OVOSTAR UNION N.V.

SEMI-ANNUAL REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2014

CEO Statement

Dear Shareholders,

Being located in the central part of Ukraine, the company continues its normal operations. Overall, Ovostar Union management is content with the operational and financial results for the first half of 2014 given present-day situation. In the second quarter of 2014 we successfully adapted our structure of sales by increasing volumes of eggs and egg products exported thereby decreasing to some extent our currency exchange exposure.

Strong financial position allows us to concentrate on business development. Following the chosen concept of organic growth, in 2014 we have commenced a new investment program on the premises of our production facility in Stavysche. At this stage of the program, reconstruction is financed by profit reinvestment.

I am pleased to announce that recently we received yet another confirmation of the excellent quality of our products: Ovostar Union Group has passed all necessary procedures to be able to export our goods to the European Union.

Our nation faces numerous challenges right now trying to overcome economic and political crisis. We express our sincere condolences to the families and friends of the victims fallen in the course of military actions in Donetsk and Lugansk regions. Ovostar Union team hopes that parties to the conflict will be prudent and willing to compromise. We look forward for the route of peace to be found in the upcoming months.

Sincerely yours,

Borys Bielikov, CEO

Segment updates

Egg segment

As at 30 June 2014 total poultry flock of Ovostar Union N.V. (hereinafter, the “Group”) increased by 12% compared to the same period previous year to 4.9 mln hens. Laying hens flock increased by 23% compared to the same period previous year to 4.1 mln hens.

Over the reporting period, egg production increased by 11% year on year to 468 million eggs (1H 2013: 422 million eggs). Egg sales volume increased by 16% to 298 million eggs thereby increasing sales volumes to the retail chains. At the same time, volume of eggs sold to export destinations increased by 74% from 24 to 42 million eggs.

Average shell egg sales price increased by 17% to 0.703 UAH/piece compared to 0.602 UAH/piece in the respective period previous year mainly due to larger share of export sales in total revenue and sustained share of branded egg sales. The division of egg sales channels by value in the first half of 2014 is presented in the graph. The share of own points of sale and retail chains selling branded eggs amounted to 78% of the total egg revenue equivalent to USD 16 162 ths. Export sales of shell eggs generated 14% of egg revenue equivalent to USD 2 839 ths.

Egg products segment

Over the first half of 2014 the Group processed 150 million eggs (1H 2013: 136 million eggs). Production volume of dry egg products increased by 16% to 907 tons while production volume of liquid egg products decreased by 7% to 2 969 tons in 1H 2014.

Sales volume of dry egg products increased by 10% compared to the same period previous year to 786 tons. Increased sales volume of dry egg products was mainly attributed to growth of export sales by 18% to 391 tons in 1H 2014. Sales volume of liquid egg products decreased by 7% to 2 962 tons as a result of temporary decline in purchase volumes for certain clients that have their production capacities located in the Eastern region of Ukraine. Average sales price of liquid egg products increased by 9% to 16.35 UAH/kg; average sales price of dry egg products increased by 17% to 53.19 UAH/kg.

Liquid egg products sales contributed USD 4 790 ths or 54% to the segment revenue, while the remaining USD 4 137 ths or 46% have been contributed by the dry egg products sales.

Sunflower processing segment

In the first half of 2014 the Group processed 9 680 tons of sunflower seeds producing 3 569 tons of sunflower oil, 4 889 tons of sunflower meal and 860 tons of sunflower husk briquettes. Over the same period, the Group sold 3 505 tons of sunflower oil at UAH 7 163/ton and 792 tons of sunflower husk briquettes at UAH 533/ton. Sunflower meal produced in-house has been directed for inclusion in the poultry fodder.

Financial position and performance

Revenue

The Group's revenue structure

In 1H 2014 total revenue of the Group increased by 6% to USD 34 920 ths triggered by increased sales volume in egg segment. Egg segment contributed 67% or USD 23 515 ths to the total revenue (including USD 20 772 ths from egg sales and USD 2 743 ths from poultry and other sales). Egg products segment contributed 26% or USD 8 927 ths to the total revenue. The remaining 7% or USD 2 478 ths of the total revenue was contributed by the sunflower processing segment.

Cost of sales and gross profit

In 1H 2014 cost of sales of the Group decreased by 5% to USD 22 950 ths mainly as a result of lower poultry fodder cost over the reporting period. Gross profit increased by 29% to USD 13 679 ths representing a 39% gross profit margin compared to 32% margin in 1H 2013.

Operating profit and EBITDA

Apart from lower production costs, the reporting period has been marked by a decrease of selling expenses by 20% to USD 2 055 ths on the back of more efficient sales structure. Administrative expenses remained similar year-on-year at USD 1 222 ths. Other operating income amounted to USD 1 319 ths in 1H 2014 on the back of higher amounts of refund under special VAT treatment.

As a result of these developments, EBITDA increased by 42% to USD 13 451 ths in 1H 2014. EBITDA margin amounted to 39% compared to 29% in 1H 2013. Over the same period, operating profit of the Group increased by 67% to USD 11 418 ths.

Profit before tax and net profit

In 1H 2014 profit before tax and net profit increased by 66% to USD 11 278 ths and by 67% to USD 11 225 ths, respectively. Segment contribution to the Group's profit before tax was distributed as follows: egg segment contributed USD 8 506 ths or 75%, egg products segment contributed USD 2 772 ths or 25%. Net profit margin over the six months of 2014 reached 32% compared to 20% in 1H 2013.

Cash flow

During 1H 2014 operating cash flow of the Group remained positive at USD 7 225 ths. Over the reporting period, the Group's VAT and trade receivables as well as trade payables have been increasing in the course of normal operating activity. Cash flow used in investing activities, that is, the investment program implemented on Stavysche production complex, amounted to USD 8 248 ths during 1H 2014. Cash flow used in financing activities consisted of repayment of borrowings and amounted to USD 1 205 ths.

Assets

Generally, devaluation of Ukrainian Hryvnia in the first half of 2014 resulted in compression of most of the balance sheet items in USD terms. In 1H 2014 total assets decreased by 24% to USD 121 353 ths compared to USD 159 514 ths in the end of 2013. Current assets decreased by 22% to USD 37 918 ths while non-current assets decreased by 25% to USD 83 435 ths.

Liabilities and equity

In 1H 2014 total equity decreased by 26% to USD 102 808 ths from USD 139 326 ths in the end of 2013. Non-current liabilities decreased by 6% to USD 10 755 ths compared to USD 11 414 ths in the end of 2013. Current liabilities decreased by 11% to USD 7 790 ths compared to USD 8 774 ths in the end of 2013. Loans and borrowings of USD 13 014 ths remained the main component of total liabilities in 1H 2014 consisting mainly of a 7-year loan to Landes Bank Berlin that financed poultry equipment purchase. Over the six months of 2014 net debt increased from USD 4 930 ths to USD 6 911 ths as a result of lower cash position.

Investment program update

During the six months of 2014 investment activity of the Group continued within the framework of production capacities expansion in Stavysche complex. Currently, the management expects to complete the investment program in 2017. A step-by-step reconstruction of egg production facilities and related infrastructure will result in more efficient production processes and lower production costs per unit.

Over the year 2014, the Group plans to complete reconstruction of 3 laying hens houses 326 ths hen places each, 1 young laying hens house of 130 ths hen places and 1 parent flock house of 29 ths poultry places. Additionally, it is possible that an egg sorting facility will be constructed in 4Q 2014. So far, one laying hens house of 326 ths hen places and one poultry house for the parent flock of 29 ths poultry places have been put into operation.

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

REPRESENTATION...9
CONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME...10
CONSOLIDATED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION...12
CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY...13
CONSOLIDATED CONDENSED INTERIM STATEMENT OF CASH FLOWS...14
NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS...15

REPRESENTATION

of the Board of Directors of Ovostar Union N.V. on compliance of the Consolidated Condensed Interim Financial Statements (Unaudited)

The Board of Directors of Ovostar Union N.V. hereby represent that to the best of their knowledge the Consolidated Condensed Interim Financial Statements (Unaudited) of Ovostar Union N.V. and subsidiaries for the six months ended 30 June 2014 and the comparable information are prepared in accordance with the applicable accounting standards and that they give a true, fair and clear view of the assets, financial standing and financial results of Ovostar Union N.V., and that the interim statements for the six months ended 30 June 2014 give a true view of the developments, achievements and situation of the Company.

Board of Directors of Ovostar Union N.V.

Borys Bielikov [signed]

Vitalii Veresenko [signed]

Marc M.L.J. van Campen [signed]

Oleksandr Bakumenko [signed]

28 August 2014

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

CONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2014

(in USD thousand, unless otherwise stated)

		For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
Revenue	7	34 920	33 098
Changes in fair value of biological assets	13	1 709	1 570
Cost of sales		(22 950)	(24 033)
Gross profit		13 679	10 635
Other operating income	8	1 319	518
Selling and distribution costs		(2 055)	(2 560)
Administrative expenses		(1 222)	(1 208)
Other operating expenses	9	(303)	(543)
Operating profit		11 418	6 842
Finance costs		(246)	(217)
Finance income		106	151
Profit before tax		11 278	6 776
Income tax expense	12	(53)	(37)
Profit for the period		11 225	6 739

Notes on pages 15 - 37 form an integral part of these consolidated condensed interim financial statements

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

CONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (CONTINUED)

For the six months ended 30 June 2014

(in USD thousand, unless otherwise stated)

	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
(continued)
Profit for the period	11 225	6 739
Other comprehensive income
Items that will not be reclassified to profit or loss:
Exchange differences on translation to presentation currency	(47 743)	43
Other comprehensive income for the period, net of tax	(47 743)	43
Total comprehensive income for the period, net of tax	(36 518)	6 782
Profit for the period attributable to:
Equity holders of the parent company	11 031	6 622
Non-controlling interests	194	117
Total profit for the period	11 225	6 739
Other comprehensive income attributable to:
Equity holders of the parent company	(46 455)	43
Non-controlling interests	(1 288)	-
Total other comprehensive income	(47 743)	43
Total comprehensive income attributable to:
Equity holders of the parent company	(35 424)	6 665
Non-controlling interests	(1 094)	117
Total comprehensive income	(36 518)	6 782
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 holders of the parent (USD per share)	1.84	1.10

Notes on pages 15 - 37 form an integral part of these consolidated condensed interim financial statements

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

CONSOLIDATED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION

As at 30 June 2014

(in USD thousand, unless otherwise stated)

	Note	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Assets
Non-current assets
Biological assets	13	34 413	43 500	37 742
Property, plant and equipment and intangible assets	14	48 529	66 678	52 984
Deferred tax assets		493	770	53
Total non-current assets		83 435	110 948	90 779
Current assets
Inventories	16	10 528	12 096	12 898
Biological assets	13	10 098	14 672	9 093
Trade and other receivables	17	10 497	12 702	9 869
Prepayments to suppliers		667	486	1 284
Prepayments for income tax		25	2	16
Cash and cash equivalents	18	6 103	8 608	868
Total current assets		37 918	48 566	34 028
Total assets		121 353	159 514	124 807
Equity and liabilities
Equity
Issued capital	19	82	83	78
Share premium		30 933	30 933	30 933
Foreign currency translation reserve		(46 484)	(30)	18
Retained earnings		104 444	73 855	73 855
Result for the period		11 031	30 589	6 622
Equity attributable to equity holders of the parent		100 006	135 430	111 506
Non-controlling interests		2 802	3 896	3 375
Total equity		102 808	139 326	114 881
Non-current liabilities
Interest-bearing loans and other financial liabilities	15	10 201	10 618	1 356
Deferred tax liability		554	796	198
Total non-current liabilities		10 755	11 414	1 554
Current liabilities
Trade and other payables	20	4 924	5 792	6 264
Advances received		54	62	127
Interest-bearing loans and other financial liabilities	15	2 812	2 920	1 981
Total current liabilities		7 790	8 774	8 372
Total liabilities		18 545	20 188	9 926
Total equity and liabilities		121 353	159 514	124 807

Notes on pages 15 - 37 form an integral part of these consolidated condensed interim financial statements

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2014

(in USD thousand, unless otherwise stated)

	Attributable to equity holders of the parent company
	Issued capital	Share premium	Foreign currency translation reserve	Retained earnings	Result for the period	Total	Non-controlling interests	Total equity
As at 31 December 2012 (audited)	79	30 933	(26)	50 399	23 456	104 841	3 258	108 099
Profit for the period	-	-	-	-	6 622	6 622	117	6 739
Other comprehensive income	-	-	43	-	-	43	-	43
Total comprehensive income	-	-	43	-	6 622	6 665	117	6 782
Allocation of prior year result	-	-	-	23 456	(23 456)	-	-	-
Exchange differences	(1)	-	1	-	-	-	-	-
As at 30 June 2013 (unaudited)	78	30 933	18	73 855	6 622	111 506	3 375	114 881
As at 31 December 2013 (audited)	83	30 933	(30)	73 855	30 589	135 430	3 896	139 326
Profit for the period	-	-	-	-	11 031	11 031	194	11 225
Other comprehensive income	-	-	(46 455)	-	-	(46 455)	(1 288)	(47 743)
Total comprehensive income	-	-	(46 455)	-	11 031	(35 424)	(1 094)	(36 518)
Allocation of prior year result	-	-	-	30 589	(30 589)	-	-	-
Exchange differences	(1)	-	1	-	-	-	-	-
As at 30 June 2014 (unaudited)	82	30 933	(46 484)	104 444	11 031	100 006	2 802	102 808

Notes on pages 15 - 37 form an integral part of these consolidated condensed interim financial statements

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovestar

CONSOLIDATED CONDENSED INTERIM STATEMENT OF CASH FLOWS

For the six months ended 30 June 2014

(in USD thousand, unless otherwise stated)

	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
Operating activities
Profit before tax	11 278	6 776
Non-cash adjustment to reconcile profit before tax to net cash flows:
Depreciation of property, plant and equipment and amortisation of intangible assets	2 033	2 634
Net change in fair value of biological assets	(1 709)	(1 570)
(Income)/Loss on disposal of property, plant and equipment	4	8
Finance income	(187)	(151)
Finance costs	648	217
Recovery of assets previously written-off	(79)	(31)
Impairment of doubtful accounts receivable and prepayments to suppliers	82	(15)
Liability for unused vacation	-	178
VAT written off	47	-
Working capital adjustments:
(Increase)/Decrease in trade and other receivables	(2 232)	3 365
Increase in prepayments to suppliers	(437)	(878)
Increase in inventories	(2 953)	(2 219)
Increase/(Decrease) in trade and other payables and advances received	1 084	(959)
	7 580	7 355
Income tax paid	(28)	(61)
Net cash flows from operating activities	7 552	7 294
Investing activities
Proceeds from sale of property, plant and equipment	8	-
Purchase of property, plant and equipment	(3 975)	(2 362)
Increase in biological assets	(4 374)	(4 181)
Interest received	93	7
Proceeds from repayment of loan to Beneficial Owner	-	56
Net cash flows used in investing activities	(8 248)	(6 480)
Financing activities
Proceeds from borrowings	-	1 468
Repayment of borrowings	(978)	(2 520)
Interest paid	(227)	(63)
Net cash flows used in financing activities	(1 205)	(1 115)
Net (decrease)/increase in cash and cash equivalents	(1 901)	(301)
Effect from translation into presentation currency	(604)	17
Cash and cash equivalents at 1 January	8 608	1 152
Cash and cash equivalents at 30 June	6 103	868

Notes on pages 15 - 37 form an integral part of these consolidated condensed interim financial statements

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

1. Corporate information

Principal activities of Ovostar Union N.V. (referred to herein as the "Company") and its subsidiary (together – the "Group") include egg production, distribution, egg products manufacturing and production of sunflower oil. The registered office and principal place of business of the Company is Jan van Goyenkade 8, 1075 HP Amsterdam. The Company was incorporated on 22 March 2011 in Amsterdam. The largest shareholder is Prime One Capital Ltd., Larnaca, Cyprus. Its principal activity is the holding of ownership interests in its subsidiary and strategic management.

The Group operates through a number of subsidiaries in Ukraine (the list of the subsidiaries is disclosed below) and has a concentration of its business in Ukraine, where its production facilities are located. All subsidiary companies are registered under the laws of Ukraine. The registered office and principal place of business of the subsidiary companies in Ukraine is 34 Petropavlivska Street, Kyiv, Ukraine.

Total number of employees of all companies of the Group constituted 1 303 employees as at 30 June 2014 and 1 306 employees as at 30 June 2013.

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 condensed interim financial statements for the six months ended 30 June 2014 were authorized by the Board of Directors on 28 August 2014.

As at 30 June 2014, 2013 and 31 December 2013, the Group included the following subsidiaries:

Name of the company	Business activities	Ownership
		As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Limited Liability Company "Ovostar Union"	Strategic management of subsidiary companies in Ukraine	100%	100%	100%
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	98%	98%	98%
Limited Liability Company "Ovostar"	Egg-products production and distribution	100%	100%	100%
Public Joint Stock Company "Poultry Farm Ukraine"	Production of shell eggs, assets holding	92%	92%	92%
Public Joint Stock Company "Malynove"	Production of shell eggs, assets holding	94%	94%	94%
Public Joint Stock Company "Krushynskyy Poultry Complex"	Trading company, egg trading – non operational activity	76%	76%	76%
Limited Liability Company "Skybynskyy Fodder Plant"	In the process of liquidation	99%	99%	99%

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

2. Basis of preparation

2.1. Statement of compliance

The consolidated condensed interim 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 condensed interim 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.

2.1. Going concern basis

The 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 condensed interim 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.

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.

2.2. Functional and presentation currency

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

3. Basis of consolidation

The consolidated condensed interim financial statements are comprised of the financial statements of the Group and its subsidiary as at 30 June 2014 and for the six months that ended.

The consolidated condensed interim financial statements have been prepared on a historical cost basis, except for biological assets, agricultural produce, and certain financial instruments that have been measured at fair value.

The consolidated condensed interim financial statements incorporate the financial statements of the Parent and entities controlled by the Parent (its subsidiary). Control is achieved when the Parent has the power to govern the financial and operating policies of an entity, either directly or indirectly, so as to obtain benefits from its activities. The financial statements of subsidiary are included in the consolidated condensed interim financial statements of the Group from the date when control effectively commences.

All significant intercompany transactions, balances and unrealized gains/(losses) on transactions are eliminated on consolidated level, except when the intragroup losses indicate an impairment that requires recognition in the consolidated condensed interim financial statements.

Non-controlling interests represent the interest in subsidiary not held by the Group. Non-controlling interests at the reporting date represent the minority shareholders’ portion of the fair value of the identifiable assets and liabilities of the subsidiary at the acquisition date and the minorities’ portion of changes in net assets since the date of the combination. Non-controlling interests are presented within the shareholders’ equity.

Any excess or deficit of the consideration paid over the net assets on the acquisition of non-controlling interests in subsidiary is charged or credited to accumulated profits.

Where necessary, adjustments are made to the financial statements of subsidiary to bring the accounting policies used in line with those adopted by the Group. Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current period.

4. Use of estimates and assumptions

The preparation of the 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

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

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 condensed interim 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.

The Company used 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, assessed 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 meat production, 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.

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

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

Review of impairment led to the conclusion that the allowance for impairment of property, plant and equipment is not needed.

Management believes that calculations of the recoverable amount are most sensitive to changes in such assumptions as the price of poultry meat, price of poultry fodder and production data. Management believes that any reasonably possible change in key assumptions on which the recoverable amount of the Company 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:

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
ovestar 100

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

cost planning at each stage of poultry farming will remain constant in future periods;
egg production volume will not be significantly changed;
discount rate for determining the present value of future cash flows expected from the biological assets was set at 30 June 2014: 24.65% (30 June 2013: 25.10%).

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 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 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.

4.3. Allowances for doubtful debts

The Group forms allowances for doubtful debts to cover any potential losses arising in case of buyer’s insolvency. In assessing the adequacy of the allowance for doubtful debts the management takes into account overall current economy conditions, terms of balances for outstanding receivables, the Group’s experience to write-off liabilities, customers’ solvency and changes in the conditions of payment. Changes in the economy, industry or financial position of individual buyers may cause adjustment to the amount of allowance for doubtful debts reflected in the consolidated condensed interim financial statements.

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.

4.6. Tax legislation

Ukrainian tax, currency and customs legislation continues to evolve. Conflicting regulations are subject to varying interpretations. Management believes its interpretations are appropriate and sustainable, but no guarantee can be provided against a challenge from the tax authorities.

5. Summary of significant accounting policies

5.1 Recognition and measurement of financial instruments

Financial assets and financial liabilities are recorded in the Group’s consolidated condensed interim statement of financial position when the Group becomes a contractual party regarding the corresponding financial instrument. The Group records the acquisition and sale of financial assets and financial liabilities at the settlement date.

Financial assets and liabilities are initially recognized at fair value plus, if a financial asset or financial liability is recognized not at fair value through profit or loss, incurred operating expenses directly related to the acquisition or issue of this financial asset or financial liability.

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(in USD thousand, unless otherwise stated)

Fair value of investments that are actively traded in organized financial markets is calculated on the basis of current market value at the close of trading on the reporting date. Regarding investments in securities for which there is no active market, fair value is calculated using other methods of valuation of financial instruments. Such valuation methods include the use of information on recent market transactions between well informed, willing to commit such transaction, independent parties, or data about the current market value of another similar instrument, discounted cash flow analysis or other pricing models.

Accounting policy for subsequent revaluation of these items is disclosed below in the appropriate sections of accounting policy.

5.2 Financial assets

Investments recognized in the accounting records and derecognized at the time of transaction, in case if investments are purchased or sold in accordance with the contract, terms of which require delivery of an instrument within the time specified in the relevant market, are initially measured at fair value less transaction costs directly attributable to the transaction, except for financial assets belonging to the category of assets at fair value through profit or loss that are initially recognized at fair value.

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 at 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.

A financial asset is classified as held-for-trading if it is:

purchased originally for the purpose of sale / repayment within a short period of time; or
a part of the portfolio of identified financial instruments that are managed together, and structure of which demonstrates the intention of profit earning in the short term; or
a derivative that is not classified as a hedging instrument and is not effective for these purposes.

A financial asset that is not a financial asset held-for-trading may be classified as a financial asset at fair value through profit or loss at the time of recognition in the accounting records if:

application of such classification eliminates or significantly reduces discrepancies in valuation or accounting, that otherwise might arise, or
a financial asset is a part of a group of financial assets, financial liabilities or both groups, which are managed and controlled on the basis of fair value in accordance with a documented risk or investment management strategy, and information about this group is provided internally on that basis, or
it exists in the framework of the contract containing one or more embedded derivatives, and IAS 39 "Financial Instruments: Recognition and Measurement" permits to classify the whole contract (asset or liability) as at fair value through profit or loss.

Financial assets at fair value through profit or loss are measured at fair value with arising gains or losses recognized in the consolidated condensed interim statement of comprehensive income. Net gains or losses recognized in the income statement include dividends and interest received on the relevant financial asset.

Held-to-maturity investments - investments held to maturity are measured at amortized cost using the effective interest rate method, less impairment, and income is recognized using the effective yield method. During the reporting periods presented in these financial statements, the Group had no investments of this category.

Loans and receivables - accounts receivable regarding principal activities, loans, borrowings and other receivables with fixed or determinable payments that are not quoted in an active market are classified as "loans and receivables". Loans and receivables are measured at amortized cost using the effective interest rate method less impairment and uncollectible debts. Interest income is recognized by applying the effective interest rate, except for short-term receivables for which the amount of such interest income is insignificant.

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(in USD thousand, unless otherwise stated)

Unquoted investments available for sale are accounted for at cost if their fair value cannot be reliably measured.

5.4 Cash and cash equivalents

Cash and cash equivalents include cash on hand and cash in bank accounts.

5.5 Short-term deposits

Short-term deposits include deposits with original maturities of more than three months. If short-term deposit can be canceled at the request of the Group companies, it is classified as cash and cash equivalents.

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

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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 are classified as either financial liabilities at fair value through profit or loss, or as other financial liabilities.

Financial liabilities at fair value through profit or loss - Financial liabilities are classified as at fair value through profit or loss if they are held for trading or designated as at fair value through profit or loss.

A financial liability is classified as held for trading if it is:

assumed mainly to be repurchased within a short period of time; or
a part of the portfolio of identified financial instruments that are managed together, and structure of which demonstrates the intention of profit earning in the short term; or
a derivative that is not classified as a hedging instrument and is not effective for these purposes.

A financial liability that is not a financial liability held-for-trading may be classified as a financial liability at fair value through profit or loss at the time of recognition in the accounting records if:

application of such classification eliminates or significantly reduces discrepancies in valuation or accounting, that otherwise might arise, or
a financial liability is a part of a group of financial assets, financial liabilities or both groups, which are managed and controlled on the basis of fair value in accordance with a documented risk or investment management strategy, and information about this group is provided internally on that basis, or
it exists within the framework of the contract containing one or more embedded derivatives, and IAS 39 "Financial Instruments: Recognition and Measurement" permits to classify the whole contract (asset or liability) as at fair value through profit or loss.

Financial liabilities at fair value through profit or loss are measured at fair value with arising gains or losses recognized in the financial results. Net gains or losses recognized in the income statement include interest paid on a financial liability.

Other financial liabilities - other financial liabilities, including borrowings, are accounted for at fair value less transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest rate method, with the recognition of interest expenses using the effective (actual) yield.

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.

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(in USD thousand, unless otherwise stated)

Relevant exchange rates are presented as follows:

	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
USD/UAH	11.823	7.993	7.993
EUR/UAH	16.087	11.042	10.410
PLN/USD	3.050	3.011	3.326
EUR/USD	0.733	0.726	0.769

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 condensed interim 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 condensed interim statement of comprehensive income.

5.11 Inventories

Inventories consist mainly of agricultural produce and finished goods. Inventories are stated at the lower of cost and net realizable 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 weight average method. Net realizable value is calculated based on the estimated selling price less all estimated costs of production completion and 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 the delivery of an asset to the location and condition, which provide its functioning in accordance with the intentions of the Group's management; (c) initial assessment of the costs of dismantling and removal of an asset of property, plant and equipment and restoration of the occupied territory; this obligation is assumed by the Company 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.

Capitalized costs include principal expenses for modernization and replacement of assets parts, which prolong their useful lives or improve their ability to generate income. Cost of repairs and maintenance of property, plant and equipment that do not meet the above criteria for capitalization are recognized in profit or loss in the period in which they were incurred.

Depreciable amount is the cost of an asset of property, plant and equipment, or any other amount, replacing the cost, less its residual value. The residual value of an asset is the estimated amount that the company would receive

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(in USD thousand, unless otherwise stated)

to date from the sale of an asset 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 each reporting date the Group reviews the carrying amount of its assets 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 the 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 amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised 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.

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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 are capitalized by the Group in the asset if they are directly attributable to the acquisition or construction of a qualifying asset, including construction in progress, costs for acquisition of which arose since 1 January 2008. Other borrowing costs are recognized as an expense in the period they were incurred.

5.16 Leases

Leases are classified as finance leases when according to the terms of lease the lessee assumes all principal risks and rewards incident to ownership of the leased property. Other leases are classified as operating leases. Income and expenses associated with operating leases are accrued on a straight-line basis and recorded in the income statement over the lease term.

5.17 Group as a lessee

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the statement of comprehensive income. Operating lease payments are recognized as an expense in the income statement evenly over the lease term.

5.18 Group as a lessor

Leases where the Group does not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

5.19 Contingent assets and liabilities

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

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

5.20 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 amount of the obligation.

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.

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(in USD thousand, unless otherwise stated)

5.21 Revenue recognition

Revenues from the sale of goods are recognized when the Group has transferred to the buyer all significant risks and rewards of ownership of the goods, and it is probable that the economic benefits associated with this transaction will flow to the Group.

Revenues from rendering of services are recognized in the reporting period in which the services were provided, based on the level of completion of the specific transaction and only when the amount of revenue can be reliably measured and it is probable that the economic benefits associated with this transaction will flow to the Group. Income and expenses relating to the same transaction or event are recognized simultaneously. Interest income is recognized using the effective interest rate method.

5.22 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.

5.23 Value Added Tax

For the six months ended 30 June 2014 and 2013, 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 2014 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 a 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.

5.24 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.

VAT positive balance on agricultural transactions is directed at supporting agriculture, and negative - to be included in expenses. The amount of VAT revenues and expenses is included in other operating income and expenses in the statement of comprehensive income.

5.25 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

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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.

5.26 Related party transactions

For the purposes of these consolidated condensed interim 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 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.

5.27 Comparatives

Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current period.

6. New and amended standards

6.1. Standards issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the Group's consolidated condensed interim financial statements are listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt those standards when they become effective.

At the date of approval of these consolidated condensed interim financial statements the following financial reporting standards were issued by the International Accounting Standards Board but were not yet effective: New and amended standards

	Effective for annual accounting period beginning on or after
IFRS 9 “Financial Instruments” (and subsequent amendments to IFRS 9 and IFRS 7)	1 January 2015
Amendment to IAS 32 “Financial Instruments: Presentation” on Offsetting Financial Assets and Financial Liabilities*	1 January 2014
Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment Entities	1 January 2014
Amendments to IAS 36 - Recoverable Amount Disclosures for Non-Financial Assets	1 January 2014
IFRIC 21 “Levies”	1 January 2014
IFRS 14 “Regulatory Deferral Accounts”*	1 January 2016
Amendments to IAS 19 - Defined Benefit Plans: Employee Contributions*	1 July 2014

not yet adopted by the European Union.

The Board of Directors expects that the adoption of these financial reporting standards in future periods will not have a material effect on the financial statements of the Group.

6.2. Adoption of new and revised standards

The Group has adopted IFRS 13 Fair Value Measurement in the current reporting period. IFRS 13 requires prospective application from 1 January 2013. IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. Other than the additional disclosures, the application of IFRS 13 had no material impact on the amounts recognized in the consolidated financial statements.

The Group has also applied IAS 19 Employee Benefits (as revised in 2011), and “Disclosures – Offsetting Financial Assets and Financial Liabilities” (IFRS 7 amendments). The adoption of these standards and amendments did not have a material impact on the financial position or performance of the Group.

The Group has adopted “Presentation of items of Other Comprehensive Income” (Amendments to IAS 1). The main change resulting from amendments to IAS 1 is a requirement to group items presented in “Other comprehensive income” (OCI) on the basis of whether they are potentially able to be reclassified to profit or loss subsequently (reclassification adjustments). The amendments affect presentation only and have no impact on the Group’s financial position or performance.

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7. 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 |
| Sunflower products operations segment | sales of sunflower oil and related products |

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. Segment result represents operating profit before tax. 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 six months ended 30 June 2014 and 2013:

| For the six months ended
30 June 2014 (unaudited) | Egg operations
segment | Egg products
operations segment | Sunflower products
operations segment | Consolidated |
| --- | --- | --- | --- | --- |
| Revenue | 34 129 | 10 578 | 3 149 | 47 855 |
| Inter-segment revenue | (10 614) | (1 651) | (671) | (12 935) |
| Revenue from external buyers | 23 515 | 8 927 | 2 478 | 34 920 |
| Profit before tax | 8 505 | 2 772 | - | 11 278 |
| For the six months ended
30 June 2013 (unaudited) | Egg operations
segment | Egg products
operations segment | Sunflower products
operations segment | Consolidated |
| --- | --- | --- | --- | --- |
| Revenue | 31 125 | 10 212 | 2 612 | 43 949 |
| Inter-segment revenue | (10 561) | (206) | (84) | (10 850) |
| Revenue from external buyers | 20 564 | 10 006 | 2 528 | 33 098 |
| Profit before tax | 4 971 | 1 854 | (49) | 6 776 |

For the six months ended 30 June 2014 and 2013 no sales were settled by barter transactions.

Segment assets, liabilities and other information regarding segments as at 30 June 2014, 2013 and as at 31 December 2013, were presented as follows:

| As at
30 June 2014 (unaudited) | Egg operations
segment | Egg products
operations segment | Sunflower products
operations segment | Consolidated |
| --- | --- | --- | --- | --- |
| Total segment assets | 108 777 | 11 835 | 741 | 121 353 |
| Total segment liabilities | 16 010 | 2 535 | - | 18 545 |
| Addition to property, plant and equipment and intangible assets | 3 885 | 86 | 4 | 3 975 |
| Net change in fair value of biological assets and agricultural produce | 1 161 | 548 | - | 1 709 |
| Depreciation and amortization | (1 852) | (159) | (22) | (2 033) |
| Interest income | 77 | 16 | - | 93 |
| Interest on debts and borrowings | (198) | (29) | - | (227) |
| Income tax expense | (52) | (1) | - | (53) |

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

As at 31 December 2013 (audited)	Egg operations segment	Egg products operations segment	Sunflower products operations segment	Consolidated
Total segment assets	145 744	13 424	346	159 514
Total segment liabilities	17 518	2 670	-	20 188
As at 30 June 2013 (unaudited)	Egg operations segment	Egg products operations segment	Sunflower products operations segment	Consolidated
---	---	---	---	---
Total segment assets	99 222	25 176	409	124 807
Total segment liabilities	7 133	2 793	-	9 926
Addition to property, plant and equipment and intangible assets	2 362	-	-	2 362
Net change in fair value of biological assets and agricultural produce	1 063	507	-	1 570
Depreciation and amortization	(1 806)	(817)	(11)	(2 634)
Interest income	7	-	-	7
Interest on debts and borrowings	(14)	(49)	-	(63)
Income tax expense	(16)	(21)	-	(37)

8. Other operating income

	Note	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
Income from refund under the special legislation:
Income from special VAT treatment	a)	1 162	503
Total income from refund under the special legislation		1 162	503
Gain on disposal of property plant and equipment		8	9
Recovery of assets previously written off		79	-
Other income		70	6
Total other operating income		1 319	518

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

a) Income from special VAT treatment

Ukrainian agricultural producers, including the certain companies of the Group, benefit from a special regime of taxation. According to special regime rules, agricultural producers are permitted to retain the difference between the VAT that they charge on their agricultural products (prior to 1 January 2011 - at a rate of 20%) and the VAT paid on items purchased for their operational needs. This income and expenses are recognized in the consolidated financial statements on a net basis in other operating income/expenses.

All members of the Group qualify for the use of VAT benefits except for Limited Liability Company "Ovostar", Open Joint Stock Company "Krushynskyy Poultry Complex", Limited Liability Company "Skybynskyy Fodder Plant", Limited Liability Company "Ovostar Union", Public Joint Stock Company "Malynove".

According to the new Tax Code of Ukraine, VAT benefit will be cancelled as at 1 January 2018.

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

9. Other operating expenses

	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
VAT written-off	(47)	(145)
Impairment of doubtful accounts receivable and prepayments to suppliers	(82)	-
Loss on disposal of inventories	(96)	(59)
Fines and penalties	(47)	(1)
Other expenses	(31)	(338)
Total other operating expenses	(303)	(543)

10. Amortisation and depreciation expenses

	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
Depreciation and amortisation - Cost of sales	(1 371)	(2 164)
Depreciation and amortisation - Selling and distribution costs	(9)	(9)
Depreciation and amortisation - Administrative expenses	(653)	(461)
Total amortisation and depreciation expenses	(2 033)	(2 634)

11. Employee benefits expense

	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
Wages, salaries and social security costs of production personnel	(2 737)	(3 061)
Wages, salaries and social security costs of distribution personnel	(163)	(186)
Wages, salaries and social security costs of administrative personnel	(158)	(301)
Total employee benefits expense	(3 058)	(3 548)

12. 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 six months ended 30 June 2014, 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 (30 June 2013: at a 19% rate). The new Tax Code of Ukraine effective as of 1 January 2011, introduced gradual decreases in income tax rates over the future years (from 23% effective 1 April 2011 to 18% effective 1 January 2014 and further), as well as certain changes to the rules of income tax assessment starting from 1 April 2011. The deferred income tax assets and liabilities as of 30 June 2014 were measured based on the tax rates expected to be applied to the period when the temporary differences are expected to reverse.

The major components of income tax expense for six months ended 30 June 2014 and 2013 are:

	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
Current income tax	(2)	(23)
Deferred tax	(51)	(14)
Income tax (expense)/benefit reported in the income statement	(53)	(37)

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

13. Biological assets

As at 30 June 2014, 2013, and 31 December 2013 commercial and replacement poultry were presented as follows:

	As at 30 June 2014 (unaudited)		As at 31 December 2013 (audited)		As at 30 June 2013 (unaudited)
	Number, thousand heads	Carrying value	Number, thousand heads	Carrying value	Number, thousand heads	Carrying value
Non-current biological assets
Replacement poultry
Hy-line	3 119	34 413	2 981	43 500	2 767	35 984
Hy-sex	-	-	-	-	129	1 758
Total non-current biological assets	3 119	34 413	2 981	43 500	2 896	37 742
Current biological assets
Commercial poultry
Hy-line	1 685	9 786	1 894	13 244	1 487	9 093
Hy-sex	110	313	121	1 428	-	-
Total current biological assets	1 794	10 098	2 015	14 672	1 487	9 093
Total biological assets	4 913	44 511	4 996	58 172	4 383	46 835

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 generate cash flow less than one year are classified as current biological assets.

Reconciliation of commercial and replacement poultry carrying values for the six months ended 30 June 2014 and 2013 was presented as follows:

	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
As at 01 January	58 172	41 084
Increase in value as a result of assets acquisition	358	177
Increase in value as a result of capitalization of cost	4 640	4 905
Income/(Losses) from presentation of biological assets at fair value	1 709	1 570
Decrease in value as a result of assets disposal	(624)	(901)
Exchange differences	(19 744)	-
As at 30 June	44 511	46 835

For the six months ended 30 June 2014 the Group produced shell eggs in the quantity of 468 073 thousand items (30 June 2013: 422 196 thousand).

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 selling using corresponding discount rate which is equal to $24.65\%$ (30 June 2013: $25.10\%$). 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.

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

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

	Assumptions which were used for the fair value calculations of biological assets:
	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
Eggs sale price, USD per item	0.087	0.084
Discount rate, %	24.65%	25.10%
Long-term inflation rate of Ukrainian hrivnya, %	105.00%	109.30%

Changes in key assumptions that were used in fair value estimation of biological assets will have the following influence on the value of biological assets as at 30 June 2014 and 2013:

	For the six months ended 30 June 2014 (unaudited)	For the six months ended 30 June 2013 (unaudited)
1% decrease in egg sale price	(849)	(861)
1% increase in discount rate	(589)	(653)
1% increase in long-term inflation rate of Ukrainian hrivnya	642	535

14. Property, plant and equipment and intangible assets

During the six months ended 30 June 2014, the Group's additions to property, plant and equipment amounted to USD 3 975 thousand (2013: USD 2 362 thousand). In particular the Group acquired equipment for poultry houses in the amount equal to USD 3 226 thousand (2013: USD 1 434 thousand) and capital expenditures in amount of USD 749 thousand (2013: 931 thousand) were incurred in connection with the reconstruction and improvement of the existing facilities and reconstruction of poultry buildings.

For the six months ended 30 June 2014 and 2013 respectively the Group has put into operation fixed assets of book value equal to USD 5 910 thousand and USD 2 356 thousand respectively.

As at 30 June 2014 net book value of property plant and equipment which was used as collateral for bank loans amounted to USD 1 429 thousand and property, plant and equipment via finance lease amounted USD 668 thousand (2013: USD 3 575 thousand and plant and equipment via finance lease USD 799 thousand).

As at 30 June 2014 construction-in-progress and uninstalled equipment also included prepayments for the property, plant and equipment which amounted to USD 2 thousand (2013: USD 1 673 thousand).

As at 30 June 2014, included within property, plant and equipment were fully depreciated assets with the original cost of USD 3 468 thousand (2013: USD 3 670 thousand).

Impairment assessment

The Group reviews its property, plant and equipment each period to determine if any indication of impairment exists. Based on these reviews, there were no indicators of impairment as of 30 June 2014, 2013 and 31 December 2013.

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovestar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

15. Interest-bearing loans and other financial liabilities

	Currency	Effective interest rate, %	Maturity	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Current interest-bearing loans and other financial liabilities
		5.92% +
Credit Agricole loan	EUR	EURIBOR (6m)	05.07.2015	359	365	344
		5.92% +
Credit Agricole loan	EUR	EURIBOR (6m)	08.08.2015	177	180	170
		5.92% +
Credit Agricole loan	EUR	EURIBOR (6m)	03.10.2015	140	143	134
UniCreditBank overdraft	UAH	10.0%	30.06.2014	-	-	1 084
		1.65%+
Landesbank Berlin AG loan	EUR	EURIBOR (6m)	30.12.2020	1 968	1 985
Other non-current loans	UAH	-	-	57	82	84
Short-term financial lease liabilities (a)	UAH	7.0%	28.09.2017	111	165	165
Total current interest-bearing loans and other financial liabilities				2 812	2 920	1 981
Non-current interest-bearing loans and other financial liabilities
		5.92% +
Credit Agricole loan	EUR	EURIBOR (6m)	05.07.2015	84	274	429
		5.92% +
Credit Agricole loan	EUR	EURIBOR (6m)	08.08.2015	38	135	212
		5.92% +
Credit Agricole loan	EUR	EURIBOR (6m)	03.10.2015	85	140	199
		1.65%+
Landesbank Berlin AG loan	EUR	EURIBOR (6m)	30.12.2020	9 715	9 617	-
Long-term financial lease liabilities (a)	UAH	7.0%	28.09.2017	279	452	516
Total non-current interest-bearing loans and other financial liabilities				10 201	10 618	1 356
Total interest-bearing loans and other financial liabilities				13 014	13 538	3 337

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 30 June 2014 and 2013 the Group was not in breach of any financial covenants which allow lenders to demand immediate repayment of loans.

Under normal conditions of loans Credit Agricole, the interest rate up to $5.92\% + \text{EURIBOR}$. In the case in violation of the terms of repayment of loans Credit Agricole, the interest rate increases to $10\%$.

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

union

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

(a) Finance lease liabilities

	As at 30 June 2014 (unaudited)		As at 31 December 2013 (audited)		As at 30 June 2013 (unaudited)
	Minimum lease payments	Present value of minimum lease payments	Minimum lease payments	Present value of minimum lease payments	Minimum lease payments	Present value of minimum lease payments
Amounts payable under finance lease:
Within a year	134	111	203	165	209	165
From one to five years	300	279	500	452	582	516
Above 5 years	-	-	-	-	-	-
	434	390	703	617	791	681
Less: financial expenses of future periods	(44)	-	(86)	-	(110)	-
Present value of lease liabilities	390	390	617	617	681	681
Less: amount to be paid within a year		(111)		(165)		(165)
Amount to be paid after one year		279		452		516

Finance lease obligations represent amounts due under agreements for lease of poultry cage equipment with Ukrainian companies. Net carrying value of property, plant and equipment acquired via finance lease as at 30 June 2014, 2013 and 31 December 2013 was as follows:

	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Plant and equipment	668	740	799
Total	668	740	799

As at 30 June 2014 and 2013 there were no restrictions imposed by lease arrangements, in particular those concerning dividends, additional debt or further leasing.

16. Inventories

	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Agricultural produce and finished goods	6 171	6 281	6 599
Raw materials	2 818	4 312	4 492
Package and packing materials	882	1 121	921
Work in progress	354	111	362
Other inventories	513	582	669
(Less: impairment of agricultural produce and finished goods)	(210)	(311)	(145)
Total inventories at the lower of cost and net realisable value	10 528	12 096	12 898

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

17. Trade and other receivables

	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Trade receivables	6 478	8 748	5 754
VAT for reimbursement	4 200	4 138	3 306
VAT for reimbursement under special legislation	2	3	-
Receivables for securities sold but not yet settled	142	210	210
Other accounts receivable - related party	-	-	961
Other accounts receivable	24	65	39
Provision for doubtful accounts receivable	(349)	(462)	(401)
Total trade and other receivables	10 497	12 702	9 869

18. Cash and cash equivalents

	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Cash in banks	6 092	8 594	838
Cash on hand	11	14	30
Total cash at banks and on hand	6 103	8 608	868

19. Equity

Issued capital and capital distribution

For the six months ended 30 June 2014 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 off 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 30 June 2014, 2013 and 31 December 2013 the largest single shareholder interest in the Company was as follows:

	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Prime One Capital Ltd.	71.24%	71.24%	74.03%
Generali Otwarty Fundusz Emerytalny	9.94%	9.94%	12.15%
AMPLICO OFE	5.80%	5.80%	-
AVIVA Otwarty Fundusz Emerytalny Aviva BZ WBK	5.02%	5.02%	5.02%

Foreign currency translation reserve

According to section 373, Book 2 of the Dutch Civil Code, 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 81 906 (30 June 2013: USD 78 078). The result arising of 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.

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 six months ended 30 June 2014 and 2013, there were no movements in share premium.

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

union

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

Dividends payable of the Company

During the six months ended 30 June 2014 and 2013, no dividends have been declared and paid.

20. Trade and other payables

	As at 30 June 2014 (unaudited)	As at 31 December 2013 (audited)	As at 30 June 2013 (unaudited)
Trade payables	4 068	4 014	4 374
Employee benefit liability	279	421	568
Taxes payable	160	249	61
Liability for unused vacation	254	375	133
VAT liabilities	85	4	660
Income tax payables	-	5	-
Other payables	78	724	468
Total trade and other payables	4 924	5 792	6 264

21. 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. In considering the transactions with each possible related party, the 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 30 June 2014, and 2013:

(A). Key management personnel:

Borys Bielikov
Vitalii Veresenko
Oleksander Bakumenko
Marc van Campen
Sergey Sovgira
Tatiana Komarova
Natalia Malyovana
Natalia Vlasniuk
Vitalii Voron
Yuriy Gusar
Valentina Pavlenko

Position:

Executive director (shareholder)
Non-executive director (shareholder)
Non-executive director
Non-executive director
Executive director
Chief Financial Officer
Commercial director
Marketing director
Production director
Director (PJSC "Poultry Farm Ukraine")
Logistics director

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

Agrofirma Boryspilsky Hutir LLC
Aleksa LTD LLC

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovestar

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

As at 30 June 2014, 2013 and 31 December 2013, trade accounts receivable from related parties and advances issued to related parties were presented as follows:

| | As at
30 June 2014
(unaudited) | As at
31 December 2013
(audited) | As at
30 June 2013
(unaudited) |
| --- | --- | --- | --- |
| Loan issued to the Beneficial Owners
(A). Key management personnel: | | | |
| Borys Bielikov | - | - | 961 |
| | - | - | 961 |
| Prepayments to related parties
(B). Companies which activities are significantly
influenced by the Beneficial Owners: | | | |
| Aleksa LTD LLC | 119 | 165 | 197 |
| | 119 | 165 | 197 |

22. Commitments and contingencies

Contingent liabilities

Operating environment. The principal business activities of the Group are within Ukraine. Emerging markets such as Ukraine are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. As has happened in the past, actual or perceived financial problems or an increase in the perceived risks associated with investing in emerging economies could adversely affect the investment climate in Ukraine and the Ukraine's economy in general. Laws and regulations affecting businesses operating in Ukraine are subject to rapid changes and the Group's assets and operations could be at risk if there are any adverse changes in the political and business environment.

Political crisis. Since November 2013, Ukraine has been in a political and economic turmoil. The Ukrainian Hryvnia devalued against major world currencies and significant external financing is required to maintain stability of the economy. The National Bank of Ukraine, among other measures, has imposed temporary restrictions on processing of client payments by banks and on the purchase of foreign currency on the inter-bank market. In February 2014, Ukraine's sovereign rating has been downgraded to CCC with a negative outlook.

In February 2014, the Parliament of Ukraine voted for reinstatement of the 2004 Constitution and dismissal of the incumbent President. New presidential elections are scheduled for May 2014 and a transitional government has been formed. In March 2014, Crimea, an autonomous region of Ukraine, was effectively annexed by the Russian Federation. The further political developments are currently unpredictable and may adversely affect the Ukrainian economy. As of 30 June 2014 and for the six months then ended, the Group's assets are not located in the Crimea region. As of the date of this report, operation of the Group's facilities throughout Ukraine continued to operate normally through the first half of 2014.

Taxation. Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian economic environment. In respect of this, the local and national tax environment in Ukraine is constantly changing and subject to inconsistent application, interpretation and enforcement. Noncompliance with Ukrainian laws and regulations can lead to the imposition of severe penalties and interest. Future tax examinations could raise issues or assessments which are contrary to the Group companies' tax filings. Such assessments could include taxes, penalties and interest, 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.

In December 2010, the Tax Code of Ukraine was officially published. In its entirety, the Tax Code of Ukraine became effective on 1 January 2011, while some of its provisions take effect later (such as, Section III dealing with corporate income tax, came into force from 1 April 2011). Apart from changes in CIT rates from 1 April 2011 and planned abandonment of VAT refunds for agricultural industry from 1 January 2018, as discussed in Note 8, the Tax Code also changes various other taxation rules.

As of the date these financial statements were authorized for issue, additional clarifications and guidance on application of the new tax rules were not published and certain revisions were proposed for consideration of the Ukrainian Parliament.

OVOSTAR UNION N.V. AND ITS SUBSIDIARIES

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

ovostar

union

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(in USD thousand, unless otherwise stated)

While the Group’s management believes the enactment of the Tax Code of Ukraine will not have a significant negative impact on the Group’s financial results in the foreseeable future, as of the date these financial statements were authorized for issue management was in the process of assessing of effects of its adoption on the operations of the Group.

Legal issues. The Group is involved in litigations and other claims that are in the ordinary course of its business activities. Management believes that the resolution of such matters will not have a material impact on its financial position or operating results.

Capital commitments. As at 30 June 2014 the Group had contract liabilities for acquisition of property, plant and equipment equal to nil (2013: USD 5 324 thousand).

23. Subsequent events

There were no significant events that occurred after the balance sheet date.

AI assistant

Ovostar Union PLC — Interim / Quarterly Report 2014

5746_ir_2014-08-29_c10ce9bf-69a7-4f99-8be8-598ad21a0518.pdf

Egg segment

Egg products segment

Sunflower processing segment

Financial position and performance

Revenue

The Group's revenue structure

Cost of sales and gross profit

Operating profit and EBITDA

Profit before tax and net profit

Cash flow

Assets

Liabilities and equity

Investment program update

CONTENTS

REPRESENTATION

CONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (CONTINUED)

CONSOLIDATED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION

CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CONDENSED INTERIM STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

1. Corporate information

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

2. Basis of preparation

2.1. Statement of compliance

2.1. Going concern basis

2.2. Functional and presentation currency

3. Basis of consolidation

4. Use of estimates and assumptions

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

4.1. Impairment of property, plant and equipment

4.2. Fair value of biological assets

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

4.3. Allowances for doubtful debts

4.4. Useful lives of property, plant and equipment

4.5. Deferred tax assets

4.6. Tax legislation

5. Summary of significant accounting policies

5.1 Recognition and measurement of financial instruments

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

5.2 Financial assets

5.3 Effective interest rate method

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

5.4 Cash and cash equivalents

5.5 Short-term deposits

5.6 Impairment of financial assets

5.7 Writing-off of financial assets

5.8 Financial liabilities and equity instruments issued by the Group

5.8.1 Accounting as liabilities or equity

5.8.2 Equity instruments

5.8.3 Liabilities under financial guarantee contracts

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

5.8.4 Financial liabilities

5.8.5 Trade and other accounts payable

5.8.6 Loans and borrowings

5.8.7 Writing-off of financial liabilities

5.9 Foreign currency transactions

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

5.10 Biological assets

5.11 Inventories

5.12 Property, plant and equipment

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

5.13 Impairment of property, plant and equipment

5.14 Intangible assets

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

5.15 Borrowing costs

5.16 Leases

5.17 Group as a lessee

5.18 Group as a lessor

5.19 Contingent assets and liabilities

5.20 Provisions

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

5.21 Revenue recognition

5.22 Income tax

5.23 Value Added Tax

5.24 Government grants

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

Ovostar Union PLC Interim / Quarterly Report 2014