Ovostar Union PLC

Annual Report • Apr 24, 2020

ANNUAL 2019 REPORT

Management Report

Corporate Governance

Financial Statements

Other Information

CONTENTS

Corporate summary	5
Market Overview	10
Key Financials	12
Segment Activities	13
Financial Results	16
Outlook for 2020	19
Human Resources	20
Risk Management and Internal Control	21
Shareholders and Share Information	27

The Board of Directors	26
Committees of the Board of Directors	30
Meetings with Shareholders	31
Corporate Governance and Control	33
Non-financial Information	35

Consolidated financial statements	40
Notes to consolidated FS	46
Company financial statements	83
Notes to the company's FS	88

Independent Auditor's Report 94

CEO STATEMENT

Dear Shareholders,

We are honored to present this report on the results of Ovostar Union Group of Companies for 2019. Although the year proved to be challenging for the Company due to a number of internal and external factors, we made all efforts to mitigate the adverse effects we faced and to deliver positive operational and financial results. In 2019 we focused on costeffectiveness, diversification of our markets, optimization of our product portfolio and all that alongside further implementation of the organic growth strategy and strengthening vertical integration. We believe, that the Company did a great job to respond to the challenges of 2019 and today it is well prepared to face 2020.

Sincerely, Borys Bielikov Chief Executive Officer

MANAGEMENT REPORT

Company Overview

Ovostar Union Public Company Limited is a holding entity originally incorporated under the laws of the Netherlands in 2011 and re-domiciled to Cyprus in 2018. It consolidates companies with production assets located in Ukraine and non-Ukrainian trading companies in Latvia, British Virgin Islands and United Arab Emirates (hereinafter referred to as "we, us"). Our shares have been quoted on the Warsaw Stock Exchange since June 2011.

Our goal has been to produce ecologically clean and healthy food for our clients in Ukraine and abroad. We are growing organically by gradually increasing the volume of eggs produced and expanding the range of egg products offered. For over a decade Ovostar Union has been one of leaders of the local egg industry belonging to the top 3 producers in Ukraine.

With focus on developing the export markets, we are expanding our sales geography supplying shell eggs and egg products of consistently high quality around the countries of Europe, Middle East, Africa and Asia.

Within the egg segment, we possess shell egg portfolio of over 20 sub-brands and supply our branded eggs to the largest retail chains in Ukraine. As a result of export markets development we are gradually increasing the deliveries of shell eggs outside of Ukraine.

Within the egg products segment, we offer the full range of egg products of both liquid and dry forms. We enjoy loyalty of the largest food processing companies in Ukraine and abroad by adjusting our products to the clients' needs while maintaining the superior quality.

Business Geography

Our production facilities are located in the North Central part of Ukraine in Kyiv and Cherkasy regions within 130 km from each other.

Production premises include one breeder farm with parent flock, one hatchery producing day-old pullets, two rearing sites for young laying hens and two laying hen farms. The egg processing facilities include plants located on the premises of the laying hen farm in Vasylkiv and Makariv.

It takes less than 24 hours from the moment an egg is laid till it is delivered to the egg processing plant; this ensures the high quality of final egg products.

Auxiliary production comprises two fodder mills with total capacity of 56 tons of fodder per hour and one oilseed processing plant, that in 2019 was used exclusively for the Company's internal needs, in particular for production of the feed supplements for own flock.

We employ the most up-to-date poultry and processing equipment and progressive technological concepts at our production sites in order to ensure efficiency of production processes and superior quality of final products.

Having initially adopted a large-scale production approach, we have built up a vertically integrated business model with full production cycle spanning from parent flock to egg processing.

Alongside our core business we maintain our own fodder production, rapeseeds processing and grain storage, which secure the high quality of fodder for our poultry flock.

Our products are compliant with international quality standards ISO 9001:2015 and FSSC 22000 as well as applicable national Ukrainian standards and sanitary norms. We also possess the Halal Certificate to export internationally and are certified to export both shell eggs of class "A" and egg products to the European Union.

Business Model

Ovostar Union PCL 2019 Annual Report | 8

Other Information

CORPORATE SUMMARY

Our Brands - Shell Eggs

We supply Ukrainian market with the widest range of packaged shell eggs under brand name Yasensvit™. Key customers of egg segment are large local and international retail chains in Ukraine.

Price for branded packaged eggs is traditionally higher than the average egg price on the market. Having YasensvitTM for over 15 years on the Ukrainian market, the price premium is justified by consumers' recognition of consistently high quality of products under YasensvitTM brand and the wide range of assortment adjusted to specific consumer preferences.

In 2019 we kept the position of major producer of private label eggs in Ukraine. Our eggs branded by retail network labels are supplied to Auchan, Silpo, Metro, Novus, Furshet, ATB, Welmart and a number of smaller regional retail chains.In 2019 new design and logo of YasensvitTM was introduced in response to the fast changing market conditions and consumer needs. These steps, as a part of the upgraded marketing strategy, are aimed at building up the existing customer loyalty and attracting new clientele.

In 2019 the Company started construction of a free range poultry hose that in early 2020 was completed and certified for production of shell eggs marked as "Free Range". The Company is one and only among local industrial egg producers who launched free range egg production.

• Over 15 years the most recognizable trade mark on the Ukrainian market;
• Consistently high product quality;
• Supplier to the largest retail chains in Ukraine;
• Whole product portfolio of premium, standard, economy and private label categories.

Our Brands - Eggs Products

We offer a wide range of separated and whole egg products in dry and liquid form under the Ovostar™ brand. The demand for egg products mainly comes from food processing companies in Ukraine and abroad.

The segment is mainly B2B-oriented as the egg products are used for production of confectionary, mayonnaise, meat products etc. Each client requests the egg product with certain characteristics needed for the final good. Our flexibility to adjust to clients' needs maintains the loyalty of our major clients as well as our position of market maker of liquid egg products in Ukraine. Among our key local customers are Roshen, Schedro, Mondelez Ukraine, Volyn Holding, Kharkiv Biscuit and others. We are also the exclusive supplier of eggs and egg products to McDonalds Ukraine. Inspired by the success of bottled liquid egg white and liquid whole egg, offered to our customers in 2018, in 2019 we introduced a new egg product in retail segment - bottled scrambled eggs.

MARKET OVERVIEW

Since 2016, the Ukrainian economy has shown signs of stabilization after years of political and economic tension. According to the IMF, the country recorded a growth of 3% of its GDP in 2019, slightly down from 2018 (3.3%), still driven by domestic demand, household consumption representing almost 70% of GDP. The forecasts for 2020 and 2021, respectively, are around 3% and 3.1% growth rate. Growth should therefore remain stable, the tightening of the labour market and the fall in inflation supporting household spending. Risks to growth include political instability and the possible disruption of international funding programs.

Reforms have been adopted to promote household consumption and the consolidation of public finances and prudent fiscal and monetary policies, and a flexible exchange rate regime have helped to reduce budget and current account deficits. According to IMF estimates, the budget deficit would reach - 2.7% in 2019 (against -2.8% in 2018). The 2020 budget expects a deficit of 2.09% of GDP. The near-budget deficit in the energy sector has been eliminated, the current account deficit has fallen to around -3% of GDP and reserves have reached more than 20 billion USD (IMF). The latter, however, represent only three months of exports and the current account deficit should increase (-3.5% in 2020 and -

Macroeconomic Indicators

3.7% in 2021 according to the IMF). Although declining, public debt remains high (57% GDP in 2019) and should remain above 50% GDP (54.3% GDP in 2020 and 51.8% GDP in 2021 according to the IMF). Inflation decreased from 10.9% in 2018 to 8.7% in 2019. At the end of 2019, the IMF congratulated the country for the impressive progress made during the first months of President Zelensky's government, and assured its support for a next three-year agreement of 5.5 billion USD under the extended credit facility. This agreement is however far less important than the previous one.

Ukraine's unemployment rate, although falling, represents 8.7% of the workforce in 2019 (IMF). The informal sector in Ukraine is estimated to account for a third of the country's GDP, and GDP per capita (at purchasing power parity) is only 20% of the EU average.

The agricultural sector plays a major role in Ukrainian economy. The main crops are cereals, sugar, meat and milk. Ukraine is the world's fifth largest exporter of grain. The European Union has reduced its customs duties on the agricultural areas of Ukraine, which could be a boon for this sector. The country is rich in mineral resources, mainly iron and magnesium, as well as in energy resources (coal and gas).

Management Report

MARKET OVERVIEW

Competitive Position

Laying Hens Flock

Ukrainian egg market is characterized by significant share of laying hens farmed by households from April to September, therefore, it can be assumed that the number of laying hens provided by State Statistics Service of Ukraine as at the end of the year presents the industrial flock.

As December 31, 2019 the industrial laying hens flock increased by 6% YoY and amounted to 35.4 million heads (2018: 33.4 million heads).

Ovostar Union share in total laying hens flock as of December 31, 2019 made up 19% (2018: 19%)

*(excl. Crimea and parts of Donetsk - Lugansk regions)

Shell egg market

Total volume of eggs produced in Ukraine in 2019 grew by 3% in comparison to the previous year and reached 16.7 bln (2018: 16.1 bln eggs).

The Ukrainian shell egg market is historically divided into industrial and household production. The volume of eggs produced in industrial format in 2019 increased by 5.2% YoY to 9.4 bln eggs, or 56% of total production volume (2018: 8.9 bln eggs, or 55%). Ovostar Union share in industrial shell eggs production in 2019 was 17% (2018: 20%)

In 2019 egg consumption rate in Ukraine amounted to approximately 280 eggs per capita according to the data of Ukrainian Poultry Farmers Union (2018: 275 eggs per capita).

Egg products market

In 2019 estimated production volume of dry egg products market in Ukraine increased by 4% YoY to 10.7 thous. tons, output of liquid egg products grew by 10% to 15.4 thous. tons.

Ovostar Union estimated share in total volume of dry egg products output in 2019 equals 28% (2018: 29%); share in total liquid egg products produced - 90% (2018: 89%).

KEY FINANCIALS

2019 Update

Income Statement (mUSD)	2019	2018	YoY
Revenue	104.7	125.0	(16%)
Gross profit	(6.3)	30.7	(587%)
EBITDA	(15.5)	21.9	(241%)
Profit before tax	(20.3)	17.6	(187%)
Net profit	(20.0)	17.5	(187%)

Balance Sheet (mUSD)	31-Dec-2019	31-Dec-2018	YoY
Assets	145.8	145.6	0%
Non-current assets Current assets	93.7 52.1	81.8 63.8	15% (18%)
Equity and Liabilities Equity Non-current liabilities	145.8 121.0 4.7	145.6 126.8 5.7	0% (5%) (18%)
Current liabilities	20.2	13.0	55%

Cash Flow (mUSD)	2019	2018	YoY
Net cash generated by operating activities	17.3	23.2	(25%)
Net cash used in investing activities	(21.8)	(19.7)	11%
Net cash generated by financing activities	(5.9)	(4.0)	48%

Debt Position (mUSD)	31-Dec-2019	31-Dec-2018	YoY
Total debt	10.4	9.3	12%
Cash and cash equivalents	4.5	14.3	(69%)
Net debt	5.9	(5.0)	(218%)

SEGMENT ACTIVITIES

Egg Segment

Production

As of 31 December 2019 the Company's total flock equaled 8.1 mln hens. The number of laying hens was 6.7 mln heads which represents a 6% increase as compared to December 31, 2018. The production volume, however decreased by 2% to 1 587 mln eggs (2018: 1 625 mln eggs).

Sales

In the reporting period the sales volume in shell eggs segment fell by 17% to 1 147 mln eggs (2018: 1 381 mln). The volume of eggs exported was 525 mln that makes up 46% of the total sales in the segment (2018: 587 mln or 42%). The decrease of shell eggs sales is accounted for by the significant reduction of trading operations in 2019.

Export

Average price of eggs in UAH terms fell by 12% y-o-y and reached 1.606 UAH/egg, while in USD terms the decrease was 7% y-o-y and the price for the year was 0.062 USD/egg (2018: 1.819 UAH/egg or 0.067 USD/egg respectively).

SEGMENT ACTIVITIES

Egg Segment

Production

In 2019 the volume of eggs processed was 577 mln, which by 9% exceeds the level of the previous year (2018: 530 mln eggs). The volume of dry egg products output grew slightly YoY and reached 2 969 tons (2018: 2 959 tons). The output of liquid egg products increased by 12% YoY up to 13 904 tons (2018: 12 435 tons).

Sales

The volume of dry egg products sold grew by 3% and equaled to 2 786 tons (2018: 2 712 tons), out of which 2 064 tons, or 74%, were exported (2018: 1 897 tons or 70%). The volume of liquid egg products sales increased by 12% YoY and totaled 13 762 tons (2018: 12 265 tons), 6 516 tons, or 47%, of which were exported (2018: 5 643 tons or 46%).

Price, USD/kg net of VAT Price, USD/kg net of VAT

Average sales price of dry egg products decreased by 19% y-o-y in UAH terms – to 107.16 UAH/kg and by 14% in USD terms – to 4.15 USD/kg (2018: 131.61 UAH/kg or 4.84 USD/kg). Average price of liquid egg products fell by 6% in UAH terms and was 37.15 UAH/kg, while in USD terms it remained on the level of the previous year and equaled 1.44 USD/kg (2018: 39.52 UAH/kg и 1.45 USD/kg).

SEGMENT ACTIVITIES

Sales Geography by Segment

Export markets development

In 2019 49% of the total revenues of the Company came from export activities. Export revenues totaled to USD 50.8 million. Sales to Middle East contributed 30% to the total revenues (2018: 26%), sales to European Union remained on the level of 2018 and made up 16% of total revenues. Shell eggs segment accounted for 68% of the total export revenues, the remaining 32% came from egg products segment.

The Group exports eggs and egg products under the brand name OVOSTAR to around 50 countries of the world through its representative offices in Latvia and UAE. Key export markets are Europe and Middle East.

FINANCIAL RESULTS

Financial Performance

Revenue

In 2019 total revenues fell by 17% as compared to the previous year and amounted to USD 104.7 mln (2018: USD 125.0 mln). The main factors accounting for the decrease are a) lower volume of shell eggs sales due to significant reduction of trading operations; and b) negative selling price dynamics that was observed on both local and export markets, especially in the second half of the year.

The contribution of shell egg segment to the total revenues in 2019 was USD 71.1 mln, or 68% (2018: USD 91.1 mln, or 73%). Egg products segment contributed USD 33.6 mln, or 32% (2018: USD 34.0, or 27%).

Gross loss and cost of sales

The cost of sales was reduced in 2019 by 4% YoY from USD 91.0 mln to USD 87.6 mln mainly as a result of a) lower sales volume and b) decrease in price of feed components. Gross loss totaled to USD (6.3) mln as a result of negative revaluation of fair value of biological assets in amount of USD (23.3) mln.

Net loss

Net loss for the year amounted to USD (20.0) mln (2018: profit in amount of USD 17.5 mln).

EBITDA

In 2019 EBITDA fell to USD (15.5) million (2018: USD 21.9 million). Among the main factors that influenced EBITDA are a) lower revenues (-16% YoY); b) increased operating expenses, in particular, administrative (+36% YoY) and other operating expenses (+66%), that included write -off of the property and equipment destroyed in two fires, that occurred at Vasilkiv production site in 2019; and c) negative change in fair value of biological assets.

Management Report

FINANCIAL RESULTS

Alternative Performance Measures (APMs)

The negative financial result for the year ended on December 31, 2019 in amount of USD (20.0) million was largely influenced by the net change in fair value of the biological assets (USD (23.3) mln). Biological assets of the Group are measured at fair value within Level 3 of the fair value hierarchy. This implies that the lowest level input that is significant to the fair value measurement is unobservable and is based, to a large degree, on the management's assumptions and estimates of the factors that can significantly affect future cash flows from the assets. Key assumptions for determination of the fair value of biological assets based on discounted cash flow approach include but are not limited to the following: cost of maintenance per laying hen, egg production volume, egg sale price in future periods, long-term inflation rate etc. Taking into account all available and assumed implications of the current economic environment, the management chose to abide by a most conservative approach when calculating the fair value of the biological assets as at the 2019 year end . In particular, an assumption that the egg price dynamics would remain flat, if not descending, was used. Thus, the fair value of biological assets decreased substantially YoY resulting in USD 23.3 mln loss from revaluation for the year 2019.

APMs

Notwithstanding the above considerations, the Management believes that the negative revaluation of the biological assets qualifies as exceptional and unusual and shall have a oneoff effect. Due to this reason all users of the present report are encouraged to consider alternative performance measurements - Adjusted Net Profit and Adjusted EBITDA, i.e. Net Profit and EBITDA excluding net change in fair value of the biological assets.

In the opinion of the Management, the APMs present useful information which supplements the financial statements. These measures are not defined under IFRS and may not be directly comparable with APMs for other companies. The APMs are not intended to be a substitute for, or superior to, any IFRS measures of performance.

Adjusted Net Profit and EBITDA, mUSD

FINANCIAL RESULTS

Financial Position

Assets, liabilities and equity

As of December 31, 2019 the total assets remained on the level of the previous year and amounted to USD 145.8 million.

The total equity decreased by 5% YoY and amounted to USD 121.0 million, mainly due to the negative result for the year 2019 (2018: USD 126.8 mln).

Cash flow

In 2019 Net cash flows from operating activities was USD 17.3 million (2018: USD 23.2 million). Net CF used in investment activities was USD 21.8 million (2018: 19.7 million) and included USD 3.0 million of grant received in 2019 from the Government under the program of agricultural producers support. Net CF from financing activities was USD 5.9 million (2018: 4.0 million).

Loans and borrowings

As of December 31, 2019 the total amount of interest-bearing loans and borrowings was USD 10.4 million, representing a 12% growth YoY (2018: USD 9.2 million). In 2019 new loans were attracted in total amount equivalent to USD 5.0 million. Net debt as of December 31, 2019 totaled to USD 5.9 million.

Cash Flows

	2019	2018	2017
Operating CF, mUSD	17.3	23.2	19.0
Investing CF, mUSD	(21.8 )	(19.7)	(11.8)
Financing CF, mUSD	(5.9)	(4.0 )	(4.3)

OUTLOOK FOR 2020

Strategy and Outlook

Strategy

Our organic growth strategy has been aimed at strengthening the Company's market position and expanding the presence its products in and outside of Ukraine simultaneously maintaining the customer loyalty. The focus on consistently high quality of our products and long-term relationships with our clients offset any external challenges that the egg industry may face.

The results we deliver are based on commitment of every employee. The cooperation across departments results in higher productivity of day-to-day operations and stronger synergy effect. In 2020 we intend to continue advancing employee skills to be more competitive and efficient.

Outlook for 2020

The unfolding world crisis caused by COVID-19 pandemic and economic recession that appeared on the agenda in early 2020 has seriously affected every country in many aspects. Thus, the Company makes all efforts to adjust its strategy to the changing business environment and to respond to the new challenges. Being a part of critical infrastructure in Ukraine, the Company keeps operating, having introduced even stricter rules of biosafety and sanitary control at its production sites in order to minimize risks for the employees and consumers. Under the circumstances we expect that in 2020 the focus will be placed on maintenance of the existing production facilities without their significant expansion. The management makes steps to secure the supply chain which is vital for the operations continuity. Activities in the export markets have not suffered, however, further developments are subject to the success of measures taken locally and internationally to curb the crisis and mitigate its effects.

Investment program update

In 2019 the Company started the final 4th stage of the investment program at Stavyshche production site which originally should have been completed by the end of 2021. However, in the light of the latest crisis the management made the decision to put the investment on hold until further notice. Only one poultry house the construction of which is currently in progress will be expectedly completed during the year.

	2018	YoY (19/18)	2019	YoY (20/19)	2020F
Laying hens flock, mln heads	6.4	6%	6.7	18%	7.9
Eggs produced, mln	1 625	(2%)	1 587	13%	1 790
Dry egg products produced, tons	2 959	0%	2 969	35%	4 000
Liquid egg products produced, tons	12 435	12%	13 904	4%	14 400

Other Information

HUMAN RECOURCES

Overview

The majority of our employees are involved in production processes on the premises located in Kyiv and Cherkasy regions. We recruit, employ and promote employees on the sole basis of their qualification and abilities. Equal employment opportunities and career perspectives are provided for all employees, regardless of their gender, age, nationality or religious views.

Our personnel policy is aimed to create and retain a well consolidated and highly professional team of individuals that are able to respond effectively to changing market environment. We strive to ensure a positive, productive and successful work environment. The level of satisfaction is, among other criteria, confirmed by high employee retention rates (97% on average for the last 5 years).

We aim to maintain a fair and comprehensive system of remuneration. Overall remuneration of our employees is divided into material and non-material portions. Material remuneration consists of a basic fixed salary plus a variable component like bonuses that depend on achievement of corporate and personal targets.

Non-material remuneration consists of professional trainings, corporate team-building events and free use of corporate gym.

Legal relationships between the Company and its employees are regulated by the Labor Code of Ukraine and executed in the form of term and termless labor agreements. We cooperate with the State Pension Fund making monthly social insurance contributions. A corporate pension schedule has not been established.

Our employees other than some of the Board members do not have any shareholdings in Ovostar Union PCL, to our knowledge; nor do they hold any stock options or other rights to shares nor participate in any other way in the capital of Ovostar Union PCL. Currently, no arrangements relating to such participation are planned in the short-term perspective.

Quantity of employees as of 31 December

	2019	2018	2017
Employees, EoY	1 590	1 681	1 500

Identified Risks

Impact	Mitigation	2019 Status / Notes
Biological Risk
Outbreaks of highly pathogenic avian influenza in Europe and in the south of Ukraine may severely limit our ability to perform normal operations and re duce the possibility to ex port	Adherence to biosecurity standards in line with the best international practic es. Egg production and egg processing facilities are compliant with ISO 9001: 2008 and ISO 22000: 2005. Diversification of sales channels	No occurrences of danger ous poultry diseases have been ever registered on our premises. We control all the processes along the full production cycle in or der to provide the highest quality and ability to react fast in case of need
Macroeconomic Risk
Depreciation of Ukrainian Hryvnia leads to deteriora tion of income per house hold and change in con sumer preferences	Worsening economic con ditions has little effect on consumption of eggs per capita because eggs remain the most affordable source of animal-based protein	In 2019 egg consumption amounted to 280 eggs per capita. The decrease in consumption is caused by lower purchasing power of Ukrainians. Despite that

Poor economic conditions result in lack of debt financing available

Historically, we have been reliant primarily on own positive cash flow and debt financing is used only for implementation of longterm investment programs. To eliminate the current instability of Ukrainian economy, we accumulated the cash on our bank accounts in foreign-owned banks in Ukraine and outside

We use export financing with comparatively low effective interest rate.

our volume supplied to Ukraine was not affected

Identified Risks

Impact	Mitigation	2019 Status / Notes
Macroeconomic Risk
VAT reimbursement and other advantages to agri cultural companies are can celled.	We are primarily focused on operational efficiency	Starting from 2017 special VAT treatment policy is cancelled, while the gov ernmental subsidies are introduced instead
Price Risk
Devaluation of Ukrainian Hryvnia leads to lower price per item in USD terms and thereby decreases pe riodic financial results	Increase of export sales is a natural hedge against cur rency rate fluctuations. Higher cost incurred in UAH is being steadily transferred to the final consumer through an increase of UAH -based prices for shell eggs and egg products on the local market	In 2019 share of export rev enue was 48% (2018: 45%). YoY change of prices in UAH terms: for shell eggs - (12%), for dry egg products - (19)%, for liquid egg prod ucts - (6)%.
Liquidity Risk
Current capital restrictions of National Bank of Ukraine, although partially weakened in 2019, may limit the possibility to meet the financial obligations when due	We strictly control our working capital	As at December 31, 2019 all payment obligations were met on time. Part of revenues are accumulated on the bank accounts of the subsidiaries outside of Ukraine
Concentration of sales
Excessive concentration of sales may lead to financial instability in case of loss of key customer	Our customer base is mixed in terms of size and indus try. We are building a bal anced customer portfolio	In 2019 we had no clients generating more than 10% of our total revenue

Identified Risks

Impact	Mitigation	2019 Status / Notes
Competition
Offering from the existing competitors or new market entrants may weaken our	We have a unique for Ukraine vertically integrat ed business model with fa	YasensvitTM brand holds the position of the most recognized brand of shell

ed business model with facilities in close proximity to each other, what results in high production efficiency. Having been offering products of consistently superior quality and adjusting to the market demands, we achieved the recognition and loyalty of our customers

recognized brand of shell eggs in Ukraine.

We also have a possibility to effectively diversify our sales to destinations outside Ukraine

Climate risks

Extreme weather conditions can have a detrimental effect on the wellbeing of poultry flock and their production efficiency

competitive position

Our egg production facilities are equipped with an automatic climate-control system

Optimal climate conditions for laying hens include 40- 60% humidity and ambient temperature within 20- 25^o C. Our production facilities are equipped with sophisticated ventilation systems to keep all vial indicators at normal levels throughout the year.

COVID-19 related risks

With the recent and rapid development of the Coronavirus disease (COVID-19) outbreak the world economy entered a period of unprecedented health care crisis that has already caused considerable global disruption in business activities and everyday life. Many countries have adopted extraordinary and economically costly containment measures. Certain countries have required companies to limit or even suspend normal business operations. Governments have implemented restrictions on travelling as well as strict quarantine measures.

Industries such as tourism, hospitality and entertainment are expected to be directly disrupted significantly by these measures. Other industries such as manufacturing and financial services are expected to be indirectly affected and their results to also be negatively affected.

The financial effect of the current crisis on the global economy and overall business activities cannot be estimated with reasonable certainty at this stage, due to the pace at which the outbreak expands and the high level of uncertainties arising from the inability to reliably predict the outcome.

The dandemic is considered as a non-adjusting event and is therefore not reflected in the recognition and measurement of the assets and liabilities in the financial statements as at 31 December 2019.

The Management has considered the unique circumstances and the risk exposures of the Group and has concluded that the event is not expected to have an immediate material impact on the business operations. However certain pandemic related risks have been identified as can be seen in the table that follows.

COVID-19 related risks

Impact	Mitigation
Personnel safety	The steps have been taken to arrange for all the administrative staff to work from home. The employees at the factories, where working from home is not possible, are given special attention. The Company has strengthened its bio-security and sanitary controls. Every employee is provided with adequate personal protective equipment. Medical exami nation and monitoring on a regular basis is introduced.
Aavailability of cash resources and cost base	The Group is generating adequate cash flow to cover the production costs. Raw materials that make up around 75% of the CoP come from local producers. The supply chains have not suffered due to the pan demic effects. The logistics is preserved and only minor delays are ex pected in connection with restrictions imposed on the transportation system throughout the country and internationally.
Effects in revenue	The specifics of goods produced by the Group secures a continuous op erating cash flow. Eggs belong to the basic foodstuffs and enjoy steady demand due to their high nutritional value and comparatively low price. Given the reduced solvency of the population caused by the progressing economic crisis, demand on eggs is expected to increase. In terms of export revenues it should be mentioned that an increased demand from foreign customers has been observed since the start of the pandemic, as a result of lockouts of egg producers in Europe and MENA region. Thus, the surplus of eggs, that are not sold locally, is exported at very competitive prices.
Unforeseen expenses	As of the date of this report, the Group has not incurred significant un foreseen expenses. The modifications of business operations mode (e.g. remote work regime) and increased security measures are not expected to require considerable financing in the near future.
Continuation of receipt of goods/services from suppliers	As has been observed until now, no disruptions of supplies occurred. Imports of biological assets from the US (parent flock) in March 2020 took place despite massive problems with international transportation.

Overview

Risk management

Risk management is an essential part of the decision-making process providing reasonable assurance that risks are controlled to the furthest extent possible. Risk management and internal control systems are being regularly discussed with the executive management and the Audit Committee. In their review of our risk profile, the main focus is placed on principal risks that could significantly deteriorate our operational and financial results.

It has to be noted that proper identification of risks significantly reduces but does not completely eliminate the possibility of human error, poor judgment in decision making, fraud or occurrence of unforeseeable events. The risks that we face in the course of regular operations are not limited to the risks described above, but those above are regarded as the most significant in the short-term perspective. No antitakeover measures are in place. Some risks are yet unknown and some risks that are insignificant at the moment could become material in the future.

internal control system

The Board of Directors is ultimately responsible for establishing, controlling and enhancing our internal control system. We consider risk management to be a continuous process of monitoring, assessing and mitigating risks through internal control systems and procedures at each level within the organization.

We use guidelines, instructions and procedures applied to operations, financial reporting, planning, human resource and customer management etc.; these are being reviewed and updated on a regular basis. Our employees are trained to implement and comply with these guidelines, instructions and procedures.

Key elements of the internal control system are budgeting, investment management, operational management and financial reporting. They monitor the progress and the actual results of the company's operating activities. We also use a staff evaluation and appraisal system. The process of enhancement of the internal control system will be continued in 2020.

For more information on risks please refer to Note 27 of the 2019 Consolidated Financial Statements.

Deficiencies of the system

In 2019, we did not identify any material weaknesses of the internal control system that might adversely impact our operational activity, financial results and financial position. The risks are clearly identified and controlled to the highest possible extent by our top management within their relevant function.

SHAREHOLDERS & SHARE INFORMATION

Share Capital Structure

At 31 December 2019 total share capital of Ovostar Union PCL was 6 000 000 shares. Each share has a nominal value of one vote at the General Meeting of Shareholders.

According to publicly available information as at 31 December 2019, shareholders of Ovostar Union PCL with substantial participation of at least 5% of all votes at the General Meeting of Ovostar Union PCL shareholders are listed in the table.

Changes in shareholders' structure

As the result of the transaction conducted on October 3, 2019 Generali PTE increased its shareholding in the Company from 9.94% to 10.93%.

No other changes in shareholders' structure of Ovostar Union PCL took place in 2019.

Free float remained at the level of 32.07%.

Key quotation indicators

Share price, PLN	2019	2018	2017
Opening	113	88	87
Maximum	113	114	128
Minimum	70	88	85
Closing	75	113	88

Share capital structure at 31 December

Shareholders	2019	2018	2017
Prime One Capital Ltd	68%	68%	68%
Generali	11%	10%	10%
Fairfax Financial Holdings Ltd	5%	5%	5%
Aviva	5%	5%	5%
Others	11%	12%	12%
Total	100%	100%	100%

Dividends

In accordance with the Board of Directors resolution passed on May 14, 2019 and approved by the General Meeting of Shareholders at its Annual Meeting on June 07, 2019, final dividends for the year 2018 were paid to the Company's shareholders on July 24, 2019. The amount of dividend per share was 1 EURO. Total amount of dividends paid was EUR 6.0 million.

Share price dynamics in2019

OVOSTAR UNION

CORPORATE GOVERNANCE

Ovostar Union PCL 2019 Annual Report | 29

BOARD

OF DIRECTORS

Corporate Governance

Financial Statements

Other Information

Composition of the Board

The Company is headed the Board of Directors, whose main function is to lead and control the company.

The number of the directors of the Company is four, the majority of whom are non-executive, out of whom two are independent within the meaning of Annex II of the European Commission Recommendation no 2005/162/WE of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board. The only executive director performs duties of the Chief Executive officer.

The following composition of the Board of the Company was approved by the General Meeting on June 7, 2019:

Mr. Borys Bielokov —	Executive Director, Chief Executive Officer
Mr. Vitalii Veresenko —	Non-Executive Director, Chairman of the Board
Mr. Karen Arshakyan —	Non-Executive Independent Director
Mr. Sergey Karpenko —	Non-Executive Independent Director

BOARD OF DIRECTORS

Composition of the Board

Borys Bielikov - Executive Director, CEO

Mr.Bielikov founded GC "Ovostar Union" in 1999 (till 2011 – LLC "Borispol Agro Trade"). Since 2007 and up to now he has been holding the position of group Chief Executive Officer. Mr. Bielikov gained the education as an aircrafts operation mechanic engineer at National Aviation University (1994).

Vitalii Veresenko - Non-Executive Director, Charman of the Board

Mr. Veresenko is at GC "Ovostar Union" since 1999. Till 2001 – General Director at CJSC "Malynove", and since 2001 up to now – Head of the Supervisory Board of "Malynove" CJSC. Mr. Veresenko has diploma as automated management systems engineer of Kiev Air Defense Radio Technical Engineers College (1990).

Karen Arshakyan - Non-Executive Director, Head of Audit Committee

Mr. Arshakyan joined the Board of Directors of Ovostar Union in June 2019. Mr Arshakyan acted as an external adviser to the Board during the Company's redomiciliation from the Netherlands to Cyprus. Mr Arshakyan has a degree in Economics and Management of Agriculture from Institute of Agriculture of Armenia. His work record includes companies in Armenia, Canada and Cyprus.

Sergii Karpenko - Non-Executive Director

Mr. Karpenko served as a Deputy Head of investment policy and agrarian business in Ministry of agrarian policy of Ukraine from 1997 to 2003. After that Mr. Karpenko worked at «Union of Poultry Farmers of Ukraine» and since 2006 has been acting as an Executive Director of Union. Mr. Karpenko graduated from National agrarian university majoring in Agricultural management (1997).

Corporate Governance

BOARD OF DIRECTORS

Terms of Reference

Representation

Members of the Board represent Ovostar Union Group and the Board has the authority to appoint any official as a representative, and to determine the list of his/her powers. The executive director is authorized to represent the Group on his own and to sign documents on behalf of the Group. In case of a conflict of interest between the Group and one of the directors, the conflicted director may not participate in the decision-making process concerning the matter causing the conflict. Members of the Board are appointed and may be suspended or dismissed from their position by the General Meeting of Shareholders. At each annual general meeting of the Company one -third of the directors (or if their number is not a multiple of three, the number nearest to three but not exceeding one-third) shall retire by rotation. No person (including a director retiring by rotation) shall be appointed (or reappointed) a director at a general meeting of the Company unless: (a) that individual is recommended by the board of directors or by a committee duly authorised by the board for the purpose; or (b) not less than seven nor more than 42 days before the date appointed for holding the meeting, notice executed by a Qualified Member has been given to the Company of that member's intention to propose that individual for appointment (or reappointment) as director (stating the particulars which would, if he were so appointed, be required to be included in the Company's register of directors) together with a notice executed by that individual stating that he is willing to act as director.

Shareholding by the Board members and insider trading

Securities Rules have been established, which apply to the Board members in relation to the acquisition of securities share and transactions with them. Furthermore, the conditions and requirements of the EU Market Abuse Directive and the company's Insider Trading Rules, reflecting the essence of EU Market Abuse Directive, are applicable to the Board members (and other persons related to Board Members) in relation o the acquisition of shares and equity participation.

Statement of the Board of Directors

The Board of Directors of Ovostar Union PCL hereby confirms that (1) none of the Board members is a member of any supervisory board of - or holds the position of non-executive director at more than two listed companies; (2) none of the Board members holds the position of chairman of any supervisory board - or of the board of directors, in case such board consists of executive and non-executive directors - of other companies, except for our enterprises.

Other Information

Board of Directors meetings

In 2019 the Board of Directors held five (5) meetings.

• The first meeting was held in Limassol, Cyprus. The Company's external auditors, Messrs. BAKER TILLY KLITOU & PARTNERS were invited to inform the Board on the results of the audit of the 2018 financial statements. The auditors confirmed their content with the annual report. An unqualified auditor's opinion for the 2018 financial statements was issued. During the meeting the Board of Directors approved the Company's 2018 annual report. 15-Apr-2019
• The second meeting was held in Kyiv, Ukraine. During the meeting the Board approved the Company's financial statements for the three months ended on March 31, 2019. The Board considered payment of dividends and it was unanimously resolved to recommend to the members in the upcoming Annual General Meeting to declare a final dividend for the year 2018, in the amount of the EURO 1 per ordinary share be paid to all the members of the Company, not later than 26 July 2019 for the year 2018. At the same meeting the Board composition was changed. In particular, the letter of resignation of Mr. Marcus Mattheus Lucas Joannes Van Campen as Director of the Company was considered and the said resignation was accepted; and the letter of acceptance of appointment of Mr. Karen Arshakyan as Director of the Company was considered and it was unanimously resolved that it be put to the members that Ms. Karen Arshakyan be appointed as Director of the Company. 14-May-2019
• The third meeting was held in Limassol, Cyprus. During the meeting the Board authorized the Management of the Company to initiate negotiations with Messrs Baker Tilly on the auditors' remuneration for the audit of the financial statements for the year 2019. It was also unanimously resolved that Mr Karen Arshakyan be appointed the Head of Audit Committee. 07-Jun-2019
• The fourth meeting was held in Kyiv, Ukraine. During the meeting the Board approved the Company's 2019 semi-annual report. It was also resolved that the Engagement letter be signed with Messrs Baker Tilly as the company's independent auditors and total fees for the audit of the company and consolidated financial statements for the year ended 31 December 2019 be approved. 28-Aug-2019
• The fifth meeting was held in Nicosia, Cyprus. The Board of Directors approved the financial statements of the Company for the nine months ended on September 30, 2019. Secondly, acquiring 89% of the newly issued shares of a Company's subsidiary Gallusman SIA was considered and approved unanimously. 14-Nov-2019

BoD COMMITTEES

Audit Committee

The Board of Directors has established an Audit Committee in order to meet the necessary corporate governance requirements and to ensure our financial transparency.

The Audit Committee is responsible for advising and monitoring the activities of the Board of Directors in the areas of, among other things, the completeness of financial reporting, our financial strategy, tax planning, including:

(i) functioning of control and internal risk management systems;

(ii) provision of financial information (including choice of the accounting policy, application of new rules and evaluation of their impact on our performance, interaction with internal and external auditors, etc.);

(iii) monitoring the compliance of our activities with the recommendations of internal and external auditors;

(iv) interaction with external auditors, including control of the auditor's independence, their remuneration and provision of any services outside the audit scope;

(v) our tax planning policy;

(vi) sources of our funding;

(vii) review of the annual budget and capital investments of the Group.

At least one of the committee members must be a financial expert as defined in the CSE Corporate Governance Code, and all committee members must be financially literate. Our Audit Committee satisfies these requirements.

In 2019 Mr. Karen Arshakyan, a non-executive independent director of the Company was appointed Chairman of the Audit Committee and Mr. Karpenko continued as the second independent member of the Audit Committee.

Audit committee meetings

In 2018 the Audit Committee of Ovostar Union N.V. held three (3) meetings.

11-Apr-2019 During the meeting the Audit Committee reviewed the auditing process for the year of 2018 and discussed the Group's Annual Report for 2018.

29-Aug-2019 Agenda of this meeting included discussion on 2019 audit process.

14-Nov-2019 During the meeting the Audit Committee discussed potential risks for the business and their possible impact on the Group's operations and results in the year of 2020.

Remuneration Policy

On 17 June 2016, by a resolution of the General Meeting, the company's remuneration policy has been adopted. According to this remuneration policy the amount of total remuneration for the members of the Board of Directors on annual basis will not exceed EUR 60,000.

SHAREHOLDERS MEETINGS

General Meetings

The Company shall in each year hold a general meeting as its annual general meeting. The annual general meeting shall be held at such time and place as the directors shall appoint, taking into account that place and date of a general meeting should be set so as to enable the participation of the highest possible number of members.

The directors may, whenever they think fit, convene an extraordinary general meeting in the same manner or in a manner as near as possible as that in which meetings may be convened by the directors.

Notice of General Meetings

An annual general meeting shall be called by twenty-one days' notice at the least. The notice shall, specify the following:

(a) the proposed agenda for the meeting;

(b) the procedures in respect of the participation and voting in the meeting required to be complied with by the members entitled to attend and vote at the meeting, including:

(i) the right of the member to add items on the agenda of the general meeting, to table draft resolutions and to ask questions related to items on the agenda and the deadlines by which any of those rights may be exercised;

(ii) the right of a member which is entitled to attend, to speak, ask questions and vote, to appoint a proxy;

(c) the procedure for voting by proxy, including the forms to be used and the means by which the Company is prepared to accept electronic notification of the appointment of the proxy;

(e) the Record Date and that only the members registered as holders of shares conferring the right to attend and vote at the meeting, as at the close of business on the Record Date, shall be entitled to attend and vote at the meeting;

(f) where and how the full unabridged text of the documents to be submitted to the meeting may be obtained; and

(g) the internet site at which the information which is required to be provided to members as well as the resolutions (if any) proposed by members shall be made available, subject always to the provisions of the Law.

The accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting, by any person entitled to receive notice, shall not invalidate the proceedings at that meeting.

SHAREHOLDERS MEETINGS

General Meetings

Proceedings at General Meetings

All business shall be deemed special that is transacted at an extraordinary general meeting, and also all that is transacted at an annual general meeting, with the exception of declaring a dividend, the consideration of the accounts, balance sheets, and the reports of the directors and auditors, the election of directors in the place of those retiring, if any, and the appointment of, and the fixing of the remuneration of the auditors.

No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business. Three or more members present in person or by proxy and entitled to vote shall be a quorum.

All notices and other communication relating to any general meeting which every member is entitled to receive must also be sent to the auditors and the directors of the Company. The directors and auditors shall be entitled to attend and speak at any meeting of the members. One or more directors if necessary to answer questions asked at the general meeting participate in a general meeting.

The chairman, if any, of the board of directors shall preside as chairman at every general meeting of the Company.

At any general meeting any resolution put to the vote of the meeting shall be decided by poll.

Votes of Members

Every member shall have one vote for each share of which he is the holder. On a poll a member entitled to more than one vote need not use all of his votes or cast all the votes he uses in the same way

On a poll votes may be given either personally or by proxy and any member and any proxy appointed by a member shall have the right to cast all or some of the votes to which such member or proxy, as the case may be, is entitled in favour of and /or against the resolution in question and/or abstain from voting on the resolution in question in respect of all or some of his votes.

GOVERNANCE & CONTROL

Corporate Governance Code

The objective of corporate governance is to develop tools supporting efficient management, effective supervision, respect for shareholders' rights, and transparent communications between companies and the market. As a public company that is domiciled in Cyprus and whose shares are admitted to trading on a regulated market in Poland, Ovostar Union PCL has undertaken to adhere to Cyprus Stock Exchange Corporate Governance Code and the Code of Best Practice for WSE Listed Companies.

CSE Corporate Governance Code

The Code as updated in 2019 replaces the Corporate Governance Code issued by the Cyprus Stock Exchange Council in March 2011 and is amended in September 2012.

The aim of the proposed regulations is to strengthen the monitoring role of the Board of Directors in listed companies, protect small shareholders, adopt greater transparency and provide timely information as well as sufficiently safeguard the independence of the Board of Directors in its decision-making.

The Code includes the following sections: Α. BOARD OF DIRECTORS ; Β. DIRECTORS' REMUNERATION; C. ACCOUNTABILITY AND AUDIT ;D. RELATIONSHIP WITH SHAREHOLDERS.

This Code proposes the establishment of three Committees of the Board of Directors, namely the Nomination Committee, the Remuneration Committee, the Audit Committee and the Risk Management Committee. When the Board of Directors of each company, given the particularities thereof, considers it expedient to establish more committees, it may proceed therewith. The terms of reference as well as the activities of each Committee of the Board of Directors should be included in the Annual Report on Corporate Governance. Annual Report on Corporate Governance Listed companies have an obligation to include in their Annual Report, a Report by the Board of Directors on Corporate Governance as follows: In the first part of the Report, the Company should report whether it complies with the Code and the extent to which it implements its principles. In the second part of the Report, the Company should confirm that it has complied with the Code provisions and in the event that it has not, should give adequate explanation.

Statement on compliance with CSE Corporate Governance Code

The Company confirms that in 2019 it complied with most provisions of the Code, except Provision Β.1.1. that requires a Remuneration Committee to be established. The Company undertakes to eliminate this discrepancy during 2020.

Management Report

GOVERNANCE & CONTROL

Corporate Governance Code

WSE Corporate Governance Rules

Companies listed on the Warsaw Stock Exchange are guided by the Rules. In 2016 the Best Practice for GPW Listed Companies was updated according to the European Commission Recommendation of 09 April 2014 on the quality of corporate governance reporting.

The "Best Practice for GPW Listed Companies 2016" and related regulations apply to issuers of shares admitted to trading on GPW's regulated market. The document is divided into thematic sections: Disclosure Policy, Investor Communications; Management Board, Supervisory Board; Internal Systems and Functions; General Meeting, Shareholder Relations; Conflict of Interest, Related Party Transactions; Remuneration.

Each section of the Best Practice opens with a general description of the goals to be pursued by listed companies through compliance with the provisions of the section. The recommendations that follow require the disclosure of compliance details in a statement of compliance with the corporate governance principles included in the issuer's annual report. The detailed provisions of the Best Practice follow the 'comply or explain' approach.

In line with the recommendations of the European Commission, within the limits of its powers, the Exchange will monitor the companies' compliance with the corporate governance regulations with a special emphasis on the quality of explanations published by companies according to the 'comply or explain' approach.

Deviations from the WSE Corporate Governance Rules

In 2019 the Company did no comply with the following requirements of the Code:

Best Practice Principle I.Z.1 - Currently we have no audio or video recording of a general meeting published at the company's website as all the information related to the general meeting is available in writing at our website. Additionally, we have not published the internal rule of changing the company's auditor as the company strictly follows guidelines stated in the Directive 2014/56/EU the European Union that was adopted in April 2014 and enforced in June 2016.

Best Practice Principle II.Z.1 - Since we have a one-tier governance structure we have not published the chart describing the division of responsibilities among the Board of Directors because their areas of responsibility are provided in writing at the website.

Financial Statements

Other Information

NON-FINANCIAL INFORMATION

Non-financial information disclosure

According to the Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 we as a public entity with more than 500 employees are obliged to make the appropriate disclosure, providing information on the environmental, social and employee matters, respect for human rights, anticorruption and bribery matters and the way they are dealt with.

The information provided in this statement is based on the Company's (our) Code of Conduct (Annex 2.5 to the Corporate Governance Rules available in writing at our website.

Environmental matters

The Company is committed to conducting its operations in an environmentally sound and sustainable manner. To achieve protection of the health and safety of employees, customers and the public, the Company has established procedures and compliance programs to ensure the minimum adverse impact on the environment. Such procedures and programs are periodically being reviewed and appraised.

Social and employee matters

The Company recruits, employs and promotes employees on the sole basis of their qualifications and abilities (including reputation and reliability). The Company endeavors to enable each individual to develop his or her talents in various ways (including, when appropriate, through training programs).

The Company considers safe and healthy working conditions for its employees to be fundamental. The Company believes that good communication with employees is essential.

Respect for human rights

People are the key to success of any business, and this is not different with respect to the Company. The Company recognizes that Corporate Social Responsibility is an integral part of its business practice and strategy. The Company is therefore committed to running its business to ethical, legal and professional standards. We respect human rights as an absolute and universal standard. In countries where the Company operates, human rights of our employees are supported as appropriate in accordance with what reasonably can be expected from a similar commercial organization.

Furthermore, the Company refrains from discrimination on any basis. As a result of the above, respect for people forms a cornerstone of our Company Values.

Management Report

NON-FINANCIAL INFORMATION

Non-financial information disclosure

Anti-corruption and bribery matters

In dealing with customers and suppliers, which may include governmental bodies, the Company expects its managers and employees neither to give nor to receive bribes or anything of value in order to retain or bestow business or financial advantages. The employees of the Company are directed that any demand for or offer of such bribe or anything of value must be immediately rejected.

Accepting business entertainment and providing reasonable business entertainment in the course of the Company's business is acceptable.

The Company does not participate in party politics or makes payments to political parties or to the funds of groups whose activities are directed at promoting a party's political interests.

When dealing with governments or governmental agencies the Company is encouraged to promote and defend its legitimate commercial objectives. The Company may do so directly or through bodies such as trade associations.

The Company is encouraged to respond to requests from governments and other agencies for legitimate and relevant information, observations or opinions on issues relevant to its business and to participate in the development of proposed legislation or regulations in areas which may have an effect on its legitimate interests.

FINANCIAL STATEMENTS

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view of the financial position of Ovostar Union Public Company Limited (the "Company") and its subsidiaries (the "Group") as of 31 December 2019 and of the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

Statement of the Members of the Board of Directors

Members of the Board of Directors of Ovostar Union Public Company Limited in accordance with Subsection (3c) and (7) of the Section (9) of the Law providing for transparency requirements in relation to information about issuers whose shares are admitted to trading on a regulated market (L.190 (I)/2007 - "Transparency Law") herewith confirms that to the best of their knowledge:

a) The present annual consolidated financial statements

(i) have been prepared in accordance with the applicable International Financial Reporting Standards as adopted by the European Union and in compliance with the requirements set forth in Subsection (4) of th Section (9) of the Transparency Law , and

(ii) give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidated accounts taken as a whole, and

(b) The Management report includes a fair review of the development and performance of the business and the position of the Group included in the consolidated accounts as a whole, together with a description of the principal risks and uncertainties that they face.

23 April 2020

………………………………………… Borys Bielikov Chief Executive Officer, Executive Director [signed]

………………………………………… [signed]

Karen Arshakyan Head of Audit Committee,

Non-executive Director

………………………………………… [signed]

Vitalii Veresenko Chairman of the Board, Non-executive Director

………………………………………… [signed]

Sergii Karpenko Non-executive Director

consolidated statement of comprehensive income

For the year ended 31 December 2019 (in USD thousand, unless otherwise stated)

	Note	2019	2018
	8	104 654	124 967
Revenue Changes in fair value of biological assets	17	(23 316)	(3 220)
Cost of sales	9	(87 640)	(91 048)
Gross (loss) / profit		(6 302)	30 699
Other operating income	12	523	512
Selling and distribution costs	10	(8 886)	(8 855)
Administrative expenses	11	(2 878)	(2 113)
Other operating expenses	13	(1 859)	(1 118)
Operating (loss) / profit		(19 402)	19 125
Finance costs	14	(924)	(2 034)
Finance income	15	73	484
(Loss) / profit before tax		(20 253)	17 575
Income tax expense	16	237	(116)
(Loss) / profit for the period		(20 016)	17 459
Other comprehensive income
Items that are or may be reclassified to profit or loss:
Exchange differences on translation to presentation currency		20 935	2 437
Other comprehensive income for the period, net of tax		20 935	2 437
Total comprehensive income for the period, net of tax		919	19 896
Profit for the period attributable to:
Equity holders of the parent company		(20 014)	17 441
Non-controlling interests		(2)	18
Total (loss) / profit for the period		(20 016)	17 459
Other comprehensive income attributable to:
Equity holders of the parent company		20 632	2 412
Non-controlling interests		303	25
Total other comprehensive income		20 935	2 437
Total comprehensive income attributable to:
Equity holders of the parent company		618	19 853
Non-controlling interests		301	43
Total comprehensive income		919	19 896
Earnings per share:
Weighted average number of shares		6 000 000	6 000 000
Basic and diluted, profit for the period attributable to ordinary equity hold ers of the parent (USD per share)		(3.34)	2.91

consolidated statement of financial position

For the year ended 31 December 2019 (in USD thousand, unless otherwise stated)

	Note	31 December 2019	31 December 2018
Assets
Non-current assets
Biological assets	17	35 202	37 399
Property, plant and equipment and intangible assets	18	58 325	44 155
Deferred tax assets	16	73	152
Other non-current assets	19	96	66
Total non-current assets		93 696	81 772
Current assets
Inventories	20	12 297	15 375
Biological assets	17	15 557	16 390
Trade and other receivables	21	17 734	16 434
Prepayments to suppliers	22	2 022	1 228
Prepayments for income tax	23	31	28
Cash and cash equivalents	24	4 478	14 346
Total current assets		52 119	63 801
Total assets		145 815	145 573
Equity and liabilities
Equity
Issued capital	25	78	68
Share premium		30 933	30 933
Foreign currency translation reserve		(111 110)	(131 732)
Retained earnings		219 945	209 284
Result for the period		(20 014)	17 441
Equity attributable to equity holders of the parent		119 832	125 994
Non-controlling interests	7	1 119	818
Total equity		120 951	126 812
Non-current liabilities
Interest-bearing loans and other financial liabilities	26	4 435	5 206
Deferred tax liability	16	269	529
Total non-current liabilities		4 704	5 735
Current liabilities
Trade and other payables	27	10 694	8 198
Deferred income	12	3 042	-
Advances received	28	469	703
Interest-bearing loans and other financial liabilities	26	5 955	4 125
Total current liabilities		20 160	13 026
Total liabilities		24 864	18 761
Total equity and liabilities		145 815	145 573

Management Report

consolidated statement of changes in equity

For the year ended 31 December 2019 (in USD thousand, unless otherwise stated)

Attributable to equity holders of the parent company
	Issued capi	Share premi	Foreign currency transla tion re	Retained	Result for		Non control ling inter	Total
	tal	um	serve	earnings	the period	Total	ests	equity
As at 31 December 2017	72	30 933	(132 271)	182 890	22 457	104 081	2 835	106 916
Profit for the
period Other compre	-	-	-	-	17 441	17 441	18	17 459
hensive income Total comprehen	-	-	2 412	-	-	2 412	25	2 437
sive income Allocation of	-	-	2 412	-	17 441	19 853	43	19 896
prior period result Сhange in the	-	-	-	22 457	(22 457)	-	-	-
structure of the Group (see note
7а) Exchange differ	-	-	(1 877)	3 937	-	2 060	(2 060)	-
ences	(4)	-	4	-	-	-	-	-
As at
31 December 2018 Loss for the peri	68	30 933	(131 732)	209 284	17 441	125 994	818	126 812
od Other compre	-	-	-	-	(20 014)	(20 014)	(2)	(20 016)
hensive income Total comprehen	-	-	20 632	-	-	20 632	303	20 935
sive income Allocation of	-	-	20 632	-	(20 014)	618	301	919
prior period result	-	-	-	17 441	(17 441)	-	-	-
Dividends	-	-	-	(6 780)	-	(6 780)	-
Exchange differ
ences	10	-	(10)	-	-	-	-	-
As at
31 December 2019	78	30 933	(111 110)	219 945	(20 014)	119 832	1 119	120 951

consolidated statement of cash flows

For the year ended 31 December 2019 (in USD thousand, unless otherwise stated)

	Note	2019	2018
Operating activities
(Loss) / profit before tax		(20 253)	17 575
Depreciation of property, plant and equipment and amortisation of intangi	9, 10,	3 869	2 822
ble assets	11
Net change in fair value of biological assets	17	23 316	3 220
Disposal of property, plant and equipment Disposal of biological assets		1 477 2 232	89 1 461
(Increase)/Decrease in other non-current assets		(30)	867
Finance income		(73)	(484)
Finance costs		924	2 034
Recovery of assets previously written-off	12	(71)	(141)
Impairment of property, plant and equipment		-	421
Expected credit loss on doubtful accounts receivable and prepayments to
suppliers	13	101	148
VAT written off	13	-	-
Working capital adjustments:
(Increase)/Decrease in trade and other receivables	21	(64)	13 797
Increase in prepayments to suppliers	22	(515)	(542)
Decrease/(Increase) in inventories	20	5 164	(4 496)
Decrease/(Increase) in trade and other payables and advances received	27,28	1 226	(13 592)
		17 303	23 179
Income tax paid		-	-
Net cash flows from operating activities		17 303	23 179
Investing activities
Purchase of property, plant and equipment		(11 560)	(13 832)
Increase in biological assets	17	(13 145)	(11 553)
Government subsidies		2 952	-
Effect of acquiring new companies		-	5 775
Loans issued to third parties		-	(43)
Net cash flows used in investing activities		(21 753)	(19 653)
Financing activities
Proceeds from borrowings		5 026	-
Repayment of borrowings		(4 030)	(4 131)
Interest received		56	364
Interest paid		(225)	(274)
Payment of dividends		(6 730)	-
Net cash flows used in financing activities		(5 903)	(4 041)
Net (decrease)/increase in cash and cash equivalents		(10 353)	(515)
Effect from translation into presentation currency		485	(97)
Cash and cash equivalents at 1 January		14 346	14 958
Cash and cash equivalents at 31 December		4 478	14 346

For translating results and financial position into a presentation currency, the Group applies IAS 21 "The Effects of Changes in Foreign Exchange Rates". Procedures and rules applied by the Group are specified in Note 2.3.

1. Corporate information

Ovostar Union Public Company Limited (referred to herein as the "Company") is a limited liability company incorporated on 22 March 2011 in Amsterdam under the laws of the Netherlands. Following resolution of the Extraordinary Meeting of Shareholders held in Amsterdam on 30 August 2018 the Company was redomiciled to Cyprus and on 29 November 2018 was registered with the Register of Companies of the Republic of Cyprus as a company continuing in the Republic of Cyprus. As of 31 December 2018 the Company's registered address is 22 Ierotheou Street, Strovolos, Nicosia 2028, Cyprus.

Principal activities of the Group include egg production, distribution, egg products manufacturing and production of related products. The largest shareholder of the Company is Prime One Capital Ltd., Cyprus whose principal activity is the holding of ownership interests in its subsidiary and strategic management.

The Group operates through a number of subsidiaries in Ukraine, Latvia, United Arab Emirates and British Virgin Islands (the list of the subsidiaries is disclosed in Note 7) and has a concentration of its business in Ukraine, where its production facilities are located. Subsidiary companies are registered under the laws of Ukraine, British Virgin Islands, Latvia and United Arab Emirates. The registered address and principal place of business of the subsidiary companies in Ukraine is 34 Petropavlivska Street, Kyiv, Ukraine.

Information on other related party relationships of the Group is provided in Note 29.

Total number of employees were presented as follows:

	31 December	31 December
	2019	2018
Production personnel	1 374	1 460
Administrative personnel	200	202
Other personnel	16	19
Total	1 590	1 681

The company is listed on Warsaw Stock Exchange.

The Group is controlled by the Beneficial Owners – Mr. Borys Bielikov and Mr. Vitalii Veresenko (hereinafter, the "Beneficial Owners")

The consolidated financial statements for the year ended 31 December 2019 were authorized by the Board of Directors on 23 April 2020.

2. Basis of preparation

2.1. Statement of compliance and basis of measurement

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS EU" hereinafter).

The companies of the Group maintain their accounting records under Ukrainian Accounting Standards ("UAS" hereinafter). UAS principles and procedures may differ from those generally accepted under IFRS EU. Accordingly, the consolidated financial statements, which have been prepared from the Group entities' UAS records, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS EU.

The consolidated financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date.

Items Measurement bases

Biological assets Fair value less costs to sell

Details of the Group accounting policies are included in Note 5.

2.2. Going concern basis

The consolidated financial statements are prepared on a going concern basis, under which assets are sold and liabilities are repaid in the ordinary course of business. The accompanying consolidated financial statements do not include adjustments that would need to be made in case if the Group was unable to continue as a going concern.

2.3. Functional and presentation currency

The functional currency of the Company is U.S. dollar (USD). The consolidated financial statements are presented in the Company's functional currency, that is, U.S. dollar (USD). The operating subsidiaries have Ukrainian Hryvnia (UAH) as their functional currency. All values are rounded to the nearest thousands, except when otherwise is indicated.

The USD has been selected as the presentation currency for the Group as: (a) management of the Group manages business risks and exposures, and measures the performance of its businesses in the USD; (b) the USD is widely used as a presentation currency of companies engaged primarily in agricultural; and (c) the USD is the most convenient presentation currency for non-Ukrainian users of these IFRS consolidated financial statements.

The Group translates its results and financial position into the presentation currency as follows:

• assets and liabilities for each statement of financial position presented (ie including comparatives) shall be translated at the closing rate at the date of that statement of financial position;
• income and expenses for each statement of comprehensive income or separate income statement presented (i.e. including comparatives) shall be translated at exchange rates at the dates of the transactions; and
• all resulting exchange differences shall be recognised in other comprehensive income.

During 2019 and 2018, the exchange rate had significant fluctuations. Consistent with IAS 21, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate. Considering significant depreciation of Ukrainian currency against major foreign currencies and seasonality of sales, Management of the Group decided to translate income and expense items at average quarterly rates. On consolidation, the assets and liabilities of the subsidiaries are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average quarterly rates, unless the exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in "Other comprehensive income" and accumulated in the "Foreign currency translation reserve".

Relevant exchange rates are presented as follows:

			Closing rate as at	Closing rate as at
			31 December 2019	31 December 2018
USD/UAH			23.6862	27.6883
EUR/UAH			26.4220	31.7141
USD/PLN			3.7952	3.7581
EUR/USD			1.1217	1.1446
	Average rate for	Average rate for	Average rate for	Average rate for
	the 1-st quarter	the 2-st quarter	the 3-st quarter	the 4-st quarter
	2019	2019	2019	2019
USD/UAH	27.3058	26.5615	25.2613	24.2606
EUR/UAH	31.0293	29.8327	28.1009	26.8544
USD/PLN	3.7917	3.8125	3.8907	3.8725
EUR/USD	1.1358	1.1240	1.1120	1.1074
	Average rate for	Average rate for	Average rate for	Average rate for
	the 1-st quarter	the 2-st quarter	the 3-st quarter	the 4-st quarter
	2018	2018	2018	2018
USD/UAH	27.3203	26.1788	27.3490	27.9502
EUR/UAH	33.5633	31.2706	31.8131	31.9137
USD/PLN	3.4039	3.5771	3.7056	3.7708
EUR/USD	1.2292	1.1925	1.1627	1.1413

3. Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2019. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
• Exposure, or rights, to variable returns from its involvement with the investee
• The ability to use its power over the investee to affect its returns

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee
• Rights arising from other contractual arrangements
• The Group's voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, noncontrolling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

4. Use of estimates and assumptions

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, due to uncertainty about these estimates, actual results recorded in future periods may differ from such estimates.

These consolidated financial statements include management's estimates regarding the value of assets, liabilities, revenues, expenses, and recognized contractual obligations. These estimates mainly include:

4.1. Impairment of property, plant and equipment

In accordance with IAS 36 "Impairment of Assets" the Group reviews the carrying amount of non-current tangible assets (mainly property, plant and equipment) to identify signs of impairment of these assets.

If there is an indication that an asset may be impaired, the Group uses a model of strategic planning in order to calculate the discounted cash flows (using the "value in use" method, as defined in IAS 36) and, thus, assess the recoverability of the carrying amount of property, plant and equipment. The model was based on budgets and forecasts approved by the management for the next 5 years.

Expected future cash flows reflect long-term production plans formed on the basis of past experience and market expectations. The plans take into account all relevant characteristics of poultry farming, including egg production, volume of egg processing, prices for main components of mixed fodder. Thus, the production capacity is the basis for forecasting the future production volume for each subsequent year and related production costs.

Levels of costs included in projected cash flows are based on current long-term production plans. When conducting impairment testing, recent levels of costs are taken into account, as well as the expected cost changes based on the current condition of operating activities and in accordance with the requirements of IAS 36. IAS 36 provides a number of restrictions on future cash flows, which may be recognized in respect of future restructuring and capital modernization expenses.

Other Information

Below are the key assumptions that formed the basis for forecasting future cash flows in the models:

• prices for main components of mixed fodder are based on internal forecasts of the Group's management;
• production data (production of eggs, safety of livestock, meat production volume, production of egg products) based on internal forecasts of the Group's management from past experience;
• selling prices for eggs, egg products and poultry meat are based on forecasts of the Group's management and market expectations.

Management believes that calculations of the recoverable amount are most sensitive to changes in such assumptions as the price of poultry meat, price of eggs and eggs product, price of poultry fodder and production data. Management believes that any reasonably possible change in key assumptions on which the recoverable amount of the Group is based will not cause the excess of carrying amount of the Group over its recoverable amount.

Application of IAS 36 requires extensive judgments by the management regarding estimates and assumptions related to future cash flows and discount rate. Given the nature of the current global economic environment, such assumptions and estimates have a high degree of uncertainty. Therefore, other similar assumptions may lead to significantly different results.

4.2. Fair value of biological assets

Estimation of fair value of biological assets is based on the discounted cash flow model. The fair value of biological assets might be affected by the fact that the actual future cash flows will differ from the current forecast, which typically occurs as a result of significant changes in any factors or assumptions used in the calculations.

Among such factors are:

• differences between actual prices and price assumptions used in estimating net realizable value of eggs;
• changes in productivity of laying hens;
• unforeseen operational problems inherent in the branch specificity;
• age of hens at the end of the reporting period;
• changes in production costs, costs of processing and products sales, discount and inflation rates and exchange rates that could adversely affect the fair value of biological assets.

The key assumptions concerning biological assets based on discounted cash flow approach are presented as follows:

• cost planning at each stage of poultry farming will remain constant in future periods;
• egg production volume will not be significantly changed;
• egg sale price in future periods;
• long-term inflation rate of Ukrainian UAH in future periods;
• discount rate for determining the present value of future cash flows expected from the biological assets (Note 17).

Management determined that calculations of the fair value of biological assets are the most sensitive to changes in such assumptions as the volume of egg production, cost planning and prices of eggs, eggs product and poultry meat. Management believes that any reasonably possible change in key assumptions will not cause any significant change in the fair value of biological assets.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

Although some of these assumptions are obtained from published market data, the majority of these assumptions are estimated based on the Group's historical and projected results.

Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarized in Notes 17, 32.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

In the principal market for the asset or liability.

Or

In the absence of a principal market, in the most advantageous market for the asset or liability.

4.3. Expected credit losses

Financial assets of the Group that are subject to IFRS 9's new expected credit loss model are represented by trade receivables. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables and contract assets. Cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

4.4. Useful lives of property, plant and equipment

The Group estimates useful lives of property, plant and equipment at least at the end of each financial year and, if expectations differ from previous estimates, changes are recorded as changes in accounting estimates in accordance with IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors". These estimates can have a significant impact on the carrying amount of property, plant and equipment and depreciation expenses during the period.

4.5. Deferred tax assets

Deferred tax assets are recognized for all unused tax losses to the extent that the inflow of taxable profit is possible, at the expense of which these losses may be implemented. Significant judgments are required from the management in determining the amount of deferred tax assets that can be recognized on the basis of the possible terms of receipt and the level of future taxable profit together with the future tax planning strategy.

5. Summary of significant accounting policies

5.1. Recognition and measurement of financial instruments

Financial instruments: key measurement terms

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is the price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the number of instruments held by the entity. This is the case even if a market's normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.

Valuation techniques such as discounted cash flow models or models based on recent arm's length transactions or consideration of financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows:

• Level one: Measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities,
• Level two: Valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and
• Level three: Valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs).

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses.

Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to the maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of the related items in the consolidated statement of financial position.

The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the gross carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.

Financial instruments: initial recognition

Financial instruments at fair value through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value adjusted for transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. After the initial recognition, an ECL allowance is recognised for financial assets measured at amortised cost and investments in debt instruments measured at fair value through other comprehensive income, resulting in an immediate accounting loss.

All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.

The Group uses discounted cash flow valuation techniques to determine the fair value of loans to related parties that are not traded in an active market. Differences may arise between the fair value at initial recognition, which is considered to be the transaction price, and the amount determined at initial recognition using a valuation technique with level 3 inputs. If any differences remain after calibration of model inputs, such differences are amortised on a straight-line basis over the term of the currency swaps, loans to related parties. The differences are immediately recognised in profit or loss if the valuation uses only level 1 or level 2 inputs.

5.2. Financial assets

Financial assets: Classification and subsequent measurement: measurement categories

The Group classifies financial assets in the following measurement categories: FVTPL, FVOCI and AC. The classification and subsequent measurement of debt financial assets depends on:

• i. the Group's business model for managing the related assets portfolio and
• ii. the cash flow characteristics of the asset.

As at 31 December 2019 and 31 December 2018 the Group did not hold financial assets at FVOCI.

Financial assets: Classification and subsequent measurement: business model

The business model reflects how the Group manages the assets in order to generate cash flows - whether the Group's objective is:

• i. solely to collect the contractual cash flows from the assets ("hold to collect contractual cash flows") or
• ii. to collect both the contractual cash flows and the cash flows arising from the sale of assets ("hold to collect contractual cash flows and sell") or, if neither of (i) and (ii) is applicable, the financial assets are classified as part of "other" business model and measured at FVTPL.

Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Group undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Factors considered by the Group in determining the business model include the purpose and composition of a portfolio, past experience on how the cash flows for the respective assets were collected, how risks are assessed and managed, how the assets' performance is assessed and how managers are compensated.

Financial assets: Classification and subsequent measurement: cash flow characteristics

Where the business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether the cash flows represent solely payments of principal and interest ("SPPI"). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are consistent with the SPPI feature. In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for credit risk, time value of money, other basic lending risks and profit margin.

Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed.

The Group holds the trade receivables with the objective to collect contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Details about the Group's impairment policies and the expected credit loss measurement are provided in Note 31.

Financial assets: Reclassification

Financial instruments are reclassified only when the business model for managing the portfolio as a whole changes. The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change in the business model. The entity did not change its business model during the current and comparative period and did not make any reclassifications.

Financial assets: Credit loss allowance for ECL

The Group assesses, on a forward-looking basis, the ECL for debt instruments measured at AC and FVOCI and for the exposures arising from loan commitments and financial guarantee contracts, for contract assets. The Group measures ECL and recognises Net impairment losses on financial and contract assets at each reporting date. The measurement of ECL reflects:

• i. an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes,
• ii. time value of money and
• iii. all reasonable and supportable information that is available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of future conditions.

Financial assets of the Group that are subject to IFRS 9's new expected credit loss model are represented by trade receivables. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables and contract assets. Cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

Financial assets: Write-off

Financial assets are written-off, in whole or in part, when the Group exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. The write-off represents a derecognition event. Indicators that there is no reasonable expectation of recovery include:

• the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains;
• the counterparty considers bankruptcy or a financial reorganisation;
• there is adverse change in the payment status of the counterparty as a result of changes in the national or local economic conditions that impact the counterparty.

The Group may write-off financial assets that are still subject to enforcement activity when the Group seeks to recover amounts that are contractually due, however, there is no reasonable expectation of recovery.

Financial assets: Derecognition

The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement whilst (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all the risks and rewards of ownership but not retaining control.

Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

Financial assets: Modification

The Group sometimes renegotiates or otherwise modifies the contractual terms of the financial assets. The Group assesses whether the modification of contractual cash flows is substantial considering, among other, the following factors: any new contractual terms that substantially affect the risk profile of the asset (e.g. profit share or equity-based return), significant change in interest rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit risk associated with the asset or a significant extension of a loan when the borrower is not in financial difficulties.

If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Group derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has occurred. The Group also assesses whether the new loan or debt instrument meets the SPPI criterion. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners.

In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally agreed payments, the Group compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are substantially different as a result of the contractual modification. If the risks and rewards do not change, the modified asset is not substantially different from the original asset and the modification does not result in derecognition. The Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss in profit or loss.

5.3. Effective interest rate method

The effective interest rate method is used to calculate the amortized cost of a financial asset and distribute interest income during the relevant period. The effective interest rate is the rate that enables discounting of estimated future cash receipts through the expected life of a financial asset or a shorter period, if applicable.

Revenues relating to debt instruments are recorded using the effective interest rate method, except for financial assets at fair value through profit or loss.

Financial assets at fair value through profit or loss - a financial asset is classified as at fair value through profit or loss if it is held for trading or designated at fair value through profit or loss.

5.4. Cash and cash equivalents

Cash and cash equivalents include cash on hand and cash in bank accounts and deposits with an original maturity date of three months or less and are stated at fair value.

5.5. Cash deposits

Cash deposits in the statement of financial position are held for the investment activities. For the purpose of the consolidated statement of cash flows, short-term deposits are included in the investing activities.

5.6. Impairment of financial assets

Financial assets, except for financial assets at fair value through profit or loss, at each reporting date are assessed for signs indicating impairment. Impairment loss is recognized when there is objective evidence of reduction of the estimated future cash flows on this asset as a result of one or more events that occurred after the financial asset was recorded in the accounting. For financial assets at amortized cost, the amount of impairment is calculated as the difference between the asset's carrying amount and present value of the expected future cash flows discounted using the effective interest rate.

Impairment loss directly reduces the carrying amount of all financial assets, except for accounts receivable on principal activities, carrying amount of which is reduced due to the allowance formed. If the accounts receivable on principal activities are uncollectible, they are written-off against the related allowance. Subsequently received reimbursements of amounts previously written-off are recorded in credit of the allowance account. Changes in the carrying amount of the allowance account are recorded in the profit and loss.

Except for equity instruments available for sale, if in a subsequent period the amount of impairment loss decreases and such decrease can be objectively related to an event occurring after the impairment was recognized, the impairment loss previously recognized is recovered by adjusting the items in the income statement. In this case, the carrying amount of financial investments at the date of recovery of impairment cannot exceed its amortized cost, which would be reflected in the case, if impairment was not recognized.

In respect of equity securities available for sale, any increase in fair value after recognition of impairment loss relates directly to equity.

5.7. Writing-off of financial assets

The Group writes-off a financial asset only if rights for cash flows under the corresponding contract terminated the treaty or if a financial asset and corresponding risks and rewards are transferred to other organization. If the Group does not transfer or retain all the principal risks and rewards of ownership of the asset and continues to control the transferred asset, it shall record its share in the asset and related liability in the amount of possible payment of corresponding amounts. If the Group retains all the principal risks and rewards of ownership of the transferred financial asset, it shall continue to account for the financial asset, and reflect a secured loan on income earned.

5.8. Financial liabilities and equity instruments issued by the Group

5.8. 1. Accounting as liabilities or equity

Debt and equity financial instruments are classified as liabilities or equity based on the substance of the corresponding contractual obligations.

5.8. 2. Equity instruments

Equity instrument is any contract confirming the right for a share in the company's assets remaining after deduction of all its liabilities. Equity instruments issued by the Group are recorded in the amount of generated income net of direct expenses for their issue.

5.8. 3. Liabilities under financial guarantee contracts

Liabilities under financial guarantee contracts are initially measured at fair value and subsequently recorded at the higher of:

• cost of contractual obligations determined in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets", and
• cost, less, where applicable, accumulated depreciation reflected in accordance with the principles of revenue recognition set forth below.

5.8. 4. Financial liabilities

Financial liabilities - measurement categories

Financial liabilities are classified as subsequently measured at amortised cost, except for (i) financial liabilities at fair value through profit or loss: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in securities), contingent consideration recognised by an acquirer in a business combination and other financial liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments. As of 31 December 2019 and 31 December 2018 the Group did not have financial guarantee contracts and loan commitments or financial liabilities at fair value through profit or loss.

Financial liabilities - derecognition

Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

An exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as substantial modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. In addition, other qualitative factors, such as the currency that the instrument is denominated in, changes in the type of interest rate, new conversion features attached to the instrument and change in loan covenants are also considered. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability.

Modifications of liabilities that do not result in extinguishment are accounted for as a change in estimate using a cumulative catch up method, with any gain or loss recognised in profit or loss, unless the economic substance of the difference in carrying values is attributed to a capital transaction with owners.

5.8. 5. Trade and other accounts payable

Trade payables are recognized when the counterparty fulfills its contractual obligations and measured at amortized cost using the effective interest rate.

5.8. 6. Loans and borrowings

Loans and borrowings are initially recognized at fair value less costs incurred in the transaction. Subsequently, loans and borrowings are stated at amortized cost; any difference between proceeds (net of transaction costs) and the amount of repayment is reflected in the income statement over the period for which loans and borrowings are issued using the effective interest rate method. Loans and borrowings are classified as current liabilities, unless the Group has an unconditional right to defer settlement of the obligation to at least one year after the date of balance sheet preparation.

5.8. 7. Writing-off of financial liabilities

The Group writes-off financial liabilities only when they are repaid, cancelled or expire.

5.9. Foreign currency transactions

Transactions in currencies other than the functional currency are initially recorded at exchange rates set on the dates of these transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates applicable at the reporting date. All realized and unrealized gains and losses resulting from exchange rate differences are included in profit or loss for the period.

5.10. Biological assets

Biological assets represented by the commercial herd and herd replacements are recorded at fair value less estimated selling and distribution expenses. Estimate of fair value of biological assets of the Group is based on discounted cash flow models, according to which the fair value of biological assets is calculated using present value of the expected net cash flows from biological assets discounted at the appropriate rate.

The Group recognizes a biological asset only where it controls an asset as a result of past events; it is probable that the economic benefits from the asset will flow to the Group; fair value or cost of an asset can be estimated with reasonable certainty.

Profit or loss arising on initial recognition of biological assets at fair value less estimated selling and distribution expenses is included in the consolidated income statement as incurred.

Agricultural products collected from a biological asset are measured at fair value less estimated selling and distribution expenses. Profit or loss arising on initial recognition of agricultural products at fair value, less estimated selling and distribution expenses, is recognized in the consolidated statement of comprehensive income.

5.11. Inventories

Inventories consist mainly of raw materials, package and packing materials, agricultural produce and finished goods. Inventories are valued at the lower of cost and net realisable value.

Cost of goods includes the cost of acquisition and, where appropriate, costs incurred in bringing inventories to their present condition and location. Cost is calculated using the weighted average method. Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognised in OCI, in respect to the purchases of raw materials.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

5.12. Property, plant and equipment

Property, plant and equipment are recorded at historical cost or deemed cost, equal to fair value at the date of transition to IFRS, less accumulated depreciation and accumulated impairment losses. Historical cost of an asset of property, plant and equipment includes (a) the purchase price, including non-recoverable import duties and taxes net of trade and other discounts; (b) any costs directly related to bringing an asset to the location and condition, which allow its functioning in accordance with the intentions of the Group's management; (c) initial assessment of the costs of dismantling and removal in the asset of property, plant and equipment and restoring the occupied territory; this obligation is assumed by the Group either upon the acquisition of an asset, or as a result of its operation for a certain period of time for the purposes not related to the production of inventories during this period. Cost of assets created in-house includes cost of materials, direct labor costs and an appropriate proportion of production overheads.

Construction in progress includes costs directly related to the construction of property, plant and equipment, including distribution of variable overheads associated with the construction and prepayments for the property, plant and equipment. Construction in progress is not depreciated. These assets are depreciated from the moment when they are used in economic activity, on the same basis as depreciation on other assets.

Subsequently capitalised costs include major expenditures for improvements and replacements that extend the useful lives of the assets or increase their revenue generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalisation are charged to the consolidated statement of comprehensive income as incurred.

Depreciable amount is the cost of an asset of property, plant and equipment, or any other amount, less its residual value. The residual value of an asset is the estimated amount that the company would receive to date from the sale of an item of property, plant and equipment, less estimated costs of disposal if the asset reached the age and condition, in which, presumably, it will be at the end of its useful life. Assets under finance lease are depreciated over the shorter of estimated useful life on the same basis as own assets or over the period of the relevant lease.

Depreciation is provided to write-off the depreciable amount over the useful life of an asset and is calculated using the straight-line method. Useful lives of the groups of property, plant and equipment are as follows:

Buildings	10 - 40 years
Plant and equipment	5 - 25 years
Vehicles	3 - 10 years
Furniture and fittings	3 - 5 years
Construction in progress and uninstalled equipment	No depreciation

The residual value, useful life and depreciation method are reviewed at the end of each financial year. Impact of any changes arising from estimates made in prior periods is recorded as a change in an accounting estimate.

Gains or losses arising from disposal or liquidation of an asset of property, plant and equipment, are defined as the difference between sales proceeds and carrying amount of an asset and recognized in profit or loss.

5.13. Impairment of property, plant and equipment

At the end of each reporting period the Group identifies signs of possible impairment of assets. If any such indication exists, the Group reviews the carrying amount of its items of property, plant and equipment to determine whether any signs of impairment exist due to depreciation. If any such indication exists, the expected recoverable amount of an asset is estimated to determine the amount of impairment losses, if any.

In order to determine the impairment losses, assets are grouped at the lowest levels for which it is possible to identify separately the cash flows (cash generating unit).

The recoverable amount is the higher of fair value less selling and distribution expenses and value of an asset in use. In assessing the value of an asset in use, the estimated future cash flows associated with the asset, are discounted to their present value using pre-tax discount rate that reflects current market estimates of time value of money and the risks inherent in the asset.

If, according to the estimates, the recoverable amount of an asset (cash generating unit) is less than its carrying amount, the carrying amount of an asset (cash generating unit) is reduced to the recoverable amount. An impairment loss is recognized immediately in the income statement, except when the asset is recorded at a revalued amount. In this case the impairment loss is considered as a revaluation decrease.

In cases where impairment losses are subsequently reversed, the carrying amount of the asset (cash generating unit) is increased to the revised estimate of recovery amount, however, in such a way that the increased carrying amount does not exceed the carrying amount that would be determined, if an impairment loss was not recognized in respect of an asset (cash generating unit) in previous years. Reversal of impairment loss is recognized immediately in the income statement, except when the asset is recorded at a revalued amount. In this case, the reversal of an impairment loss is considered as a revaluation increase.

5.14. Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets are not capitalized and expenditure is reflected in the income statement in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Amortization is calculated on a straight line basis over the useful life of an asset, which is 10 years.

5.15. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

5.16. Leases

A lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant and equipment) and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the right-ofuse asset and interest on the lease liability. The depreciation would usually be on a straight-line basis. In the statement of cash flows, a lessee separates the total amount of cash paid into principal (presented within financing activities) and interest (presented within either operating or financing activities) in accordance with IAS 7.

Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes noncancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. The initial lease asset equals the lease liability in most cases.

The lease asset is the right to use the underlying asset and is presented in the statement of financial position either as part of property, plant and equipment or as its own line item.

5.17. Contingent assets and liabilities

Contingent liabilities are not recognized in the consolidated financial statements. Such liabilities are disclosed in the notes to the consolidated financial statements, except where the probability of outflow of resources embodying economic benefits is insignificant.

Contingent assets are not recognized in the consolidated financial statements, but disclosed in the notes to the extent that it is probable that the economic benefits will flow to the Group.

5.18. Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation amount.

The amount recognized as a provision is the best estimate of compensation necessary to repay a current liability on the reporting date, which takes into account all the risks and uncertainties inherent in this liability. In cases where the amount of provision is estimated using cash flows that can be required to repay current liabilities, its carrying amount represents the present value of these cash flows.

Where there is a possibility that one or all of the economic benefits necessary to recover the amount of provision will be reimbursed by a third party, the receivables are recognized as an asset if there is actual assurance that such reimbursement will be received and the amount of receivables can be measured reliably.

5.19. Revenue recognition

Revenue is income arising in the course of the Group's ordinary activities. Revenue is recognised in the amount of transaction price. Transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring control over promised goods or services to a customer, excluding the amounts collected on behalf of third parties.

Revenue is recognised net of discounts, returns and value added taxes, export duties, other similar mandatory payments.

Group's contracts with customers are fixed-price contracts and generally include both advance payment and deferred payment for the same contracts. Generally, the sales are made with a credit term of 30-60 days, which is consistent with the market practice and consequently trade receivables are classified as current assets.

A receivable is recognised when the goods are delivered or dispatched based on delivery terms as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due (Note 21). Contract assets are immaterial and therefore not presented separately in the consolidated financial statements.

A contract liability is an entity's obligation to transfer goods or services to a customer for which the entity has received consideration from the customer.

The five-step model framework

The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This core principle is delivered in a five-step model framework:

• Identify the contract(s) with a customer
• Identify the performance obligations in the contract
• Determine the transaction price
• Allocate the transaction price to the performance obligations in the contract
• Recognise revenue when (or as) the entity satisfies a performance obligation.

Application of this guidance will depend on the facts and circumstances present in a contract with a customer and will require the exercise of judgment.

Step 1: Identify the contract with the customer

A contract with a customer are exists when:

• the contract has been approved by the parties to the contract;
• each party's rights in relation to the goods or services to be transferred can be identified;
• the payment terms for the goods or services to be transferred can be identified;
• the contract has commercial substance; and
• it is probable that the consideration to which the entity is entitled to in exchange for the goods or services will be collected.

If a contract with a customer does not yet meet all of the above criteria, the Group continues as to re-assess the contract going forward to determine whether it subsequently meets the above criteria.

Step 2: Identify the performance obligations in the contract

At the inception of the contract, the Group assess as the goods or services that have been promised to the customer, and identify as a performance obligation:

• a good or service (or bundle of goods or services) that is distinct;
• or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

Step 3: Determine the transaction price

The transaction price is the amount to which the Group expects to be entitled in exchange for the transfer of goods and services. When making this determination, the Group considers past customary business practices.

Step 4: Allocate the transaction price to the performance obligations in the contracts

Where a contract has multiple performance obligations, the Group will allocate the transaction price to the performance obligations in the contract by reference to their relative standalone selling prices. If a standalone selling price is not directly observable, the Group will need to estimate it using an adjusted market assessment approach or the expected cost plus a margin approach.

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Revenue is recognised as control is passed, either over time or at a point in time.

Control of an asset is defined as the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. These include:

• using the asset to produce goods or provide services;
• using the asset to enhance the value of other assets;
• using the asset to settle liabilities or to reduce expenses;
• selling or exchanging the asset;
• pledging the asset to secure a loan; and
• holding the asset.

The benefits related to the asset are the potential cash flows that may be obtained directly or indirectly.

5.20. Income tax

Income tax is calculated in accordance with the requirements of the applicable legislation of Ukraine. Income tax is calculated on the basis of financial results for the year adjusted to items that are not included in taxable income or that cannot be attributed to gross expenses. It is calculated using tax rates effective at the reporting date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base used to calculate taxable income. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recorded taking into account the degree of certainty in sufficient taxable income, which enables to realize temporary differences related to gross expenses.

Deferred tax is calculated at tax rates, which presumably will be applied during the sale of related assets or repayment of related liabilities.

Assets and liabilities on deferred income tax are offset when: a) the Group has a legally enforceable right to offset the recognized current income tax assets and liabilities; b) the Group intends either to perform settlement by offsetting counterclaims, or simultaneously sell the asset and settle the liability; c) deferred tax assets and liabilities relate to income taxes levied by the same taxation authority in each future period in which it is intended to repay or reimburse a significant amount of deferred tax liabilities and assets.

Deferred income tax is recognized in the income statement, except when it relates to items recognized directly in equity. In this case the deferred tax is also recognized in equity.

In 2019, Ukrainian corporate income tax was levied at a rate of 18% (2018: 18%).

Fixed agricultural tax: The majority of the Group companies that are involved in agricultural production (poultry farms and other entities engaged in agricultural production) benefit substantially from the status of an agricultural producer. These companies are exempt from income taxes and pay the Fixed Agricultural Tax instead (Note 16).

5.21. Value Added Tax

For the year ended 31 December 2019 and 2018, VAT was levied at two rates: 20% on Ukrainian domestic sales and imports of goods, works and services and 0% on export of goods and provision of works or services to be used outside Ukraine. In 2019 VAT rate remains at the same level.

VAT output equals the total amount of VAT collected within a reporting period, and arises on the earlier of the date of shipping goods to the customer or the date of receiving payment from the customer. VAT input is the amount that a taxpayer is entitled to offset against his VAT liability in the reporting period. According to Ukrainian legislation, rights to VAT input arise on the earlier of the date of payment to the supplier or the date goods are received.

5.22. Government grants

Government grants are stated at fair value when there is reasonable assurance that the grant will be received.

Ukrainian legislation provides a variety of tax benefits and subsidies for agricultural companies. Such benefits and subsidies are approved by the Supreme Council of Ukraine, the Ministry of Agrarian Policy, Ministry of Finance, local authorities. Under the applicable legislation, agricultural producers are entitled to use VAT benefit regarding agricultural transactions.

Government grants related to VAT

Upon introduction of a new agricultural support system in early 2017, Ukraine canceled specific VAT subsidies.

Early in 2016, under this program, the Group's companies are subject to special tax treatment for VAT (Note 12.b). The Group's enterprises, which qualify as agricultural producers, are entitled to retain the net VAT payable. VAT amounts payable are not transferred to the State, but credited to the entity's separate special account to support the agriculture activities of the Group. Net result on VAT operations, calculated as excess of VAT liability over VAT credit is charged to profit or loss. VAT receivable exceeding VAT liability is used as a reduction in tax liabilities of the next period.

In 2017, the State Budget for agricultural support envisages that support automatically distributed among agricultural producers proportionally based on sales of agricultural products by those producers on a monthly basis. The budget subsidy for a sector is calculated on a monthly basis and is proportional to overall VAT paid. According to the Law of Ukraine On Agricultural Support, all agricultural producers that apply for the subsidy must be included in the State Registry of Budget Subsidy Recipients. An agricultural producer is defined as a farm or a company that derived 75% of its sales over the last 12 reporting periods (months) from sales of agricultural products. From 2017 onwards, budget subsidies will be provided until 1 January 2022. The agricultural producers will be engaged in the production of farm animals, as well as fruit and vegetable farmers. For each agricultural producer, the amount of the subsidy is not to exceed the amount of VAT tax paid by the producers, and will be distributed on a monthly basis (Note 12.a).

Government grants are recognised as income over the periods necessary to match them with the related costs, or as an offset against finance costs when received as compensation for the finance costs for agricultural producers. To the extent the conditions attached to the grants are not met at the reporting date, the received funds are recorded in the Group's consolidated financial statements as deferred income.

Other government grants are recognised at the moment when the decision to disburse the amounts to the Group is made.

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received.

5.23. Partial compensation of interest rates on loans raised by the agricultural companies from financial institutions

The Group companies are entitled to compensation from the government of a share of interest expenses incurred on loans which were received for agricultural purposes. The amount of interest compensation depends on the term and purpose of the loan. Due to the fact that the payment of interest compensations depends on the capabilities of the country's budget, they are recognized on a cash basis as other operating income in the period of receipt.

5.24. Related party transactions

For the purposes of these consolidated financial statements, the parties are considered to be related if one of the parties has a possibility to control or considerably influence the operational and financial decisions of the other company. While considering any relation which can be defined as related party transactions it is necessary to take into consideration the substance of the transaction not only their legal form.

5.25. Reclassification

Certain comparative information presented in the consolidated financial statements for the year ended 31 December 2019 has been revised in order to achieve comparability with the presentation used in the consolidated financial statements for the year ended 31 December 2019. Such reclassifications and revisions were not significant to the Group`s consolidated financial statements.

6. New and amended standards

The following amended standards became effective from 1 January 2019, but did not have any material impact on the Group:

• IFRIC 23 "Uncertainty over Income Tax Treatments" (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019).
• Prepayment Features with Negative Compensation Amendments to IFRS 9 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019).
• Amendments to IAS 28 "Long-term Interests in Associates and Joint Ventures" (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019).
• Annual Improvements to IFRSs 2015-2017 cycle ‒ amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes on pages 46-82 form an integral part of these financial statements

Amendments to IAS 19 "Plan Amendment, Curtailment or Settlement" (issued on 7 February 2018 and effective for annual periods beginning on or after 1 January 2019).

(a) New and amended standards and interpretations adopted

January 2020 and effective for annual periods beginning on or after 1 January 2022)

The Group has not adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2019:

International Financial Reporting Standards ("IFRS")

§ IFRS 17 Insurance Contracts Amendments to existing standards and interpretations	not yet endorsed
§ Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture	not endorsed
§ Amendments to References to Conceptual Framework in IFRS Standards	1 January 2020
§ Amendments to IFRS 9, IAS 39 and IFRS 7 -Interest rate benchmark reform	1 January 2020
§ Amendments to IFRS 3 – Definition of a business	not yet endorsed
§ Amendments to IAS 1 and IAS 8 – Definition of Material	1 January 2020
§ Classification of liabilities as current or non-current – Amendments to IAS 1 (issued on 23	not yet endorsed

Financial Statements

Corporate Governance

Management Report

7. Subsidiaries and Non-controlling interests

As at 31 December 2019 and 2018 the Group included the following subsidiaries:

Name of the company	Business activities	31 December 2019	31 December 2018
Limited Liability Company "Ovostar Union"	Strategic management of subsidiary companies in Ukraine	100,0%	100,0%
Limited Liability Company "Ovostar"	Egg-products production and distribution (Ukraine)	100,0%	100,0%
Limited Liability Company "Yasensvit"	Breeder farms, production of hatching eggs, farms for growing young laying flock and for laying flock, production and distribution of shell eggs, poultry feed production (Ukraine)	100,0%	100,0%
Public Joint Stock Company "Poultry Farm Ukraine"	Production of shell eggs, assets holding (Ukraine)	92,0%	92,0%
Public Joint Stock Company "Malynove"	Production of shell eggs, assets holding (Ukraine)	94,0%	94,0%
Public Joint Stock Company "Krushynskyy Poultry Com plex"	Trading company, egg trading – non operational activity (Ukraine)	76,0%	76,0%
Limited Liability Company "Skybynskyy Fodder Plant"	In the process of liquidation (Ukraine)	98,6%	98,6%
"SIA" Ovostar Europe"	Trade company (Latvia)	89,0%	89,0%
SIA "Gallusman"	Production of shell eggs (Latvia)	89,0%	89,0%
SIA "EPEX"	Egg-products production (Latvia)	89,0%	89,0%
International Food Trade Lim ited	Trade company (British Virgin Islands)	100,0%	100,0%
OAE Food Trade FZE	Trade company (United Arab Emirates)	100,0%	100,0%
Limited Liability Company "BVV EQUIPMENT"	Non-operational activity (Ukraine)	100,0%	100,0%
Limited Liability Company "BV TRADING"	Non-operational activity (Ukraine)	100,0%	100,0%

The following tables summarize the information relating to each of the Group`s subsidiaries that has material NCI, before any intra-group elimination:

	PJSC		PJSC				Intra
	"Poultry		"Krushynsky		SIA		group
31 December 2019	Farm	PJSC	Poultry	"SIA" OE	"Gallus	SIA	elimina
	Ukraine"	"Malynove"	Complex"	Product"	man"	"EPEX"	tions	Total
NCI percentage	8,0%	6,0%	24,0%	11,0%	11,0%	11,0%
Non-current assets	2 182	21 189	-	(66)	242	31
Current assets	3 139	11 975	632	4 537	187	93
Non-current liabilities	-	-	(3)	-	-	-
Current liabilities	(916)	(24 729)	13	(5 093)	(74)	(127)
Net assets	4 405	8 435	642	622	355	(3)
Carrying amount of NCI	352	506	154	68	39	-	-	1 119
Revenue	1 689	7 934	-	24 648	10	1
Profit (loss)	(876)	374	4	446	(30)	(7)
OCI	1 883	1 647	93	(135)	389	-
Total comprehensive income	1 007	2 021	97	311	359	(7)
Profit (loss) allocated to NCI	(70)	22	1	49	(3)	(1)		(2)
OCI allocated to NCI	152	100	22	(14)	43	-		303
Cash flows from operating activi
ties	-	69	-	(724)	-	-
Cash flows from investment activi
ties	-	(3 020)	-	-	-	-
Cash flows from financing activi
ties (dividend to NCI: nil)	(1)	2 952	-	-	18	-
Net (decrease)/ increase in cash
and cash equivalents	(1)	1	-	(724)	18	-

31 December 2018	PJSC "Poultry Farm Ukraine"	PJSC "Malynove"	PJSC "Krushynsky Poultry Complex"	"SIA" OE Product"	SIA "Gallus man"	SIA "EPEX"	Intra group elimina tions	Total
NCI percentage	8,0%	6,0%	24,0%	11,0%	11,0%	11,0%
Non-current assets	862	14 059	-	9	218	-
Current assets	4 058	2 909	546	4 282	176	4
Non-current liabilities	-	(247)	(3)	-	-	-
Current liabilities	(254)	(9 648)	10	(5 308)	(402)	-
Net assets	4 666	7 073	553	(1 017)	(8)	4
Carrying amount of NCI	373	424	133	(111)	(1)	-	-	818
Revenue	4 339	1 789	-	15 744	1	1
Profit (loss)	(1 521)	4 691	(5)	(1 109)	(12)	-
OCI	194	74	23	(5)	-	-
Total comprehensive income	(1 327)	4 765	18	(1 114)	(12)	-
Profit allocated to NCI	(122)	281	(1)	(139)	(1)	-		18
OCI allocated to NCI	16	4	6	(1)	-	-		25
Cash flows from operating activi
ties	1	(905)	-	-	-	-
Cash flows from investment activi
ties	-	3	-	-	-	-
Cash flows from financing activi ties (dividend to NCI: nil) Net (decrease)/ increase in cash	(1)	-	-	-	18	-
and cash equivalents	-	(902)	-	-	18	-

8. Segment information

All of the Group's operations are located within Ukraine.

Segment information is analyzed on the basis of the types of goods supplied by the Group's operating divisions. The Group's reportable segments under IFRS 8 are therefore as follows:

Egg operations segment		sales of egg
		sales of chicken meat
Egg products operations segment		sales of egg processing products
Oilseed operations segment		sales of sunflower oil, rapeseed oil and related

The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 5. Sales between segments are mainly carried out at market prices. Operating profit before tax represents segment result. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

For the purposes of monitoring segment performance and allocating resources between segments:

• All assets are allocated to reportable segments.
• All liabilities are allocated to reportable segments.

The following table presents revenue, results of operations and certain assets and liabilities information regarding segments for the year ended 31 December 2019 and 2018:

	Operations segment
2019	Egg	Egg products	Oilseed	Consolidated
Revenue	137 329	50 043	-	187 372
Inter-segment revenue	(66 246)	(16 472)	-	(82 718)
Revenue from external buyers	71 083	33 571	-	104 654
Loss before tax	(21 579)	1 326	-	(20 253)

	Operations segment
2018	Egg	Egg products	Oilseed	Consolidated
Revenue	154 889	46 320	1 059	202 268
Inter-segment revenue	(63 903)	(12 339)	(1 059)	(77 301)
Revenue from external buyers	90 986	33 981	-	124 967
Profit before tax	14 908	2 667	-	17 575

In 2019 and 2018 no sales were settled by barter transactions.

Segment assets, liabilities and other information regarding segments as at 31 December 2019 and 2018 were presented as follows:

31 December 2019	Operations segment
	Egg	Egg products	Oilseed	Consolidated
Total segment assets	130 039	15 669	107	145 815
Total segment liabilities	23 768	1 096	-	24 864
Addition to property, plant and equipment and
intangible assets	11 077	483	-	11 560
Net change in fair value of biological assets and
agricultural produce	(23 316)	-	-	(23 316)
Depreciation and amortization	(3 483)	(377)	(9)	(3 869)
Interest income	49	24	-	73
Interest on debts and borrowings	(548)	-	-	(548)
Income tax expense	239	(2)	-	237

	Operations segment
31 December 2018	Egg	Egg products	Oilseed	Consolidated
Total segment assets	128 213	16 794	566	145 573
Total segment liabilities	17 665	1 096	-	18 761
Addition to property, plant and equipment and intangible assets	9 625	4 214	-	13 839
Net change in fair value of biological assets and
agricultural produce	(3 220)	-	-	(3 220)
Depreciation and amortization	(2 563)	(251)	(8)	(2 822)
Interest income	460	24	-	484
Interest on debts and borrowings	(711)	-	-	(711)
Income tax expense	(51)	(65)	-	(116)

The following table presents information about revenue from external buyers divided by geographic location for the year ended 31 December 2019 and 2018:

	Operations segment
2019 (audited)	Egg	Egg products	Total
Type of goods or service
Goods	71 044	33 568	104 612
Services	39	3	42
Total revenue from contracts with customers	71 083	33 571	104 654
Geographical markets
Ukraine	36 516	17 351	53 867
Middle East	26 807	4 241	31 048
European Union	5 712	10 607	16 319
CIS	173	36	209
Africa	808	251	1 059
Other	1 067	1 085	2 152
Total revenue from contracts with customers	71 083	33 571	104 654

Revenue from external buyers divided by geographic location for the year ended 31 December 2019 and 2018 (continued):

		Operations segment
2018 (audited)	Egg	Egg products	Total
Type of goods or service
Goods	90 946	33 741	124 687
Services	40	240	280
Total revenue from contracts with customers	90 986	33 981	124 967
Geographical markets
Ukraine	52 760	16 469	69 229
Middle East	29 679	2 422	32 101
European Union	6 551	13 886	20 437
CIS	-	47	47
Africa	1 424	814	2 238
Other	572	343	915
Total revenue from contracts with customers	90 986	33 981	124 967

Revenue for the year ended 31 December 2019 from the two biggest customers amounted to USD 6 763 thousand and USD 6 407 thousand (2018: USD 11 049 thousand and USD 9 991 thousand, respectively), arising from sales in the egg operations segment.

9. Cost of sales

	2019	2018
Costs of inventories recognised as an expense	(58 686)	(54 100)
Packaging costs	(7 585)	(6 794)
Cost of goods purchased for resale	(6 884)	(19 019)
Wages, salaries and social security costs	(8 459)	(6 300)
Amortisation, depreciation and impairment	(3 417)	(2 670)
Other expenses	(2 609)	(2 165)
Total	(87 640)	(91 048)

10. Selling and distribution costs

	2019	2018
Transportation expenses	(6 461)	(6 896)
Wages, salaries and social security costs	(719)	(636)
Cost of materials	(680)	(616)
Marketing and advertising expenses	(99)	(213)
Amortisation, depreciation and impairment	(80)	(21)
Other expenses	(847)	(473)
Total	(8 886)	(8 855)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes on pages 46-82 form an integral part of these financial statements

11. Administrative expenses

	2019	2018
Wages, salaries and social security costs	(1 145)	(831)
Legal, audit and other professional fees	(372)	(439)
Service charge expenses	(598)	(447)
Cost of materials	(240)	(169)
Amortisation, depreciation and impairment	(372)	(131)
Other expenses	(151)	(96)
Total	(2 878)	(2 113)

12. Other operating income

	Note	2019	2018
Income from refund under the special legislation:
Government subsidies	a)	239	-
Total income from refund under the special legislation		239	-
Gain on recovery of assets previously written off		71	141
Gain on disposal of property plant and equipment		6	86
Other income		207	285
Total		523	512

Recovery of assets previously written-off mainly represents amounts of inventory surplus identified in the reporting period during the stock-taking and recovery of amounts previously recognized as doubtful.

a) Government subsidies

On 7 February 2018, the Cabinet of Ministers of Ukraine approved the procedure to obtain livestock sector state support. During the year ended 31 December 2019, the Group received government grants in accordance to the compensation program for construction and reconstruction of livestock farms in amount of USD 2 952 thousand. Government grants are presented in the statement of the financial position as deferred revenues, which is recognised in profit or loss on a systematic basis over the useful life of the related assets.

	2019	2018
Impairment of doubtful accounts receivable and prepayments to suppliers	(101)	(148)
Impairment of property, plant and equipment	-	(421)
Disposals of fixed assets	(1 477)	(84)
Fines and penalties	(36)	(57)
Other expenses	(245)	(408)
Total	(1 859)	(1 118)

13. Other operating expenses

As a result of two accidents that occurred at the Group's production sites in Vasilkiv, Kyiv region on June 4, 2019 and August 7, 2019 two poultry houses were destroyed beyond repair and written off at their actual amortized cost. Carrying amount of the PPE written off amounted to USD 848 thous. (04.06.2019) and USD 629 thous. (07.08.2019). The property and equipment destroyed in the fire August 7, 2019 was insured. The Company has been negotiating with the insurer and expects a 100% recovery of the loss incurred.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes on pages 46-82 form an integral part of these financial statements

14. Finance cost

	2019	2018
Interest on debts and borrowings Interest on financial lease	(548) -	(711) -
Foreign currency exchange loss Total	(376) (924)	(1 323) (2 034)
15. Finance income
	2019	2018

	2019	2018
Interest income	73	484
Total	73	484

16. Income tax

Companies of the Group that are involved in agricultural production pay the Fixed Agricultural Tax (the FAT) in accordance with the applicable laws. The FAT is paid in lieu of corporate income tax, land tax, duties for geological survey works and duties for trade patents.

The FAT is calculated by local authorities and depends on the area and valuation of land occupied. This tax regime is valid indefinitely. FAT does not constitute an income tax, and as such, is recognized in the statement of comprehensive income in administrative expenses.

During the year ended 31 December 2019 and 2018, the Group companies which have the status of the Corporate Income Tax (the "CIT") payers in Ukraine were subject to income tax at a 18% rate. The deferred income tax assets and liabilities as of 31 December 2019 were measured based on the tax rates expected to be applied to the period when the temporary differences are expected to reverse.

	2019	2018
Current income tax	(2)	(106)
Deferred tax	239	(10)
Income tax (expense)/benefit reported in the income statement	237	(116)

The major components of income tax expense for year ended 31 December 2019 and 2018 were:

Reconciliation between tax expense and the product of accounting profit multiplied by Ukraine's domestic tax rate for the years ended 31 December 2019 and 2018 was as follows:

	2019	2018
Accounting profit before income tax	(20 253)	17 575
At Ukraine's statutory income tax rate of 18% (2018: 18%)	(3 646)	3 164
Tax effect of:
Income generated by FAT payers (exempt from income tax)	(412)	(1 197)
Current year losses for which no deferred tax asset was recognised at a rate of 0% (1)	513	(323)
Effect of expenses that are not deductible in determining taxable profit	3 366	(1 534)
Effect of translation to presentation currency	(58)	6
Income tax expense/(benefit)	(237)	116

(1) Current year (income)/losses for which no deferred tax asset was recognized relate to Ovostar Union Public Company Limited, the Cyprus company and International Food Trade Limited. The income tax rate in the BVI is 0%, Cyprus is 12.5%, Latvia is 0%.

Deferred tax

As at 31 December 2019 and 2018, deferred tax assets and liabilities comprised the following:

	31 December 2019	Recognized in statement of comprehensive income	Effect of trans lation into presentation currency	31 December 2018
Advances received and other payables	5	4	1	-
Prepayments to suppliers	4	(18)	3	19
Trade and other receivables	9	(52)	8	53
Inventories	55	(40)	13	82
Tax losses	656	396	36	224
Unrecognized deferred tax assets	(656)	(391)	(39)	(226)
Netted off against deferred tax assets	73	(101)	22	152
Property, plant and equipment and intangible assets	(254)	340	(77)	(517)
Trade and other receivables	(1)	(1)	-	-
Advances received and other payables	(14)	1	(3)	(12)
Netted off against deferred tax liabilities	(269)	340	(80)	(529)
Net deferred tax asset/(liability)	(196)	239	(58)	(377)

	31 December 2018	Recognized in statement of comprehensive income	Effect of trans lation into presentation currency	31 December 2017
Prepayments to suppliers	19	11	-	8
Trade and other receivables	53	(85)	1	137
Inventories	82	72	1	9
Tax losses	224	-	4	220
Unrecognized deferred tax assets	(226)	1	(4)	(223)
Netted off against deferred tax assets	152	(1)	2	151
Property, plant and equipment and intangible assets	(517)	(18)	(7)	(492)
Advances received and other payables	(12)	9	-	(21)
Netted off against deferred tax liabilities	(529)	(9)	(7)	(513)
Net deferred tax asset/(liability)	(377)	(10)	(5)	(362)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are presented in the consolidated statement of financial position as at 31 December 2019 and 2018:

	31 December	31 December
	2019	2018
Non-current assets	73	152
Long term liabilities	(269)	(529)
Net deferred tax asset/(liability)	(196)	(377)

17. Biological assets

As at 31 December 2019 and 2018 commercial and replacement poultry were presented as follows:

	31 December 2019		31 December 2018
	Number, thousand heads	Carrying value	Number, thousand heads	Carrying value
Non-current biological assets
Replacement poultry
Hy-line	3 827	35 202	3 650	37 399
Total non-current biological assets	3 827	35 202	3 650	37 399
Current biological assets
Commercial poultry
Hy-line	4 234	15 557	3 964	16 390
Total current biological assets	4 234	15 557	3 964	16 390
Total biological assets	8 061	50 759	7 614	53 789

Classification of biological assets into non-current and current component is based on the life cycle of a biological asset. Biological assets that will generate cash flow more than one year are classified as non-current biological assets, biological assets that will generate cash flow less than one year are classified as current biological assets.

Reconciliation of commercial and replacement poultry carrying values for the year ended 31 December 2019 and 2018

	2019	2018
As at 01 January	53 789	46 419
Increase in value as a result of assets acquisition	405	474
Increase in value as a result of capitalization of cost	12 739	11 079
Income/(Losses) from presentation of biological assets at fair value	(23 316)	(3 220)
Decrease in value as a result of assets disposal	(2 232)	(1 461)
Exchange differences	9 374	498
As at 31 December	50 759	53 789

was presented as follows:

For the year ended 31 December 2019 the Group produced shell eggs in the quantity of 1 587 mln items (31 December 2018 1 625 mln).

Fair value of biological assets was estimated by the Group's specialists which have experience in valuation of such assets. Fair value was calculated by discounting of expected net cash flow (in nominal measuring) at the moment of eggs produced, using corresponding discount rate which is equal to 14.00% (31 December 2018: 23.30%). Management supposes that sale price and production and distribution costs fluctuations will comply with forecasted index of consumer price in Ukraine. The major assumptions were performed on the basis of internal and external information and it reflected Management's assessment of the future agricultural prospect.

Biological assets of the Group are measured at fair value within Level 3 of the fair value hierarchy.

Based on the current situation in Ukraine that provides a high degree of uncertainty in relation to many of the assumptions in the biological assets revaluation model, and guided by the prudence concept, the Group used conservative approach for calculation of fair value of biological assets as at 31 December 2019.

Value measurement is a maximum value exposed to the following assumptions which were used in fair value calcula-

2019 2018
0.069 (1.63) 0.072 (1.98)
16.87% 23.30%
104.00% 109.80%
770 770

Changes in key assumptions that were used in fair value estimation of biological assets had the following influence on the value of biological assets as at 31 December 2019 and 2018:

	2019	2018
1% decrease in egg sale price	(701)	(1 101)
1% increase in discount rate	(664)	(710)
1% increase in long-term inflation rate of Ukrainian hrivnya	17	112

18. Property, plant and equipment and intangible assets

					Construction
					-in-progress
		Plant and		Furni	and unin	Intangi
		equip		ture and	stalled	ble as
Cost or valuation	Buildings	ment	Vehicles	fittings	equipment	sets	Total
As at 31 December 2017	16 685	26 532	909	1 117	880	24	46 147
Additions	2 415	2 373	140	43	8 850	18	13 839
Transfer	1 136	701	463	(637)	(1 663)	-	-
Impairment assessment	(421)	-	-	-	-	-	(421)
Disposals	(168)	(1 260)	(1)	(7)	(16)	-	(1 452)
Currency translation difference	212	365	(3)	14	4	-	592
As at 31 December 2018	19 859	28 711	1 508	530	8 055	42	58 705
Additions	950	477	221	84	9 806	22	11 560
Transfer	2 252	9 304	116	167	(11 839)	-	-
Impairment assessment	-	-	-	-	-	-	-
Disposals	(966)	(1 458)	(24)	(37)	(2)	(1)	(2 488)
Currency translation difference	3 495	5 896	286	115	886	9	10 687
As at 31 December 2019	25 590	42 930	2 107	859	6 906	72	78 464
Depreciation and amorti zation
As at 31 December 2017	(4 155)	(8 019)	(428)	(320)	-	(8)	(12 930)
Depreciation and amor	(772)	(1 855)	(117)	(76)	-	(2)	(2 822)
tization charge
Disposals	101	1 255	1	6	-	-	1 363
Currency translation difference	(44)	(111)	(4)	(2)	-	-	(161)
As at 31 December 2018	(4 870)	(8 730)	(548)	(392)	-	(10)	(14 550)
Depreciation and amor	(845)	(2 686)	(190)	(138)	-	(10)	(3 869)
tization charge Disposals	359	599	23	30	-	-	1 011
Currency translation
difference	(882)	(1 676)	(105)	(65)	-	(3)	(2 731)
As at 31 December 2019	(6 238)	(12 493)	(820)	(565)	-	(23)	(20 139)
Net book value
As at 31 December 2019	19 352	30 437	1 287	294	6 906	49	58 325
As at 31 December 2018	14 989	19 981	960	138	8 055	32	44 155
As at 31 December 2017	12 530	18 513	481	797	880	16	33 217

As at 31 December 2019 construction-in-progress and uninstalled equipment also included prepayments for the property, plant and equipment which amounted to USD 701 thousand (2018: USD 991 thousand).

As at 31 December 2019, included within property, plant and equipment were fully depreciated assets with the original cost of USD 3 722 thousand (2018: USD 2 960 thousand).

During the year that ended at 31 December 2019 the Group expenses for constructions of property plant and equipment amounted to USD 7 152 thousand (2018: USD 8 043 thousand).

19. Other non-current assets

Other non-current assets include loans for apartments in amounts USD 96 thousand as at 31 December 2019 and USD 66 thousand as at 31 December 2018.

20. Inventories

	31 December 2019	31 December 2018
Raw materials	3 362	6 413
Agricultural produce and finished goods	4 931	5 454
Package and packing materials	1 713	1 380
Work in progress	650	198
Other inventories	1 765	2 036
(Less: impairment of agricultural produce and finished goods)	(124)	(106)
Total	12 297	15 375

21. Trade and other receivables

	31 December 2019	31 December 2018
Trade receivables	11 902	12 232
VAT for reimbursement	5 869	4 028
Other accounts receivable	196	388
Credit loss allowance	(233)	(214)
Total	17 734	16 434

Trade receivables from third parties are non-interest bearing and are generally on 30-90 days credit terms. For larger customers the Group grants credit for up to 45-180 days.

Other accounts receivable includes financial assistance Velis in amount USD 43 thousand as at 31 December 2019 which will be repaid 11 November 2020.

Trade and other receivables net of impairment loss provisions denominated in the following currencies:

	31 December 2019	31 December 2018
UAH	13 630	11 303
USD	1 383	3 164
EUR	2 721	1 967
Total	17 734	16 434

22. Prepayments to suppliers

As at 31 December 2019 prepayments to suppliers included prepayments for the goods and services amount to USD 2 022 thousand (2018: USD 1 228 thousand).

23. Prepayments for income tax

As at 31 December 2019 prepayments for income tax amount to USD 31 thousand (2018: USD 28 thousand).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes on pages 46-82 form an integral part of these financial statements

24. Cash and cash equivalents

	Note	31 December 2019	31 December 2018
Cash in banks	(a)	4 084	13 023
Restricted cash	(b)	379	1 313
Cash on hand		15	10
Total		4 478	14 346

(a) Cash in banks by country of bank location denominated in the following currencies:

	Currency	31 December 2019	31 December 2018
Ukraine	UAH	2 682	576
Ukraine	USD	107	552
Ukraine	EUR	401	1 755
Total in Ukraine		3 190	2 883
Latvia	USD	22	843
Latvia	EUR	686	678
Total in Latvia		708	1 521
United Kingdom	USD	387	9 549
United Kingdom	EUR	178	236
Total in United Kingdom		565	9 785
Netherlands	EUR	-	4
Total in Netherlands		-	4
Denmark	USD	-	143
Total in Denmark		-	143
Total cash in banks		4 463	14 336

(b) Restricted cash

As of 31 December 2019 cash in amount of Euro 379 thousand was deposited with Ukrsibbank as collateral for the letter of credit issued by the Bank and used as the payment method under Equipment Purchase Agreement between the Company and Big Dutchman International GMBH.

25. Equity

Issued capital and capital distribution

For the year ended 31 December 2019 there were no changes in issued capital. As referred to in Note 1, the Company was incorporated on 22 March 2011.

The Company's authorized share capital amounts to EUR 225 000 and consists of 22 500 000 ordinary shares with a nominal value of EUR 0.01 each. As at 31 December 2011, 6 000 000 ordinary shares were issued and fully paid. In June 2011 the shares of the Company were listed on the Warsaw Stock Exchange.

At 31 December 2019 and 2018 the shareholder interest above 5% in the Share capital of Company was as follows:

	31 December 2019	31 December 2018
Prime One Capital Ltd.	67.93%	67.93%
Generali Otwarty Fundusz Emerytalny	10.93%	9.94%
FAIRFAX FINANCIAL Holdings Limited	5.35%	5.35%
AVIVA Otwarty Fundusz Emerytalny Aviva BZ WBK	5.02%	5.02%

Foreign currency translation reserve

The Company's share capital has been converted at the exchange rate prevailing at the reporting date. The EUR 60 000 (equivalent to 6 000 000 shares) has been converted into USD 77 691 (31 December 2018: USD 68 000). The result arising from exchange rate differences has been recorded in the "Foreign currency translation reserve".

The foreign currency translation reserve is used also to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Dividends payable of the Company

Share premium

As has been mentioned previously, in June 2011 the Group's shares have been placed on WSE. As a result of the transaction, USD 33 048 thousand was raised while the IPO costs amounted to USD 2 115 thousand. In these financial statements funds raised as a result of IPO are reflected in share premium as at 31 December 2011. For the year ended 31 December 2019 and 2018, there were no movements in share premium.

Dividends payable of the Company

	30 June 2019	30 June 2019
Dividends on ordinary shares declared
Final dividend ( 1.00 EUR per share )	6 000 tEUR	6 780 tUSD

On 7 June 2019 the Board of Directors approved of the final dividend of 1 EUR per share, equivalent to approximately EUR 6 000 thousand and USD 6 780 thousand out of the profit of the year 2018.

26. Interest-bearing loans and other financial liabilities

		Effective
	Currency	interest rate, %	Maturity	31 Dec-2019	31 Dec-2018
Current interest-bearing loans and other financial liabilities
Landesbank Berlin AG / AKA	EUR	2.25% +EURIBOR	30.12.2021	2 401	2 450
Ausfuhrkredit-Gesellschaft mbH		(6m)
loan
Landesbank Berlin AG loan	EUR	1.65% +EURIBOR	30.12.2020	797	1 651
		(6m)
UkrSibbank	EUR	2.95%	30.04.2020	2 729	-
Other current loans	UAH	-	-	28	24
Total current interest-bearing loans and other financial liabilities				5 955	4 125
Non-current interest-bearing loans and other financial liabilities
Landesbank Berlin AG / AKA	EUR	2.25% +EURIBOR	30.12.2021	2 192	4 456
Ausfuhrkredit-Gesellschaft mbH		(6m)
loan
Landesbank Berlin AG loan	EUR	1.65% +EURIBOR	30.12.2020	-	750
		(6m)
PRIME ONE CAPITAL LIMITED	EUR	3%	10.07.2021	2 243	-
Total non-current interest-bearing loans and other financial liabili
ties				4 435	5 206
Total interest-bearing loans and other financial liabilities				10 390	9 331

The Interest-bearing loans from Landesbank Berlin AG and AKA Ausfuhrkredit-Gesellschaft mbH has been covered of Euler Hermes AG.

In March 2020, the Group has concluded an additional agreement and established new terms of repayment of the loan at UkrSibbank - 30.09.2020

Covenants. The Group's loan agreements contain a number of covenants and restrictions, which include, but are not limited to, financial ratios and other legal matters. Covenant breaches generally permit lenders to demand accelerated repayment of principal and interest.

As at 31 December 2019 and 2018 the Group was not in breach of any financial covenants which allow lenders to demand immediate repayment of loans.

	31 December 2018	Financing cash flow	Financial cash flow received	Increase (as a result of ac cruals and other)	Exchange differences	31 December 2019
Interest-bearing loans	9 827	(4 030)	5 026	-	(237)	10 586
Interest expenses	(520)	-	-	285	11	(224)
Other borrowings	24	-	-	-	4	28
Total	9 331	(4 030)	5 026	285	(222)	10 390

	31 December 2017	Financing cash flow	Financial cash flow received	Increase (as a result of ac cruals and other)	Exchange differences	31 December 2018
Interest-bearing loans	14 577	(4 131)	-	-	(619)	9 827
Interest expenses	(983)	-	-	433	30	(520)
Other borrowings	24	-	-	-	-	24
Total	13 618	(4 131)	-	433	(589)	9 331

27. Trade and other payables

	31 December	31 December
	2019	2018
Trade payables	8 749	6 701
Employee benefit liability	607	475
Taxes payable	307	222
Liability for unused vacation	761	517
VAT liabilities	77	188
Income tax payables	25	22
Other payables	168	73
Total	10 694	8 198

28. Advances received

As at 31 December 2019 advances received amount to USD 469 thousand (2018: USD 703 thousand).

29. Related party disclosures

For the purposes of these consolidated financial statements, the parties are considered to be related, if one of the parties has the ability to exercise control over the other party or influence significantly the other party in making financial and operating decisions. Considering the transactions with each possible related party, particular attention is paid to the essence of relationships, not merely their legal form.

Related parties may enter into transactions, which may not always be available to unrelated parties, and they may be subject to such conditions and such amounts that are impossible in transactions with unrelated parties.

According to the criteria mentioned above, related parties of the Group are divided into the following categories:

(A). Key management personnel;

(B). Companies which activities are significantly influenced by the Beneficial Owners;

(C). Other related parties.

The following companies and individuals are considered to be the Group's related parties as at 31 December 2019, and 2018:

(A). Key management personnel 2019:	Position:
Borys Bielikov	Executive Director / CEO
Vitalii Veresenko	Non-executive director
Sergii Karpenko	Non-executive director
Arnis Veinbergs	Deputy CEO in charge of Production activity
Karen Arshakyan	Non-executive director
Vitalii Voron	Production director

Key management personnel 2018:	Position:
Borys Bielikov	Executive Director / CEO
Vitalii Veresenko	Non-executive director
Marc van Campen	Non-executive director
Sergii Karpenko	Non-executive director
Vladimir Polishchuk	Chief Financial Officer
Arnis Veinbergs	Deputy CEO in charge of Production activity
Vitalii Voron	Production director
Liliia Chernyak	HR director

(B). Companies which activities are significantly influenced by the Key management personnel

Aleksa LTD LLC 2019/2018

As at 31 December 2019, and 2018 trade accounts receivable from related parties and advances issued to related parties were presented as follows:

	31 December 2019	31 December 2018
Prepayments to related parties
(B). Companies which activities are significantly influenced by
the Beneficial Owners:
Aleksa LTD LLC	53	45
Total	53	45

Management Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes on pages 46-82 form an integral part of these financial statements

Compensation of key management personnel of the Group

The amount of remuneration of key management personnel of the group for the year ended 31 December 2019, and 2018 was presented as follows:

	2019	2018
Salaries and contribution to social security fund (short-term employee benefits):
Marc van Campen	29	29
Vitalii Voron	21	16
Vladimir Polishchuk	10	18
Other key management personnel	404	264
Total	464	327

(C). Other related parties:

For the year ended 31 December 2019, and 2018 the Group has no other related parties.

30. Commitments and contingencies

Contingent liabilities

Operating environment.

The Company operates in Ukraine. Although Ukrainian economy is referred to as market, it still has certain features of an emerging economy. The mentioned traits include but are not limited to poor liquidity of capital market, high inflation rates and significant deficit of balance-of-payments and trade.

After a severe deterioration in 2014-2015, economical and political situation in Ukraine remains unstable. In 2019 Ukrainian government carried on its large-scale program of structural reforms aimed at elimination of existing imbalances in the economy, state finance and management; fighting corruption; reforming judicial system – measures necessary to create conditions for the economic recovery in the country.

Stabilization of Ukrainian economy in the near future will depend on the progress the government will reach as well as on the continuous financial aid from international donors and financial institutions.

The National Bank of Ukraine further maintains the floating exchange rates regime. During 2019 the official exchange rate of Ukrainian Hryvna to US dollar decreased by 13% - from 27.6883 UAH for 1.0000 USD as of 01 January 2019 to 23.6862 UAH for 1.0000 USD as of 31 December 2019. In 2019, the National Bank of Ukraine changed its discount rate from 18.0% to 13.5%.

With regard to exchange control, the National Bank of Ukraine kept on with the policy of liberalization and in March 2019 lowered the requirement of mandatory sale of foreign currency earnings by exporters from 50% to 30%, and in June 2019 this requirement was cancelled.

In 2019 consumer price inflation slowed down to 4.1% (vs. 9.8% in 2018) and real GDP growth reached 3.3%. The fall in inflation was inspired by moderate growth of prices for food as well as strengthening of Ukrainian Hryvna as a result of the surplus of foreign currency that was observed on the market throughout 2019.

International rating agencies Fitch and Standard & Poor's reported better credit rating for Ukraine which currently stands at B. The agencies pointed out considerable improvements of macroeconomics, responsible fiscal and budget policies and above that creation of a "window of opportunity" for economic reforms implementation. End of 2019 Moody's credit rating for Ukraine was set at Caa1 with positive outlook.

The present Financial Statements are made up with due regard for both actual and assumed implications of the above developments and the effects thereof on the Company's financial standing and performance in the reporting period.

Taxation

Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian economic environment. The local and national tax environment is constantly changing and subject to inconsistent application, interpretation and enforcement. Non-compliance with Ukrainian laws and regulations can lead to the imposition of severe penalties and fines. Future tax examinations could raise issues or assessments which are contrary to the Group companies' tax filings. Such assessments could include taxes, penalties and fines, and these amounts could be material. While the Group believes it has complied with local tax legislation, there have been many new tax and foreign currency laws and related regulations introduced in recent years which are not always clearly written.

Facing current economic and political issues, the Government has implemented certain reforms in the tax system of Ukraine by adopting the Law of Ukraine 'On Amending the Tax Code of Ukraine and Certain Laws of Ukraine', which is effective from 1 January 2015, except for certain provisions which will take effect at a later date.

Management believes that the Group has been in compliance with all requirements of effective tax legislation and currently is assessing the possible impact of the introduced amendments.

Legal issues.

The Group is involved in litigations and other claims that are in the ordinary course of its business activities. As at 31 December 2019, Group is involved in litigations in the amount of USD 1 499 thousand. Management believes that based on the past history of court resolutions of similar lawsuits by the Group, it is unlikely that a significant settlement will arise out of such lawsuits and therefore no respective provision is required in the Group's financial statements as of the reporting date.

31. Financial risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to shareholders through a combination of debt and equity capital. The management of the Group reviews the capital structure on a regular basis. Based on the results of this review, the Group takes steps to balance its overall capital structure through the issue of new debt or the redemption of existing debt.

The capital structure of the Group consists of debt, which includes the borrowings and cash and cash equivalents disclosed in Notes 24 and 26 respectively, and equity attributable to the equity holders of the parent, comprising issued capital, share premium, reserves and retained earnings.

Gearing ratio

The Group's management reviews quarterly the capital structure of the Group. As part of this review, the management considers the cost of capital and the risks associated with each class of capital.

	31 December	31 December
	2019	2018
Debt liabilities*	10 390	9 331
Cash and cash equivalents and deposits	(4 478)	(14 346)
Net debt	5 912	(5 015)
Equity**	120 951	126 812
Gearing ratio	5%	(4%)

* Debts include short-term and long-term borrowings.

** Equity includes the share capital, share premium, retained earnings and foreign currency translation reserve.

Financial risk management

The main risks inherent to the Group's operations are those related to credit risk exposures, liquidity risk, market movements in currency rates and interest rates and potential negative impact of livestock diseases.

Credit risk

The Group is exposed to credit risk which is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.

The Group's exposure to credit risk regarding trade accounts receivable is primarily dependent on specific characteristics of each client. The Group's policy for credit risk management provides systematic work with debtors, which includes: analysis of solvency, determination of maximum amount of risk related to one customer or a group of customers and control over timeliness of debt repayment. The majority of Group's clients are longstanding clients, there were no significant losses during 2019 and 2018 resulting from non-fulfillment of obligations by clients. Concentration of credit risk on trade accounts receivable is characterized by the following indicators:

For the year ended 31 December 2019 USD 28 996 thousand or 28% of Group's sales revenue is related to sales transactions, realized with 5 major customers of the Group. As at 31 December 2019 USD 4 672 thousand or 26% of trade accounts receivable relates to 5 major debtors.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes on pages 46-82 form an integral part of these financial statements

The credit quality of the gross trade receivables from related and third parties was as follows:

	31 December	31 December
	2019	2018
Fully performing	10 914	9 227
Past due but not impaired	755	2 791
Impaired	233	214
Total trade receivables (gross)	11 902	12 232

As at 31 December 2019 and 2018 the ageing of trade account receivables that were not impaired was as follows:

		31 December	31 December
	%	2019	2018
0-30 days	-	10 914	10 889
31-90 days	-	480	159
91-180 days	-	271	962
181-360 days	0%	4	8
more than 360 days	100%	-	-
Total		11 669	12 018

Liquidity risk is the risk of the Group's failure to fulfill its financial obligations at the date of maturity. The Group's approach to liquidity management is to ensure, to the extent possible, permanent availability of sufficient liquidity for the Group to fulfill it s financial obligations in due time (both in normal conditions and in non-standard situations), by avoiding unacceptable losses or the risk of damage to the reputation of the Group.

In accordance with plans of the Group, its working capital needs are satisfied by cash flows from operating activities, as well as by use of loans if cash flows from operating activities are insufficient for liabilities to be settled.

The table below represents the expected maturity of components of working capital:

31 December 2019	Carrying value	Contractual cash flows	Less than 3 months	3-6 months	6-12 months	Over 1 year
Non-derivative financial liabilities:
Trade and other payables	10 694	11 095	10 378	717	-	-
Current interest-bearing loans and other
financial liabilities	5 955	5 955	-	4 754	1 201	-
Non-current interest-bearing loans and
other financial liabilities	4 435	4 435	-	-	-	4 435
Total	21 084	21 485	10 378	5 471	1 201	4 435
31 December 2018	Carrying	Contractual	Less than	3-6	6-12	Over 1
Non-derivative financial liabilities:	value	cash flows	3 months	months	months	year
Trade and other payables	8 198	8 198	8 091	57	50	-
Current interest-bearing loans and other
financial liabilities	4 125	4 125	-	2 063	2 062	-
Non-current interest-bearing loans and
other financial liabilities	5 206	5 206	-	-	-	5 206

Currency risk

Currency risk – Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group undertakes certain transactions denominated in foreign currencies. The Group does not use any derivatives to manage foreign currency risk exposure, at the same time the management of the Group sets limits on the level of exposure by currencies.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes on pages 46-82 form an integral part of these financial statements

Exposure to foreign currency risk

The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities as of 31 December 2019 and 2018 were as follows:

31 December 2019	PLN	RUB	USD	EUR	UAH	Total
(in conversion to USD thousand)
Assets
Cash and cash equivalents	-	-	516	1 265	2 697	4 478
Trade receivables	-	-	1 383	2 721	7 798	11 902
Liabilities
Current interest-bearing loans and other financial
liabilities	-	-	-	(5 927)	(28)	(5 955)
Non-current interest-bearing loans and other
financial liabilities	-	-	-	(4 435)	-	(4 435)
Trade accounts payable	-	(1)	(418)	(2 438)	(5 892)	(8 749)
Other payables	-	-	(2)	(60)	(106)	(168)
Net exposure to foreign currency risk	-	(1)	1 479	(8 874)	4 469	(2 927)
31 December 2018	PLN	RUB	USD	EUR	UAH	Total
(in conversion to USD thousand)
Assets
Cash and cash equivalents	-	-	11 087	2 674	585	14 346
Trade receivables	-	-	3 164	1 967	7 101	12 232
Liabilities	-
Current interest-bearing loans and other financial
liabilities	-	-	-	(4 101)	(24)	(4 125)
Non-current interest-bearing loans and other
financial liabilities	-	-	-	(5 206)	-	(5 206)
Trade accounts payable	-	(1)	(1 674)	(2 085)	(2 941)	(6 701)
Other payables	-	-	(2)	(60)	(11)	(73)
Total	-	(1)	12 575	(6 811)	4 710	10 473

This sensitivity rate represents the management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for expected change in foreign currency rates.

Effect in USD thousand:

	Increase in currency rate against UAH	Effect on profit before tax
31 December 2019
USD	15%	222
EUR	15%	-1 331
31 December 2018
USD	15%	1 887
EUR	15%	-1 044

The effect of foreign currency sensitivity on shareholders' equity is equal to that on profit or loss.

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect the value of the financial instruments. The major part of the Group's borrowings bear variable interest rates which are linked to EURIBOR. Other borrowings are presented at fixed interest rates.

The below details the Group's sensitivity to increase or decrease of floating rate by 1%. The analysis was applied to interest bearing liabilities (bank borrowings under facility agreements) based on the assumption that the amount of liability outstanding as of the balance sheet date was outstanding for the whole year.

	31 December 2019	31 December 2018
	EURIBOR	EURIBOR
Profit/(loss)	54/(54)	93/(93)

The effect of interest rate sensitivity on shareholders' equity is equal to that on profit or loss.

Livestock diseases risk

The Group's agro-industrial business is subject to risks of outbreaks of various diseases. The Group faces the risk of outbreaks of diseases, which are highly contagious and destructive to susceptible livestock, such as avian influenza or bird flu for its poultry operations. The diseases could result in mortality losses. Disease control measures were adopted by the Group to minimize and manage this risk. The Group's management is satisfied with its current existing risk management and quality control processes are effective and sufficient to prevent any outbreak of livestock diseases and related losses.

32. Financial instruments

Estimated fair value disclosure of financial instruments is made in accordance with the requirements of International Financial Reporting Standard 7 "Financial Instruments: Disclosure". Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. As no readily available market exists for a large part of the Group's financial instruments, judgment is necessary in arriving at fair value, based on current economic conditions and specific risks attributable to the instrument. The estimates presented herein are not necessarily indicative of the amounts the Group could realize in a market exchange from the sale of its full holdings of a particular instrument.

The Group uses the following hierarchy for determining the fair value of financial instruments:

• Level 1 ("L1") quoted (unadjusted) prices in active markets for identical assets or liabilities;
• Level 2 ("L2") other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly; and
• Level 3 ("L3") techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

The Group does not acquire, hold or issue derivative financial instruments for trading purposes.

The following table presents the classification, subsequent measurement, carrying values and fair values of the Group's financial assets and liabilities:

		31 December 2019		31 December 2018
	Subsequent measurement	Carrying value	Fair val ue	Carrying value	Fair val ue
Financial assets:
Trade and other receivables (a)	Amortized cost	17 734	17 734	16 434	16 434
Cash and cash equivalents		4 478	4 478	14 346	14 346
		22 212	22 212	30 780	30 780
Financial liabilities:
Current interest-bearing loans and borrowings (a) Non-current interest-bearing loans and borrowings	Amortized cost	5 955	5 955	4 125	4 125
(b)	Amortized cost	4 435	4 435	5 206	5 206
Trade and other payables (current) (a)	Amortized cost	10 694	10 694	8 198	8 198
		21 084	21 084	17 529	17 529

The following methods and assumptions were used to estimate the fair values:

• a) The Group's short-term financial instruments, comprising trade and other receivables, current interest-bearing loans and borrowings, trade and other payables are carried at amortized cost which, due to their short term nature, approximates their fair value.
• b) The fair values of other financial assets and financial liabilities (excluding those described above) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.
• c) Fair value of available-for-sale financial assets is derived from quoted market prices in active markets, if available.
• d) Fair value of unquoted available-for-sale financial assets is estimated using appropriate valuation techniques.

33. Subsequent events

On 31 December 2019, the World Health Organisation was informed that a limited number of cases of pneumonia, of an unknown cause, were detected in Wuhan, Hubei. On 7 January 2020, Chinese authorities identified a new type of coronavirus (COVID-19) as the cause. Since 31 December 2019, the development and spread of COVID-19 has resulted in the occurrence of a multitude of associated events. The beginning of 2020 was characterized by the spread of a pandemic generated by COVID-19 Coronavirus.

The first coronavirus case was identified in Ukraine on March 3. To stop the COVID-19 virus from spreading in Ukraine, in March 2020 the Government of Ukraine introduced temporary restrictions at the state border, provided cancellation of regular transport and introduced other restrictions for the period of a national-wide quarantine. Depending on further developments with the pandemic, the restrictive measure may be lifted or extended.

It cannot be excluded that, an economic slowdown could emerge with potential impacts, not yet quantifiable, also on the Group's profitability, mainly with reference to the operating income and the cost of risk.

Following the COVID-19 outbreak, Group is continuing to monitor the situation carefully and taking precautions in line with the recommendations of the World Health Organization and local authorities. The event is considered as a nonadjusting event and is therefore not reflected in the recognition and measurement of the assets and liabilities in the financial statements as at 31 December 2019.

In March 2020, the Group has obtained a new loan facility from OTP bank, Ukraine in the amount of EUR 2 million.

In February 2020, the Group sold all shares of Limited Liability Company "BVV EQUIPMENT".

In March 2020, the Group has concluded an additional agreement and established new terms of repayment of the loan at UkrSibbank, 30.09.2020

Other than described above, there were no significant events after the balance sheet date.

INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019

Statement of profit or loss and other comprehensive income

For the year ended 31 December 2019 (in USD thousand, unless otherwise stated)

	Note	2019	2018
Dividend income	4	7 000	20 222
Selling and distribution costs	5	(8)	(4)
Administrative expenses	6	(211)	(243)
Operating profit		6 781	19 975
Finance costs	8	(503)	(1 006)
Finance income	7	230	85
Profit before tax		6 508	19 054
Income tax expense		(8)	-
Profit for the year	9	6 500	19 054

Statement of financial position

For the year ended 31 December 2019 (in USD thousand, unless otherwise stated)

	Note	31 December 2019	31 December 2018
Assets
Non-current assets
Investment in subsidiaries	10	46 097	45 727
Total non-current assets		46 097	45 727
Current assets
Cash and cash equivalents	12	45	7 177
Other accounts receivables	11	4 882	1
Loan receivable from Yasenvit		14	-
Total current assets		4 941	7 178
Total assets		51 038	52 906
Equity and liabilities
Equity
Issued capital	13	78	69
Foreign currency translation reserve		7	16
Share premium reserve	14	30 933	30 933
Retained earnings		5 686	(6 588)
Profit for the year		6 500	19 054
Equity attributable to owners of the parent		43 204	43 484
Non-current liabilities
Non-current loans and borrowings	15	2 191	5 726
Total non-current liabilities		2 191	5 726
Current liabilities
Trade and other payables	16	202	115
Current loans and borrowings	15	5 441	3 581
Total current liabilities		5 643	3 696
Total liabilities		7 834	9 422
Total equity and liabilities		51 038	52 906

Statement of changes in equity

For the year ended 31 December 2019 (in USD thousand, unless otherwise stated)

	Issued capital	Foreign cur rency transla tion reserve	Share premium reserve	Retained earnings	Total equity
As at 31 December 2018	69	16	30 933	12 466	43 484
Result for the period	-	-	-	6 500	6 500
Dividends	-	-	-	(6 780)	(6 780)
Exchange rate differences	9	(9)	-	-	-
As at 31 December 2019	78	7	30 933	12 186	43 204

Management Report

Statement of cash flows

For the year ended 31 December 2019 (in USD thousand, unless otherwise stated)

	Note	2019	2018
Cash flows from operating activities
Profit before tax		6 508	19 054
Adjustments for:
Dividend income		(7 000)	(20 222)
Interest income		(14)	(85)
Interest expense		503	707
		(3)	(546)
Changes in working capital:
(Increase) in receivable balances		(4 895)	(1)
Increase in payable balances		81	114
Cash used in operations		(4 817)	(433)
Dividends received		7 000	20 222
Net cash generated from operating activities		2 183	19 789
Cash flows from investing activities
Payment for purchase of investment in subsidiaries		(371)	(381)
Interest received		14	85
Net cash used in investing activities		(357)	(296)
Cash flows from financing activities
Repayments of borrowings		(1 674)	(11 755)
Interest paid		(504)	(707)
Dividends paid		(6 780)	-
Net increase in cash and cash equivalents		(7 132)	7 031
Cash and cash equivalents at beginning of the year		7 177	146
Cash and cash equivalents at end of the year		45	7 177

1. General

Ovostar Union Public Company Limited (referred to herein as the "Company") is a public limited company incorporated in the Netherlands in 2011 and re-domiciled to Cyprus in 2018. Ovostar Union PCL was formed to serve as the ultimate holding company of LLC "Ovostar Union" and its subsidiaries. Hereinafter, "Ovostar Union" and its subsidiaries are referred to as the "Ovostar Union Group" or the "Group". The registered office and principal place of business of the Company is Ierotheou, 22, 4th floor, Strovolos, 2028 Nicosia, Cyprus.

Principal activities of the Group include production and distribution of shell eggs and egg products. The largest shareholder of the Company is Prime One Capital Ltd., Cyprus. Its principal activity is the holding of ownership interests in its subsidiary and strategic management.

Use of estimates

The preparation of financial statements under IFRS requires estimates to be used and assumptions to be made that affect the amounts shown in these financial statements. These estimates assume the operation is a going concern and are drawn up on the basis of the information available at the time. Estimates may be revised if the circumstances on which they were based change or if new information becomes available. Actual results may be different from these estimates.

Basis of preparation

The financial statements for the year ended 31 December 2019 have been prepared using the IFRS.

The IFRS individual financial statements were approved by the Board of Directors on 23 April 2020

For information on the companies belonging to Ovostar Union Group please refer to Note 1 of the Consolidated financial statements.

Going concern

As at 31 December 2019 current liabilities of the Company exceeded its current assets. However, the management believes that the Company will be able to continue its activities as a going concern and will be able to repay its liabilities out of funds received from its subsidiaries as dividends. Therefore, Company's financial statements have been prepared under the going concern assumption.

2. Significant accounting policies

Investment in subsidiaries

Participating interests (subsidiaries, joint ventures and associates) are measured on the basis of the equity method.

3. Functional and presentation currency

The functional currency of the Company is U.S. dollar (USD). The financial statements are presented in the company's functional currency, that is, U.S. dollar (USD).

4. Dividend income

	2019	2018
Dividend income from International Food Trade	7 000	310
Dividend income from Yasensvit LLC	-	19 912
Total	7 000	20 222

NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS

Notes on pages 88-93 form an integral part of these financial statements

5. Selling and distribution costs

	2019	2018
Marketing and advertising	8	4
Total	8	4
6. Administrative expenses

	2019	2018
Wages, salaries and social security costs	28	29
Legal, audit and other professional fees	169	167
Service charge expenses	14	46
Other expenses	-	1
Total	211	243

7. Finance costs

	2019	2018
Interest on debts and borrowings	503	707
Foreign currency exchange loss	-	299
Total	503	4

8. Finance income

	2019	2018
Interest income	14	59
Foreign currency exchange	216	-
Other expenses	-	26
Total	230	85

9. Corporate Income tax

Tax recognized in profit or loss:

	2019	2018
Corporation tax	8	1
Corporation tax – prior years	-	-
Charge for the year	8	1

The taxation on the Company's profit/(loss) before taxation differs from theoretical amount that would arise using the

applicable tax rates as follows:

	2019	2018
Profit before tax	6 508	1 723
Applicable tax rates	12,5%	12,5%
Tax calculated at the applicable tax rates	813	215
Tax effect of expenses not deductible for tax purposes	183	14
Tax effect of allowances and income not subject to tax	(990)	(229)
10% additional charge	1	0
Tax charge	8	1

NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS

Notes on pages 88-93 form an integral part of these financial statements

10. Investment in subsidiaries

	2019	2018
LLC "Ovostar Union"	45 345	45 345
GALLUSMAN SIA	344	4
LLC "Yasensvit"	313	313
Ovostar Europe LLC	63	63
OAE Food Trade FZE	28	-
EPEX SIA	3	3
INTERNATIONAL FOOD TRADE Limited	1	1
Total	46 097	45 729

NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS

Notes on pages 88-93 form an integral part of these financial statements

11. Other accounts receivables

	31 December 2019	31 December 2018
Urner Barry U.S.A	1	1
INTERNATIONAL FOOD TRADE Limited	900	-
LLC Yasensvit	3 981	-
Total	4 882	1

12. Cash and cash equivalents

The Company's cash balances are available upon demand.

13. Issued capital

The authorized share capital amounts to EUR 225,000 divided into 22 500 000 ordinary shares of EUR 0.01 nominal value each. During 2011, 6 000 000 shares have been issued. Using an exchange rate of 1 EUR = 1.198 USD.

For the movement schedule of issued capital, share premium, foreign currency translation reserve and profit for the year please refer to the specification of the Consolidated statement of changes in equity included in the Consolidated financial statements. Legal reserve subsidiary as at 31 December 2019 was in the amount of USD 77 691 thousand (in 2018: USD 68 000 thousand).

14. Share premium

As has been mentioned previously, in June 2011 the Group's shares have been placed on WSE. As a result of the transaction, USD 33 048 thousand was raised while the IPO costs amounted to USD 2 115 thousand. In these financial statements funds raised as a result of IPO are reflected in share premium as at 31 December 2011. For the years ended 31 December 2019 and 2018, there were no movements in share premium.

15. Loans and borrowings

		31 December	31 December
	Note	2019	2018
Current interest-bearing loans and other financial liabilities
Landesbank Berlin AG / AKA Ausfuhrkredit-Gesellschaft mbH loan	i)	2 191	2 450
Landesbank Berlin AG loan	i)		1 650
Total current interest-bearing loans and other financial liabilities		2 191	4 100
Non-current interest-bearing loans and other financial liabilities
Landesbank Berlin AG / AKA Ausfuhrkredit-Gesellschaft mbH loan	i)	2 401	4 456
Landesbank Berlin AG loan	i)	796	750
PRIME ONE CAPITAL LIMITED		2 243	-
Total non-current interest-bearing loans and other financial liabilities		5 440	5 206
Total interest-bearing loans and other financial liabilities		7 631	9 306

i) As at 31 December 2019 and 2018 loan and borrowings comprised loans received from Landesbank Berlin AG and AKA Ausfuhrkredit-Gesellschaft mbH. Landesbank Berlin AG and AKA Ausfuhrkredit-Gesellschaft mbH loan are guaranteed by subsidiaries and has been covered of Euler Hermes AG. For detail information about loans and borrowings refer to Note 24 in the Consolidated financial statements.

16. Trade and other payables

Trade and other payables included payables from third parties and payables to supplier for property, plant and equipment.

	31 December 2019	31 December 2018
Ovostar Europe SIA	56	57
Other	146	57
Total	202	114

17. Directors

The Company is managed by the Board of Directors which consists of four members: one Executive Director and three Non-Executive directors.

The Board of Directors as at 31 December 2019 comprised:

Name	Position
B. Bielikov	Chief Executive Officer, (non-independent)
V. Veresenko	Chairman of the Board, Non-Executive Director (non-independent)
K. Arshakyan	Non-Executive Director (independent)
S. Karpenko	Non-Executive Director (independent)

Changes in the Board of Directors of Ovostar Union PCL.

At the Annual General Meeting of the Company held on June 07, 2019 B. Bielikov, V. Veresenko and S. Karpenko were re -appointed as members of the Board of Directors of the Company. Mr Karen Arshakyan was approved by the General Meeting as non-executive independent director.

18. Audit Fee

	31 December 2019	31 December 2018
Baker Tilly Ukraine:
Audit and review of financial statements Baker Tilly Klitou & Partners Ltd	45	44
Audit fees	31	31
Total	76	70

Audit fees disclosed in the financial statements include the fees for professional services rendered by Baker Tilly Ukraine and Baker Tilly Klitou & Partners Ltd and relate to the audit of the Company's Consolidated and Company's financial statements and its subsidiaries.

19. Subsequent events

On 31 December 2019, the World Health Organisation was informed that a limited number of cases of pneumonia, of an unknown cause, were detected in Wuhan, Hubei. On 7 January 2020, Chinese authorities identified a new type of coronavirus (COVID-19) as the cause. Since 31 December 2019, the development and spread of COVID-19 has resulted in the occurrence of a multitude of associated events. The beginning of 2020 was characterized by the spread of a pandemic generated by COVID-19 Coronavirus.

The first coronavirus case was identified in Ukraine on March 3. To stop the COVID-19 virus from spreading in Ukraine, in March 2020 the Government of Ukraine introduced temporary restrictions at the state border, provided cancellation of regular transport and introduced other restrictions for the period of a national-wide quarantine. Depending on further developments with the pandemic, the restrictive measure may be lifted or extended.

It cannot be excluded that, an economic slowdown could emerge with potential impacts, not yet quantifiable, also on the Group's profitability, mainly with reference to the operating income and the cost of risk.

Following the COVID-19 outbreak, Group is continuing to monitor the situation carefully and taking precautions in line with the recommendations of the World Health Organization and local authorities. The event is considered as a nonadjusting event and is therefore not reflected in the recognition and measurement of the assets and liabilities in the financial statements as at 31 December 2019.

Other than described above, there were no significant events after the balance sheet date.

Independent Auditor's Report

Risk
Biological Assets Valuation The fair value of the Group's biological assets owned through subsidiarles amount to USD 50.759.000 (2018: USD 53.789.000). We refer to Note 5 and 17 in the consolldated financial statements for the related disclosures. The fair value measurement of the biological assets highly depends on the projected cash flows and discount rate. In 2018, one of the Inputs used for projected cash flows was the average of the actual egg prices of the year. In 2019, management assessed that actual egg prices for the year were abnormally lower and vague; thus, could not be used to reflect the fair value of the biological assets as at 31 December 2019. Alternatively, management calculated the fair value of biological assets using the average egg prices for the years 2017, 2018 and 2019 as this approach was proven to be more representative of current market conditions. Due to the level of judgment involved in the valuation of blological assets, as well as the significance of biological assets to the Group's financial position, this is considered to be a key audit matter.	Response to the risk We obtained an understanding of management's biological asset valuation process, evaluated the design and tested the operating effectiveness of Internal controls related to blological assets. Our audit procedures over valuation of biological asset included: · Testing of the design of, and validity of the input data used in, the valuation model of blological assets; Testing the completeness and accuracy of the data used through recalculation and testing of Inputs; Assessment of the methodology adopted by management for the valuation; Assessment of the key valuation assumptions used in the model against prevailing market conditions; Assessment of the assumptions used to derive to the discount rates applied in the valuation model; · Testing of the mathematical accuracy of the model used for valuation; Assessment of the adequacy and appropriateness of disclosures for compllance with the s applicable accounting standards.
Going concern As disclosed In the Statements of Director's Responsibilities, Directors are required to prepare the consolidated financial statements on a going Our audit procedures over the golng concern concern basis unless it is inappropriate to assume that the Group and the Company will continue in business. The Directors, having assessed all relevant parameters have determined that the Group Is a going concern. As part of their assessment Directors have considered compliance with regulatory measures and the uncertainty surrounding the Implications of the Coronavirus pandemic. Further to this, they have concluded that the Group is taking all necessary measures to maintain the viability of its business in the future. Due to the current conditions as a result of the pandemlc, this is considered to be a key audit matter.	We obtained management's assessment of the going concern assumption, and evaluated the factors assessed by the management and specifically regarding the Coronavirus Pandemic. assumption included: Evaluation of the responses received by management following questions ralsed with respect to the going concern status of the Group and specifically the coronavirus pandemic: · Discussion with the management of its consideration of the Impact that the Coronavirus Pandemic might have on financial, operating and other factors within the year that will end on 31 December 2020.

Ovostar Union Group

Legal address: Ovostar Union PCL 22 Ierotheou Street 2028 Nicosia , Cyprus

Correspondence address: 34 Petropavlivska street 04086 Kyiv, Ukraine

For Investor Relations inquiries: Anna Tews Investor Relations Department ir@ovostar.ua Cell: +38 050 439 05 05 Landline: +38 044 354 29 60

Forward-looking statements notice

All forward-looking statements contained in this annual report with respect to our future financial and operational performance and position are, unless otherwise stated, based on the beliefs, expectations, projections and the estimates of our management representing their judgment as at the dates on which the statements have been made. Forward-looking statements are generally identifiable by the use of the words "may", "will", "should", "plan", "forecast", "expect", "anticipate", "estimate", "believe", "intend", "project", "goal" or "target" or the negative of these words or other variations on these words or comparable terminology. Our actual operational and financial results or the same of our industry involve a number of known and unknown risks, uncertainties and other factors and they are not guaranteed to be similar to the forwardlooking statements, although our management makes all effort to make forward-looking statements as accurate as possible. We do not undertake publicly to update or revise any forward-looking statement that may be made herein, whether as a result of new information, future events or otherwise.