Ukrproduct Group

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2020

These consolidated financial statements were approved and authorised for issue by the Board of Directors on 24 June 2021 and were signed on its behalf by Mr. 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 2020 statutory financial statements. It contained no statement under section 113B of the Companies (Jersey) Law 2011. The financial statements for 2020  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 significant items of property, plant and equipment which have been measured using revaluation model. 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

For the year ended 31 December 2020, net loss amounted to £1.16 million, including the exchange difference loss of £1.5 million (2019:  net profit of £2.031 million after the exchange difference gain of £1.081 million).

For the year ended 31 December 2020, the Group was in breach of several provisions of the loan agreement with the European Bank for Reconstruction and Development ("EBRD") and the bank has not issued a waiver for the breaches. Though to 31 May 2021 the Group serviced its debt on time in accordance with the loan agreements with its lenders, on 01 June 2021 the Company entered discussions with the EBRD to potentially restructure the loan repayment schedule as a result of pressure on the working capital requirements of the business due to increased raw milk costs and an increase in volumes required to meet demand. Ukrproduct also notified the EBRD that although the Company had settled the interest amount due on 1 June 2021, it did not repay the quarterly loan tranche due on that date. At the same time Ukrproduct is seeking to increase its working capital facility provided locally in Ukraine. The Group's management continues to have discussions with the EBRD and at present the EBRD has taken no action to accelerate repayment of the loan.  Though the Company is hopeful that an agreement can be reached in due course that works for both parties, the management is seeking to secure sufficient additional funding from the local banks to refinance the existing loan on more competitive terms. To the best of their knowledge the Board has a reasonable expectation that the Group has sufficient liquidity to continue its operations going forward and to apply the going concern basis in preparation of the financial statements.

Overall, the Company's management has been implementing a number of steps focused on margin improvement and working capital replenishment that include, but are not limited to, the actions described below.  Ukrproduct undertakes ongoing optimisation of the raw milk supply and its settlement scheme that is complemented with optimisation of the products' portfolio aimed at increasing the overall margin and turnover. Additionally, the Group's management is introducing new cost efficiency initiatives in procurement, processing, distribution, marketing and logistics as well as carefully reducing overhead.

The Company has launched new B2B partnerships (as well as developing existing ones) in dairy processing, logistics and distribution to capitalise on economy of scale. Moreover, Ukrproduct continues to introduce new dairy products and beverages appealing to shifting consumer demand, which is complemented by focused marketing and promotion efforts, while export trading is being developed with new packaging to adapt to international consumer requirements. On a daily basis the management team is engaged in proactive negotiation with retailers and other trading partners in order to reflect input costs volatility in the current pricing of its end products on shelves, however, this process is challenging and takes time.

The Board acknowledges that COVID-19 had a modest impact on the balance sheet and overall performance of the Group in FY2020 and Ukrproduct has already taken a set of the relevant measures to adapt to the changing marketplace. As a part of the going concern assessment the Company performed a broad analysis of the future cash flows and budgets, applying to them multiple scenarios and stress tests including but not limited to the potential impact of COVID-19 on the future trading performance. The analysis revealed that the Group would continue to maintain sufficient cash resources as well as stable flow of revenues in due course. Finally, to the best of their knowledge the management does not believe that COVID-19 has a direct negative financial impact on its operations and closely monitors the pandemic evolution and its potential pressure on the markets, consumers etc.

3.   Bank Loans and Short-Term Payables

As at 31 December 2020 the Group has two loans: the loan from Creditwest Bank in the amount of 1.673 thousand GBP (in UAH 65.0 million) and the loan from the EBRD in the amount of 4.955 thousand GBP (in EUR 5.482 thousand).

During 2020, the Group fulfilled its obligations under the EBRD loan in accordance with the agreement. The Group completed installments of payments and in accordance with an agreement between all parties, the payment of the tranche in December was postponed to subsequent periods.

The average interest rate as at 31 December 2020 was 11% (2019: 11%).

SUBSEQUENT EVENTS

(a)  EBRD - breach of loan covenants

As at 31 December 2020 the Group had been in breach of one of covenants regarding the loan with EBRD- debt service coverage ratio. The Group was still in breach of this covenant as at 31 March 2021, however the Board believes that the EBRD will not demand accelerated payments in respect of this breach, therefore no further commitments or contingencies have arisen.

(b) Installments   

The Group agreed  to defer  the  principal  amount payment of EUR  200 000.00  due  on 1 March  2021   under  the terms of the loan agreement with the EBRD, resulting in a principal payment at the amount of                EUR 65 434.57 and an interest payment of EUR 32 240.41.

On 1 June 2021 the Company entered discussions with the EBRD to potentially restructure the loan repayment schedule as a result of  pressure on the working capital requirements of the business due to increased raw milk costs and an increase in volumes required to meet demand. Accordingly, Ukrproduct also notified the EBRD that on 1 June 2021 the Company had settled the due interest amount without repayment of the next loan tranche at the amount of EUR 294 0066.00 that was due under the loan agreement. However, the Company settled the respective interest payment of EUR 33 089.98 in full and on time.

(c)  Foreign exchange rates

Post year end, the Ukrainian Hryvnia has strengthened against the USD, EUR and GBP. According to the information provided by the National Bank of Ukraine, the main exchange rates are set at the following rates:

(d) Increase in the statutory capital of a Group company

On 24 March 2021, there was an increase in the authorized capital of the Starokonstantinovskiy Molochniy Zavod SC in the amount of 4.222 k GBP. 100% of Starokonstantinovskiy Molochniy Zavod SC belongs to MCNVIF "Alternative Investments".