UKRPRODUCT GROUP LTD
Annual report and financial statements 2004
UKRPRODUCT GROUP LTD
26 New Street  St Helier  Jersey  JE2 3RA  Channel Islands
www.ukrproduct.com
UKRPRODUCT GROUP LTD Annual report and financial statements 2004
_cover.qxd  31/05/2005  10:55  Page 1 01 Corporate Statement and Highlights
02 Chairman’s Statement
03 Chief Executive’s Statement
05 Financial Review
06 Board of Directors and Corporate Advisers
08 Directors’ Report
09 Corporate Governance Report
11 Corporate Social Responsibility Report
12 Remuneration Committee Report
13 Independent Auditors’ Report
14 Statement of Income
15 Balance Sheet
16 Cash Flow Statement
17 Statement of Changes in Shareholders’ Equity
18 Notes to the Financial Statements
35 Notice of Annual General Meeting
Ukrproduct Group Ltd
CJSC Ukrproduct Group
main operating subsidiary
LinkStar Limited
trademarks holding subsidiary
Dairy Trading Corp
export subsidiary
With a land surface of
604,000 square kilometres,
Ukraine is Europe’s second
largest country. It is also the
fastest growing European
economy, with a GDP
growth rate of 12% in 2004
(2003: 10%).
In 2004 Ukraine’s population
of 47 million people
consumed an estimated
36,000 tonnes of processed
cheese and 41,000 tonnes
of packaged butter 
of which 
12,300 tonnes (~33%)
of processed cheese
and 9,200 tonnes (~23%)
of packaged butter
were supplied by
Ukrproduct Group.
In  November–December
2004, Ukraine witnessed the
“Orange  revolution”, a now
famous, peaceful climax of
the popular movement which
replaced the outdated
political regime with a
vibrant democracy taking
dynamic strides westwards.
T HE D ESIGN P ORTFOLIO
a member of the flathill communications group plc
www.flathillplc.com
designed & produced by
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Annual Report and Financial Statements 2004 01
HIGHLIGHTS
Jan 2004 Ukrproduct’s UAH 10 million (GBP 1.1 million) bond issue is fully subscribed. The Group
initiates the flotation process of admission to AIM.
Apr 2004 The Group introduces the ISO 9001 imprint on the packaging of its products, in order to demonstrate
its commitment to quality. Stockbroker WH Ireland Ltd appointed to advise the Group on the flotation
process. The Antimonopoly Committee of Ukraine consents to incorporation of closed joint-stock
company Ukrproduct Group Ukraine, the Group’s main operating unit. 
May 2004 The Group’s corporate logo and style are awarded first prize for design in the all-FSU Advertising
Festival. In order to prepare the Group for flotation on AIM, a corporate structuring programme is
launched. The construction of the new workshop for processed cheese production is commenced. 
Aug 2004 Ukrproduct Group celebrates its fifth anniversary.
Sep 2004 New trading subsidiary in the northern region of Ukraine (Kharkiv) is established.
Oct 2004 A variety of new flavoured cheeses are introduced to widen the product range of the Group.
Nov 2004 Dr Jack Rowell is appointed as the Non-executive Chairman of the Board. Ukrproduct Logistics,
a logistics and supply chain management company, is formally established to develop the
service business of the Group.
Dec 2004 The Group registers a 54% sales growth in FY2004, maintaining margins and increasing market share
in all core business segments.
CORPORATE STATEMENT 
UKRPRODUCT GROUP LTD IS A UKRAINE-BASED PRODUCER
AND DISTRIBUTOR OF BRANDED DAIRY FOODS. THE GROUP IS
THE LEADER IN ITS TWO CORE BUSINESS SEGMENTS, ACCOUNTING
FOR AN ESTIMATED 33% OF THE PROCESSED CHEESE MARKET AND 23%
OF THE PACKAGED BUTTER MARKET IN UKRAINE. 
UKRPRODUCT IS ONE OF THE FASTEST GROWING COMPANIES IN
ITS MARKETS, WITH COMPOUND ANNUAL SALES GROWTH OF 55%
DURING 2001–2004. WITH A MISSION TO SUPPLY BRANDED QUALITY FOOD
PRODUCTS AT AFFORDABLE PRICES TO CUSTOMERS IN UKRAINE AND
ABROAD, UKRPRODUCT IS INTERNATIONAL IN ITS OUTLOOK, COMPETITIVE
IN ITS ATTITUDE AND SOCIALLY RESPONSIBLE IN ITS APPROACH.
UKRPRODUCT GROUP LTD BECAME A PUBLIC COMPANY ON
11 FEBRUARY 2005, PLACING 27.2% OF ITS SHARE CAPITAL
ON THE ALTERNATIVE INVESTMENT MARKET OF THE LONDON STOCK
EXCHANGE (“AIM”). THIS DOCUMENT IS THE FIRST ANNUAL REPORT
TO BE PUBLISHED BY THE COMPANY AFTER THIS EVENT.
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Annual Report and Financial Statements 2004
CHAIRMAN’S STATEMENT
I am delighted to present the first annual report
of Ukrproduct Group following its admission to
AIM. The Board and management team have
worked hard to sustain the Group’s growth
going forward and we are confident of our ability
to deliver value to shareholders.
OVERVIEW
During 2004, Ukrproduct Group continued
to demonstrate sustained growth. We are
maintaining our momentum and are a step
ahead of the competition. During the year under
review, we successfully launched many
initiatives to create a strong, integrated food and
service group. These included construction
of a new cheese production facility, corporate
restructuring of the Group and further expansion
of our distribution network.
The Group successfully achieved the challenging
targets set out by the Board and remains one of
the most profitable and dynamic food businesses
in Ukraine. Net sales increased by 54%,
to £27 million, accompanied by improved profit
margins. Excellent progress has been made in
our core business segments, adding a further
10% and 5% respectively to our already leading
positions in the Ukrainian processed cheese and
packaged butter markets.
STRATEGY
Our long-term ability to compete in the constantly
and evolving business environment will depend
crucially on developing the Group’s product
offering to customers. Having grown organically
to become the leader in our core business
segments, we now need to pick up the pace
of investment in order to remain competitive
in the future. 
On the production side, the Group continues to
develop its core capabilities and aims to expand
into another attractive area. The Group has for
some time been analysing potential investment
opportunities in the large, higher-margin and
fast-growing hard cheese sector. We intend to
secure a foothold in this area during 2006–2007. 
On the service side, the Group plans to capitalise
on its existing distribution network and to
develop further the logistics and supply chain
management services offered to third parties.
This business activity is becoming increasingly
important for companies operating in Ukraine,
where the supply chain development is in its
infancy; due to high domestic economic growth,
demand for these services is growing rapidly.
CORPORATE GOVERNANCE
The current Board was formed during the year
to address strategic issues and to provide overall
guidance for the management of the Group.
The Board is committed to ensuring best
practice in corporate governance, through the
monitoring and development of appropriate
internal controls. With regards to the Board
composition going forward, Paul Williams
decided not to offer himself for election as a
Director in order to be able to pursue other
business interests. I am grateful to Paul for 
his contribution to the success of the Group’s
flotation on AIM this year and, on behalf of the
Board, wish him every success in the future. 
2004 has been an eventful year for both
management and staff, and on behalf of the
Board I would like to express my appreciation
for their efforts, which are essential to the 
Group’s continuing success.
Dr Jack Rowell OBE
Non-executive Chairman
3 June 2005
02
OUR PROVEN BUSINESS MODEL, TOGETHER WITH THE
SUCCESS IN A DYNAMICALLY EVOLVING ENVIRONMENT,
SUPPORTS OUR CONFIDENCE THAT WE WILL BE ABLE
TO IMPROVE PERFORMANCE YET FURTHER, FOR THE
LONG-TERM BENEFIT OF SHAREHOLDERS.
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Annual Report and Financial Statements 2004 03
CHIEF EXECUTIVE’S STATEMENT
2004 was a breakthrough year for the Group.
Continuing modernisation of the plants,
expanded geographic coverage of sales, further
expansion of the Group’s market share and
further margin growth in the core segments
are all the welcome hallmarks of a dynamically
developing business.
The structuring of our activities prior to our
admission to AIM allowed your Board to improve
the Group’s business processes and to attain
significant gains in operating efficiency. In May,
the Group commenced the construction of
a new, state-of-the-art manufacturing facility
at Molochnik, the Group’s flagship plant for
processed cheese in Zhitomyr. The building
programme is expected to take a year, after
which production capacity will increase to
2,000 tonnes of processed cheese per month.
This will be the largest ever capacity increase
in the Group’s history – and it will strengthen
the Group’s position as the leading processed
cheese manufacturer in Ukraine. Additionally,
our rapid expansion necessitated the
establishment of Ukrproduct Logistics, the
Group’s division dedicated both to the logistical
support of other Group companies and to the
provision of transport and distribution services
to third parties. This service component of the
Group’s business is of growing importance and
we are keen to expand this area into a major
profit-generating centre.
OPERATING REVIEW
Throughout the period, Molochnik performed
well, producing 12,300 (FY2003: 6,700) tonnes
of processed cheese and 6,100 (FY2003:
4,450) tonnes of packaged butter. Our second
manufacturing facility at Starakonstantinov
produced 3,500 (FY2003: 2,990) tonnes
of skimmed milk powder and 3,100 (FY2003:
1,700) tonnes of packaged butter. Although
Ukrproduct’s market position strengthened in
all product segments, processed cheese sales
did exceptionally well, and we believe our
market share is now close to 33%.
In September 2004, a new regional distribution
centre in Kharkiv became operational – another
step in the development of our pan-Ukrainian
distribution network. This now comprises eight
regional depots and a central warehouse in
Zhitomyr. The rapid growth of the Group was
supported by further development of the existing
distribution network and the launch of direct
delivery and merchandising programmes in five
big cities, each with a population of over one
million – Dnepropetrovsk, Donetsk, Kyiv, Lviv
and Odessa.
The Group continued its successful practice
of the forward storage of raw milk derivatives,
thereby benefiting from the differentials in protein
content and prices, between summer and winter
seasons. This practice ensures stability of
supply of raw materials for the whole year. The
total amount used in forward storage was 1,700
tonnes in the year under review. In 2005, we
plan to increase this figure to 4,000 tonnes in
order to satisfy growing demand.
MARKET
The dairy-based foods market in Ukraine
continues to register accelerated growth,
supported by sustained growth of consumer
purchasing power, as well as by the increasing
sophistication of producers’ offerings. Even after
years of double-digit growth, per capita
consumption of dairy-based foods remains
relatively low in Ukraine in comparison with
other East European countries. This indicates
the potential of this market for the future.
Although the competition in our principal
segments is gradually increasing, the Group’s
business model provides a platform for the
maintenance of its leading position.
PROSPECTS
Development of new business opportunities
has been a key point of focus for the Board
and management team during the year.
The growth of the hard cheese market and
its relatively high level of fragmentation has
created an opportunity for the Group to enter this
segment, based on using our traditional strengths
in production, quality control, branding and
distribution. We are currently assessing options
for construction of a brand-new hard cheese
plant, to become operational in 2006/2007.
As part of the Group’s quality improvement
plans we are also planning to install a new
standardisation line for raw materials at
Molochnik in summer 2005.
THE YEAR MARKED A SUBSTANTIAL STEP FORWARD
IN ALL GROUP ACTIVITIES.
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Annual Report and Financial Statements 2004
CHIEF EXECUTIVE’S STATEMENT continued
Growing volumes of the distribution of both own
produce and third-party goods require that
Ukrproduct constantly upgrade its warehousing
facilities. The Group is now preparing a plan for
building a new hub warehouse near Zhitomyr
with a surface area of 20,000 square metres,
three-quarters of which will be temperature-
controlled. We plan to complete this project
in 2007.
Following the year end, the Company succeeded
in raising £6 million through a placing of its
shares on AIM in February 2005. We intend to
use these funds to augment our working capital,
to redeem our domestic high-coupon debt and
to facilitate the capital expenditure programme
which is essential for our expansion.
OUTLOOK
We have a clearly defined plan for further
development and growth, which is aimed at
maximising shareholder value.
We will continue to serve our customers by
focussing on quality, price and convenience.
Over the next few years we shall continue to
review the efficiency of our operations based on
scale, improved logistical and sales capabilities,
as well as via penetration of more profitable
business segments.
The year marked a substantial step forward in
all Group activities. This step would not have
been possible without the commitment and
dedication of each of our 1,200 employees.
I would like to thank them as a team and
each of them personally for their efforts and
contribution in sustaining Ukrproduct Group’s
leading position in our markets.
Sergey Evlanchik
Chief Executive Officer
3 June 2005
04
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Annual Report and Financial Statements 2004 05
FINANCIAL REVIEW
SALES 
Sales of £27.1 million for the period under
review comprised the following product
segments: 
Processed cheese £10.1 million
Packaged butter £9.5 million
Skimmed milk powder £5.4 million
Other products £1.9 million
Services £0.2 million
Sales grew by 54% over the previous year,
facilitated mainly by the Group’s expanding
distribution network and well thought-out
branding and promotional strategies. With regards
to the sales dynamic, in the year the Group
observed the continuing growth of the Ukrainian
economy supported by the ongoing structural
reforms, prudent monetary policies of the central
bank and the rising affluence of consumers.
GROSS PROFIT 
The Group’s gross profit of £4.4 million in 2004
has significantly increased in comparison with
the previous year, both as a result of sales
growth and the increase in scale of the Group’s
buying power with its suppliers of raw materials.
Gross profit margin has also improved
significantly, following the Group’s successful
implementation of the raw materials forward
storage programme for the 2004–2005 season.
EBITDA 
Profit before interest, tax, depreciation
and amortisation of £2.6 million was up 86%
over the prior year. The growth in EBITDA
was achieved through profitable expansion of
the Group’s sales, timely mitigation of the
seasonal (winter 2004) increase in prices of raw
materials, and careful control of general and
administrative expenses. 
PBT 
Profit before tax also increased markedly in
2004 albeit at a slower rate than the increase in
EBITDA. The main factor behind the slower rate
of increase was the higher depreciation charge in
2004 due to the Group’s ongoing modernisation
programme and revaluation of fixed assets.
Also, the Group incurred greater interest expense
which was necessary to support the continuing
growth of its borrowing requirement.
NET PROFIT 
Net profit was recorded at £1.4 million,
an increase of 27% over the previous year. There
were two reasons for the slower rate of growth
in the Group’s net profit compared to 2003.
Firstly, an exceptional item in the form of a
waiver of debt of the Group to a related party
in 2003 – treated as income according
to International Accounting Standards – created
a higher comparative base for net income
in 2003. Secondly, the Group’s effective tax rate
increased in 2004 as a result of corporate
restructuring and consolidation of the tax
base in preparation for admission to AIM.
EARNINGS PER SHARE
The Group’s earnings per share in FY2004
was 4.8 pence (2003: 3.7 pence). Earnings per
share has been calculated by dividing net profit
attributable to ordinary shareholders (profit
for the year) by the weighted average number
of shares that would have been in issue if the
Enlarged Group had been a legally defined Group
at 31 December and had applied the merger
method. In the Board’s view, such calculation 
is consistent with IAS/IFRS and provides
a suitable basis for comparisons going forward.
CASH FLOW 
Net cash flow from operating activities was
£0.9 million and the Group was cash positive
at £0.3 million as of 31 December 2004.
The Group’s total debt amounted to £2.2 million,
with an equity base of £5.0 million.
CAPITAL EXPENDITURE 
During the period under review the Group
purchased property, plant and equipment with
a value of nearly £1.6 million. This expenditure
mostly related to the construction of the new
processed cheese production facility, acquisition
of melting and packaging equipment and the
upgrade of the production and distribution facilities.
DIVIDENDS
The Directors are committed to a progressive
and balanced dividend policy that aims to reward
shareholders adequately whilst at the same time
maintaining the necessary cash position to
support the Group’s continuing growth. In order
to support the cash requirements of the Group,
the Directors recommend that no dividend be
paid for the year 2004. No dividends have been
paid out during the year under review.
INTERNATIONAL ACCOUNTING STANDARDS
AND INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IAS/IFRS) 
The Group’s financial statements for the last four
financial years, 2004 inclusive, have been
prepared in accordance with IAS/IFRS.
Dr Dmitry Dragun 
Chief Financial Officer 
3 June 2005
2004 WAS YET ANOTHER YEAR OF PROFITABLE GROWTH
FOR THE GROUP. ITS FINANCIAL POSITION WAS ENHANCED,
THE UNDERLYING BUSINESS CONTINUED TO DEVELOP
DYNAMICALLY IN ALL SEGMENTS OF OPERATIONS, AND
THE GROUP WAS CAREFUL IN CONTROLLING THE COSTS
OF EXPANSION.
Summary:
 Sales: £27.1 million (2003: £17.6 million) 
 Gross profit: £4.4 million (2003: £2.4 million)
 EBITDA: £2.6 million (2003: £1.4 million)
 PBT: £1.8 million (2003: £1.3 million)
 Net profit: £1.5 million (2003: £1.1 million)
 Gross margin: 16.3% (2003: 13.5%)  
 Earnings per share: 4.8 pence 
(2003: 3.7 pence) 
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Annual Report and Financial Statements 2004
BOARD OF DIRECTORS AND CORPORATE ADVISERS
06
Dr Jack Rowell OBE
Non-executive Chairman
Dr Jack Rowell OBE has served as a Board
member since November 2004. Dr Rowell has
acted as Chairman of a number of companies in
the public and private sectors and was previously
a Director on the Board of Dalgety plc with
responsibility for the Consumer Foods Division.
Prior to this Dr Rowell was CEO of Golden Wonder,
part of the Dalgety Group, and finance director and
then CEO of Lucas, (also part of the Dalgety
Group). In parallel to his business career he has
long been involved with rugby, being England
coach between 1994 and 1998.
Dr Dmitry Dragun
Finance Director 
Dr Dmitry Dragun is Finance Director of the Group.
Dmitry worked at National (Central) Bank of Belarus
in a variety of senior executive positions before
going to Oxford to study for an MBA in 1997.
Post-MBA, Dmitry has remained in the UK as the
senior research associate in finance at Templeton
College, Oxford University’s designated centre
of business studies and executive development.
Dmitry joined Ukrproduct Group in 2003 as its
financial and investment adviser, and was
appointed Finance Director of the Group in 2004.
Dmitry holds the Chartered Financial Analyst
(CFA
®
) certification.
Alexander Slipchuk
Executive Director 
Alexander Slipchuk studied at Far-Eastern High
Engineering Marine School in Russia and graduated
as a maritime navigator in 1989. Together with
Sergey Evlanchik, Alexander established the
securities house Alfa-Broker in 1994, developed
the equity trading business in the far east of the
Russian Federation, and acquired initial stakes in
the companies that later became part of Ukrproduct
Group. Alexander joined Ukrproduct in 1998, taking
an executive, hands-on operating position at the
Molochnik and the Starakonstantinovskiy dairy
plants, the Group’s main operating assets.
He serves as the Group’s Executive Director
responsible for strategic oversight of the Group’s
operations in Ukraine. 
From left to right: 
Dr Dmitry Dragun, Iryna Yevets, Alexander Slipchuk,
Sergey Evlanchik, Dr Jack Rowell OBE, 
David Lattimore and Paul Williams 
Sergey Evlanchik
Chief Executive Officer 
Sergey Evlanchik is a founder of Ukrproduct Group.
He studied at Vladivostok State University of
Economics & Service in the Russian Federation
and Oxford University in the UK, where he received
his MBA degree. Together with Alexander Slipchuk,
he established the equity trading company,
Alfa-Broker in 1994. After the recess of the Russian
and Ukrainian equity markets in 1998, Sergey
re-focused his activities on business development
in the industrial sector of Ukraine, the dairy
business in particular, joining the management
boards of the companies that later formed
Ukrproduct Group.
Iryna Yevets
Chief Operating Officer 
Iryna Yevets is responsible for the Group’s overall
performance and operational strategy in Ukraine.
Iryna is a qualified accountant who started her own
company, Audit Legal Services in Ukraine in 1994.
In 2001 she took up a position as chief accountant
at Latoritsa, a leading integrated food company
based in Western Ukraine. She then joined
Ukrproduct Group in 2002 as Finance Director,
becoming President of the Ukrainian operating
company in 2003 and Chief Operating Officer of
the Group in 2004. Iryna holds Honours in Economics
& Engineering from Lviv Engineering University.
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Annual Report and Financial Statements 2004 07
Paul Williams
Non-executive Director 
Educated at Shrewsbury School, Paul Williams
read modern languages and economics at Clare
College, Cambridge. He trained with his family firm
before joining Arthur Young McLelland Moores,
subsequently becoming joint founder partner of
his own accountancy practice, Pennington Williams,
which he ran for over 22 years. Until December 2004
he was finance director and company secretary
of Maelor plc, a North Wales based pharmaceutical
company. Paul is a member of the London Stock
Exchange’s AIM Advisory Group and the North
West Regional Advisory Group, and has been
a regular speaker on behalf of AIM at many UK
and international seminars. 
David Lattimore
Non-executive Director 
David Lattimore is a Chartered Director with over
thirty years’ experience in the UK dairy industry
primarily with Unigate plc and Dairy Crest plc.
He is currently a director of Forgefirst Ltd,
a management services company with clients
ranging from government bodies to farmers’
organisations and public limited companies.
Registered Office
26 New Street
St Helier
Jersey JE2 3RA
Registered Number
88352
Company secretary
Bedell Cristin Secretaries Limited
PO Box 75
26 New Street
St Helier
Jersey JE2 3RA
Nominated adviser and broker
W H Ireland Limited
11 St James’s Square
Manchester M2 6WH
Registered accountants and auditors
BDO Stoy Hayward
8 Baker Street
London W1U 3LL
Solicitors
Cobbetts
Ship Canal House
King Street
Manchester M2 4WB
Principal bankers
Deutsche Bank International Limited
PO Box 727
St. Paul’s Gate
New Street
St Helier
Jersey JE4 8ZB
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
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Annual Report and Financial Statements 2004
DIRECTORS’ REPORT
08
The Directors present their report and the audited financial statements of Ukrproduct Group Ltd for the year ended 31 December 2004.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The main activity of the Company (Ukrproduct Group Ltd) is that of a holding company. The main activities of Ukrproduct Group are the production and
distribution of branded dairy foods in Ukraine and the export of skimmed milk powder. The Group is one of the largest branded food producers in Ukraine
with its own nationwide distribution network. More detailed commentary on the Group’s activities during the year, its financial performance and future
plans and prospects are outlined in the Chairman’s and Chief Executive’s Statements and in the Financial Review. 
DIRECTORS
The names and brief biographical details of the current Directors are provided on pages 6 and 7. Details of the Directors’ remuneration are set out
in the Remuneration Committee Report. 
EMPLOYEES
The Group is committed to ensuring provision of equal opportunities for all employees, which is reflected by its selection, recruitment and training policies.
The Group considers its employees to be one of its most valuable assets and rewards high performance through competitive remuneration and incentive
schemes. The Directors also consider it a priority to give employees the opportunity to communicate their ideas and opinions to all levels of management,
both directly and through various surveys.
SUBSTANTIAL SHAREHOLDINGS
As at 15 April 2005, the Company has been notified of the following substantial interests in its issued ordinary share capital (the ten largest shareholders
are reported):
Shareholder Number of ordinary shares Holding %
Crensel Finance Limited 15,000,000 36.4
Densim Group Management SA 15,000,000 36.4
Fidelity European Smaller Companies Fund 3,300,000 8.0
East Capital Osteuropafond 900,000 2.2
Moore Global Fixed Income Fund 837,000 2.0
Lehman Brothers International (Europe) 800,000 1.9
Chase Nominees 727,500 1.8
East Capital Rysslandsfond 600,000 1.5
Goldman Sachs Securities 500,000 1.2
Moore Macro Fund LP Main Equities 418,000 1.0
PAYMENT POLICY
The Group has a general set of guidelines for paying its suppliers based on specific criteria. However, it is normal practice to agree payment terms with
a specific supplier when entering into a purchase contract. The Group seeks to abide by the payment terms agreed whenever it is satisfied that the goods
or services have been provided in accordance with the agreed terms and conditions.
AUDITORS
For the financial year under review, BDO Stoy Hayward and IGK Ukraine served as auditors to the Group.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors of Ukrproduct Group Ltd have accepted responsibility to prepare the combined financial information for the year ended 31 December 2004
on the basis set out in note 2 to the combined financial information. In preparing this combined financial information, the Directors have:
 selected suitable accounting policies and applied them consistently;
 made judgements and estimates that are reasonable and prudent;
 stated whether applicable accounting standards have been followed; and
 prepared the combined financial information on the going concern basis as they believe that the Group will continue in business.
The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the entity and to prevent and
detect fraud and other irregularities.
Approved by and signed by order of the Board
Authorised Signatory
Bedell Cristin Secretaries Limited
Secretary
3 June 2005
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Annual Report and Financial Statements 2004 09
CORPORATE GOVERNANCE REPORT
INTRODUCTION
The Group’s Board has considered the guidance published by the Institute of Chartered Accountants in England and Wales concerning the internal control
requirements of the Combined Code of Corporate Governance and has established an ongoing process for identifying, evaluating and managing the significant
risks faced by the Group.
In general terms, the Group’s corporate governance principles aim to secure adherence to prudent business practice, to prevent the executive excesses
harmful to enterprise and to align the managers’ interests with those of shareholders. Driving shareholder value is key and an underlying motive of
corporate governance. The Group is well aware of the heightened requirements for corporate transparency and the shareholder responsibility advocated
by the international business community and regulatory bodies in the UK, Ukraine, Jersey and internationally. Consequently, the Group has evolved its
composition along the lines of clearer responsibility for Directors and a more transparent holding structure for shareholders. As the Group grows, these
policies and procedures will be developed to reflect the requirements of the Combined Code appropriate to a company of the Group’s size.
THE BOARD
The Group Board consists of three Non-executive and four Executive Directors. The biographical details of the Directors are shown on pages 6 and 7. 
The roles of the Chairman of the Board and the Chief Executive of the Group are held separately with a clear division of responsibility between them. 
The Chairman of the Board is an Independent Non-executive Director. All Non-executive Directors are considered to be independent, under generally
available guidelines, and together bring a wide range of skills and international experience to bear on issues under consideration.
Within the scope of the corporate governance procedures, the Group Board meets regularly to consider the financial results, budgets, and major items
of capital expenditure of all companies of the Group. This body is also responsible for formulating, reviewing and approving the Group’s strategy and the
phases of its development.
The meetings of the Board of Directors take place in Ukraine or Jersey, or any other suitable jurisdiction as decided upon from time to time by the Board.
Teleconference discussions are also a possibility, when Directors are present in either (or both) Jersey or Ukraine.
The Board has established two committees: Audit and Remuneration.
AUDIT COMMITTEE
Chairman, Paul Williams
The Audit Committee consists of three Non-executive Directors. All members of the Audit Committee have relevant financial experience and some are
qualified chartered accountants. This Committee, inter alia, is responsible for reviewing the annual and interim financial statements, in addition to the
systems of internal control and risk management, and also for ensuring the integrity of the financial information reported to shareholders. The Audit
Committee is scheduled to meet at least three times per annum. 
REMUNERATION COMMITTEE
Chairman, David Lattimore
The Remuneration Committee comprises three Non-executive Directors. This Committee is scheduled to meet at least twice per annum to advise the
Board on the Group’s remuneration strategy and to determine the terms of employment and total remuneration of the Executive Directors and senior
employees, including the granting of share options. Among others, the objective of this Committee is to attract, retain and motivate Executives capable
of delivering the Group’s objectives. The Remuneration Committee is also responsible for the evaluation of the performance of Executive Directors. 
INVESTOR RELATIONS
The Group meets and encourages communication with its institutional and private shareholders, fund managers, financial analysts and brokers.
In communicating to the above-mentioned parties the Group uses various means such as the annual report, interim statements, annual general meetings
and the Company website (www.ukrproduct.com) as necessary.
The Group recognises that the increased transparency is an integral part of being a listed company. As such it has set up procedures to ensure that it
discloses price sensitive information to the market in a timely fashion, regularly consults with its nominated adviser and ensures timely publication of its
interim and annual financial statements within the deadlines imposed by the AIM Rules and the corresponding requirements of the jurisdictions in which
the Group is present or operates. 
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Annual Report and Financial Statements 2004
CORPORATE GOVERNANCE REPORT continued
FINANCIAL PROCEDURES AND INTERNAL CONTROL
The Group adheres to comprehensive and strictly regulated budgeting and reporting procedures that are aimed at more efficient internal control and risk
management. The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness, however, it is recognised that any
control system can only provide reasonable and not absolute assurance against material misstatement or loss.
The main constituents of the internal control system are:
 documented policies, procedures and authorisation levels;
 clearly defined lines of responsibility in the organisational structure of the Group;
 a management structure which facilitates ease of communication both vertically and horizontally;
 annual budgeting and monthly reporting procedures.
The annual budgets are updated each month once actual figures become available. Due to the dynamic development of the macroeconomic environment
of the country the Group operates in, variances in actual figures for sales, prices and other underlying assumptions from those forecast may occur. Hence,
the budget is flexed to better reflect the future of the Group. Such variances by each company within the Group are discovered and recommendations for
further actions are formulated.
The internal control system is further enforced by the Group’s internal audit department. The main objectives of the internal audit function are to ensure
the safety of the Company’s assets and the reliability of accounting records. The internal audit department is responsible for auditing the financial
statements and accounting procedures of the companies within the Group, as well as for disclosing and reducing various types of risks related to Group
operations. Each company within the Group has a designated auditor, who systematically performs the audits.
10
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Annual Report and Financial Statements 2004 11
CORPORATE SOCIAL RESPONSIBILITY REPORT
The Group is committed to the principles of corporate social responsibility (“CSR”) and believes that these are in the long-term interests of its shareholders.
Accordingly, the Board is committed to developing and implementing CSR policies which are aimed at:
 promoting equality and fairness among employees, partners and suppliers;
 ensuring safe and healthy working conditions;
 maintaining corporate reputation and dedication to business ethics;
 supporting the communities in which the Group operates; and
 establishing long-term and healthy relationships with the Group’s partners, customers and other affiliated parties.
The main elements of the Group’s approach towards fulfiling the objectives outlined above comprise the following:
EMPLOYEES
The Group is committed to ensuring equal opportunities to all its employees, both current and prospective. Each employee’s efforts are highly valued
and the Board believes that a diverse mix of the workforce facilitates innovation, efficiency and teamwork. As a matter of corporate policy, regular training
and development workshops are conducted for the staff. These are aimed at all employee groups, including management, technical as well as production
personnel. The training programmes encourage the staff to move up the career ladder and are central to the Group’s continuing growth and success.
HEALTH AND SAFETY
Management at business units within the Group are responsible for developing and maintaining the underlying practices that provide for a healthy and
safe working environment. Special attention is given to the production facilities, where the equipment, lighting, air conditioning, work space and other
constituents undergo constant review and optimisation. Regular monitoring is carried out to ensure that required standards are met and that employees
use the provided communication channels to further develop their surrounding working conditions.  
CUSTOMERS
Customer satisfaction is at the core of the Group’s business model. Accordingly, the Board is keen to continue supplying the customers with high quality,
affordable products as required by the current market demand. The Group’s segmentation practices are aimed at segregating various customer groups
in order to meet their needs with maximum efficiency. In addition, regular marketing surveys are conducted to ensure consistent maximum value
is offered to the customers.
ENVIRONMENT AND COMMUNITY
Even though the dairy-based food manufacturing industry generally has a low environmental impact, the Group recognises the importance of good
environmental practices and seeks to minimise a negative impact that its operations or products may have on the surrounding areas. The Group
complies with the environmental laws and regulations in Ukraine and strives to promote the effective resource management, energy conservation
and waste efficiency.
The Group is also anxious to develop and maintain partnership relationships with the communities it operates in, by means of supporting local initiatives
and charitable events. The Group participates in such initiatives by contributing cash donations and gifts, as well as employee time, by encouraging staff
to participate as volunteers. 
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Annual Report and Financial Statements 2004
REMUNERATION COMMITTEE REPORT
This report is prepared by the Remuneration Committee of the Board and sets out the Company’s policy on the remuneration of the Directors, with a description
of service agreements and remuneration packages for each Director.
THE REMUNERATION COMMITTEE (THE “COMMITTEE”)
The Committee comprises three Non-executive Directors and is chaired by David Lattimore. This Committee is scheduled to meet at least twice per
annum. The objective of the Committee is to advise the Board on the Group’s overall remuneration policy and to determine the terms of employment and
total remuneration of the Executive Directors and certain senior employees, including the granting of share options. The Remuneration Committee is also
responsible for the evaluation of the performance of Executive Directors.
REMUNERATION POLICY
The Company’s remuneration policy is to provide remuneration packages which:
 are designed to attract, motivate and retain high calibre Executives;
 are competitive and in line with comparable businesses;
 are based on practices exercised in countries where the Group operates;
 intend to align the interests of the Executives with those of the shareholders, by means of providing fixed and performance related remuneration; and
 set challenging performance targets and motivate Executives to achieve those targets both in the short and long-term.
BASE SALARY
The Committee reviews base salaries of the Executive Directors each year taking into account job responsibilities, competitive market rates and the
performance of the Executive concerned. Consideration is also given to the cost of living and the Director’s experience. While determining the base
salaries, the Committee also considers general aspects of the employment terms and conditions of employees elsewhere in the Group.
INCENTIVE BONUS PLANS AND EQUITY ARRANGEMENTS
Taking into account that the Remuneration Committee was formed late in the year under review, no bonus plans have been set during this period.
The Committee plans to consider developing long-term equity incentive arrangements to make the overall Executive Remuneration structure more
performance-related, more competitive and aligned with shareholders’ interests.
SERVICE CONTRACTS
All Executive Directors were appointed on 1 November 2004. These appointments are valid for an indefinite period and may be terminated with three
months notice given by either party at any time starting from 11 August 2005. The Company’s provision for compensation for loss of office is to provide
compensation which reflects the Company’s contractual obligations.
NON-EXECUTIVE DIRECTORS
All Non-executive Directors were appointed on 1 November 2004. These appointments are valid for an indefinite period and may be terminated with
three months notice given by either party at any time starting from 11 August 2005. The decision to re-appoint, as well as the determination of the fees
of the Non-executive Directors, rests with the Board. The Non-executive Directors may accept appointments with other companies, although any such
appointment is subject to the Board’s approval and terms and conditions of Service Agreements.
DIRECTORS’ REMUNERATION
Details of the Directors’ remuneration are outlined below:
Total salary
Benefits and benefits
Annual Salary/fees in kind in kind
salary/fee 2004 2004 2004
£££ £
Executive
Sergey Evlanchik 50,000 8,333 — 8,333
Alexander Slipchuk 45,000 7,500 — 7,500
Iryna Yevets 40,000 6,667 — 6,667
Dr Dmitry Dragun 35,000 5,833 — 5,833
Non-executive
Dr Jack Rowell 30,000 5,000 — 5,000
Paul Williams 25,000 4,167 249 4,416
David Lattimore 25,000 4,167 249 4,416
12
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Annual Report and Financial Statements 2004 13
INDEPENDENT AUDITORS’ REPORT
To the members of Ukrproduct Group Ltd
We have audited the accompanying combined special purpose financial information, which has been prepared for the reasons and on the basis set out
in note 2. The combined special purpose financial information (“combined financial information” hereafter) on pages 14 to 34 has been prepared by combining,
on the basis more fully explained in note 2, the accounts of the companies under common control (hereafter collectively referred to as the “Enlarged Group”),
which were the subject of an acquisition on 11 February 2005 following the Company’s listing on the Alternative Investment Market of the London Stock
Exchange. As explained in note 2 of the combined financial information, these are not the statutory accounts of the Enlarged Group and have been
prepared solely for the purpose of presenting the combined financial information relating to the Enlarged Group.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 8, the Directors of the Company have accepted responsibility for the preparation of this combined financial information in accordance
with the basis of preparation set out in note 2 of the combined financial information. Our responsibilities, as independent auditors, are established in the
United Kingdom by the Auditing Practices Board, by our profession’s ethical guidance and by the terms of our engagement letter dated 30 March 2005.
Under the terms of our engagement we are required to report to you our opinion as to whether the combined financial information has been properly
prepared in accordance with the basis of preparation set out in note 2 of the combined financial information. We will also report to you, if in our opinion,
we have not received all the information and explanations we require for our audit.
Our report has been prepared solely in connection with the combination of the new Enlarged Group. It has been released to the Company on the basis
that our report shall not be copied, referred to or disclosed, in whole (save for the Company’s own internal purposes) or in part, without our prior
written consent.
Our report was designed to meet the agreed requirements of the Company determined by the Company’s needs at the time. Our report should not
therefore be regarded as suitable to be used and relied on by any party other than the Company for any purpose or in any context. Any party other
than the Company who obtains access to our report and chooses to rely on our report (or any part of it) will do so at their own risk. To the fullest
extent permitted by law, BDO Stoy Hayward LLP will accept no responsibility or liability in respect of our report to any other person or organisation.
BASIS OF AUDIT OPINION
We conducted our audit having regard to Auditing Standards issued by the UK Auditing Practices Board. An audit includes an examination, on a test
basis, of evidence relevant to the amounts and disclosures in the combined financial information. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of the combined financial information, and whether the accounting policies are
appropriate to the Enlarged Group’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all of the information and explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the combined financial information are free from material misstatement, whether caused by fraud
or other irregularity or error. In forming our opinion, we have also evaluated the overall adequacy of the presentation of the information in the combined
financial information.
OPINION
In our opinion, the combined financial information for the year ended 31 December 2004 have been properly prepared in accordance with the basis
of preparation set out in note 2.
BDO Stoy Hayward LLP
Chartered Accountants
London
3 June 2005
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Annual Report and Financial Statements 2004
STATEMENT OF INCOME
Year ended Year ended
31 December 31 December
2003 2004
Notes £ 000 £ 000
Revenues 4 17,597 27,115
Costs of sales (15,222) (22,698)
Gross profit 2,375 4,417
Other operating income — 63
General and administrative expenses (690) (1,045)
Selling and distribution expenses (399) (1,070)
Other expenses (180) (296)
Income from waiver of debt 25 250 —
Profit before interest and taxation 5 1,356 2,069
Finance costs – interest payable and similar charges (94) (312)
Profit before taxation 1,262 1,757
Income tax expense 8 (146) (301)
Profit after taxation 1,116 1,456
Attributable to:
Owners 1,111 1,436
Minority interest 5 20
1,116 1,456
Basic earnings per share (pence) 8 3.7 4.8
Diluted earnings per share (pence) 8 3.7 4.8
The notes on pages 18 to 34 form part of this combined financial information.
14
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Annual Report and Financial Statements 2004 15
BALANCE SHEET
As at As at
31 December 31 December
2003 2004
Notes £ 000 £ 000
Non-current assets
Property, plant and equipment 9 1,017 5,023
Intangible assets 10 — 3
Investments 11 89 83
Deferred tax 7— 36
Total non-current assets 1,106 5,145
Current assets
Inventories 13 1,607 2,328
Loans issued 14 15 212
Receivables and prepayments 15 2,143 2,029
Cash and cash at bank 12 132 300
Total current assets 3,897 4,869
Current liabilities
Bank loans and overdrafts 16 (1,008) (1,077)
Trade and other payables 17 (1,938) (1,671)
Promissory notes 18 (3) —
Current income tax liabilities (119) (253)
(3,068) (3,001)
Net current assets 829 1,868
Total assets less current liabilities 1,935 7,013
Non-current liabilities
Long-term loans 19 — (221)
Bonds 19 (302) (933)
Promissory note 18 (22) (5)
Deferred income tax liabilities 7— (703)
Net assets 1,611 5,151
Capital and reserves attributable to equity holders
Invested capital 20 3,000 3,000
Merger reserve 22 (1,866) (1,866)
Revaluation reserve 9— 2,020
Retained earnings 409 1,865
1,543 5,019
Minority interest 22 68 132
Total shareholders’ equity 1,611 5,151
The notes on pages 18 to 34 form part of this combined financial information.
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Annual Report and Financial Statements 2004
CASH FLOW STATEMENT
Year ended Year ended
31 December 31 December
2003 2004
Notes £ 000 £ 000
Cash flow from operating activities
Net profit before taxation 1,262 1,757
Adjustments for:
Depreciation 62 520
Interest expense 94 305
Income from waiver of debt (250) —
1,168 2,582
Increase in inventories (1,039) (872)
(Increase)/decrease in trade and other receivables (1,070) (71)
(Increase)/decrease in trade and other payables 839 (349)
Cash (used by)/generated from operations (102) 1,290
Interest paid (94) (305)
Income tax paid/(refunded) (32) (66)
Net cash (used in)/generated by operating activities (228) 919
Cash flows from investing activities
Purchase of property, plant and equipment (733) (1,566)
Purchase of investments — 1
Proceeds from sale of property, plant and equipment 31 3
Proceeds from sale of investment — (7)
Loans (advanced)/repaid 104 (207)
Net cash used in investing activities (598) (1,776)
Cash flows from financing activities
Net proceeds from long-term borrowing 23 — 232
Proceeds from issue of bonds 23 303 680
Proceeds from issue of shares/additional capital 1,075 —
Distribution of profit (914) —
Net proceeds from issue of promissory notes 23 (70) (20)
Net proceeds from short-term borrowing 23 602 147
Net cash generated by/(used in) financing activities 996 1,039
Effect of exchange rate changes and restatements on cash and cash equivalents (86) (14)
Net increase/(decrease) in cash and cash equivalents 84 168
Cash and cash equivalents at the beginning of the year 48 132
Cash and cash equivalents at the end of the period 12 132 300
The notes on pages 18 to 34 form part of this combined financial information.
16
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Annual Report and Financial Statements 2004 17
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Share Merger Revaluation Retained Shareholders’ Minority Total 
capital reserve reserve earnings equity interest equity 
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance at 1 January 2003 309 — — 256 565 118 683
Issue of shares 845——— 845 — 845
Purchase of treasury shares (20) — — — (20) — (20)
Net profit for the year — — — 1,111 1,111 5 1,116
Reduction in minority interest 
on issue of new shares — — — 42 42 (42) —
Issue of share capital in the Company 
(note 20) 3,000 (3,000) —————
Elimination of share capital in subsidiaries (1,134) 1,134—————
Distribution of profit — — — (913) (913) — (913)
Exchange differences on translation 
to the presentation currency (note 3c) — — — (87) (87) (13) (100)
Balance at 1 January 2004 3,000 (1,866) — 409 1,543 68 1,611
Gain on revaluation of fixed assets — — 3,073 — 3,073 75 3,148
Deferred income tax on gain on revaluation — — (674) — (674) (17) (690)
Issue of shares 15——— 15 — 15
Issued on acquisition of Operating Group 15,273——— 15,273 — 15,273
Merger reserve arising on an acquisition 
of Operating Group — (15,288) — — (15,288) — (15,288)
Net profit for the period — — — 1,436 1,436 20 1,456
Depreciation on revaluation of fixed assets — — (154) 158 4 (4) —
Elimination of shares issued and merger 
reserve on acquisition of Operating Group (15,288) 15,288—————
Exchange differences on translation 
to the presentation currency (note 3c) — — (225) (138) (363) (11) (374)
Balance at 31 December 2004 3,000 (1,866) 2,020 1,865 5,019 132 5,151
The notes on pages 18 to 34 form part of this combined financial information.
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS
1. GROUP AND PRINCIPAL ACTIVITIES
For the purposes of this financial information the terms “Operating Group” and “Enlarged Group” have been taken to indicate the companies listed
in note 2(b). All of these companies have effectively operated as a group under common management and control for a number of years although
they did not comprise a statutory group as they had not been linked by a common parent. Following the establishment of a new holding company
Ukrproduct Group Ltd (the “Company”) on 18 May 2004, the companies comprising the Operating Group were brought together on 11 February 2005
following the Company’s listing on the Alternative Investment Market of the London Stock Exchange to create a formal group under the ultimate control
of this new holding company. 
The Enlarged Group’s main activity is to produce and supply dairy products (butter and cheese) to wholesale and retail outlets in Ukraine. It also produces
and exports skimmed milk powder to the markets of Denmark, Russia, Bulgaria, Holland and other countries. The Group is not involved in the retailing of
its products.
The Operating Group’s production facilities and management are based in Ukraine. The head office is located in Kyiv. The Enlarged Group has its own
distribution network in Ukraine. The average number of employees of the Enlarged Group during the year ended 31 December 2004 was 1,194 people
(2003: 783 people).
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the combined financial information are set out below:
a) Basis of preparation
This financial information is based on the audited non statutory special purpose combined financial information of the Enlarged Group which has been
prepared by combining the historical financial information for each of the companies that comprise the Enlarged Group from the accounting records
of those companies. The financial information has been prepared in accordance with International Financial Reporting Standards (“IFRS”), including
International Accounting Standards (“IAS”) and Interpretations issued by the International Accounting Standards Board.
The majority of companies making up the Enlarged Group maintain their accounting records in accordance with the Ukrainian regulations. The financial
information has been prepared from those accounting records and adjusted as we consider necessary in order to comply with IFRS. Accounting records
of the Enlarged Group are maintained in Ukrainian Hryvnas (“UAH” or “Hryvna” hence), the national currency of Ukraine. The Hryvna has also been
adopted as the measurement currency for the purpose of the special purpose combined financial information (see note 2(c)).
The financial information has been translated into British Pounds Sterling at the rates given in note 2(p).
The combined financial information has been prepared under the historical cost convention, as modified by the revaluation of property, plant and
equipment at fair value in the year ended 31 December 2004.
The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Enlarged Group’s accounting policies.
Early adoption of standards
In 2003, the Enlarged Group adopted early the IFRS below, which are relevant to its operations. The financial information has been amended as required,
in accordance with the relevant requirements.
IAS 1 (revised 2003) Presentation of Financial Statements
IAS 2 (revised 2003) Inventories
IAS 8 (revised 2003) Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10 (revised 2003) Events after the Balance Sheet Date
IAS 16 (revised 2003) Property, Plant and Equipment
IAS 17 (revised 2003) Leases
IAS 21 (revised 2003) The Effects of Changes in Foreign Exchange Rates
IAS 24 (revised 2003) Related Party Disclosures
IAS 27 (revised 2003) Consolidated and Separate Financial Statements
IAS 28 (revised 2003) Investments in Associates
IAS 32 (revised 2003) Financial Instruments: Disclosure and Presentation
IAS 33 (revised 2003) Earnings per Share
IAS 39 (revised 2004) Financial Instruments: Recognition and Measurement
IFRS 3 (issued 2004) Business Combinations
IAS 36 (revised 2004) Impairment of Assets
IAS 38 (revised 2004) Intangible Assets
18
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Annual Report and Financial Statements 2004 19
2. SIGNIFICANT ACCOUNTING POLICIES continued
a) Basis of preparation continued
Early adoption of standards continued
The early adoption of IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 32 and 33 (all revised 2003) did not result in substantial changes to the Enlarged Group’s
accounting policies. In summary:
 IAS 1 (revised 2003) has affected the presentation of minority interest and other disclosures;
 IAS 2, 8, 10, 16, 17, 27, 28, 32 and 33 had no material effect on the Enlarged Group’s policies;
 IAS 21 (revised 2003) had no material effect on the Enlarged Group’s policy. The functional currency of each of the consolidated entities has been
re-evaluated based on the guidance to the revised standard. The majority of the Enlarged Group entities have the same functional currency as their
measurement currency; and
 IAS 24 (revised 2003) has affected the identification of related parties and some other related party disclosures.
The early adoption of IAS 39 (revised 2004) has resulted in a change to the accounting policy relating to the classification of financial assets at fair value
through profit or loss. The Enlarged Group has applied the exemptions afforded by IFRS 1 from the requirement to re-state comparative information for 2001
and 2002 for IAS 39 and IAS 32, and has applied previously applicable generally accepted accounting principles to those years.
The early adoption of IFRS 3, IAS 36 (revised 2004) and IAS 38 (revised 2004) resulted in a change in the accounting policy for goodwill. However, there
has been no goodwill arising as subsidiaries accounted for as acquisitions were so acquired on incorporation.
In accordance with the provisions of IFRS 3:
 the Enlarged Group ceased amortisation of goodwill from 1 January 2003; and
 from the year ended 31 December 2003 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment.
The Enlarged Group has reassessed the useful lives of its intangible assets in accordance with the provisions of IAS 38. No adjustments resulted from
this reassessment.
All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. All standards adopted
by the Enlarged Group require retrospective application other than:
 IAS 16 – the exchange of property, plant and equipment is accounted at fair value prospectively; 
 IAS 21 – prospective accounting for goodwill and fair value adjustments as part of foreign operations; 
 IFRS 3 – prospectively after 31 March 2004; 
 IAS 39 requires simultaneous adoption with IAS 32; and
 IFRS 3 requires simultaneous adoption with IAS 36 and IAS 38.
b) Principles of combination and consolidation
The combined financial information includes the results of the companies set out in the table on page 20. As described in note 1 the Enlarged Group is
comprised of a number of companies under common management and ultimate ownership but was not linked by a formal ownership structure or a single
common parent until 11 February 2005. The Operating Group, which sits within the Enlarged Group, was not linked by a formal ownership structure or a
single common parent until 18 May 2004. The special purpose combined financial information has been prepared in order to present the combined results
and balances that would have been shown had the Enlarged Group been under the control of a single common parent.
Where Group companies are formally owned by another Group company, they have been consolidated to the highest possible level using the acquisition
method, in which share capital of the entity is eliminated against the investment recorded in the parent. As such, the Enlarged Group companies have
been treated as if they had been owned from the date of their formation and consideration issued for the investment equalled share capital, goodwill does
not arise on acquisition other than incidentally. 
The combination of companies under common ownership but not linked by a formal ownership structure has been based on the pooling of interests
(“merger method”). In applying this method, financial statement items for each Group company are combined as if they had been combined from the
earliest period, the result being a combination of all Group companies’ assets, liabilities and reserves. All intra-Enlarged Group transactions and balances
are eliminated on combination. Business combinations of entities under common control are outside the scope of IFRS 3 and so the early adoption of that
standard does not affect this treatment.
Following the formal acquisition of the Enlarged Group companies in May 2004, a combined balance sheet has been prepared as at 31 December 2004.
The business combination comprising a number of businesses under common control is outside the scope of IFRS 3 and the balance sheet has been
prepared using the pooling of interests method.
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS continued
2. SIGNIFICANT ACCOUNTING POLICIES continued
b) Principles of combination and consolidation continued
The results and balances of the following organisations have been combined:
Country of Deemed Group
Method of combination
incorporation holding 2004 2003
Operating Group 
Molochnik OJSC Ukraine 95.2% Acquisition method Merger method
Ukrprodexpo SC Ukraine 100% Acquisition method Merger method
Starokonstantinovskiy Molochniy Zavod SC Ukraine 100% Acquisition method Acquisition method
Agrospetsresursy LLC Ukraine 100% Acquisition method Merger method
Togoviy Dim Maslayana SC* Ukraine 100% Acquisition method Acquisition method
Togoviy Dim Milko SC* Ukraine 100% Acquisition method Acquisition method
Agrospetsresursy Dnipro SC* Ukraine 100% Acquisition method Acquisition method
Agrospetsresursy Lviv SC* Ukraine 100% Acquisition method Acquisition method
Starkon-Moloko LLC Ukraine 100% Acquisition method Merger method
Dairy Trading Corporation USA 100% Merger method Merger method
Alfa-Broker Ltd UK 100% Merger method Merger method
Intermilk SC Ukraine 100% Acquisition method Merger method
Ukrevroprodukt SC* Ukraine 100% Acquisition method Merger method
Agrospetsresursy Zhytomyr SC* Ukraine 100% Acquisition method n/a
Ukrproduct-Kharkov SC* Ukraine 100% Acquisition method n/a
Nash Molochnik Private Enterprise SC* Ukraine 100% Acquisition method n/a
Ukrproduct-Logistics Private Enterprise Ukraine 100% Acquisition method n/a
Ukrproduct CJSC Ukraine 100% Merger method n/a
Enlarged Group
All entities within the Operating Group above plus:
LinkStar Limited Cyprus 100% Acquisition method n/a
Dairy Trading Corporation BVI 100% Merger method Merger method
Ukrproduct Group plc UK 100% Acquisition method n/a
* Subsidiaries of Agrospetsresursy LLC, the Operating Group’s specialised distribution companies.
Intermilk SC, Alfa-Broker Ltd and Dairy Trading Corporation (USA) are in the process of solvent liquidation.
Between 30 June 2004 and 11 February 2005 Alfa-Broker Ltd transferred its principal business and assets to LinkStar Limited, a company registered
in Cyprus. Subsequently, Alfa-Broker Ltd is not to be included as part of the Group going forward. It has therefore been necessary to include the results
of Alfa-broker Limited in the combined financial information in order to provide the combined results for the full period under review. LinkStar Limited
was acquired by the Company on 11 February 2005 following the Company’s listing on the Alternative Investment Market of the London Stock Exchange.
c) Translation from measurement to presentation currency and adoption of SIC 30
Management has considered what would be the most appropriate measurement and presentation currencies for this financial information. As a result
of this review management has concluded that:
(i) Hryvna is the currency of the primary economic environment in which the Enlarged Group operates. Consequently, Hryvna is the most appropriate
measurement currency for the Group; and
(ii) the Enlarged Group should use British Pounds Sterling as the presentation currency for its IFRS financial statements.
Thus management has decided to use the following basis for the translation of Hryvna figures to British Pounds for presentation purposes:
(i) for current year figures all assets and liabilities are translated at the closing rate existing at the balance sheet date. Income and expense items are
translated at an average rate for the period. Equity items other than the net profit or loss for the period that is included in the balance of accumulated
profit or loss are translated at the closing rate existing at the balance sheet date;
(ii) for comparative figures all assets and liabilities are translated at the closing rate existing at the relevant balance sheet date. Income and expense
items are translated at an average rate for the period. Equity items other than the net profit or loss for the period that is included in the balance
of accumulated profit or loss are translated at the closing rate existing at the previous balance sheet date; and
(iii) all exchange differences resulting from the application of the translation methods described above are recognised directly in equity.
Actual exchange rates applied in the translation are detailed in note 2(p) on page 22.
20
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Annual Report and Financial Statements 2004 21
2. SIGNIFICANT ACCOUNTING POLICIES continued
(d) Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment
that are subject to risks and returns that are different from those of segments operating in other economic environments.
(e) Property, plant and equipment
Figures calculated using the Ukrainian statutory accounting rules, have been adopted as deemed depreciated historical cost for property, plant and
equipment as at 1 January 2004. Subsequent additions have been recorded at cost.
With effect from 1 January 2004, the Enlarged Group adopted the revaluation model (as defined in IAS 16: Property, Plant and Equipment) for all classes
of assets. This change of accounting policy was made on the grounds that management believe that this policy provides more reliable and relevant
financial information because it better reflects the value in use of such assets to the Enlarged Group. In accordance with the provisions of that standard,
the revaluation model has not been applied retrospectively.
All classes of assets as at 1 January 2004 were revalued as at that date by an independent valuer BGS Asset on a depreciated replacement cost basis.
Management believes that the carrying value of all additions since 1 January 2004 is not materially different to fair value.
Depreciation is applied to all items of property, plant and equipment with the exception of land. Depreciation is calculated on the reducing balance method
using the following annual rates:
Buildings 5%
Plant and machinery 15%
Equipment and motor vehicles 25%
Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in operating profit.
(f) Assets under construction
Assets under construction are reported at their cost of construction including costs charged by third parties and the capitalisation of the Enlarged Group’s
directly attributable costs. No depreciation is charged on assets during construction. Upon completion, all accumulated costs of the asset are transferred
to the relevant fixed asset category and subsequently subjected to the applicable depreciation rates from the time the asset is completed and ready for use.
(g) Intangible assets – computer software
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specialised software. These costs
are amortised over their estimated useful lives (three years).
(h) Investments
The Enlarged Group has investments in the equity of Ukrainian companies including investments representing more than 50% of the share capital of
the investee company. Other than as referred to under (b) on page 20, where such companies are not expected to become subsidiaries of the proposed
holding company, they have been excluded from the combination and are treated as investments.
Investments are carried at cost, which management believe is not significantly different from fair value. 
(i) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. The cost of finished goods
and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity)
but excludes borrowing costs. 
(j) Trade receivables
Trade receivables are carried at the original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade
receivables is established when there is objective evidence that the Enlarged Group will not be able to collect all amounts due according to the original
terms of receivables.
(k) Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents comprise cash in hand, deposits held at call with banks
and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are included within borrowings in current
liabilities on the balance sheet.
(l) Provisions
Provisions for environment restoration, restructuring costs and legal claims are recognised when: the Enlarged Group has a present legal or constructive
obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amounts have
been reliably estimated. Restructuring provisions are not recognised for the future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of
obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligation
may be small.
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS continued
2. SIGNIFICANT ACCOUNTING POLICIES continued
(m) Revenue recognition
Revenue recognition for the fair value for the sale of goods and services, net of value added tax, rebates and discounts and after eliminated intra-group
sales with the Enlarged Group, is as follows:
(i) Sales of goods – own production. Sales of goods are recognised when an Enlarged Group entity has delivered products to the customer, the customer
has accepted the products and collectability of the related receivables is reasonably assured. 
(ii) Sales of goods – third parties. Sales of goods are recognised when an Enlarged Group entity has delivered products to the customer, the customer
has accepted the products, and collectability of the related receivables is reasonably assured. 
(iii) Sales of services. Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion
of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. 
(iv) Interest income. Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired,
the Enlarged Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective
interest-rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either
as cash collected or on a cost-recovery basis as conditions warrant.
(n) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made
under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight line basis over the period
of the lease.
(o) Income taxes
Taxation has been provided for in the financial information in accordance with relevant legislation currently in force. The charge for taxation in the
statement of income for the year comprises current tax and changes in deferred tax. Current tax is calculated on the basis of the taxable profit for the
year, using the tax rates in force at the balance sheet date. Taxes, other than on income, are recorded within operating expenses.
Deferred income tax is provided, using the balance sheet liability method, for all temporary differences arising between the tax basis of assets and
liabilities and their carrying values for financial reporting purposes except for those differences permanently disallowed. A deferred tax asset is recorded
only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Deferred tax
assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax
rates that have been enacted or substantively enacted at the balance sheet date.
(p) Foreign currency translation
Transactions denominated in currencies other than Hryvna (“foreign currencies”) are recorded in Hryvna at the exchange rate ruling on the transaction
date. Exchange differences resulting from the settlement of transactions denominated in foreign currency are included in the statement of income using
the exchange rate ruling on that date.
Monetary assets and liabilities denominated in foreign currency are translated into Hryvna at the official exchange rate at the balance sheet date. Foreign
currency gains and losses arising from the translation of assets and liabilities are reflected in the statement of income as foreign exchange translation
gains less losses. 
Income and expense figures have been converted to British Pounds for presentation purposes at an average rate of £1 = UAH 9.74 for the year ended
31 December 2004 and £1 = UAH 8.76 for the year ended 31 December 2003. Assets, liabilities and equity items have been converted to pounds for
presentation purposes at a closing rate of £1 = UAH 10.18 for the year ended 31 December 2004 and £1 = UAH 9.47 for the year ended 31 December
2003. Exchange differences resulting from conversion to presentational currency are included in retained earnings.
(q) Pension costs
The Enlarged Group contributed to the Ukrainian state pension scheme, social insurance and employment funds in respect of its employees. The Enlarged
Group’s pension scheme contributions are expensed as incurred. The contributions are included in staff costs. The Enlarged Group has no other liabilities
in respect of pensions or employee retirement benefits.
(r) Financial instruments
The carrying amounts of the Enlarged Group’s financial assets and liabilities (comprising investments, bank and cash balances, trade and other debtors,
trade and other creditors and short and long-term borrowings) approximate to their fair values at the date of the transaction. Where the fair value
of a financial asset is materially below the carrying amount, the carrying amount is written down to fair value.
(s) Borrowing costs
Borrowing costs are recognised as an expense in the period in which they are incurred.
(t) Reclassification of 2003 comparative information
An amount of £1,866,000 has been reclassified between share capital and merger reserve in the comparative figures. This ensures that the basis
of preparation is consistent with the 2004 combined financial information, with Ukrproduct Group Ltd being the holding company of the Enlarged Group
as opposed to the summation of the share capital of the Group’s subsidiaries which was originally reported upon. The net assets and shareholders’ funds
of the Enlarged Group are not affected by this reclassification. 
22
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Annual Report and Financial Statements 2004 23
3. FINANCIAL RISK FACTORS
The Enlarged Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk
and cash flow interest-rate risk. The Enlarged Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks
to minimise potential adverse effects on the Enlarged Group’s financial performance.
Risk management is carried out by the Enlarged Group Treasurer under policies approved by the Board of Directors. The Enlarged Group Treasurer
identifies and evaluates financial risks in close co-operation with the Enlarged Group’s operating units. The management Board provides broad guidance
and operating principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest-rate risk,
credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity.
Foreign exchange risk
Although the Enlarged Group is an international operator, management believes that the foreign exchange risk is minimal at present and is likely to
remain so in the future. The Enlarged Group’s international operations consist primarily of the export of skimmed milk powder to the various markets
around the world. The primary currency for export sales is the US Dollar. As at 31 December 2004 the principal rate of exchange used for translating
foreign currency balances was US$1 = UAH 5.31. As at 31 December 2003 the principal rate of exchange used for translating foreign currency balances
was US$1 = UAH 5.48.
The Enlarged Group’s established corporate policy towards hedging the potential foreign exchange risk is to require customers to pay for the export
shipments of the skimmed milk powder in full and in advance (from one to two months). The Group’s export operations have never employed any other
payment methods as a matter of corporate principle, and this is expected to continue in the future. Similarly, the Enlarged Group has never been engaged
in forward transactions and does not expect to conduct these transactions in the future. The Directors believe that these policies effectively eliminate the
foreign exchange risk. The Enlarged Group’s export-related obligations in Ukraine, such as payments for raw milk and packaging materials, are all entirely
Hryvna-denominated. The UAH/US Dollar exchange rate has been reasonably stable in recent years, and the Directors have no reason to believe that this
is likely to change in the future.
Price risk
The Enlarged Group is exposed to commodity price risk for skimmed milk powder. The price for this product is predominately determined by the world
market and the activities of large international trading companies in this market. There is always a risk that the prevailing world marketing price may be
insufficient to cover the production costs for skimmed milk powder. Against such a risk, the Group recognises that there is no effective financial hedge,
thus the major instrument employed in the management of the price risk is the tight control of the operating costs.
Credit risk
The Enlarged Group has no significant concentrations of credit risk. It has policies in place to ensure that wholesale sales of products both in Ukraine
and abroad are made to customers with an appropriate credit history.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit
facilities. Due to the dynamic nature of the underlying businesses, the Enlarged Group’s Treasurer aims to maintain flexibility in funding by keeping
committed credit lines available.
Cash flow and fair value interest-rate risk
As the Enlarged Group has no significant interest-bearing assets, the Enlarged Group’s income and operating cash flows are substantially independent
of changes in market interest-rates.
The Enlarged Group’s interest-rate risk arises from medium to long-term borrowings. Potentially, borrowings issued at variable rates expose the Enlarged
Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Enlarged Group to fair value interest-rate risk. Enlarged Group policy
is to maintain at least 80% of its borrowings in fixed rate instruments. At 31 December 2004, almost all of borrowings were at fixed rates.
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS continued
4. SEGMENTAL ANALYSIS 
The shareholders of the Enlarged Group put a particular emphasis on enhancing the vertical integration of the Enlarged Group. This emphasis necessitated
separation of the product lines into distinguishable and analysable segments, in order to be able to identify the individual profitability of each segment.
Therefore, from 2003, the Enlarged Group has gradually transformed its management reporting and control systems to reflect the segmental information
to the extent required by its operating activities and the requirements of IFRS. Ukrainian Accounting Standards do not require the production of the
segmental information to the same level as that required by IFRS.
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Sales to external customers
Butter 7,743 9,512
Cheese 5,807 10,064
Skimmed milk powder 3,167 5,453
Total dairy 16,717 25,029
Services 64 188
Other 816 1,898
17,597 27,115
Profit before depreciation, interest and taxation
Butter 501 840
Cheese 933 2,187
Skimmed milk powder 466 565
Total dairy 1,900 3,592
Services — 16
Other (7) 27
1,893 3,635
Unallocated corporate expenses (725) (1,042)
Unallocated income from waiver of debt 250 —
1,418 2,594
Depreciation
Butter 22 159
Cheese 31 286
Skimmed milk 9 46
Total dairy 62 491
Services — 4
Other — 25
62 520
Profit before interest and taxation
Butter 479 683
Cheese 902 1,904
Skimmed milk 457 519
Total dairy 1,838 3,106
Services — 11
Other (7) 2
1,831 3,119
Unallocated corporate expenses (725) (1,049)
Unallocated income from waiver of debt 250 —
1,356 2,070
24
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Annual Report and Financial Statements 2004 25
4. SEGMENTAL ANALYSIS continued
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Other information – Segment Assets
Butter 1,225 2,529
Cheese 1,996 4,603
Skimmed milk powder 170 989
Total dairy 3,391 8,121
Services — 50
Other 401 1,145
3,792 9,316
Unallocated corporate assets 1,211 662
Unallocated deferred tax — 36
Consolidated total assets 5,003 10,014
Other information – Segment Liabilities 
Butter 931 380
Cheese 571 1,423
Skimmed milk powder 452 243
Total dairy 1,954 2,046
Services — 22
Other 51 177
2,005 2,245
Unallocated corporate liabilities 1,387 1,915
Unallocated deferred tax — 703
Consolidated total liabilities 3,392 4,863
Capital expenditure
Butter 184 301
Cheese 520 1,198
Skimmed milk 60 82
Total dairy 764 1,581
Services — 2
Other 3 36
767 1,619
Unallocated capital expenditure — 19
767 1,638
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS continued
4. SEGMENTAL ANALYSIS continued
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Sales by market
Ukraine 14,565 22,669
Denmark 938 1,921
Russia 412 680
Bulgaria 245 228
Holland 684 205
Japan 91 —
Other countries 662 1,412
17,597 27,115
The majority of the Enlarged Group’s recognised assets and liabilities are in Ukraine.
5. EXPENSES BY NATURE
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Depreciation 62 523
Changes in inventories of finished goods and work in progress 1,039 (873)
Raw materials and consumables used 13,750 21,298
Employee benefit costs 585 1,373
Other expenses 1,055 2,788
Total cost of goods sold, marketing and distribution costs and administrative expenses 16,491 25,109
6. EMPLOYEE BENEFIT EXPENSE
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Wages and salaries 435 995
Social security costs 150 378
585 1,373
Remuneration of key personnel 
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Directors – Salaries 15 20
Other key personnel – Salaries 27 44
The Directors are those persons remunerated by the Enlarged Group who are to become Directors of Ukrproduct Group Ltd. Other than salaries, no benefits
in kind were paid to the Directors or key management personnel.
26
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Annual Report and Financial Statements 2004 27
7. TAXATION
Income tax comprised the following:
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Current tax charge – Ukraine 104 250
Current tax charge – non-Ukraine 42 76
Deferred tax relating to the origination and reversal of temporary differences — (25)
Income tax charge for the year 146 301
Differences between IFRS and Ukrainian statutory taxation regulations give rise to certain temporary differences between the carrying value of certain
assets and liabilities for financial reporting purposes and for profit tax purposes. The tax effect of the movement on these temporary differences is
recorded at the rate of 25% (2003: 25%).
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Reconciliation of tax charge
Profit before tax – Ukraine 384 520
Profit before tax – non-Ukraine 878 1,237
1,262 1,757
Tax calculated at domestic tax rates applicable to profits in the relevant countries 325 430
Net income not subject to tax and expenses not deductible for tax purposes (179) (129)
Tax charge 146 301
The weighted average applicable tax rate was 24.5% (2003: 25.7%). The charge is due to the changes in profitability of the companies comprising the
Enlarged Group in the respective countries. 
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Deferred tax liability at beginning of the period — —
Deferred tax recognised in statement of income during the year — (25)
Deferred income tax arising on the revaluation of property, plant and equipment — 690
Exchange differences on translation to the presentation currency — 2
Deferred tax asset at end of the period — 36
Deferred tax liability at end of the period — 703
Ukraine currently has a system of taxation broadly similar in scope to those of the developed market economies. There are a number of laws related
to various taxes imposed by both central and regional governmental authorities. Although laws related to these taxes have not been in force for significant
periods, the practice of taxation and implementation of regulations are well established, documented with a sufficient degree of clarity and adhered to
by the taxpayers. Nevertheless, there remain certain risks in relation to the Ukrainian tax system: few court precedents with regard to tax related issues
exist; different opinions regarding legal interpretation may arise both among and within government ministries and regulatory agencies; and tax compliance
practice is subject to review and investigation by a number of authorities with overlapping responsibilities.
Generally, tax declarations remain subject to inspection for an indefinite period. In practice, however, the risk of retroactive tax assessments and penalty
charges decreases significantly after three years. The fact that a year has been reviewed does not preclude the Ukrainian tax service performing
a subsequent inspection of that year.
The Enlarged Group’s management believes that it has adequately provided for tax liabilities in the accompanying financial information; however, the risk
remains those relevant authorities could take different positions with regard to interpretive issues.
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS continued
8. EARNINGS PER SHARE
Basic earnings per share 
Basic earnings per share has been calculated by dividing net profit attributable to the ordinary shareholders (profit for the year) by the weighted average
number of shares that would have been in issue if the Enlarged Group had been a legally defined Group at 31 December and had applied the merger
method (note 2(b)). 
Year ended Year ended 
31 December 31 December
2003 2004
Net profit attributable to ordinary shareholders, £ 000 1,111 1,436
Weighted number of ordinary shares in issue 30,000,000 30,000,000
Basic earnings per share, pence 3.7 4.8
Diluted earnings per share 
There are no potentially dilutive shares in existence at the year end, hence diluted earnings per share has been calculated by dividing the net profit
attributable to ordinary shareholders (profit for the year) by the weighted average number of shares that would have been in issue if the Enlarged Group
had been a legally defined Group at 31 December and had applied the merger method (note 2(b)).
9. PROPERTY, PLANT AND EQUIPMENT
Assets under Land and Plant and Vehicles and 
construction buildings machinery equipment Total
Cost or valuation
Opening balance 40 412 439 347 1,238
Revaluation 289 4,130 573 187 5,179
Additions/transfers from assets under construction 3,110 155 488 881 4,634
Disposals (2,393) (450) (45) (427) (3,315)
Exchange differences on translation to the presentation currency (54) (306) (90) 150 (300)
Closing balance 992 3,941 1,365 1,138 7,436
Accumulated depreciation
Opening balance — 136 50 36 222
Revaluation — 1,471 474 146 2,091
Depreciation charge for the year — 132 90 298 520
Disposals — (115) (23) (41) (179)
Exchange differences on translation to the presentation currency — (177) (39) (25) (241)
Closing balance — 1,447 552 414 2,413
Net book amount at 31 December 2004 992 2,494 813 724 5,023
Prior year amounts
Depreciated cost at 1 January 2003 52 260 42 28 382
Additions in 2003 (7) 73 355 311 732
Disposal in 2003 (14) (1) (16) (31)
Depreciation in 2003 (19) (11) (32) (62)
Currency exchange differences (5) (23) 4 20 (4)
Depreciated cost at 31 December 2003 40 277 389 311 1,017
Fixed assets with a net book value of £2,339,288 as at 31 December 2004 (£44,000 at 31 December 2003) were pledged as collateral for loans.
The Enlarged Group obtained an estimated market value of all assets as at 1 January 2004 from an independent professional valuer BGS Asset on a depreciated
replacement cost basis. The market valuation of the fixed assets of the Group was £4.2 million and the revaluation surplus net of applicable deferred
income tax was credited to other reserves in shareholders’ equity. 
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Annual Report and Financial Statements 2004 29
10. INTANGIBLE ASSETS 
Computer
software
£ 000
Cost or valuation
At 1 January 2004 —
Additions 7
At 31 December 2004 7
Accumulated amortisation
At 1 January 2004 —
Amortisation charge for the year 4
At 31 December 2004 4
Net book amount at 31 December 2004 3
11. INVESTMENTS 
Details of investments, including the percentage of the share capital owned by the Enlarged Group, are as follows:
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Vash Molochnik (100%) — —
Balakonenko (50%) — —
Other listed and non-listed investments (less than 5% holding) 89 83
89 83
Vash Molochnik SC was a subsidiary of Agrospetresursy LLC. Vash Molochnik SC has been inactive since November 2002 and has not been combined
in this financial information as this company is in the process of solvent liquidation. Details of transactions and balances between the Group and this
company are set out in note 24. Balakonenko LLC has not been combined in these accounts on the grounds of materiality.
Due to the lack of a developed market all investments have been valued at cost. The Enlarged Group’s management believes that the carrying value
of investments is not significantly different from fair value.
12. CASH AND CASH EQUIVALENTS 
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Cash – in UAH 20 2
Bank – in UAH 92 209
Bank – in foreign currency 20 89
132 300
13. INVENTORIES
Year ended Year ended 
31 December 31 December
2003 2004
£’000 £ 000
Raw materials 497 817
Finished goods 900 1,441
Other inventories 210 70
1,607 2,328
The cost of inventories, which is recognised as an expense and included in ‘cost of sales’, amounted to £20,425,000.
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS continued
14. LOANS ISSUED 
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Related parties 15 201
Other — 11
15 212
Loans issued are denominated in US Dollars and Hryvna, short-term in nature, unsecured and interest free.
15. RECEIVABLES AND PREPAYMENTS 
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Trade debtors 1,283 1,505
Other debtors 144 297
Prepayments 485 221
VAT receivable 210 5
Prepaid profit tax 1 1
Other prepaid taxes 20 —
2,143 2,029
There is no concentration of credit risk with respect to trade receivables as the Enlarged Group has a large number of customers, primarily in Ukraine.
The carrying value of receivables and prepayments approximates to fair value.
16. BANK LOANS AND OVERDRAFTS
Bank loans and overdrafts comprise a series of unsecured loans and overdrafts received from Ukrainian banks and denominated in Hryvna and Euro.
The weighted average interest-rate for the loans outstanding at 31 December 2004 was 18.0% (31 December 2003: 19.25%).
The carrying value of bank loans and overdrafts approximates to fair value.
17. TRADE AND OTHER PAYABLES
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Trade creditors 168 1,427
Other creditors 178 46
Deferred income — 82
Accruals 44 105
VAT and other taxation payable 36 11
1,938 1,671
The carrying value of bank loans and overdrafts approximates to fair value. All balances are repayable on demand.
18. PROMISSORY NOTES 
Promissory notes are denominated in Hryvna and are interest free (see note 24 for related party disclosure).
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Payable within 1 year 3 —
Payable in 1–2 years 22 5
Payable in 2–5 years — —
Payable in over 5 years — —
25 5
The carrying value of promissory notes approximates to fair value. 
30
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Annual Report and Financial Statements 2004 31
19. LONG-TERM LOANS AND BONDS
Long-term loans are repayable in 2006 and, these balances with a face value of UAH 2,163,000, are interest free. The fair values of the interest free loans
are based on cash flows discounted using a rate based on a borrowing rate of 18%. The carrying value of the remainder approximates to fair value.
In 2003 the Operating Group company Agrospetsresursy LLC issued bonds denominated in Hryvna with a face value of UAH 2,863,000. During the year
ended 31 December 2004, this company issued further bonds with a face value of UAH 7,137,000. The bonds bear interest at 18% and mature on
8 November 2006. The carrying amounts approximate fair value. 
20. SHARE CAPITAL 
At 31 December 2004 the Company issued 30,000,000 shares of £0.10 per share at a par value conditional upon admission of the Company to the Alternative
Investment Market of the London Stock Exchange. 
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Issued share capital 3,000 3,000
21. MINORITY INTEREST 
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Opening balance 118 68
Share of profit/(loss) 5 20
Gain on revaluation — 75
Deferred income tax on gain on revaluation — (17)
Reduction in minority interest on issue of new shares (42) —
Depreciation on revaluation of fixed assets — (4)
Exchange difference on translation to presentation currency (13) (11)
Closing balance 68 132
As at 31 December 2004 a minority interest of 4.8% (2003: 4.8%) was held in Molochnik OJSC.
22. MERGER RESERVE
The merger reserve arises on the application of the pooling of interests method of consolidation used to account for the combination of Ukrproduct
and its subsidiaries.
23. CASH FLOWS FROM FINANCING ACTIVITIES 
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Long-term loans
Gross amount of new loans received — 295
Repayment of loans — (64)
Net cash flows from long-term borrowings — 232
Bonds
Gross amount of new bonds issued 303 783
Repayment of bonds — (103)
Net cash flows from bonds 303 680
Promissory notes
Gross amount of new promissory notes issued 156 120
Repayment of promissory notes (86) (140)
Net cash flows from issue of promissory notes (70) (20)
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS continued
23. CASH FLOWS FROM FINANCING ACTIVITIES continued
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Short-term borrowings
Gross amount of new short-term borrowings 315 2,858
Repayment of short-term borrowings (917) 2,711
Net cash flows from short-term borrowings 602 147
24. RELATED PARTY TRANSACTIONS
For the purposes of this financial information, parties are considered to be related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial or operational decisions as defined by IAS 24 “Related Party Disclosures”. In considering each
possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. At 31 December 2004 related
parties of the Group included the following:
Nature of relationship
Vash Molochnik SC An uncombined 100% subsidiary
Teilhard Securities Inc Common control
Ukrmolexpo Common control
East European Venture Capital Inc Common control
International Fund for Reconstruction and Development Inc Shareholder of Group company
Advanced Dairy Technology Ltd Shareholder of Group company
Densim Group Management SA Shareholder of Group company
Global Dairy Corporation Shareholder of Group company
Dairy Investment Group Inc Shareholder of Group company
Burinsky Zavod of Dry Milk Shareholder of Group company
Burinsky Zavod Sukhogo Obezhirennogo Moloka Common control
Buhnmolprom Common control
Krasilevsky Moloko Zavod Common control
Krolevetsky Maslozavod Common control
Starokonstantinovsky Zavod of Dry Milk Common control
Starokonstantinovsky Zavod Sukhogo Obezhirennogo Moloka Common control
Terebovlya Zavod of Dry Non-fat Milk Common control
Terebovlya Zavod of Dry Milk Common control
Transactions and balances between the Enlarged Group and related parties are set out below. Sales to related parties were as follows. Sales were primarily
of finished goods and were made at or near nil mark-up.
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Sales
Krasilevsky Moloko Zavod 950 214
Krolevetsky Maslozavod 137 64
Terebovlya Zavod of Dry Non-fat Milk 12 —
1,099 278
32
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Annual Report and Financial Statements 2004 33
24. RELATED PARTY TRANSACTIONS continued
Purchases from related parties are summarised below.
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Purchases
International Fund for Reconstruction and Development Inc — 116
Krasilevsky Moloko Zavod 857 330
Krolevetsky Maslozavod 101 44
Starokonstantinovsky Zavod Sukhogo Obezhirennogo Moloka 26 —
Terebovlya Zavod of Dry Non-fat Milk 21 —
Terebovlya Zavod of Dry Milk — 2
Burinsky Zavod Sukhogo Obezhirennogo Moloka 26 —
1,031 492
During the year ended 31 December 2003 Ukrmolexpo SC, a related party waived loan balances owed by Molochnik OJSC and Agrospetresursy LLC
amounting to £250,000. This amount has been treated as income.
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Debt forgiven
Ukrmolexpo 250 —
Balances due from/(to) related parties at each period end are shown below.
Year ended Year ended 
31 December 31 December
2003 2004
£ 000 £ 000
Outstanding balances at the year end
Teilhard Securities Inc — (3)
Ukrmolexpo (149) (7)
International Fund for Reconstruction and Development Inc — (111)
Krasilevsky Moloko Zavod 206 182
Krolevetsky Maslozavod (5) (4)
Starokonstantinovsky Zavod Sukhogo Obezhirennogo Moloka 32 23
Terebovlya Zavod of Dry Non-fat Milk (15) 7
Terebovlya Zavod of Dry Milk — (4)
Burinmolprom (1) (1)
Net amounts due from related parties 68 82
Loans issued outstanding at the year end (note 14)
Teilhard Securities Inc 15 201
Promissory notes outstanding at the year end (note 18)
Ukrmolexpo (25) (5)
On 18 May 2004, CJSC Ukrproduct Group acquired the Operating Group for a consideration of £15.3 million satisfied by the issue of new shares.
The acquisitions were all made from related parties by virtue of common control, namely Global Dairy Corporation, Densim Group Management,
Advanced Dairy Technology Ltd, International Fund for Reconstruction and Development, East Europe Venture Capital Inc., Alfa-Broker Ltd and
Dairy Investment Group Inc.
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Annual Report and Financial Statements 2004
NOTES TO THE FINANCIAL STATEMENTS continued
25. CURRENCY ANALYSIS 
Other 
UAH US$ currencies Total
£ 000 £ 000 £ 000 £ 000
Assets
Non-current assets
Property, plant and equipment 5,012 11 — 5,023
Intangible assets 3—— 3
Investments 83—— 83
Deferred tax 36—— 36
Current assets
Cash and cash at bank 211 62 27 300
Inventories 2,328 — — 2,328
Loans issued 11 201 — 212
Receivables and prepayments 1,892 137 — 2,029
Total assets 9,576 411 27 10,014
Liabilities
Current liabilities
Bank loans and overdrafts 845 — 232 1,077
Trade and other payables 1,430 54 187 1,671
Promissory notes ————
Current income tax liabilities 150 96 7 253
Non-current liabilities
Long-term loans 221—— 221
Bonds 933—— 933
Promissory notes 5—— 5
Deferred tax 703—— 703
Total liabilities 4,287 150 426 4,863
This note was prepared for the period ended 31 December 2004.
26. BRANDS 
The Group owns the brand “Nash Molochnik”, which translates into English as “Our Dairyman” “Narodny product” (“People’s Product”) and “Vershcova
Doliyna” (“Creamy Valley”). These brands have been generated internally by the Enlarged Group and as such IFRS does not permit them to be recognised
as an intangible asset. Therefore the brands have not been capitalised in this financial information.
27. EVENTS AFTER THE BALANCE SHEET DATE
On 11 February 2005 the Company was successfully admitted to the Alternative Investment Market of the London Stock Exchange. On this date, the Company
issued 11,214,953 ordinary shares for cash consideration of £6 million before share issue costs and completed the legal acquisition of 100% of the share
capital of CJSC Ukrproduct Group (Ukraine), Dairy Trading Corporation (BVI) and LinkStar Limited (Cyprus).
On the same date, the Company issued 912,028 share options to Directors and 1,302,896 share warrants to the Company’s brokers at an exercise price
of 53.5 pence each. 
34
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Annual Report and Financial Statements 2004 35
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting (“AGM”) of Ukrproduct Group Ltd will be held on Wednesday 29 June 2005 at 10.00am at
the offices of CJSC Ukrproduct Group, 16th Floor, 39–41 Shota Rustaveli Street, 01033 Kyiv, Ukraine for the purposes of considering and, if thought fit,
passing the following ordinary resolutions. 
1. To receive and approve the Directors’ Report and Financial Statements for the period ended 31 December 2004. 
2. To elect Dr Jack Rowell as a Director of the Board in accordance with Articles 16 and 17 of the Company’s Articles of Association. 
3. To elect Sergey Evlanchik as a Director of the Board in accordance with Articles 16 and 17 of the Company’s Articles of Association. 
4. To elect Iryna Yevets as a Director of the Board in accordance with Articles 16 and 17 of the Company’s Articles of Association.
5. To elect Dr Dmitry Dragun as a Director of the Board in accordance with Articles 16 and 17 of the Company’s Articles of Association.
6. To elect Alexander Slipchuk as a Director of the Board in accordance with Articles 16 and 17 of the Company’s Articles of Association.
7. To elect David Lattimore as a Director of the Board in accordance with Articles 16 and 17 of the Company’s Articles of Association.
8. To appoint BDO Stoy Hayward and IGK Ukraine to serve, either jointly or severally at the discretion of the Directors, as auditors of the Company
for the financial year 2005 and to authorise the Board to determine their remuneration.
9. To receive and approve the Remuneration Committee Report.
Approved by and signed by order of the Board
Authorised Signatory
Bedell Cristin Secretaries Limited
Secretary
26 New Street
St. Helier
Jersey JE2 3RA
Channel Islands
3 June 2005
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NOTES
1. Any member entitled to attend and vote at the AGM is entitled to appoint one or more proxies (who need not be a member of the Company) to attend
and, on a poll, vote instead of the member. Completion and return of a form of proxy will not preclude a member from attending and voting at the
meeting in person, should he subsequently decide to do so.
2. In order to be valid, any form of proxy, power of attorney or other authority under which it is signed, or a notarially certified or office copy of such power
or authority, must reach the Company’s Registrars, Capita Registrars, Proxy Department, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU,
not less than 48 hours before the time of the meeting or of any adjournment of the meeting.
3. As permitted by Regulation 41 of the Uncertificated Securities Regulations 2001, shareholders must be entered on the Company’s share register at
6.00 pm on Monday 27 June 2005 in order to be entitled to attend and vote at the AGM. Such shareholders may only cast votes in respect of shares
held at such time. Changes to entries on the relevant register after that time shall be disregarded in determining the rights of any person to attend or
vote at the meeting.
4. Copies of the service contracts of each of the Directors, and the register of Directors’ interests in shares of the Company kept pursuant to section 325
of the Act will be available for inspection at the registered office of the Company during usual business hours on any weekday (Saturdays and public
holidays excluded) from the date of this notice until the date of the AGM and at the place of the AGM from at least 15 minutes prior to and until the
conclusion of the AGM.
UKRPRODUCT GROUP LTD
Annual Report and Financial Statements 2004 36
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02 Chairman’s Statement
03 Chief Executive’s Statement
05 Financial Review
06 Board of Directors and Corporate Advisers
08 Directors’ Report
09 Corporate Governance Report
11 Corporate Social Responsibility Report
12 Remuneration Committee Report
13 Independent Auditors’ Report
14 Statement of Income
15 Balance Sheet
16 Cash Flow Statement
17 Statement of Changes in Shareholders’ Equity
18 Notes to the Financial Statements
35 Notice of Annual General Meeting
Ukrproduct Group Ltd
CJSC Ukrproduct Group
main operating subsidiary
LinkStar Limited
trademarks holding subsidiary
Dairy Trading Corp
export subsidiary
With a land surface of
604,000 square kilometres,
Ukraine is Europe’s second
largest country. It is also the
fastest growing European
economy, with a GDP
growth rate of 12% in 2004
(2003: 10%).
In 2004 Ukraine’s population
of 47 million people
consumed an estimated
36,000 tonnes of processed
cheese and 41,000 tonnes
of packaged butter 
of which 
12,300 tonnes (~33%)
of processed cheese
and 9,200 tonnes (~23%)
of packaged butter
were supplied by
Ukrproduct Group.
In  November–December
2004, Ukraine witnessed the
“Orange  revolution”, a now
famous, peaceful climax of
the popular movement which
replaced the outdated
political regime with a
vibrant democracy taking
dynamic strides westwards.
T HE D ESIGN P ORTFOLIO
a member of the flathill communications group plc
www.flathillplc.com
designed & produced by
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Annual report and financial statements 2004
UKRPRODUCT GROUP LTD
26 New Street  St Helier  Jersey  JE2 3RA  Channel Islands
www.ukrproduct.com
UKRPRODUCT GROUP LTD Annual report and financial statements 2004
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