventories to net realizable value

In accordance with requirements of IAS 2, "The value of inventories must be recorded at the lower of cost or net realisable value. Where net realisable value drops to below the cost of inventory the loss is to be recognised as an expense in the period in which the drop of value occurs." The Group conducted an evaluation of inventories as at 30 June 2018 and 30 June 2017. The loss from impairment of inventories amounted to:

3. Related party transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions as defined by IAS 24 "Related Party Disclosures". In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Transactions and balances between the Group companies and other related parties are set out below.

Sales of goods and services to related parties and purchases from related parties are summarised below. All sales and purchases were with related parties under common control of the ultimate beneficiaries of the Group.

Balances due from/(to) related parties at each period end are shown below.

In the first half of 2018, the Group's commercial relationships with the related parties comprised of sales and purchases. The terms and conditions for the contracts with the related parties were similar to the terms and conditions applied in dealings with unrelated parties. There were no guarantees given by the Group to related parties and vice versa.

The ultimate controlling owners and beneficiaries of the related parties were Messrs Alexander Slipchuk and Sergey Evlanchik, directors of the Group.

4. Segment information

At 30 June 2018, the Group was organised internationally into five main business segments:

1) Branded products - processed cheese, hard cheese, packaged butter and spreads

2) Beverages - kvass, other beverages

3) Non-branded products - skimmed milk powder, other skimmed milk products

4) Distribution services and other - resale of third-party goods and processing services.

5) Supplementary products - export trading activities with non-dairy products. The Group has expanded export sales into non-dairy products such as corn. The group has sufficient experience and opportunities in the export market and has seen profitable operations. These operations make use of third party logistics services and are financed by deferring payment for purchased products.

The segment results for the six months ended 30 June 2018 are as follows:

The segment results for the six months ended 30 June 2017 were as follows:

5. Earnings per share

Basic earnings per share have been calculated by dividing net profit attributable to the ordinary shareholders (profit for the period) by the weighted average number of shares in issue.

6. Approval of interim financial statements

The unaudited condensed consolidated financial statements were approved by the board of directors on 26 September 2018. A copy will shortly be available on the Group's website at www.ukrproduct.com.