Ukrproduct Group

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2022

EXTRACTS FROM NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of preparation

The unaudited condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). 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 EU, and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.

2. Going concern

On 24 February 2022, the Russian Federation launched a full-scale military invasion of Ukraine. Having examined the existing and potential implications of the war for the Ukraine located businesses, the management of the Group have identified several points of specific concern that require careful analysis and assessment. They include, but are not limited to, the following:

- risks related to safety of personnel;

- risk of physical destruction of the production assets;

- risks of disruption of the supply and distribution chains;

- risk of liquidity and limited access to financing.

In preparing these financial statements, the Directors have assessed the Group's ability to continue as a going concern. The Company performed an analysis of the future cash flows and budgets for the next 12 months based on the known facts and events applying to them, including multiple scenarios as a result of the ongoing war with the Russian Federation. The analysis revealed that the Group would continue to maintain sufficient cash resources as well as a stable flow of revenues in due course. The Group fully complies with all sanctions rules and regulations regarding Russia and Belarus.

Management is taking steps to secure the supply chain which is vital for operational continuity. The Group concluded contracts with new alternative suppliers where necessary and developed new logistics routes. The central warehouse was moved to the one of Group's main plants at Zhytomyr, away from the line of active hostilities. Major customers have not been affected by the hostilities and continue to cooperate and fulfil their contractual obligations with the Group. The military action has had no critical impact on the local distribution. The share of sales in the most affected regions does not exceed 15%.

Selling, general and administrative and other operating expenses, as well as CAPEX, has been reduced to the minimum required to meet the primary needs of the Group's core business.

The Group's management is exploring various opportunities to attract additional financing to support the Group's the liquidity under different state aid programs.

Ukrproduct Group

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2022

2.       Going concern (continued)

For the six months ended 30 June 2022, the Group continued to be in breach of several provisions of the loan agreement with the European Bank for Reconstruction and Development ("EBRD"), missed some interest payments and repayments and the EBRD has not issued a waiver for the breaches. The Company has been holding negotiations with the EBRD to potentially restructure the loan repayment schedule since June 2021. At this current stage the active phase of negotiations with EBRD has been slowed owing to the ongoing war in Ukraine.  At present, the EBRD has taken no action to accelerate repayment of the loan. 

These financial statements are prepared using the going concern basis assumption.

3. 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.