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The year 1993 marked the issue of IFRS 11 “Construction Contracts” and IFRS 18 “Revenue”, and it was a time when some of us were still attending the school. Since then, a number of amendments have been made to the above-mentioned standards as a result of the issuance of new International Financial Reporting Standards (IFRS).  In addition, IFRS and a number of Interpretations related to income have been issued. For example, IFRIC 13 “Customer Loyalty Programs”, IFRIC 15 “Agreements for the Construction of Real Estate”, and IFRIC 18 “Transfers of Assets from Customers”.

The new revenue recognition standard IFRS 15 “Revenue from Contracts with Customers” is effective for accounting periods beginning January 2018.

The main difference is that revenue will be based on the changes in assets and contract liabilities. All contracts will be analyzed as contract assets and contract liabilities.  Revenue would only be recognized when either the net contract liability is reduced or the net contract asset has increased as a result of the performance of the entity’s contractual liabilities. The transfer of control evidences the fulfilment of obligations.

IFRS 15 includes a five-step model framework. Changes under each of them were as follows:

Identify of contracts with a customer. In some cases, the distinction between whether the parties act as an agent in a contract or as a customer has changed. House builders were obliged to separate the sales of new buildings from the contracts to sell old ones taken on partial exchange basis, for example. This problem also affects companies in software, transportation, and property management. As a result, what was a commission cost may become a discount and so a reduction in revenue, and vice versa. The impact of such changes was less on the bottom-line profit than on gross revenue or the reporting margins of different business directions, but in some companies, the impact can be equally significant on both.

Identify separate performance obligations in the contract. As it was expected, this change had the biggest impact. The greater unbundling required by IFRS 15 changes the timing of revenue recognition and profit, and this means that retained earnings will be restated. For example, the separation of the sale of equipment and software from the provision of services, maintenance, and installation accelerated the recognition of revenue/profit for mobile phone contracts; for others, the recognition of income for previous periods has been derecognized and deferred. In case of property developers, revenue should be allocated to five-year warranties provided as part of the “package” and cannot be merely allocated as a provision for the estimated cost of claims.

Determine of the transaction price. Companies do not distinguish major changes in the treatment of variable consideration. This indicates that volume discounts or bonuses on milestones, for example, have already been accounted for cautiously. IFRS 15 mainly changes treatments to a greater extent on contract acquisition costs.  It was not covered by the previous standard, but now such costs must be allocated in advance in line with revenue. Apparently, some engineers involved in large equipment sales, mobile phones companies, house builders had previously written off substantial commissions to intermediaries as they incurred.

Allocate the transaction price to the different performance obligations.  The option to disregard the financing element when the time difference between receipt of cash and performance under contract is less than 12 months, is widely used where there are substantial customer down-payments. The requirement to identify standalone selling prices for separate performance obligations was considered by many entities to be difficult to apply and it was a requirement where a certain degree of judgement was necessary.

Recognize revenue when the performance obligations are fulfilled. The key criterion for fulfillment under IFRS 15 is that control passes to the customer, either at a point in time or over time. It is difficult to determine the consequences from this from the separate performance obligations of equipment delivery and service.

There are also more important detailed effects – for example, the transition from percentage of completion method to proportion of costs incurred method for the measurement of milestones achieved.  In real estate projects, the point in time for sale changes from the exchange of contracts and actual completion of construction to legal termination of the contract.

It may seem unclear that, even under IFRS 15, all housing projects will have the same revenue recognition model, but some may be recognizing over time, while others at a point in time.

Transition and restatement

Companies seem to be divided equally between companies with full retrospective restatement and those who choose the modified approach. Large number of companies did not make the final choice at the end of 2017, even for the interim reports in 2018, for many the choice of transition remains still not clear. Thus, users may not be aware of whether the previous year’s numbers are comparable or not.

Restatements can be an increase or decrease, although the telecoms companies have seen steady increase as a result of prior recognition of the sale of equipment.

Much about adoption of the new standard in 2018 remains to be disclosed and evaluated. The absence of full retrospective restatements means that the real impact on profit will not fully emerge until the publication of the reports for the fiscal year 2019.

Today, the impact of IFRS 15 is variable – what has changed varies (and may be in the details of the standard), as does the degree of impact from one entity to another, and some sectors (e.g. retail and property investments) have hardly been affected.

In general, the impact of IFRS 15 on profit or net assets may be insignificant, although the effort required to implement it may be significant as companies try to understand fully many types of contracts with customers.

So has it all been worth it? The benefits of improved reporting – greater clarity and consistency, and better disclosure – will probably only become evident only in future periods when the new accounting standard becomes fully embedded into corporate reporting.


Overview of ACCA articles under the new IFRS 15
Y. V. Staroverova, FCCA

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Rule #1: reputation analysis. Imagine the situation. A venture capitalist holds business meeting with young startupper who invented a universal translator. They have already reached agreements on investing in the project and are about to sign the shareholder’s agreement. Some details remain to be discussed. And now, in the middle of the conversation, the investor’s phone rings. The unknown person informs that he knows about the planned transaction and offers to listen to information before all formalities are settled.

The investor agrees with curiosity. According to the caller’s words, the young entrepreneur is a fraud. He uses his idea as a cash-cow – he pulls money out of investors and then disappears. Having weighed everything, the investor still ignores the strange unknown righteous man. The young entrepreneur showed himself well at the stage of negotiations and description of the idea, moreover, he was firmly in control of the project figures.

So the contract is signed. Everything seems to be going smoothly, but after a few months the prodigy startupper suddenly faces insurmountable difficulties, and the project collapses. The decisions made by the young entrepreneur turned out to be short-term, the declared terms and stages of the project implementation were not fulfilled. The investor has to fix losses due to unsuccessful investment.

All of the above is quite real example. However, such problems can be avoided by the timely involvement of forensics experts who specialize in identifying unreliable subjects through the OSINT/HUMINT procedure, which focuses on comprehensive analysis of person’s reputation using a variety of information sources, both open and closed.

Success of the startup is predictable

Rule #2: feasibility study. Any startup can be assessed and understood both in terms of its market prospects and the level of efficiency of the business models used by its management. The purpose of the feasibility study is to determine the basic parameters of the startup financial model, which is ICMS – Idea, Cost, Marketing, Sales. Having made correct prediction in the context of these indicators, the probability that the startup will not be included in the valley of death will increase significantly.

This is what the investor in the above example has not done or has done badly. In this case, he went even further and openly ignored the warning about the danger.

Unfortunately, such embarrassing failures are common among investors. Like any purchaser, they are penchant for advertising and loud promises. Charm (even if this is an important and famous person) and loud promises can still not come true. Theranos and Elizabeth Taylor, its founder, are clear proof of this. The other recent example is shut down of Yogome startup due to accusations of fraud and incompetent management of its founder.


Any startup must be carefully checked before investing. For this purpose, there are many types of check-ups, some of which are feasibility studies and forensic check-ups, which are designed to study the financial model of a startup and to track the movement of all financial flows within the project for their intended use, excluding fraudulent schemes.

Personal participation in startup development is also important. For this purpose, there are special tools (SCRUM, Deming cycle, Agile, Kaizen, Lean etc.) designed to assess the performance of the business as a whole and by segments.

Obviously, such approaches carry risks as well. For example, check-ups and meetings take time and often happens that parties simply do not have that time. But on the other hand, any kind of check-up can be done in an express form, i.e. 3-5 days before spending time on a project. In this period you will not get an understanding

of all aspects of a startup, but you will have accurate information about the main financial indicators, as well as you will know more about the reputation of people with whom you negotiating the deal.

Source: biz.nv.ua

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The term squeeze-out (which implies mandatory buyback of equity shares of a company from minority shareholders) came into use in Ukraine with the adoption of the Law “On Amendments to Certain Legislative Acts of Ukraine on Improving Corporate Governance in Joint-Stock Companies” No. 1983-VIII, dated 23.03.2017.

The adoption of this Law is stipulated by the harmonization of the national legislation on corporate law with the EU legislation, where this term was introduced in 2004 (Directive 2004/25/EC) as generalizing result of the corporate law practices of the EU countries.

In the world practice, this term has already existed since the 90s and has become widespread as a result of share buyback practices in mergers and acquisitions.

In Ukraine, the application of squeeze-out procedure has its own specific features. The main owners of joint-stock companies have long awaited the adoption of this Law. In fact, the overwhelming majority of joint- stock companies were created as a result of mass privatization in the 90s, when even department stores were corporatized. Therefore, most of the newly established joint-stock companies were not interested in offering and supporting the listing of their shares in order to attract investment.

The shares held by citizens were very small, so they had neither opportunity, nor desire to participate in the life of the enterprises. This situation eventually led to the phenomenon of “dead souls”, when the heirs of the deceased shareholder did not register the shares obtained as an inheritance.

There was actually a situation when the main advantage of this organizational-legal form, namely the possibility of attracting financing through the stock market, was not achieved in Ukraine. At the same time, companies continued to incur additional costs related to the functioning as a joint-stock company.

The number of reports complained to the National Securities and Stock Market Commission of Ukraine (SSMCS) reached 24 by the end of 2018. After squeeze-out procedures of Metinvest companies, which caused wide response, Stock Market Commission of Ukraine (SSMCS) and the State Property Fund of Ukraine (SPFU) initiated the development of additional requirements for appraisers, who carry out valuation for squeeze-out purposes. It is noteworthy that not all claims to the appraisers’ reports are justified and satisfied in the courts.

At the same time, the owners of the majority packages, in order to protect themselves during the squeeze-out procedure, in addition to more thorough selection of the appraiser, can also receive a review of the appraiser’s report. This step will improve the quality of the reports and minimize the risk of litigation.

In turn, appraisers, when conducting stock valuation for squeeze-out procedure, face a number of unresolved methodological issues that complicate the work and constitute potential sources of conflict. This is the basis of valuation, the use and determination of the discount in value for lack of control, the priority of approaches in valuation.

The market value is the basis for the valuation of shares in the squeeze-out procedure, which implies the voluntary execution of the transaction between the purchaser and the seller, which in fact does not exist.

In addition, questions arise in the application of valuation approaches. According to the national standards, income based valuation approach is prioritized for the valuation of the Central Election Commission of Ukraine (CEC), but there are cases where, for a number of reasons, the application of cost approach would result in higher share price. But following the standards, the valuator applies income based valuation approach, thus causing complaints and accusations of undervaluation by minority shareholders.

From July 2017, when Law No. 1983-VIII came into force, 200 joint-stock companies conducted the squeeze-out procedure until January 2018. According to the preliminary estimates of SSMCS, the minority owners of the stakes were paid UAH 350 million and another UAH 400 million are on escrow accounts at the end of 2018.

Despite the difficulties, legislative shortcomings, and criticism arising from squeeze-out, we can say that this procedure is becoming an effective mechanism for improving corporate governance in Ukraine.

Source: finance.ua

Sergej Beljasov
Senior Analyst, Valuation and Business Modeling Department

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Cryptocurrency markets have collapsed again. For some, this has already become cast iron proof of the imminent death of both Bitcoin and the company. Others insist that the fall of the cryptocurrency market is temporary and natural. So where is the truth? As always, in the middle.

How did the fall start?

The fall began with the takeoff. It happened a year ago, when the price of bitcoin skyrocketed and then dropped as rapidly. This became a point of no return.

This already happened, for example, in 2013, when the Bitcoin price soared from $130 to $1150 and then returned to the initial positions. Digital assets have their own specific features, based on the fact that – and that’s what everybody knows today – the absence of direct reference to the exchange rate, valuable resources, etc.

However, we should admit that the current decline in the exchange rate is one of the most protracted.

What are the reasons?

There are a lot of them, let’s consider the main ones.

  • Market overheating

Let’s remember the statistics: at the beginning of January 2015, the price of Bitcoin was $315, in January 2016 it increased to $430, and at the beginning of 2017, it rose again within normal limits. At that time, the price of Bitcoin was just over a thousand dollars.

And suddenly, in November, its price was already at $7,000. Thus, the growth for six months amounted to 600%. And the next month, it reached up to $20,000.

Bitcoin course over the past few years. Source: MarketInsider

Such sharp and positive dynamics is anomalous for any market.

In this case, it is an evidence of excessive investment in cryptocurrencies, revaluation of their investment potential. Correctional movements are direct consequence of this situation. Put simply, the decline. In fact, now the market is returning to its natural state.

Mining problem

Mining of large quantities of coins is very expensive. On average, according to Crescent Electric, it is necessary to spend $7,275 for mining of 1 bitcoin.

Not everyone can withstand these costs, which leads, on the one hand, to a decrease in production and, on the other hand, to an outflow of miners. This reduces the price of Bitcoin and other cryptocoins. In turn, the decline in price makes mining even more unprofitable, increasing the outflow of miners.

The manufacturers of mining equipment also had a problem. Their products are no longer purchased so actively, resulting in trivial overstocking of warehouses.

Hacking and fraud

According to the CipherTrace report, USD 927 million worth of cryptocurrency were stolen in the first 9 months of the year, which is several times more than in the whole for 2017. In short, it looked like this:

In January, NEM cryptocurrencies (positioned as one of the most reliable) worth over USD 500 million were stolen from the Japanese Coincheck exchange. In February, Nano tokens worth USD 170 million were stolen from the BitGrail exchange, which led to the bankruptcy of the exchange itself. In June, Bithumb and Coinrail stock exchanges in South Korea were hacked. In September, Japanese stock exchange Zaif was hacked.

In addition to the hackers, the cryptocurrency exchange add fuel to the flames. Thus, in May, Bitcoin fell in price by more than a thousand dollars based on the message about the presumable fraud of the stock exchange Upbit.

51% attack and cryptocurrencies

51% attack becomes possible when a person holds more than half of the entire network. The last known case of such break-in occurred at the beginning of January this year. The fact of the attack was recognized by Gate.io and Bitfly cryptocurrency exchanges.

Finally, 51% attack on large networks is too expensive to invest in. To compensate for all the expenses, you need to have on your wallet a huge amount of coins for double write-offs, because each subsequent false write-offs will reduce their cost.

51% attack pose risk to the small developing cryptocurrencies and their holders. The networks of such alto-coins are smaller and the number of users in them is smaller too, so it is much easier to “become a leader”. It  will not bring significant profit and there will be problems with the sale of stolen coins. But the reputation of the cryptocurrency itself will suffer, moreover, after such attack it may lose all its users and, as a consequence, cease to exist. 


The cryptocurrency market is now facing a lot of problems and this article comprises only some of them. In fact, there are more factors that have caused the current collapse.

All of the above-mentioned does not mean that the market will soon cease to exist. At the moment it is in the process of recovering and stabilizing after the wave of an incredible hype.

All these ups and downs of cryptocurrency prices are likely to continue. As long as the market finds the system of operation acceptable for all its participants: miners, investors, the state.

But there is a possibility that this will not happen, neither in the near future nor in the distant future. Then, it makes sense to talk that one day cryptocurrency may cease to exist.

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Even though Kreston GCG is part of the international audit and consulting network Kreston International, we are independent to develop and implement sales strategies within Ukraine.

Kreston GCG has a sales model that is different from conventional models used in the consulting market. Our organizational structure comprises an independent Development Department that employs over 10% of the entire company staff and has 8-grade levels for those employees engaged in direct sales. This ensures us a steady accretion in both revenue and new clients. In 2018, the share of new clients in sales of Kreston GCG hit over 45%. We will elaborate on this more in one of our next articles.

We outline 13 sales channels and divide them on both outgoing and incoming. However, each of them is subject to a detailed refinement and creation of marketing influence factors by reference to specific services (products).

Different channels show different feedback, and different MROI may eventually vary in efficiency. Let us take a look at the most expensive and inefficient, yet quite popular among other consulting companies, sales channel – business events.

There are 4 approaches to business events:

  1. Event arrangement.
  2. Event sponsorship.
  3. Participation as a speaker.
  4. Participation as a delegate.

The key problem is that most of our colleagues consider all 4 approaches to business events as a PR promotion and networking and make no plans or projections as to the ultimate goal – execute a sale to certain companies through specific people.

How do we approach business events? How do we make the most of them?

First of all, it is essential to take your own service portfolio into account, assess its value for a client and understand the target audience. Let me remind you that sales channels are just a way to convey your message to decision-makers. If the market has low demand for such a service, and you cannot create a new demand, no article can help you with sales.

1. Just as any sales channel, a business event should have a sales funnel

  1. Target audience identification. 2. Search and formation of contacts. 3. Initial communication. 4. Meeting arrangement. 5. Company presentation. 6. Demand diagnostics. 7. Preparation of commercial proposal. 8. Conclusion of agreement. 9. Advance receipt.
  1. Each stage of the funnel needs to be measured in plan and in fact

Let us break down approach 4 – participation as a delegate.

Conference websites are often to post lists of participants. Or suppose you have already met the hosts and have an invitation list: you evaluate if you can come over to talk, spark the interest and make appointments with 15 decision-makers at the event.

In reality, some of them will not come or you will not get the chance to talk to those who came. Most likely, you will communicate with 10 representatives of potential clients – prospects. Depending on the level of a salesman, there may be different indicators at stage 4 “Event Arrangement”. Think, for instance, of 50%. You have managed to agree on 5 meetings and hold 5 presentations.

In a properly managed meeting, one can have 5 diagnostics of the prospect’s demands, translate them into leads and prepare 5 commercial proposals. Naturally, results are below expectations. In our company, 5 meetings with prospects translate into 2-3 commercial proposals.

This year, Kreston GCG translated 33% of commercial proposals into contracts. That is, with 15 decision-makers identified from our target audience, we converted one conference into one sale with one salesman.

3. It is essential to identify financial KPIs for events

The costs for each stage in the sales funnel should be calculated and compared with the costs of other channels and actual income.

If you calculate the previous case with a conference participation, you will get the following results:

  1. Cost of conference participation: UAH 10,000.
  2. A portion of an S1 salesman has (preparation before conference, participation and holding of meetings): UAH 2,500.
  3. The cost of 1 communication with a decision-maker: UAH 1,250 (12,500/10).
  4. The cost to arrange one meeting and presentation: UAH 2,500 (12,500/5).
  5. Direct distribution expenses at a contractual cost of, say, UAH 300,000: 4.2%.

How much more or less?

If we compare with standard indicators from the channel “Outgoing calls/messages”, then with 30 performing calls to decision-makers plus the corresponding portion of salesman’s salaries in the amount of UAH 10,000, the cost per communication with a decision-maker will account for UAH 333 instead of UAH 1,250. For the next 14 meetings arranged, one meeting costs UAH 714 instead of UAH 2,500. As a result, we have 7 commercial proposals and 2 agreements of UAH 300,000 each. In total, direct distribution expenses will account for 1.7%.

We included the cost to participate in a conference and a portion of the salesman’s salary (net of a motivational variable) into direct distribution expenses to compare sales channels. The difference is 2.5 times.

For comparison, we took standard indicators from the sales system used in Kreston GCG, which (between you and us) are performed by and large.


4. Each event has a separate sales map and KPIs for the sales

It is essential to have an officer responsible for events and sales channels. A sales channel should have internal instructions containing rules and business processes, an annual program with projected revenue and expenses, etc. It is important to arrange the work with salesmen in a form of applications, formation of sales maps, plan verification and assessment, KPI control for each event.

It is quite an expensive channel that works well long-term. However, it requires to shift emphasis from marketing and PR to direct sales. In this case, your sales will be more predictable, and the growth of your business will meet your expectations.



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Despite the high level of corruption and poor economic growth, the insurgency on the Ukrainian M&A market is growing due to the low cost of assets and the presence of internal investors with enough money to enhance existing companies and diversify investments in different industries.

According to KPMG Ukraine, the size of Ukrainian M&A in 2017 increased by 37% to $1 billion, while their number — by 22% to 67 transactions. To that note, the market of M&A is far from being as active as in 2013. CIS companies were the most active foreign participants on the market with their key focus being centered around Ukrainian assets in Crimea, North America, and Europe. However, there are other estimates as to the size of the Ukrainian M&A. According to the financial intelligence and news service Mergermarket and legal firm Aequo, 2017 marked a 57% increase in M&A — up to €554 million. The number of transactions hit its four-year maximum with 44 transactions as compared to 30 and 41 of 2015 and 2016, respectively.

Some studies have other figures. According to Zephyr Global M&A Review 2017, the number of M&A transactions in Ukraine declined by 35% to $5.14 billion in 2017 ($7.95 billion — 2016). Ukraine ranked third by the size of M&A among the states of the Central and Western Europe being ahead of such countries as Romania, Czech Republic, and Hungary. The number of M&A increased by 33% to 60 transactions. Such a huge difference stems out of the research methodology.

The largest transactions in 2017 were (according to KPMG): an acquisition of 100% shares in Ukrainian Agrarian Investments from Onexim Group for $155 million by Kernel; an acquisition of 13% shares in Ferrerxpo Plc from CERCL Holdings Limited for $126 million by BlackRock Inc.; a sale of 100% shares in PJSC “Evraz Sukhaia Balka” to DCH Group for $110 million by Evraz Group; a sale of agricultural assets in Crimea to an anonymous buyer for $78 million by an agricultural holding MKhP; and a purchase of 75% shares in 10 agricultural companies from Glencore for US$55 million by Epicenter K.

All studies show that domestic investors set the tone. According to Zephyr Global M&A Review 2017, residents accounted for 41 transactions, whereas Russian companies — 4, and Cyprus — 3. According to Mergermarket, 75% of transactions involved Ukrainian companies and only 25% of transactions involved non-residents. That said, most transactions were structured through foreign jurisdictions.

“So far, internal investors lead the investment ratings both by size and number. Local companies have a better grip on the situation since they have already been here and factored in all the risks. For foreigners, the decision about the first investment is much more difficult to take. However, there is a positive trend. Since 2017, Ukrainian companies with local owners are have been facing competition from Ukrainian companies with foreign owners. Foreign companies that had invested in Ukraine before the crisis now compete with local companies for juicy assets, which has not been the case since 2014” — says Vladyslav Ostapenko, Head of Corporate Finance and M&A at EY in Ukraine.

Local investors have a good position too. With a plethora of investment opportunities, they use the momentum to reinforce their market position by acquiring affordable competitors or diversifying investments in various industries. Many transactions seek to enlarge the existing business, especially in agriculture and energy sectors. As far as domestic investors are concerned, the investment company Dragon Capital, business groups TAC, DCH, Burisma Holdings, and agricultural company Kernel are most active on the M&A market.

At the same time, experts note that foreign investors are becoming more active. “Based on our project portfolio, foreign companies, which had never been in Ukraine and who we proposed acquiring a profile asset here in Ukraine two years ago, always had the same response — a polite refusal due to the lack of interest in a region. Today, however, foreign investors are actively engaged in the process: they study materials, come to inspect assets, and meet with owners. This means there is interest and that we can expect foreign investors to return to the Ukrainian capital market. Non-residents are looking for assets to buy, but they are not the changing power on the market for now,” — says Vladyslav Ostapenko.

According to Ihor Dykyi, Director of Corporate Department at IBI-Rating, non-residents accounted for one-third of transactions. Most of them are strategic investors, who gradually build up their presence in Ukraine. However, little by little, there is interest from investors that do not hold any assets but are exploring the market actively.

“For now, a foreign investor is an oddity for the Ukrainian M&A. Foreigners see Ukraine as a toxic state. The country is too risky because of the military actions in Donbas, economic instability, and poor legislative base on investment security”, — says Oleg Kuznietsov, Partner at Kreston GCG. For the M&A market to grow further, certain risks should be addressed: slow pace of reforms, endemic corruption, presidential and parliamentary elections of 2019, and unfavorable macroeconomic situation.

However, Ukraine’s investment climate is far from perfect. According to the European Business Association, Ukraine’s investment attractiveness in July to December 2017 declined by 3.03 points of potential 5, which is 0.12 points less compared to the first six months. According to respondents, the Ukrainian business climate has had no significant changes. 25% of respondents saw no positive changes for their business, and almost one-half of the respondents pointed at a lack of any changes. Respondents also spoke on the issues that prevent their business from growing: the lack of results on the prevention of endemic corruption and creation of an anti-corruption court, a slow pace of reforms, political and economic instability, etc.

According to the American Chamber of Commerce, the Ukrainian business is facing corruption more often. In 2017, 91% of respondent businesses became victims of corruption, while in 2016 this figure was 81%. That said, 36% of respondents think that the level of corruption in 2017 decreased (47% in 2016). Corruption may take different forms, but the main ones were bribes and ‘contributions’ to stop pressure on the company. As a result, 40% of respondents speak about additional legal expenses due to corruption, 17% say international companies are unwilling to work with Ukrainian companies on that very reason, and 22% point at the unwillingness to develop their business.

At the same time, the surgent M&A market means the investment climate has improved in Ukraine. “According to domestic investors, there is some equilibrium in the political and economic environment, i.e. no significant shocks are anticipated and, therefore, investment projects can be implemented, including M&A. Our practice shows the increasing number of pre-investment analyses (due diligence) — a common prerequisite for M&A. However, their existence does not guarantee a successful M&A. It only means that an investor wants to prone the situation and considers entering the market. Therefore, the investment appeal of Ukraine has slightly grown in the eyes of investors” — says Oleg Kuznietsov.

Venture investments is another indicator of a vigorous investment market. According to the Ukrainian Venture and Private Equity Association (UVCA) in partnership with Deloitte Ukraine, it was following the fall in 2016 when the total size of venture investments in Ukrainian IT companies took a tumble and reached US$259 million, thus, being three times higher than the previous year. The last year also became successful for direct investments. In 2017, there were 14 private equity transactions accounting for $126.7 million in total.

Unfortunately, many IT startups are Ukrainian only by the citizenship of their founders and by office location for some employees. As far as legal matters are concerned, these companies are registered in the US and pay corporate taxes there.
Taking into account the macroeconomic trends, it is reasonable to assume that the number of M&A deals next year will top the figures of 2017. The prerequisites for this are a relative macroeconomic and monetary stability, attempts to kindle the privatization and continue improving the business climate. However, it is unlikely we will see the exploding growth.

According to KPMG Ukraine, the increased number and size of transactions will be facilitated through the growth of the Ukrainian economy and structural reforms supported by international financial institutions.


The M&A market is a reflection of the economy and performance of certain companies. It also stems from the geopolitical situation in Ukraine and war in the Donbas. Investors become more interested in Ukrainian property mainly because of the improved macroeconomic stability, cessation of hostilities in Donbas, and a relatively low cost of assets.

“The market worth of assets may differ depending on certain factors. These may be buyer’s preferences, revenue risks, time-to-revenue, liquidity, degree of control powers. The supply and demand are also an important factor” — says Larysa Poberezhniuk, managing partner at Poberezhniuk and Partners Law Group.

According to Oleg Kuznietsov, the economic situation made the cost of Ukrainian assets hit rock bottom and remain there still. Unfortunately, nothing promises drastic changes in this area. To that note, almost all the most promising assets have been already bought, and the remaining ones are of no serious interest for investors. Therefore, their value does not grow.

“Meanwhile, there is another peculiar trend on the market caused by the upcoming presidential elections. Some experts fear a military regime can be declared in Ukraine as a result. Such a forecast divided investors into two groups. Anticipating the worst, those rooting for the bad scenario hop on all assets they find interesting. Others take no serious actions preferring to wait until the situation unfolds itself. This fact should be also factored in when we look at the increasing number of M&A deals in Ukraine” — says Oleg Kuznietsov.

For his part, Vladyslav Ostapenko notes a gradual improvement for the sellers: “the market is slowly reviving, valuation multiples are growing steadily”.

Another trend was an en masse withdrawal of Russian owners from the Ukrainian market as a result of restrictions imposed on the Russian banks in Ukraine. Since 23 March 2017, five Russian banks working in Ukraine have been under sanctions. They are forbidden to conduct financial transactions for the benefit of affiliates, including parent entities. Even though there are potential bidders, no deal was struck for various reasons. It is most likely that Russian financial institutions will soon fold operations.

Industrial priorities

According to Zephyr Global M&A Review 2017, most deals fall for agriculture (12), banking (9), oil & gas (4), finance (4), and metallurgy (3).

At the same time, according to Mergermarket, the banking sector leads with 33% of the total number of transactions and 33% of the total size of transactions in 2016–2017. The buyers showed interest in other assets from the power generation and extractive industries (14%), FMCG (13%), telecommunications (11%), and agriculture (8%).

According to Vladyslav Ostapenko, the most popular industries for M&A are: agriculture (mainly crop farming, grain elevators), IT, commercial real estate in large cities. Other industries are characterized by a situational demand. Only leading companies are showing interest or have new technology/equipment.
“We are currently having a good situation on the commodity market, which only adds to the appeal of export-oriented industries. We expect no serious changes on the M&A market in the nearest future” — says Ihor Dykyi.

It bears mentioning that agriculture will remain one of the most attractive industries for M&A. According to KPMG, the appeal of agriculture owes to the steady growth of direct foreign investments in the industry and increased number of deals in the agriculture against the backdrop of higher yields and high export potential of the industry. Agriculture will have even more investment prospects once the land moratorium is lifted and the market becomes free as required by international donors, and that is what people and certain politics do not really want. That is a political question, and no politician would want to risk ratings in the run-up to elections.

The commercial property remains to be the most promising on the market. One of the most active internal investors in the market is Dragon Capital, which has recently added some good investments to their portfolio: Shopping Centers Pyramid in Kyiv and Victoria Gardens in Lviv, business centers Prime and Eurasia, some logistic assets and a TV and radio broadcaster Radio Era.

Foreign investors have a high interest in IT for its export-oriented nature and low susceptibility to the local economic environment. Investments were made both in startups and through large companies acquiring small companies. This trend is expected to continue in Ukraine for the next few years.

According to Larysa Poberezhniuk, the political situation we have now causes a gradual reduction of direct Russian investments, especially in the banking sector. Russian owners simply have no other way but to sell their assets to cease business activities.

With regulations imposed by the National Bank of Ukraine, Ukraine’s banking sector is likely to consolidate.

Mention should also be made of the alternative energy sources. “Ukraine has a unique situation where the green energy tariff is still high, thus, encouraging local investors to build wind and solar stations. All efforts center around the plant to commission it before 2018 and hold that beneficial tariff so then a foreign investor can be found and the implementation ends with premiums. In this regard, we can expect increasing M&As in alternative energy in 2-3 years”says Oleg Kuznetsov. As far as the global situation is concerned, experts point that M&A will increase in such industries as oil & gas, telecommunications, transportation, FMCG and retail, including extractive industries and metallurgy (according to EY).

M&A globally

According to EY, the number of M&A deals entered in 2017 topped the peak of 2007. Over 52% of respondents — more than 2,500 executives from 43 countries — say that they plan M&A in 2018. Top managers are also full of optimism. The number of executives planning to conduct more deals in 2018 has increased by more than two times (67% in April 2018, 33% in April 2017). 80% of respondents expect a tougher competition for assets subject to M&A.

Positive macroeconomic and capital market situations are what raises interest in corporations to conclude M&A deals. Most top managers (73%) think that the global economy is on the mend. Three-fourths of respondents (77%) expect corporate revenue to increase.

However, owners acknowledge that the geopolitical uncertainty creates difficulties, and almost half of them (43%) consider it to be the main risk. More than one-third of respondents (36%) see changes in regulations and protectionism policies as risks that will only hamper the development.

More than three quarters of respondents (81%) plan transnational mergers and acquisitions within the next year because access to new markets in various regions is on top of their agenda.


The increasing number of M&A also owes to the government’s actions taken to invigorate privatization of state-owned companies. “Another important thing to upsurge M&A can be the start of a privatization of state-owned companies. If successful, many other investors will follow the example of pioneers” — says Ihor Dykyi.
January marked an adoption of a new privatization act designed to simplify the process greatly. The act stipulates regulations on privatization to be united under one law instead of seven and divide privatization lots into two groups (instead of five): small-scale privatization and large-scale privatization. The first pertains to state-owned companies worth more than ₴250. A privatization can be contested in international arbitrary courts within three years following the privatization. Buyers are eligible to demand a conclusion of any legal agreements under the law of England and Wales before January 1, 2021. Moreover, privatization lots will have a bankruptcy moratorium imposed. It is suggested to have two privatization procedures instead of five: bidding and purchase. If the first auction has not taken place yet, the second one will have the prices reduced. According to the Cabinet of Ministers of Ukraine, small lots will be sold in June 2018 at Prozorro.Sales.

At the beginning of May, the government adopted a list of 26 lots to be sold in 2018 as part of a large-scale privatization. Shortly after, 3 lots were removed from the list. It included 9 power facilities: Azovmash (almost inactive now), Turboatom (government has majority ownership), Centrenergo and other lots. The final flourish is Odesa Port Plant (OPZ — Ukrainian abbr.). Nothing changed since the previous year. The privatization competition for this lot has already been snapped twice and the initial price accounts for $54 million, which is 10 times less than three years ago. It is expected that Odesa Port Plant and other large lots will be privatized by November 2018.

Privatization is an excellent way to breath life into the Ukrainian M&A. That said, there is no issue with overpriced lots anymore. Investors are not willing to pay excess for an asset (especially when the government decreases the price). Alas, Ukraine is still risky to invest.

No doubt, some assets are interesting for investors, especially for the local ones. However, large investments are unlikely to enter the country. A classic example is Odesa Port Plant and the muddy waters surrounding its privatization. This case shows us only one thing — somebody particular really wants to put hands on the plant and with demand comes the supply. Authorities promised investors transparency in privatization and international creditors demanded it. Such a transparency does surround sales of various illiquid assets as part of a small-scale privatization. However, transparency in the large-scale privatization leaves much to be desired.


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Last year Ukraine has lost the status of net exporter of pork. Even back then, the imports exceeded exports – 5.6 thousand tonnes compared to 4.9 (according to the State Fiscal Service of Ukraine).

There was, however, one fact that smoothed the waters: the cost of total exports accounted for US$10.5 million, and imports – 9.96%. On paper, we could say that the country sold more pork than bought. 2018, however, set the record straight.

Imports for the first six months exceeded exports almost ninefold. According to the State Fiscal Service, Ukraine had overall 8.4 thousand tonnes of pork imported for US$15.4 million in January-June. 924 tonnes were imported in the same period of the previous year.

Imports have good chances of growing further.

How come?

The war in Donbas could be considered as a point of no return that caused the Ukrainian economy to decline and quality of life to drop.

The consumer’s demand for meat in 2014-2015 fell by 22%, which is crucial for pig farmers since most of their products were targeted at internal markets.

Back then, the situation was saved through exports to Russia. According to the Ukrainian Association of Pig Breeders, 2015 allowed Ukrainian farmers to sold record-high 50 thousand tonnes of pork and its derivatives.

In 2016, though, the situation took a U-turn as business relations between Ukraine and Russia ceased terminally.

Entering European markets was a tough challenge too. Not only due to stricter requirements but a high competition as well. As a result, farmers had to decimate their stock en masse.

In 2017, the number of pigs decreased by 10%. The pig stock is declining even now, and outbreaks of African swine fever only add to the issue. In total, Ukraine has about 6 million of pigs, which is an abysmal record.

The last time the state had such figures was 13 years ago. To compare, the number of pigs in Germany is about 26.9 million.

The reduced production will inevitably increase the price of finished products.

What aggravates the situation is the poor equipment at pig farms, old feeding and breeding techniques, higher costs of feedstuff, electricity, veterinary checks. The consumer demand so far has not increased. As a result, pig farming has high cost and low return.

This segment needs support from the state. The law stipulates a compensation of expenses and provides for no lump sums or loans.

That is the costs to build new livestock breeding complexes and a partial reimbursement of the costs to buy animals for further breeding.

Problem is that most farmers do not buy new animals and cut them out because they lack financial resource to provide for them.

Accordingly, they lack funds to upgrade their production facilities. For them, it boils down to a vicious circle.

To survive such conditions, pig farmers have to raise prices for their products. This is despite the global inverse trend that global prices are decreasing.

It turns out that purchasing imported products is now much beneficial than Ukrainian ones.

Moreover, Ukrainian pork compares poorly to the European one, which is cheaper and, thus, has a negative effect on sales and exports.

African swine fever problem

The African swine fever in Ukraine has been rampant for several years now. It is also indicative of how outdated Ukrainian animal husbandry is.

To neutralize the virus (and other diseases), there should be studies made to understand the contamination behavior and prevention measures.

For this purpose, the State Veterinary and Phytosanitary Service of Ukraine should conduct monitoring and selective control on a regular basis.

To the best of our knowledge, Ukraine conducts no such activities. Therefore, no research is being conducted in this area. This means the virus will continue to kill animals.

To protect against animal disease in the future, one would have to adopt a complex of measures, which requires investments. In sporadic cases, some breeders invest their own money.

Ideally, there should be close cooperation between public officials, scientists, and breeders. Which is not what the current situation looks like.

Can the situation be reversed?

Of course, we would like to be optimistic, but here it is almost impossible. There is no reason to think that Ukraine can reach the pre-crisis levels of pig production and pork sales.

Imports increased for a number of reasons. Even assuming the best-case scenario, it will take time to address them all. In our case, the state has no intention to solve the long-standing problems of animal husbandry, particularly, pig farming.

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You can hardly find a person in Ukraine that would seriously believe in a Hyperloop in Ukraine. A supersonic train running through a vacuum tube needs billions of US dollars to build and all of a sudden our state has the resource to build one? The kind of resource that would be much more practical if allocated for conventional railroads! Ridiculous.

Ukraine’s opportunities

If you carefully analyze the situation, it will not seem so comical. Ukraine does have a trump in a sleeve.

First of all, let us take a look at the list of the parties expected to be engaged in a Hyperloop project: In addition to the anticipated Academy of Sciences and ‘Ukroboronprom’, it includes Octagonal Corporation (provides strategic investment advisory services, the Mexican Hyperloop developer Fernando Romero is among its clients), Yuzhmash (manufactures US rockets Antares, expendable launch systems Tsyklon, rockets Zenith), Kakhovka Plant of Welding Equipment (recognized as one of the best in development and production of welding equipment, particularly rail welding), Unit.City (area incorporating dozens of innovative companies), Interpipe (specializes in the production of pipes and wheels for railroad transport; potentially, it can construct a highway for Hyperloop in Ukraine).

This list is non-exhaustive but it translates the project scale rather well. It becomes obvious that we have many reputable and experienced companies to create Hyperloop and most of them have a strong track record and recognition.

More importantly, they can perform most of the production works, thus, reducing the need for international fundraising greatly.

Secondly, Ukraine has experience with high-speed electric trains.

As you recall, the Kriukiv Railway Car Manufacturing Plant released Tarpan model — a train that is nearly on par with Hyundai models and much more cost-efficient.

Surely, Elon Musk’s vacuum trains are way more technological but it is an argument in favor of Ukraine. Apparently, we can achieve things when we really want them.

It is also worth mentioning the signing of the memorandum with Hyperloop Transportation Technologies (HTT), one of the three companies involved in the Hyperloop project. This matter, however, is rather ambiguous.

On one hand, the document is declarative in nature. It does not impose any obligations on the parties. And that means, there is no need to meet obligations and further cooperation can remain on paper only.

On the other hand, signing the memorandum is another step towards a stronger relationship. It is also a chance to come into the spotlight and get investor’s attention. Ideally, this agreement can open global best practices for Ukrainian experts.

So, will there be a vacuum train in Ukraine?

Yes and no. Ukraine has the potential to implement even such a large-scale project as Hyperloop. However, the implementation process will be surrounded with difficulties.

What kind of difficulties?

Firstly, its high cost. According to Volodymyr Omelian’s plan (Minister of Infrastructure of Ukraine), the construction will include several stages.

The first is a scientific substantiation of the project, measurement of risks and prospects. This one will be financed by the state, and all subsequent stages are expected to involve foreign investors. The question still stands, however, if Ukraine is going to have enough money? It is unlikely since we are talking large amounts.

For example, Virgin Hyperloop One (another company that wants to build a vacuum train) has spent US$245 million on research and development alone. But even if we assume that Ukraine is going to raise the amount necessary, how logical would it be to invest in Hyperloop when a plethora of unresolved problems stand are still on the agenda? This is quite a bold decision to make.

What remains to be seen is the investor’s desire to finance such projects in such a weak economy as Ukraine, when there are alternatives in other, more prosperous countries.

Secondly, Hyperloop enthusiasts in Ukraine, that is the Ministry of Infrastructure of Ukraine headed by Omelian, have no clear strategy to implement transport innovations in Ukraine.

It seems that they swing from one extreme to the other trying to hype up and draw attention to Ukraine.

Think of the New Sil Road attempt and the contract entered to build a billion-dollar terminal in Ukraine that would process liquefied gas. Hype surrounded both the road and terminal with nothing but promises of mountains and marvels. And in the end… It went down the tubes. The terminal idea turned out to be a fiction.

There is another issue about the price of travel. Construction costs and infrastructure maintenance will cost a pretty penny, and that is why low-cost tickets are hard to believe (Elon Musk says it will cost $1).

Hyperloop Transportation Technologies spoke of $20, but this is very likely to be a conservative estimate. The thing is that the technology is not ready yet, and its final cost may increase further.

To top it off, implementation is a long and complicated process. Take the land issue for example.

Many experts believe that a Hyperloop ticket can be over $100. But even if it stays at $20 – it is still much more expensive than taking a couchette car. At least at the current dollar rate.

Speaking of Hyperloop. It is still unclear who will pay for its maintenance. The state has no money even to put Ukrzaliznytsia back in order, let alone the vacuum trains.


With a great number of promising companies that can contribute to Hyperloop, Omelian’s idea to develop such a technology is understandable.

Alas, economic realities are not conductive. Of course, the Minister does not promise vacuum trains to appear in a day. His latest statement said that the launch is expected in five years.

Yet even this estimate is very doubtful. Unless Ukraine makes a real economic breakthrough by that time.

For all intents and purposes, it is extremely good that we have such global ideas and immense personalities. Such ideas should not be given up, they just have to be timed right.

Author: Alla Popova

Source: finance.ua

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Chatbots for companies: many pros and a bit of risks

Chatbots provide many advantages, which makes them a full-fledged intangible asset. That said, it is a pricewise purchase that can generate significant benefits in the near future. It is a win-win solution, which is a rare thing when it comes to investment. So, what kind of benefits do we speak of?

Higher earnings. Gartner’s study found that brands are exposed to an up to 15% loss in clients (and, therefore, their revenue) if they do not respond to the client’s inquiry in social media and messengers. Chatbots allow optimizing and maximizing your services.

They, on one hand, relieve companies of the need to finance their own call centers and, on the other hand, significantly extend your audience reach by 24/7 availability. An algorithm can help customers with answers to any questions at any time of day and night immediately and, thus, reduce chances of losing such a customer to competitors. It is no doubt will result in higher earnings.

Lower operating costs. Last year, PrivatBank mentioned at the ChatBot Conference that operating costs for chatbots are 90% lower when compared to a full-fledged call-center. To that note, the difference in customer satisfaction from interacting with a human operator and chatbot is small and accounts for mere 10%.

Optimization of internal profits. The scope of virtual interlocutors does not boil down to call-centers alone. Chatbots can be very efficient and execute a variety of other tasks, including:

  • Collection and processing of client data
  • Corporate database inputting
  • Surveys and feedback on products
  • Event, business trip notification and planning
  • Messenger newsletters (that are much more efficient than conventional e-mail newsletters). Practice shows that the open rate for messenger letters is at least 85%, whereas an e-mail newsletter has only 10-30% tops

For small enterprises, chatbots can also prove very useful. By incorporating the benefits of chatbots and messengers, small companies can abandon the costs to develop a website or mobile application. A facebook account synchronized with a chatbot is all you need to enable clients to make purchases via the social network as if they used some official ultracertified company website. In this scenario, contextual adverts on facebook still remain to be the main instrument to engage customers. As a result, one does not have to make spendings on Google Ads anymore. Which cuts the owner’s costs greatly.

Chatbots in Ukraine. In Ukraine, PrivatBank had become a chatbot pioneer after it integrated a chatbot with their Privat24 application. It processes applications without sacrificing the quality of customer service, thus, making a human operator’s life easier. Human aid is only needed in situations that chatbots cannot solve on their own. PrivatBank’s chatbots also work with Telegram and Viber allowing for online payments and transfers.

There is also a case of chatbots being used on the Ukrainian media market, such as the one introduced by 1+1 (Ukrainian tv company) that uses Viber. A chatbot like this can broadcast, say, ‘Tantsi z zirkamy’ (Ukrainian show based on the British Strictly Come Dancing). The chatbot has generated around half a million subscribers since its creation. These results once again prove that algorithms can be highly effective in digital marketing.

State agencies also study up on the chatbots. As far as public services are concerned, there is already a chatbot by the name ‘Derzhsluzhbovets Taras’ (Public Servant Taras – translator’s note) available for Telegram and Facebook users. Its purpose is to aid people with e-declarations and give step-by-step instructions to fill them out. Basically, its creation was a response to a large number of mistakes and errors when it came down to e‑declarations.

Cost. New technologies are very common to require considerable expense for implementation. Theoretically, chatbots should be the same story. However, they are an exception. Simple algorithms do not take much time to create and do not require huge investments. Chatbot developers offer package solutions by reference to their scope of application. If you do not wish to engage third parties, the Internet is full of free platforms to create chatbots.

Chattypeople is considered to be one of the best (creates bots for Facebook only, comes free-of-charge), FlowXO (where one can create bots for different messengers; most features are paid), Facebook Messenger Platform (a paid service that is more difficult to use, however, it is official and has better integration with the Facebook messenger).

The most expensive bots are based on artificial intelligence and machine learning technologies. These include virtual assistants for mobile phones, corporate assistants. The cost of such virtual interlocutors may exceed US$100,000.

By the way, the cryptocurrency market has the most expensive bots. In 2018, Exenium launched an ICO to create a chatbot-based cryptocurrency exchange directly connected to the messenger. The company collected a softcap of US$1.2 million.

Hold.me, a self-service platform that uses a chatbot to communicate with customers on behalf of the company worker, collected over US$1 million. One of the most interesting cases of ICO launches is Dropil that raised US$60 million to develop a commercial chatbot Dex. The chatbot was designed to analyze market volatility and find the most promising areas. After its great success, a new bot Arthur was developed to arbitrate the cryptocurrency. It helps to find the best place to exchange cryptocurrencies and, thus, maximize benefits.

Risks. Despite obvious advantages, chatbots, same as any other asset, must be used as intended. Otherwise, their implementation with the business will not give the desired effect.

First of all, one should keep in mind that chatbots can replace real communication only in simple conversations. One would need a human consultant to solve complicated issues. The only exception is for the services that offer food delivery, ticket purchases, medical appointment bookings, etc. They are very simple, and the likelihood that one would need help from a human employee is very low.

At the same time, it is important to ensure optimal performance of a chatbot. That is, the program should work quickly without errors and lags. Otherwise, there is a great risk of losing a client. No one will appreciate a code that confuses the input data with something else or responds too slowly.

Also, keep in mind that it is unwise to disguise a bot as a human being. It is better to warn customers that they are talking to a chatbot. First of all because honesty matters. CEB survey finds that above all customers appreciate honesty in companies. Secondly, by warning people in advance, one can avoid confusion if the bot malfunctions. Imagine a conversation with a client, then something goes wrong and the bot suddenly starts duplicating own messages. The person will decide that the company staff is weird and will not come back in the future. However, if a customer knows that he/she speaks to a bot, it will be self-evident that the bot is malfunctioning and, perhaps, will even be that very person to inform the support about the issue.

Author: Sergey Belyasov

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