UKR Ukrproduct Group Limited

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2024 

BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

1.   REPORTING ENTITY 

Ukrproduct Group Limited ("the Company") is a public limited liability company registered in Jersey with a registered office at 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands.

The Group's operational management and production facilities are based in Ukraine, with the headquarters in Kyiv. The Group commands leading positions in the Ukrainian processed cheese and packaged butter markets and owns a range of widely recognisable trademarks in Ukraine, including "Nash Molochnik" (translated as Our Dairyman), "Narodniy Product" (People's Product) "Molendam" and "Vershkova Dolina" (Creamy Valley). 

2.   BASIS OF PREPARATION

(a)  Statement of compliance

The unaudited condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations issued by the International Accounting Standards Board (IASB), as adopted by the United Kingdom (collectively "IFRS"). The condensed consolidated financial information in this half yearly report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' (IAS 34), as adopted by the United Kingdom and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.

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

The condensed consolidated financial statements have been prepared on a historical cost basis, except for significant items of property, plant and equipment which have been measured using revaluation model.

The accounting policies used and the methods of computation are the same as those disclosed in the Group's recent annual consolidated financial statements except for the adoption of new and revised accounting standards as disclosed in Note 3. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2023.

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 Board has reviewed the Group's ongoing commitments for the next twelve months and beyond.

(b)  Going concern 

In preparing this financial statement the Group has conducted an analysis of its ability to continue as going concern, taking into account the circumstances arising from the ongoing war in Ukraine and its impact on the financial position and results of the Group.

At the time of publication of this report, the war is ongoing and the significant general uncertainties inherent to the continued war, which began on 24 February 2022, remain. The Group's management has analyzed the observable impact of the war on its business as described below, and has taken the following actions in response to the current situation:

·    For the period after the Russian invasion of Ukraine, more than 60 employees joined Ukrainian military forces and territorial defense. Personnel of production facilities and central office remained in their working area or worked remotely. While personnel-related challenges have been manageable so far, the anticipated escalation of conscription efforts in Ukraine heightens operational risks for the Group.

·    No critical assets preventing the Group from continuing operations are damaged or located in the uncontrolled territories. The Group optimized utilization of production facilities to meet domestic demand and export orders.

·    All of the Group's inventories are in good condition and are in safe storage.

·    Export sales flow via Ukrainian ports was reduced significantly. Alternative export routes are greater in length and significantly more expensive in comparison with sea ones. Black Sea ports in Ukraine remain blocked for export activities.

·    Due to the constant Russian shelling targeting vital Ukrainian energy infrastructure, the Group has mitigated the possible disruptions to its operations, by equipping its key assets with diesel generators.

The Group repaid a short-term loan of UAH 63.8 million (GBP 1.3 million) and signed a new facility with a Ukrainian bank for working capital needs in the amount UAH 70.0 million (GBP 1.4 million) in January 2024. 

For the year ended 31 December 2023, the Group continued to be in breach of several provisions of the loan agreement with the EBRD. The Group failed to repay Tranche A (aggregate EUR 2.1 million principal, equivalent to £1.8 million) before the maturity date of 1 December 2022 and has missed interest payments since 1 March 2022. In June 2023, the EBRD notified the Group about a recalculation and an increased interest rate in respect of the aggregate EUR 5.7 million (equivalent to £4.9 million) principal and interest of Tranche A and Tranche B from 1 September 2021.

The Group has been negotiating with the EBRD since June 2021 to potentially restructure the loan repayment and negotiations are ongoing. At present, the EBRD has taken no action to accelerate repayment of the loan. The Group reverted to the payment of interest for the long-term credit from the EBRD starting from December 2023.

Management acknowledges that future development of military actions and their duration represent a source of material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern and, therefore, the Group may be unable to realize its assets and discharge its liabilities in the normal course of business. Despite the material uncertainty relating to the war in Ukraine, management is continuing to take actions to minimize the impact to the Group and thus believes that the application of the going concern assumption for the preparation of these consolidated financial statements is appropriate.

(c)  Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Group's companies are measured using the currency of the primary economic environment in which the company operates ("the functional currency"). For the companies operating in Cyprus and British Virgin Islands, the functional currency is United States Dollars ("USD"). For the Parent company, which is located in Jersey, the functional currency is Pound Sterling ("GBP"). For the companies operating in Ukraine, the functional currency is Ukrainian Hryvnia ("UAH").

These condensed consolidated interim financial statements are presented in the thousands of Pound Sterling ("GBP"), unless otherwise indicated. 

Foreign currency transactions and balances

Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction.  

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date.   

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. 

The principal exchange rates used in the preparation of these condensed consolidated interim financial statements are as follows:

(d) Reclassification

Where applicable, comparatives have been adjusted to present them on the same basis as current period figures.

3.     ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS

Application of new standards

In general, the accounting policy is consistent with those applied in the prior reporting year. Some new standards and interpretations have become mandatory for adoption beginning on or after January 01, 2023. New and revised standards and interpretations, adopted by the Group for the first time as at              January 01, 2023 are provided below.

Amendments to IAS 8 "Accounting policies, changes in accounting estimates and errors" - "Definition of Accounting Estimates"

These amendments introduce a definition of "accounting estimates". These amendments clarify the distinction between changes in accounting estimates and changes in the accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates.

Amendments to IAS 1 "Presentation of Financial Statements" and IFRS Practice Statement 2 - "Disclosure of Accounting Policies"

In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 "Making Materiality Judgements", which provide guidance and examples, which assist entities in applying materiality judgements to accounting policy disclosures. The amendments aim to assist entities in providing accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their "significant" accounting policies with a requirement to disclose their "material" accounting policies and adding guidance on how entities should apply the concept of materiality in making decisions about accounting policy disclosures. 

Amendments to IAS 12 "Income Taxes" - "Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction"

These amendments clarify that the exemption from initial recognition specified in the Art. 15 and 24 of the standard is not applied to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition (e.g., leases, decommissioning obligations).

4.   ESTIMATES AND JUDGEMENTS

The preparation of the interim financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

5.       INVENTORY WRITE OFF TO NET REALISABLE VALUE

Inventories are measured at the lower of cost or net realisable value.

The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

The cost of work in progress and finished goods includes costs of direct materials and labor and other direct productions costs and related production overheads (based on normal operating capacity).

The cost of inventories is assigned by using the FIFO method.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

The Group periodically analyses inventories to determine whether they are damaged, obsolete or slow-moving or if their net realisable value has declined, and makes an allowance for such inventories.

The amount of impairment or reversal of impairment recognised in profit/loss amounted to:

6.       PROVISION FOR BAD DEBT

The Group had to make an additional bad debt provision for receivables from customers who have been affected by the hostilities.

The amount of provision for bad debts recognised in profit/loss amounted to:

7.       RELATED PARTY TRANSACTIONS 

A related party is a person or an entity that is related to the reporting entity:

1.       A person or a close member of that person's family is related to a reporting entity if that person has control, joint control, or significant influence over the entity or is a member of its key management personnel. 

2.       An entity is related to a reporting entity if, among other circumstances, it is a parent subsidiary, fellow subsidiary, associate, or joint venture of the reporting entity, or it is controlled, jointly controlled, or significantly influenced or managed by a person who is a related party. 

The Group enters into transactions with related parties in the ordinary course of business.

The Group had no commercial relationships with the related parties in 1H 2024 except cash remuneration.

Details of the Directors' remuneration outlined below.

*This relates to fees paid to Yuriy Hordiychuk for general management services under a separate contract to his service contract.

There were no guarantees given to or provided by the Group to related parties and vice versa. 

The ultimate controlling owners and beneficiaries of the related parties were Mr. Oleksandr Slipchuk and Mr. Sergey Evlanchik.

8.   SEGMENT INFORMATION

IFRS 8 requires segment information to be presented on the same basis as that used by the Board for assessing performance and allocating resources. 

Segment information is presented in respect of the group's key operating segments. The operating segments are based on the group's management and internal reporting structure. 

At 30 June 2024, the Group was organized internally into four 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

The segment results for the six months ended 30 June 2024 are as follows:

The segment results for the six months ended 30 June 2023 are as follows: