Interim Results June 2023

Ukrproduct Group Ltd

28 September 2023

 

28 September 2023

UKRPRODUCT GROUP LIMITED

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

UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023

Ukrproduct Group Limited (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 2023.

The unaudited interim financial results for the six months ended 30 June 2023 are available on the Company's website at www.ukrproduct.com .  

For further information contact:

Ukrproduct Group Ltd
Jack Rowell, Non-Executive Chairman	Tel: [phone]
Alexander Slipchuk, Chief Executive Officer	www.ukrproduct.com
Strand Hanson Limited
Nominated Adviser and Broker Rory Murphy, Richard Johnson	Tel: [phone] www.strandhanson.co.uk

Chairman and Chief Executive Statement

Ukrproduct, one of the leading Ukrainian producers and distributors of branded dairy foods and beverages (kvass), is pleased to announce its interim results for the half year ended 30 June 2023 ("1H 2023") and outlook for the remainder of 2023.              

2022 Half-Year Trading Update

Ukrproduct Group's consolidated revenue amounted to £18.3 million in the first half of 2023, the same as the half year ended 30 June 2022 ("1H 2022"). Whilst at the Group level, organic revenue growth in local currency was 19.5%, achieved mainly by the improvement of topline drivers, including volume, mix and price, this was impacted by negative exchange rate effects of £3.6 million.  On a nominal basis, total volumes of sales were 21% higher in 1H 2023 than the prior period due to an increase in domestic demand as well as the stabilization of exports, despite the effects of the war in Ukraine. 

In the period, sales of processed cheese and processed cheese products amounted to £12.0 million which was 17.2% higher than the 1H 2022. This was due to the increase of export sales as well as the launch of new products in Ukraine.

In 1H 2023, sales of spreads amounted to £2.2 million, which was 8.9% lower than 1H 2022 due to an increase in competition. However, sales increased by 11.0% in local currency compared to 1H 2022. This was mainly due to rising prices.

Sales of butter in the period amounted to £1.5 million which was 33.1% higher than 1H 2022, mainly due to the recovered domestic demand and export sales.

Sales of kvass and other beverages grew by 81.3% in volume amounting to £0.8 million compared to 1H 2022. This was due to the sale of beverages covering the whole period of 1H 2023 and active sales starting in April 2023 while in 1H 2022 sales were completely eliminated and restored in May-June 2022 due to the beginning of war in Ukraine.

The Group's gross profit in 1H 2023 decreased by 2.3% compared to 1H 2022, to £3.2 million. This was mainly as a result of marketing and trade marketing campaigns in response to local competition.

In 1H 2023, the Group's administrative expenses and selling expenses increased by 24.4% and 17.3% respectively, compared to 1H 2022. This was mainly due to salary increases, the significant level of inflation in Ukraine in 2022-2023, growth in marketing activities and resumption of fees for certain auxiliary services which had been negotiated for provision on a complimentary basis last year after the start of the full scale invasion. The major factor behind the 97.7% reduction of the Group's other operating expenses in 1H 2023 to £0.04 million was the impairment of trade receivables relating to temporary occupied territories in 1H 2022 reflecting the direct impact of war.

EBITDA increased to £1.5 million in 1H 2023, up by 242.8%, compared with £ 0.45 million in the prior period.

Finance costs in 1H 2023 grew by 68.0% year on year, to £0.39 million, primarily driven by  increased interest rates and recognized additional interest expenses for the European Bank for Reconstruction and Development ("EBRD") loan for the previous periods. In June 2023, the EBRD increased the interest rate on the loan retrospectively and charged additional interest from September 2021.

Financial position

As at 30 June 2023, Ukrproduct had net assets of £4.9 million (including cash balances of £0.3 million) compared to £6.3 million (including cash balances of £0.3 million)  as at 30 June 2022.                 

For the six months ended 30 June 2023, the Group continued to be in breach of several provisions of the loan agreement with the EBRD. The Company failed to repay Tranche A (aggregate EUR 2.1 million principal) before the maturity date of 1 December 2022 and has missed interest payments since 1 March 2022. In June 2023 the EBRD notified the Company about a recalculation and an increased interest rate in respect of the aggregate EUR 3.4 million principal and interest of Tranche B from 1 September 2021. The Company 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. 

Outlook for 2023

The development of the business in the second half of 2023 remains highly uncertain due to the ongoing war in Ukraine. However, Ukrproduct has a positive economic outlook for the next six months running on the back of constant domestic demand, the stable operation of the energy system, and improved inflation. Due to developments of  the domestic market the Group expects to increase sales slightly. Higher costs for energy and logistics will likely require further sales price increases in the quarters to come.

Jack Rowell	Alexander Slipchuk
Non-Executive Chairman	Chief Executive Officer

Ukrproduct Group

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2023     

(in thousand GBP, unless otherwise stated)

	Note		Six months ended		Six months ended
			30 June 2023		30 June 2022
			£ '000		£ '000
Revenue	9		18 273		18 278
Cost of sales			(15 078)		(15 009)
GROSS PROFIT			3 195		3 269
Administrative expenses			(689)		(554)
Selling and distribution expenses			(1 305)		(1 113)
Other operating expenses			(35)		(1 543)
PROFIT FROM OPERATIONS			1 166		59
Net finance expenses			(388)		(231)
Net foreign exchange (loss) / gain			(124)		20
PROFIT / (LOSS) BEFORE TAXATION			654		(152)
Income tax expense			(1)		(45)
PROFIT/ (LOSS) FOR THE SIX MONTHS			653		(197)
Attributable to:
Owners of the Parent			653		(197)
Non-controlling interests			-		-
Earnings per share from continuing and total operations:
Basic (in pence)	10		1.65		(0.50)
Diluted (in pence)	10		1.65		(0.50)
OTHER COMPREHENSIVE INCOME:
Items that may be subsequently reclassified to profit or loss
Currency translation differences			(295)		506
OTHER COMPREHENSIVE INCOME, NET OF TAX			(295)		506
TOTAL COMPREHENSIVE INCOME FOR THE SIX MONTHS			358		309
Attributable to:
Owners of the Parent			358		309
Non-controlling interests			-		-

Ukrproduct Group

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2023  

(in thousand GBP, unless otherwise stated)

	Note		As at		As at		As at
			30 June 2023		31 December 2022		30 June 2022
			£ '000		£ '000		£ '000
ASSETS
Non-current assets
Property, plant and equipment			7 454		7 916		9 926
Intangible assets			583		681		842
			8 037		8 597		10 768
Current assets
Inventories	6		3 463		4 296		4 556
Trade and other receivables	7		4 740		3 073		5 528
Current taxes			172		591		120
Other financial assets			34		35		43
Cash and cash equivalents			295		403		293
			8 704		8 398		10 540
TOTAL ASSETS			16 741		16 995		21 308
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital			4 282		4 282		4 282
Treasury shares			(315)		(315)		(315)
Share premium			4 562		4 562		4 562
Translation reserve			(15 832)		(15 537)		(14 481)
Revaluation reserve			5 901		6 005		6 182
Retained earnings			6 353		5 597		6 026
			4 951		4 594		6 256
TOTAL EQUITY			4 951		4 594		6 256
Non-current Liabilities
Deferred tax liabilities			456		530		748
			456		530		748
Current liabilities
Bank loans			5 965		6 116		6 394
Short-term payables			447		493		448
Trade and other payables			4 724		5 162		7 032
Current income tax liabilities			39		48		154
Other taxes payable			159		52		276
			11 334		11 871		14 304
TOTAL LIABILITIES			11 790		12 401		15 052
TOTAL EQUITY AND LIABILITIES			16 741		16 995		21 308

Ukrproduct Group

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2023 

(in thousand GBP, unless otherwise stated)

	Attributable to owners of the parent
	Share capital		Share trasury	Share premium	Revaluation reserve	Retained earnings	Translation reserve	Total		Total Equity
	£ '000		£ '000	£ '000	£ '000	£ '000	£ '000	£ '000		£ '000
As At 31 December 2021	4 282	(315)		4 562	6 348	6 057	(14 987)	5 947	5 947
Loss for the six months	-			-	-	(197)	-	(197)	(197)
Currency translation differences	-			-	-	-	506	506	506
Total comprehensive income	-			-	-	(197)	506	309	309
Depreciation on revaluation of property, plant and equipment	-			-	(166)	166	-	-	-
As At 30 June 2022	4 282	(315)		4 562	6 182	6 026	(14 481)	6 256	6 256
Profit for the six months	-	-		-	-	(607)	-	(607)	(607)
Currency translation differences	-	-		-	-	-	(1 056)	(1 056)	(1 056)
Total comprehensive loss	-	-		-	-	(607)	(1 056)	(1 663)	(1 663)
Depreciation on revaluation of property, plant and equipment	-	-		-	(177)	177	-	-	-
As At 31 December 2022	4 282	(315)		4 562	6 005	5 596	(15 537)	4 594	4 594
Profit for the six months	-	-		-	-	653	-	653	653
Currency translation differences	-	-		-	-	-	(295)	(295)	(295)
Total comprehensive income	-	-		-	-	653	(295)	358	358
Depreciation on revaluation of property, plant and equipment	-	-		-	(104)	104	-	-	-
As At 30 June 2023	4 282	(315)		4 562	5 901	6 353	(15 832)	4 951	4 951

Ukrproduct Group

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2023  

(in thousand GBP, unless otherwise stated)

	Six months ended		Six months ended
	30 June 2023		30 June 2022
	£ '000		£ '000
Cash flows from operating activities
Profit / (loss) before taxation	654		(152)
Adjustments for:
Exchange difference	124		(20)
Depreciation and amortization	370		387
Provision for bad debt	40		1 435
(Reversal of) / Impairment of inventories	(48)		18
Interest expense on bank loans	392		232
Operating cash flow before working capital changes	1 532		1 900
Increase in inventories	940		85
(Increase)/Decrease in trade and other receivables	(1 306)		596
Increase in trade and other payables	(580)		(2 653)
Changes in working capital	(946)		(1 972)
Cash generated from operations	586		(72)
Interest received	4		1
Income tax paid	(16)		33
Net cash generated from operating activities	574		(38)
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets	(254)		(194)
Issuance of loans	-		(2)
Net cash used in investing activities	(254)		(196)
Cash flows from financing activities
Interest paid	(152)		(149)
Repayments of long term borrowing	(4)		-
Net cash used in from financing activities	(156)		(149)
Net increase/(decrease) in cash and cash equivalents	164		(383)
Effect of exchange rate changes on cash and cash equivalents	(272)		364
Cash and cash equivalents at the beginning of the six months	403		312
Cash and cash equivalents at the end of the six months	295		293

Ukrproduct Group

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2023

(in thousand GBP, unless otherwise stated)

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

Since the beginning of the full-scale military invasion of Ukraine, neither the Group's critical facilities nor its infrastructure has suffered any significant damage and the Group's efforts have been focused on maintaining its operations to the full extent. The Group's business processes are reorganized to adapt to current challenges and ensure business continuity. In preparing these financial statements, the Directors have assessed the Group's ability to continue as a going concern. In making this assessment, the Directors have considered the level of debt and the facilities the Group have had available at 30 June 2023, and the Group's forecast financial results for the 12 months subsequent to the date of issue of these financial statements.

For the six months ended 30 June 2023, the Group continued to be in breach of several provisions of the loan agreement with the EBRD. The Company failed to repay Tranche A (aggregate EUR 2.1 million principal) before the maturity date of 1 December 2022 and has missed interest payments since 1 March 2022. In June 2023 the EBRD notified the company about a recalculation and an increased interest rate in respect of the aggregate EUR 3.4 million principal and interest of Tranche B from September 2021. The Company 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. 

Management acknowledges that future development of military actions and their duration represent a single 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.

Taking into account the assessment of forecast for financial results of the next 12 months and existing risks, the Group's management believes that the Group is able to continue its operations on a going concern basis.

Ukrproduct Group

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2023

(in thousand GBP, unless otherwise stated)

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. 

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

Currency		30 June 2023 (spot rate)		Average for the six months ended 30 June 2023		31 December 2022 (spot rate)		30 June 2022 (spot rate)		Average for the six months ended 30 June 2022
UAH/GBP		46,28		45,08		44,00		35,55		37,72
UAH/USD		36,57		36,57		36,57		29,25		28,91
UAH/EUR		40,00		39,52		38,95		30,77		31,74

Ukrproduct Group

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2023

(in thousand GBP, unless otherwise stated)

4. Subsequent events

As of the date of this report, the war is ongoing in Ukraine. The Group continues to operate. The management of the Group controls all of its operations.

The duration and consequences of the war in Ukraine are currently unclear. It is not possible to reliably estimate the duration and severity of these consequences, as well as their impact on the financial position and results of the Group in future periods.

Russia terminated the "Black Sea Grain Initiative" on 18 July 2023. Therefore, the future possibilities for the Group to export goods via Ukrainian Black Sea ports are uncertain.

There were no other events after the end of the reporting date, which would have a material impact on the financial statements

5. Approval of interim statements

The unaudited condensed consolidated financial statements were approved by the board of directors on 27 September 2023

 

END