ukrproduct group ltd
annual report and financial statements 2004
ukrproduct group ltd
26 new street  st helier  jersey  je2 3ra  channel islands
wwwukrproductcom
ukrproduct group ltd annual report and financial statements 2004
coverqxd  31052005  1055  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
604000 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
36000 tonnes of processed
cheese and 41000 tonnes
of packaged butter 
of which 
12300 tonnes 33
of processed cheese
and 9200 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replaced the outdated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
wwwflathillplccom
designed  produced by
coverqxd  31052005  1055  page 2 ukrproduct group ltd
annual report and financial statements 2004 01
highlights
jan 2004 ukrproduct’s uah 10 million gbp 11 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 jointstock
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 allfsu 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 nonexecutive 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 ukrainebased 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 272 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
02ukrarf04qxd  31052005  1056  page 01 ukrproduct group ltd
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 longterm 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 highermargin and
fastgrowing 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
nonexecutive 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
longterm benefit of shareholders
02ukrarf04qxd  31052005  1056  page 02 ukrproduct group ltd
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 stateoftheart 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
2000 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
profitgenerating centre
operating review
throughout the period molochnik performed
well producing 12300 fy2003 6700 tonnes
of processed cheese and 6100 fy2003
4450 tonnes of packaged butter our second
manufacturing facility at starakonstantinov
produced 3500 fy2003 2990 tonnes
of skimmed milk powder and 3100 fy2003
1700 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 panukrainian
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 1700
tonnes in the year under review in 2005 we
plan to increase this figure to 4000 tonnes in
order to satisfy growing demand
market
the dairybased 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 doubledigit growth per capita
consumption of dairybased 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 brandnew hard cheese
plant to become operational in 20062007
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
02ukrarf04qxd  31052005  1056  page 03 ukrproduct group ltd
annual report and financial statements 2004
chief executive’s statement continued
growing volumes of the distribution of both own
produce and thirdparty 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 20000 square metres
threequarters 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 highcoupon 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 1200 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
02ukrarf04qxd  31052005  1056  page 04 ukrproduct group ltd
annual report and financial statements 2004 05
financial review
sales 
sales of £271 million for the period under
review comprised the following product
segments 
processed cheese £101 million
packaged butter £95 million
skimmed milk powder £54 million
other products £19 million
services £02 million
sales grew by 54 over the previous year
facilitated mainly by the group’s expanding
distribution network and well thoughtout
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 £44 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 £26 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 £14 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 48 pence 2003 37 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 iasifrs and provides
a suitable basis for comparisons going forward
cash flow 
net cash flow from operating activities was
£09 million and the group was cash positive
at £03 million as of 31 december 2004
the group’s total debt amounted to £22 million
with an equity base of £50 million
capital expenditure 
during the period under review the group
purchased property plant and equipment with
a value of nearly £16 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 iasifrs 
the group’s financial statements for the last four
financial years 2004 inclusive have been
prepared in accordance with iasifrs
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


Summary:
 ukrproduct group ltd
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 longterm 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 highermargin and
fastgrowing 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
nonexecutive 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
longterm benefit of shareholders
02ukrarf04qxd  31052005  1056  page 02