TIDMUKR

RNS Number : 6389J

Ukrproduct Group Ltd

29 June 2017

FOR IMMEDIATE RELEASE June 29 2017

FINAL RESULTS

ANNUAL REPORT FOR THE YEARED 31 DECEMBER 2016

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 2016.

Copies of the Group's annual report and accounts, incorporating the 2016 Audited Financial Statements, will shortly be 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 Directors of UKR are also pleased to announce that the notice of Annual General Meeting ("AGM") will shortly be posted to shareholders. The AGM will be held at the offices of Ukrproduct Group Ltd, 10th Floor, 39-41 Shota Rustaveli Street, 01033 Kyiv, Ukraine at 6 pm (Kyiv time) on Thursday, 20 July 2017. Copies of the Notice of AGM and Proxy Form will be available for download on the Company website at www.ukrproduct.com.

A copy of the AGM Notice together with further information with regard to the AGM and other related issues will shortly be available on Ukproduct's website 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:

 
Ukrproduct Group Ltd 
Jack Rowell, Non-Executive Chairman    Tel: +380 44 232 9602 
Alexander Slipchuk, Chief Executive    www.ukrproduct.com 
 Officer 
ZAI Corporate Finance Ltd. 
Nominated Adviser and Broker         Tel: +44 20 7060 2220 
 Peter Trevelyan-Clark, John Treacy   www.zaicf.com 
 
 
 

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 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. The Group reported total assets of approximately GBP 13.0 million as at December 31, 2016 and consolidated revenues of approximately GBP 20.2 million for the twelve months ended December 31, 2016. Ukrproduct's securities are traded under the symbol "UKR" on AIM, a market operated by the London Stock Exchange.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might" the negative of such terms or other similar expressions. These statements are only predictions and they may differ materially from the actual events or results. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in such projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Ukraine, rapid technological and market change in our industry, as well as many other risks specifically related to the Group and its operations.

Chairman and Chief Executive Statement

During 2016 Ukrproduct has continued to face the headwinds induced by the political situation and the Ukrainian economy. Currency weakness continued with a contracted geographic market place and intense competition. Consumers are low in spending power and confidence.

In this challenging context Ukrproduct's response is to focus on cash; ensure the product offering is competitive; focus on viable customers affording acceptable margins and thereby cash production. Ukrproduct seeks further to underpin the trading effort with cost/productivity improvements.

Trading

Overall revenues increased by only 3% in hryvna terms given product mix. Gross margins improved in most product lines apart from skimmed milk powder (SMP).

Branded products were given more focus with key categories butter and spreads showing improved volume and margins. Margins on processed cheese were maintained on slightly lower revenues. Private label made improved gross profits on significantly reduced volumes as marginal contracts were terminated. Those retained and developed reflected the quality demanded by the retailer and commensurate margins. The kvass beverage continued to make a strong gross profit contribution. This category offers opportunities and the product offering has been extended with white kvass and healthy rosehip drinks being test marketed.

The exchange rate depreciation has facilitated good overall development of the export business not least to CIS countries. Towards the end of the year, growth of domestic dairy prices in the Ukraine provided some constraint, however exports of branded products increased by one thousand tons in 2016.

Skimmed milk powder has been a negative in terms of available prices being historically low across the world, particularly in the first half of the year. Spare capacity at our Starokonstantyniv facility has however afforded opportunities for profitable contract processing. In this regard in 2016 Ukrproduct maintained its approved supplier status with Danone, a major international company, confirming that the company's products meet high international quality requirements.

Finances

Total revenues for year were stable at GBP20m. In local currency terms Hryvna revenues overall grew by 3% to UAH 693m.

In difficult markets gross margins generally showed some improvement subject to SMP which given global pricing showed a shortfall of GBP0.6m year on year. Note however that SMP is a by-product of butter production & the net profitability of butter/SMP together is healthy.

Given significant cost reductions EBITDA moved into positive territory at 1.9% (2015 minus 4%). The operating loss was sizeably reduced to GBP0.195m (2015 - operating loss GBP1.346m).

Interest charges fell by GBP145,000 given husbandry of cash & the restructuring of EBRD debt.

Though reduced, exchange differences continued to be negative at GBP0.743m (2015 - GBP1.733m). This, together with significantly reduced other operating expenses of GBP0.17m (2015 - GBP1.089m), resulted in a loss for the year of GBP1.484m (2015 - loss GBP3.906m).

Cash

The balance of cash at 31st December 2016 stood at GBP175,000 (2015 GBP93,000). In the challenging trading environment Ukrproduct group's business model gives a firm focus to cash management.

The Group's cash levels are currently expected to be sufficient to meet current debt levels in the short & medium term, given the deferral of the OTP Bank principal repayment announced in June.

Restructuring of the EBRD loan was finalised in 2016. The revised terms require the loan to be repaid over a longer period & at more favourable interest rates and the first two capital repayments were made as scheduled after the period end. Discussions however continue with EBRD, as discussed more fully in the Going Concern section, following financial loan ratio covenant breaches and subsequent waivers.

Outlook

Ukrproduct will continue to work towards profitability with cash flow remaining the priority. Plans as defined above will continue to be implemented with due emphasis on growth opportunities in Beverages & Export.

The new year has started encouragingly. Sales revenues & gross margins are ahead of last year at this stage and the first two tranches of capital repayments to EBRD have been made. A capital reorganisation to simplify the group structure is being implemented as required by EBRD.

 
 Ukrproduct Group 
 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 
 FOR THE YEARED 31 DECEMBER 2016 
 (in thousand GBP, unless otherwise stated) 
========================================================================================================== 
 
                                        Note            year ended                     year ended 
                                                     31 December 2016               31 December 2015 
                                                         GBP '000                       GBP '000 
                                              -----------------------------  ----------------------------- 
 
  Revenue                                8                           20,190                         20,158 
  Cost of sales                          9                         (18,071)                       (17,844) 
                                              -----------------------------  ----------------------------- 
  GROSS PROFIT                                                        2,119                          2,314 
  Administrative expenses                9                            (930)                        (1,109) 
  Selling and distribution expenses      9                          (1,367)                        (1,462) 
  Other operating expenses               9                             (17)                        (1,089) 
                                              -----------------------------  ----------------------------- 
  LOSS FROM OPERATIONS                                                (195)                        (1,346) 
  Net finance expenses                   11                           (623)                          (768) 
  Foreign exchange loss, net             10                           (743)                        (1,733) 
                                              -----------------------------  ----------------------------- 
  LOSS BEFORE TAXATION                                              (1,561)                        (3,847) 
  Income tax expenses                    13                              77                           (59) 
                                              =============================  ============================= 
  LOSS FOR THE YEAR                                                 (1,484)                        (3,906) 
  Attributable to: 
  Owners of the Parent                                              (1,484)                        (3,906) 
  Non-controlling interests                                               -                              - 
 
  Earnings per share (pence):            26 
  Basic                                                              (3.74)                           9,85 
  Diluted                                                            (3.74)                           9,91 
 
  OTHER COMPREHENSIVE INCOME: 
  Items that may be subsequently 
  reclassified to profit or loss 
    Currency translation differences                                    513                        (1,526) 
                                              -----------------------------  ----------------------------- 
  Items that will not be reclassified to 
  profit or loss 
    Gain on revaluation of property, plant 
     and equipment                                                        -                          1,113 
    Income tax in respect of revaluation 
     reserve                                                              -                          (200) 
  OTHER COMPREHENSIVE INCOME, NET OF TAX                                513                          (613) 
                                              -----------------------------  ----------------------------- 
  TOTAL COMPREHENSIVE INCOME FOR THE YEAR                             (971)                        (4,519) 
                                              =============================  ============================= 
  Attributable to: 
  Owners of the Parent                                                (971)                        (4,519) 
  Non-controlling interests                                               -                              - 
 
 
 Ukrproduct Group 
 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 
 AS AT 31 December 2016 
 (in thousand GBP, unless otherwise stated) 
========================================================================================================== 
 
                                        Note              As at                          As at 
                                                     31 December 2016               31 December 2015 
                                                         GBP '000                       GBP '000 
                                              -----------------------------  ----------------------------- 
  ASSETS 
  Non-current assets 
  Property, plant and equipment          14                           7,511                          7,417 
  Intangible assets                      15                             656                            596 
  Deferred tax assets                    16                               -                             46 
                                                                      8,167                          8,059 
                                              -----------------------------  ----------------------------- 
  Current assets 
  Inventories                            17                           1,855                          1,496 
  Trade and other receivables            18                           2,507                          1,486 
  Current taxes                          19                             230                            348 
  Other financial assets                 20                              18                             11 
  Cash and cash equivalents              21                             175                             93 
                                                                      4,785                          3,434 
                                              -----------------------------  ----------------------------- 
  TOTAL ASSETS                                                       12,952                         11,493 
                                              =============================  ============================= 
 
  EQUITY AND LIABILITIES 
  Equity attributable to owners of 
  the parent 
  Share capital                          22                           3,967                          3,967 
  Share premium                          23                           4,562                          4,562 
  Translation reserve                    23                        (14,781)                       (15,294) 
  Revaluation reserve                    23                           3,935                          4,192 
  Retained earnings                                                   4,427                          5,655 
                                                                      2,110                          3,082 
  Non-controlling interests                                               -                              - 
  TOTAL EQUITY                                                        2,110                          3,082 
                                              -----------------------------  ----------------------------- 
  Non-Current Liabilities 
  Bank loans                             24                               -                          3,206 
  Long-term payables                                                    441                              - 
  Deferred tax liabilities               16                             363                            466 
                                                                        804                          3,672 
                                              -----------------------------  ----------------------------- 
  Current liabilities 
  Bank loans                             24                           7,162                          3,121 
  Trade and other payables               25                           2,854                          1,586 
  Current income tax liabilities                                         10                             18 
  Other taxes payable                                                    12                             14 
                                                                     10,038                          4,739 
                                              -----------------------------  ----------------------------- 
  TOTAL LIABILITIES                                                  10,842                          8,411 
                                              -----------------------------  ----------------------------- 
  TOTAL EQUITY AND LIABILITIES                                       12,952                         11,493 
                                              =============================  ============================= 
 
 
 
 Ukrproduct Group 
 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 
 AS AT 31 December 2016 
 (in thousand GBP, unless otherwise stated) 
==========================================================================================  =========  =========================== 
 
                                      Attributable to owners of the parent                              Non-controlling    Total 
                                                                                                           interests       Equity 
 
                                   Share     Share    Revaluation   Retained   Translation    Total 
                                  capital   premium     reserve     earnings     reserve 
                                    GBP       GBP      GBP '000     GBP '000    GBP '001     GBP '000      GBP '000       GBP '000 
                                   '000      '000 
                                 --------  --------  ------------  ---------  ------------  ---------  ----------------  --------- 
 
 As At 1 January 2015               3,967     4,562         3,453      9,358      (13,768)      7,572                 -      7,572 
                                 --------  --------  ------------  ---------  ------------  ---------  ----------------  --------- 
 
 Loss for the year                      -         -             -    (3,906)             -    (3,906)                 -    (3,906) 
 Other comprehensive income 
 Gain on revaluation of 
  property, plant and 
  equipment                             -         -           913          -             -        913                 -        913 
 Currency translation 
  differences                           -         -             -          -       (1,526)    (1,526)                 -    (1,526) 
                                 --------  --------  ------------  ---------  ------------  ---------  ----------------  --------- 
 Total comprehensive income             -         -           913    (3,906)       (1,526)    (4,519)                 -    (4,519) 
                                 ========  ========  ============  =========  ============  =========  ================  ========= 
 
 Depreciation on revaluation 
  of property, plant and 
  equipment                             -         -          (86)         86             -          -                 -          - 
 Reduction of revaluation 
  reserve                               -         -          (88)        116             -         28                 -         28 
 As At 31 December 2015             3,967     4,562         4,192      5,654      (15,294)      3,081                 -      3,081 
                                 ========  ========  ============  =========  ============  =========  ================  ========= 
 
 Loss for the year                      -         -             -    (1,484)             -    (1,484)                 -    (1,484) 
 Other comprehensive income 
 Currency translation 
  differences                           -         -             -          -           513        513                 -        513 
 Total comprehensive income             -         -             -    (1,484)           513      (971)                 -      (971) 
                                 ========  ========  ============  =========  ============  =========  ================  ========= 
 
 Depreciation on revaluation 
  of property, plant and 
  equipment                             -         -         (248)        248             -          -                 -          - 
 Reduction of revaluation 
  reserve                               -         -           (9)          9             -          -                 -          - 
 As At 31 December 2016             3,967     4,562         3,935      4,427      (14,781)      2,110                 -      2,110 
                                 ========  ========  ============  =========  ============  =========  ================  ========= 
 
 
 Ukrproduct Group 
 CONSOLIDATED STATEMENT OF CASH FLOWS 
 AS AT 31 December 2016 
 (in thousand GBP, unless otherwise stated) 
=========================================================================== 
 
                                              Note     year     year ended 
                                                      ended 
                                                        31      31 December 
                                                     December       2015 
                                                       2016 
                                                     GBP '000    GBP '000 
                                                    ---------  ------------ 
  Cash flows from operating 
   activities 
  Loss before taxation                                (1,561)       (3,847) 
  Adjustments for: 
  Exchange difference                          10         743         1,733 
  Depreciation and amortisation                9          589           537 
  Loss/(Profit) on disposal 
   of non-current assets                       9           25           (4) 
  Write off of receivables/payables                        32           857 
  Impairment of inventories                    9          120            78 
  Loss from disposal of subsidiaries                      (3)           (3) 
  Interest income                              11         (1)           (1) 
  Interest expense on bank loans               11         624           769 
                                                    ---------  ------------ 
  Operation cash flow before 
   working capital changes                                568           119 
  (Increase) in inventories                             (472)         (127) 
  (Increase) / decrease in trade 
   and other receivables                                (933)           890 
  Increase / (decrease) in trade 
   and other payables                                   1,122         (404) 
                                                    ---------  ------------ 
  Changes in working capital                            (283)           359 
  Cash generated from operations                          285           478 
  Interest received                                         1             1 
  Income tax paid                                        (32)           169 
                                                    ---------  ------------ 
  Net cash generated by / (used 
   in) operating activities                               254           648 
 
  Cash flows from investing 
   activities 
  Purchases of property, plant 
   and equipment and intangible 
   assets                                               (217)         (259) 
  Proceeds from sale of property, 
   plant and equipment                                     17            18 
  Repayments of loans issued                             (11)            66 
                                                    ---------  ------------ 
  Net cash used in investing 
   activities                                           (211)         (175) 
 
  Cash flows from financing 
   activities 
  Interest paid                                         (372)         (607) 
  (Decrease) / increase in short 
   term borrowing                                        (63)          (76) 
  Net cash generated by financing 
   activities                                           (435)         (683) 
                                                    ---------  ------------ 
 
  Net decrease in cash and cash 
   equivalents                                          (392)         (210) 
  Effect of exchange rate changes 
   on cash and cash equivalents                           474            88 
  Cash and cash equivalents 
   at the beginning of the year                            93           215 
  Cash and cash equivalents 
   at the end of the year                      21         175            93 
 

These consolidated financial statements were approved and authorised for issue by the Board of Directors on June 29, 2017 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 2016 statutory financial statements. The auditors have reported on the 2016 financial statements: their report was unqualified but did contain an emphasis of matter paragraph in respect of going concern and non-observance of the terms of the loan agreement with the European Bank of Reconstruction and Development (EBRD) as well as the maturity of external financing arrangements with OTP Bank on 9 September 2017. It contained no statement under section 113B of the Companies (Jersey) Law 2011. The financial statements for 2016 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 (GBP000) except where otherwise indicated

   2.   Going concern, Bank loans and overdrafts 

The Group incurred a loss of GBP 1,484 thousand for the year ended 31 December 2016, decreasing retained earnings at that date to GBP 4,427 thousand. In addition, due to significant devaluation of Ukrainian Hryvnia the principal amounts of loans denominated in foreign currencies has increased. As at 31 December 2016 loans, denominated in foreign currency, had the following amount outstanding: GBP 969 thousand owing to OTP Bank and GBP 6,193 thousand owing to EBRD (Note 24). Interest under these loan agreements is paid according to a fixed schedule annexed to the relevant loan agreement.

An amended Loan Agreement and Restatement Deed with the EBRD was signed in June 2016 and details announced on 30 June 2016 with the new terms becoming effective on 24 October 2016. As per the new terms, the principal amount is divided into two parts - Tranche A in the amount of 4,000 thousand EUR with a maturity date of 01 December 2022 and Tranche B in the amount of 3,259 thousand EUR with a maturity date of 30 November 2024.

The Group gained a capital repayment holiday until 01 March 2017 with quarterly capital repayments on Tranche A commencing on that date and increasing in amount on an annual basis until 1 December 2022. The first two payments have been made in full as scheduled. Tranche B is ordinarily due for repayment in a single bullet payment on 1 December 2024 assuming no early repayment of Tranche A or events of default.

Despite the repayments being made as scheduled, the Group breached financial covenants as at 31 December 2016 and 31 March 2017. The Board notified EBRD in advance of covenant breaches of the Loan and EBRD provided waivers in respect of the breached covenants dated 08 May 2017 and 24 May 2017 respectively. Due to the fact that the date of the waivers receipt was later than the reporting date, under IAS 1 Presentation of Financial Statements the Group was required to classify the EBRD loan in full as a current liability. In the consolidated statement of financial position the current liabilities exceed current assets due to the EBRD loan reclassification.

The Board believes that EBRD will not demand accelerated repayment of the loan due to the breach of the covenants as at 31 December 2016 and as at 31 March 2017. Going forward if the Group anticipates a breach of the financial ratio covenants under the amended EBRD loan agreement it is expected that EBRD would grant a waiver in advance of the reporting period deadline.

The Group has entered into a variation of the loan agreement with OTP Bank under which the principal loan repayment date has been extended from 9 June 2017 to 9 September 2017. The principal amount outstanding under this agreement is Ukrainian Hryvnia UAH 32,300 thousand (approximately GBP 969 thousand).

The 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: reconstruction of manufacturing facilities in Starokonstantinov operation, reducing the number of subsidiaries and streamlining business processes to minimise non-value adding activities and related costs, and by development of its export capacity.

The political and economic situation has become less volatile than in 2015. The government of Ukraine is aiming at rapprochement with the European Union with many reforms being carried out in various fields.

The Group's strategic goal is the development of export sales in world markets, in particular Asia and Africa. CIS markets also remain strategically important markets for the Group to develop and sales into Kazakhstan have commenced.

The Group is also looking to expand our domestic sales in Ukraine driven in part by the introduction of new products and the renewal of the existing product portfolio. The Group continues to increase volumes throughput in its dairies through close cooperation with farmers and cooperatives, thereby increasing the capacity utilization.

As at 31 December 2016 the Group has two loans: a loan from OTP Bank in the amount of 969 thousand GBP with a maturity date of 09 September 2017 and EBRD in the amount of 6,193 thousand GBP (in EUR 7,259 thousand) . As at 31 December 2016, the Group has restructured the loan with the European Bank for Reconstruction and Development (EBRD) for the financing of a project to increase energy efficiency and productivity of the Starokonstantinovskiy Molochniy Zavod SC plant.

Guarantees, corporate rights in pledge under EBRD facility agreement are the enterprises of the Group that are jointly and severally responsible together with the borrower: Molochnik LLC; Milk Investments Private Enterprise SC; Starkon-Moloko LLC; Ukrproduct Group CJSC; Zhiviy Kvas LLC.

Guarantees under OTP bank facility agreement are the enterprises of the Group that are jointly and severally responsible together with the borrower: Avtopark Starokonstantinov LLS; Favorit-Konsulting Private Enterprise; Invest Garantiya Private Enterprise; Krasilovsky Molochny Zavod Private Enterprise SC; ATP Centr LLC; Ukrproduct Group CJSC

This information is provided by RNS

The company news service from the London Stock Exchange

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