Investor Relations / AIM Rule 26

Corporate Governance

CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2018

As an AIM-quoted company, Ukrproduct Group Limited (“UPG” or the “Company”) and its subsidiaries (together, the “Group”) is required to apply a recognised corporate governance code, demonstrating how the Group complies with such corporate governance code and where it departs from it.

The Directors of the Company have formally made the decision to apply the QCA Corporate Governance Code (the “QCA Code”). The Board recognises the principles of the QCA Code, which focuses on the creation of medium to long-term value for shareholders without stifling the entrepreneurial spirit in which small to medium sized companies, such as UPG, have been created. The Company will provide annual updates on its compliance with the QCA Code in its Annual Report.

The Board

The Board consists of three Executive Directors and one Non-executive Director, being the Chairman, reflecting a blend of different experience and backgrounds. The Board considers ­­­­­­­­­­­­­­­­­­­­­Jack Rowell to be classified as an independent Non-executive director under the QCA guidelines.

UPG’s Board meets four times a year. At these quarterly meetings the Board, inter alia, discusses the implementation of strategy, reviews financial progress and evaluates the individual and collective accountability of the Board.

The Group’s day-to-day operations are managed by the Executive Directors. All Directors have access to the Company Secretary and any Director needing independent professional advice in the furtherance of their duties may obtain this advice at the expense of the Group.

The Board is satisfied that it has a suitable balance between independence on the one hand, and knowledge of the Company on the other, to enable it to discharge its duties and responsibilities effectively, and that all Directors have adequate time to fill their roles.

Details of the current Directors, their roles and background are set out on the Company’s website at http://ukrproduct.com/en/kompaniya/management-structure/.

The role of the Chairman is to provide leadership of the Board and ensure its effectiveness on all aspects of its remit to maintain control of the Group. In addition, the Chairman is responsible for the implementation and practice of sound corporate governance. The Chairman is considered independent and has adequate separation from the day-to-day running of the Group

The role of the Chief Executive Officer is for the strategic development of the Group and for communicating it clearly to the Board and, once approved by the Board, for implementing it. In addition, the Chief Executive Officer is responsible for overseeing the management of the Group and its executive management.

Application of the QCA Code

It is the Board’s job to ensure that the Group is managed for the long-term benefit of all shareholders and other stakeholders with effective and efficient decision-making. Corporate governance is an important part of that job, reducing risk and adding value to the Group. The Board will continue to monitor the governance framework of the Group as it grows.

The Company remains committed to listening to, and communicating openly with, its shareholders to ensure that its strategy, business model and performance are clearly understood. The AGM is a forum for shareholders to engage in dialogue with the Board. The results of the AGM will be published via RNS and on the Company’s website. Regular progress reports are also made via RNS’s and the point of contact is Volodymyr Vardzielov, CFO – Volodymyr.Vardzielov@ukrproduct.com.

UPG’s management maintains a close dialogue with local communities and its workforce. Where issues are raised, the Board takes the matters seriously and, where appropriate, steps are taken to ensure that these are integrated into the Company’s strategy.

Both the engagement with local communities and the performance of all activities in an environmentally and socially responsible way are closely monitored by the Board and ensure that ethical values and behaviours are recognised.

Corporate Governance Committees

The Board has two committees comprising the Non-Executive Chairman.

The Audit Committee

The Audit Committee consists of Jack Rowell (Non-Executive Chairman). The terms of reference of the Audit Committee are to assist all the Directors in discharging the individuals of appropriate ability and experience and to help in promoting following:

  • The Group’s  financial  and  accounting  systems  provide  accurate  and  up-to-date information on its current financial position, including all significant issues and going concern;
  • The integrity of the Group’s financial statements and any formal announcements relating to the Group’s financial performance and reviewing significant financial reporting judgments contained therein are monitored;
  • The Group’s published financial statements represent a true and fair reflection of this position; and taken as a whole are balanced and understandable, providing the information necessary for shareholders to assess the Group’s performance, business model and strategy;
  • The external audit is conducted in an independent, objective thorough, efficient and effective manner, through discussions with management and the external auditor; and
  • A recommendation is made to the Board for it to put to shareholders at a general meeting, in relation to the reappointment, appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor.

Remuneration Committee

The Remuneration Committee consists of Jack Rowell (Non-Executive Chairman). The terms of reference of the Remuneration Committee are to:

  • recommend to the Board a framework for rewarding senior management, including Executive Directors, bearing in mind the need to attract and retain individuals of the highest calibre and with the appropriate experience; and
  •   ensure that the elements of the remuneration package are competitive and help in promoting the Group.

Nominations Committee

Given the Company’s size, the Board has not considered it appropriate to have a Nominations Committee.

Internal control

The Directors acknowledge their responsibility for the Group’s system of internal control, which is designed to ensure adherence to the Group’s policies whilst safeguarding the assets of the Group, in addition to ensuring the completeness and accuracy of the accounting records. Responsibility for implementing a system of internal financial control is delegated to the Finance Director. The essential elements of the Group’s internal financial control procedures involve:

  • Strategic business planning

Strategic business planning is undertaken annually. This includes financial budget for the following year.

  • Performance review

The Directors aim to monitor the Group’s performance through the preparation of monthly management accounts and regular reviews of expenditure and projections.

  • The Internal control system

The Internal control system is further enforced by the Group’s internal audit department with the main objectives of ensuring the safety of the Group’s assets and the reliability of accounting records.

Departure from the QCA Code

In accordance with the AIM Rules for Companies, UPG departs from the QCA Code in the following ways

Principle 5: “Maintain the board as a well-functioning, balanced team led by the chair.”

The Company does not comply with the recommendation of Principle 5 that the Board should have at least two independent non-executive directors. The Company only has one Non-Executive Director, the Chairman, who is considered independent, but has three Executive Directors. The Executive Directors have valuable industry knowledge and are integral to the running of the business. The Chairman has an extensive business experience at the Board level especially in the Food industry.

Principle 7 – “Evaluate board performance based on clear and relevant objectives, seeking continuous improvement.”

UPG’s board is small and extremely focussed on implementing the Company’s strategy. However, given the size and nature of UPG, the Board does not consider it appropriate to have a formal performance evaluation procedure in place, as described and recommended in Principle 7 of the QCA Code. The Board will closely monitor the situation as it grows.