ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA. Annual report Ljubljana

Transcription

1 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 1 Annual report 2012 Ljubljana

2 2 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012

3 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 3 PRVI FAKTOR d.o.o., Ljubljana Annual report 2012 CONTENTS 1 Business report 5 2 Auditor s report 25 3 Financial statements 29 4 Accounting policies 35 5 Notes to the financial statements 60

4 4 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012

5 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Business report

6 6 PRVI FAKTOR LJUBLJANA ANNUAL REPORT Statement by the directors Dear Ladies and Gentlemen! In 2012, the Prvi faktor Group achieved its objectives as regards the volume of business and profits, as well as cost effectiveness, despite the further tightening and deepening of the economic and financial crisis. All Group companies and the Group as a whole achieved favourable results. The Group pulled out of certain industries that were the most badly hit by the crisis and strengthened its presence in other industries not so badly hit. It also consolidated its market position. Due to increasingly tight bank lending, the balance sheet total of the Group decreased slightly. This notwithstanding, the volume of business increased slightly, which points to an improved asset management. What is worrying is the fact that in 2012, the economic recovery lost all momentum that Slovenia enjoyed in GDP dropped again and is forecast to contract further. Shrinking domestic demand, investments and exports will affect also the volume of business of Prvi faktor. The situation in the Slovenian economy worsened significantly compared to 2011 and past projections. The latest projections also show significantly lower numbers than earlier projections. The situation is similar in other countries where the Prvi faktor Group is present. Despite the challenging economic situation, the Group operations are stable. This is certainly attributable to the fact that in the ongoing crisis, factoring has been recognised globally as a very important answer to the credit crunch. The increasing demand for factoring services is therefore not a trend merely in the markets where the Prvi faktor Group is present, but also in other countries, be it financially stable or not. Factoring services are increasingly interesting also for companies that used to have access to other sources of financing in the past.

7 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 7 Economic conditions and good results apart, we remain focused on the future. This is uncertain and 2013 will certainly bring new challenges, mainly related to the increasingly poor liquidity in the real and financial sectors and contracting economic activity. And while this situation brings significant risks and threats, it also brings a good deal of opportunities. Risks will increase but demand for factoring will remain strong and even increase in certain segments. It is crucial that we manage risks well and at the same time select suitable clients and build a solid portfolio. The results achieved prove that the Group adequately adjusted to the circumstances and is now ready to meet the challenges and seize the opportunities that the future might bring. We believe in our energy, purpose and determination which will drive us in the future, supported also by our owners. We will have stable operations and achieve positive results in We will achieve our objectives working together with our clients who trust us and with our owners who believe in us, as well as through our employees who are highly-skilled and motivated. We will continue to provide a comprehensive range of factoring services. Ernest Ribič Director Matej Špragar Director

8 8 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 A hand shake and a look in the eye sometimes count more than a letter on the paper. It is people who build and maintain relationships. Uroš Vidović, Legal Department Director of Prvi faktor Group

9 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Company profile General information Prvi faktor, faktoring družba, d.o.o. (hereinafter PF Ljubljana or company), is entered in the register of the Ljubljana District Court under no. 061/12540/00. Company name: PRVI FAKTOR, faktoring družba, d.o.o. Abbreviated name: PRVI FAKTOR d.o.o. Registered office: Slovenska 17, SI-1000 Ljubljana, Slovenia Share capital: EUR 3,168,419 Legal form: družba z omejeno odgovornostjo Company ID no.: VAT no.: SI Size: large company under the Companies Act (Article 55(8)) Bank account: Financial year: calendar The company had 31 employees as at 1 Januar and as at 31 December 2012, while the average number of employees in 2012 was 31. The number of employees did not change in The company is owned by two Slovenian banks: Owner Share (%) Share (EUR) Nova Ljubljanska banka d.d., Ljubljana 50 1,584, SID Slovenska izvozna in razvojna banka, d.d., Ljubljana 50 1,584, Total share capital 100 3,168,419.00

10 10 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Governance bodies Shareholders' Meeting two Directors Since 15 May 2012, Ernest Ribič and Matej Špragar as Directors represent the company without limitations. Until that date, Ernest Ribič as Director represented the company without limitations. Information on Prvi faktor Group On 17 March 2003, Prvi faktor d.o.o., Zagreb (hereinafter PF Zagreb), was entered in the register of a Zagreb court. The company, which is 100-per cent owned by PF Ljubljana, commenced operations in March Its share capital stood at HRK 19,466, as at 31 December On 24 February 2005, Prvi faktor faktoring d.o.o., Belgrade (hereinafter PF Belgrade), was entered in the register of a Belgrade court. The company, which is 100-per cent owned by PF Ljubljana, commenced operations in March The parent last increased its share capital on 30 October 2012 by RSD 170,809,950.00, so that it stood at RSD 269,276, as at 31 December On 27 February 2006, Prvi faktor d.o.o., Sarajevo (hereinafter PF Sarajevo), was entered in the register of a Sarajevo court. The company, which is 100- per cent owned by PF Ljubljana, commenced operations in March Its share capital stood at KM 2,838, as at 31 December On 22 September 2006, Prvi faktor d.o.o., Skopje (hereinafter PF Skopje), was entered in the central register of Macedonia, its start-up capital being EUR 5, The company, which is 100-per cent owned by PF Ljubljana, has not yet commenced operations. As at 31 December 2012, the Prvi faktor Group comprised the following members: PF Ljubljana as the parent company, and PF Zagreb, PF Belgrade and PF Sarajevo as subsidiary companies. Agencies, business units PF Ljubljana does not have agencies or business units. Activities The main activity of the company is providing factoring services to clients established in Slovenia and abroad with regard to their accounts receivable arising from the sale/provision of goods/services. Factoring services mainly comprise the following: recourse and non-recourse purchasing of accounts receivable arising from the sale/provision of goods/services, provision of cash in exchange for accounts receivable purchased, administration of accounts receivable purchased, collection of accounts receivable purchased, dealing in accounts receivable purchased, acting as an agent or representative for factoring in Slovenia and abroad, accounts receivable insurance, recovery of problematic accounts receivable.

11 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 11 Business network abroad 1. PRVI FAKTOR d.o.o., Zagreb Registered office: Hektorovićeva 2/V Zagreb, Croatia Phone: Fax: Director: Tomaž Kačar tomaz.kacar@prvifaktor.hr Osijek agency Ribarska Osijek, Croatia Phone: Fax: Rijeka agency Korzo Rijeka, Croatia Phone: Fax: Split agency Put Brodarice Split, Croatia Phone: Fax: PRVI FAKTOR faktoring d.o.o., Beograd Registered office: Bulevar Mihajla Pupina 165/v Novi Beograd, Serbia Phone: Fax: Director: Jelena Tanasković jelena.tanasković@prvifaktor.rs Niš agency Svetozara Markovića 27/II Niš, Serbia Phone: Fax: Novi Sad agency Ul. Katolička porta 6/ Novi Sad, Serbia Phone: Fax: PRVI FAKTOR d.o.o., Sarajevo Registered office: Tešanjska 24A Sarajevo, Bosnia and Herzegovina Phone: Fax: Director: Đenan Bogdanić đenan.bogdanic@prvifaktor.ba Mostar agency Kralja Petra Krešimira IV bb Mostar, Bosnia and Herzegovina Phone: Fax: Banja Luka agency Aleja svetog Save 7a Banja Luka, Bosnia and Herzegovina Phone: Fax: PRVI FAKTOR d.o.o.e.l., Skopje (the company has not yet commenced operations) Registered office: Mito Hađivasilev Jasmin Skopje, Macedonia Phone: - Fax: - Director: Ernest Ribič -

12 12 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Providing services tailored at your needs we are a solid partner on your business path. Such partnership is the fruit of understanding and listening to each other, and guarantees a word of encouragement at the right time and assistance when you most need it. Damir Abdić, Head of Commercial Department and Marketing

13 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Performance in 2012 New contracts concluded in 2012 as compared with 2011 and plan 2012 (EUR): Plan Index Index / /Plan =2/1 5=2/3 PF Ljubljana Domestic factoring 174,339, ,286, ,000, Export factoring 41,215,195 66,180,743 32,000, Import factoring 21,346,741 17,771,137 18,000, Total 236,901, ,238, ,000, Share (%) Domestic factoring Export factoring Import factoring Given the relatively low capital adequacy of the Slovenian banking system and the very scarce sources of finance, the banks are not willing to grant new or extend existing loans. In 2012, businesses therefore had to cope again with a situation in which the amount of their loans due exceeded the amount of new loans they were able to raise. Their slightly higher borrowing abroad only partly solved the problem of insufficient financing. Banks also continued with provisioning and impairments, which further affected their already modest lending activity. All this, as well as the decision to target the sectors with more potential, explains the increased volume of business of Prvi faktor in Compared to 2011, new contracts concluded increased by 13 per cent and were 34 per cent above the plan. The value of new contracts concluded was EUR million, which is the second best result after 2008 when it was EUR million. At this point, it must be mentioned that factoring services have an extremely small share of GDP in Slovenia: in 2011, it was only 1.54 per cent. Only in Luxembourg this share is even smaller, while in the European Union it is 6.89 per cent on average. There is obviously enough room for growth, but the question is how, in such difficult conditions, to obtain acceptably priced sources to further increase the volume of business and consequently profits. One of the answers would be to increase the two-factor import factoring and to provide only non-recourse factoring (without insurance of accounts receivable), as these two forms do not require a cash investment. In order to reduce operating costs, we closed the Maribor business unit in 2012.

14 14 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 IMPORT FACTORING 7% DOMESTIC FACTORING 68% EXPORT FACTORING 25% Factoring services provided in 2012 by type For the second consecutive year, the share of export factoring increased, to a record 25 per cent of the total new contracts concluded. International operations, which include export and import factoring, represented 32 per cent of the total new contracts concluded (2009: 18 per cent). This percentage is above the average achieved by factoring companies in Slovenia and other countries, which is between 15 per cent and 20 per cent and only exceptionally higher.

15 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 15 Paper and paper goods 2% Furniture 2% Waste collection, treatment and disposal 2% Manufacture of other non-metallic mineral products 3% Leather and leather goods 3% Chemicals and chemical products 3% Other activities 4% Electrical equipment 4% Specialised construction works 6% Motor vehicles, trailer and semi-trailers 17% Factoring services provided in 2012 by client activity Rubber and plastic products 8% Foods and beverages 8% Fabricated metal products 14% Wholesale trade 13% Retail trade 11% If we take a look at factoring services provided in 2012 by client activity, we see that companies having as their main activity one of the 9 top activities shown in the chart accounted for as much as 85 per cent of the total new contracts concluded. While this percentage seems high, it improved from 2011 and 2010 when it was 92 per cent and 95 per cent respectively. Manufacture of motor vehicles accounted for the largest share of new contracts concluded, followed by manufacture of fabricated metal products and wholesale trade. Two activities that changed the most are retail trade (from 20 per cent in 2010 down to 10.6 per cent in 2012) and foods and beverages (from 4 per cent in 2010 up to 8 per cent in 2012).

16 16 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Motor vehicles, trailer and semi-trailers 19% Paper and paper goods 6% Manufacture of other non-metallic mineral products 3% Leather and leather goods 2% Furniture 1% Foods and beverages 2% Specialised construction works 3% Fabricated metal products 5% Chemicals and chemical products 3% Rubber and plastic products 3% Factoring services provided in 2012 by original debtor activity Retail trade 28% Electrical equipment 5% Wholesale trade 11% Land transport and transport via pipelines 1% Public administration and defence, compulsory social security 6% Other activities 3% If we take a look at factoring services provided in 2012 by original debtor activity, we see that retail trade is the first with 28 per cent, followed by manufacture of motor vehicles (19 per cent) and wholesale trade (11 per cent). This structure is more or less the same also in other countries where factoring services are provided.

17 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Plans for 2013 Plans for 2013 comprise above all maintenance of the market share held by the company, as well as management of subsidiaries and risks of all types. Key elements of the 2013 plan: EUR 240,000 thousand of new contracts concluded; EUR 783 thousand of profit after tax. Other objectives relate to the organisation of the company itself and comprise: improvement of its risk management policy, internal rules and internal controls, upgrading of an otherwise effective IT support at the Group level, as well as product development. The company s long-term objectives remain the following: to maintain the leading position in the domestic market, to consolidate its position in new markets, and to achieve at least a 15-per cent year-on-year growth in new contracts concluded and return on equity.

18 18 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 You have to be successful yourself in order to be able to contribute to the success of others. Tomaž Marinšek, Internal Auditor

19 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Internal audit department in 2012 The company s internal audit department was established in the second half of In 2008, the company s governance bodies adopted a general act regulating the department s operations which also represents its methodological basis. The internal audit department operates in accordance with this act across all companies members of the Prvi faktor Group. The department has employed one internal auditor till now. In 2012, the department conducted three regular and three extraordinary internal audit reviews. The internal audit department reported regularly on its findings to the parent s management, and periodically on its work to the permanent representatives (members of the shareholders meeting) and internal audit departments of the parent s owners. Of its available working time, the internal audit department spent 60 per cent conducting internal audit reviews, 20 per cent working with an external auditor on the regular auditing of the financial statements of the parent and of the Prvi faktor Group, including the preparation of the annual report, and 20 per cent on other tasks. The department fulfilled only 75 per cent of its plan for 2012, which, however, is attributable to the extraordinary internal audit reviews and other tasks (consulting). 1.5 Internal control system in 2012 Already in previous years, the final steps were undertaken towards business process standardisation in member companies of the Prvi faktor Group. Standardisation of documentation and controls was thus achieved across all Group companies. All Group companies use the same application (reporting package) for accounting and accounting reporting. They also produce the same risk management reports (used to monitor credit, non-credit and operational risks). All Group companies except the smallest one have a controlling department focused mainly on the preparation of risk management reports (including regular data entry control). These in turn are controlled by the parent company s controlling department. All internal acts of the companies members of the Prvi faktor Group were revised and updated, paying particular attention to those governing risk management. If necessary, those of subsidiaries were harmonised with those of the parent company. The internal audit department is governed by a general internal act based on which it conducts internal audit reviews in all Group companies and business units, makes recommendations based on the findings of such reviews, and systematically monitors implementation of such recommendations. The parent's internal control system is occasionally reviewed also by its owners' internal audit departments. The financial statements of all Group companies are audited by external auditors, while their other specific areas are occasionally reviewed by various external bodies (tax authorities, etc.)

20 20 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Building on our knowledge and experience, we are trying to meet the wishes and requirements of the users of our information system. We are therefore developing services that are simple and friendly to use. Jože Matjaž, CIO

21 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Information technology in 2012 Information technology-related activities were conducted in accordance with the strategic IT plan. They were focused on improvements and upgrades of the existing functions and implementation of new ones both in the documentary and ERP systems. This was required by the continuing changes in the market and improvements in business processes. INFRASTRUCTURE Hardware underwent the following changes in 2012: Windows 7 operating system was installed on all newly acquired personal computers. On all new servers (BG), VMware virtualisation software was installed and then Windows or Unix operating systems. New database replication was designed for the backup location. Certain elements of the equipment were changed (a server, a router, a switch, etc.) DOCUMENTARY SYSTEM Documentary system underwent the following changes in 2012: New functions were added to the reporting system of the controlling department. New fields related to credit limit were added, including the possibility to add optional text. Entry of clients' suppliers and customers was enabled in»contacts«to allow designing of compensation chains. Archiving of inactive matters and scanned incoming mail was implemented. A possibility was added that allows multiple alarms for the same event. The server was upgraded to Domino 8.5.3, and the database itself of the documentary system was upgraded to allow its smooth functioning on workstations with Windows 7 64-bit operating system. ERP SYSTEM The Navision ERP system was upgraded several times, the same as the existing functions, and new functions were added. The most important were the following: In PF Belgrade, the VAT-related function was changed due to the introduction of a third rate (VAT records, VAT return, etc.) A new function was added to the monthly factoring analysis that allows profitability calculation at the assignor, sales representative or annex level. A new report was prepared for SID-PKZ that allows reporting of defaults by debtors whose accounts receivable are insured with SID-PKZ. Deferral of income to future periods longer than 24 months was enabled. Quick viewing of transactions and balances was enabled in the register of buyers and suppliers. Information about the commission realised upon acquisition was added to the register of booked assignments. In PF Zagreb, certain functions were upgraded to allow the company to collect all statutory required»fiscalisation«-related information. In PD Sarajevo, certain VAT-related upgrades were made. Import and export of data was enabled that are exchanged between PF and SID-PKZ, and a uniform register was implemented of insured accounts receivable. The amount display format was standardised in the business reporting system so that all amounts are shown in euro. Those originally denominated in other currencies are either translated on the transaction date or on the last day of the reporting month.

22 22 PRVI FAKTOR LJUBLJANA ANNUAL REPORT Statement of management s responsibilities The management approves the separate financial statements for the year ended 31 December 2012, presented on pages 30 to 33 of this annual report, as well as accounting policies used in the preparation of these separate financial statements and notes thereto, presented on pages 36 to 91 of this annual report.

23 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 23 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES The management is responsible for the preparation of the annual report so that it gives a true and fair view of the company s financial position in and operating results for the financial year. The management confirms that proper accounting policies have been applied consistently, and that reasonable and prudent estimates have been made. The management also confirms that the separate financial statements and notes thereto have been prepared on a going concern basis, and in accordance with the legislation in force and International Financial Reporting Standards as adopted by the European Union. The management is also responsible for keeping proper accounting records, for safeguarding the assets of the company, and for taking reasonable steps for the prevention and detection of fraud and other illegalities. Tax authorities may, at any time within five years following the tax assessment year, inspect the company, which may result in additional tax liabilities, late payment interest and fines under the Corporate Income Tax Act, or in other taxes and charges. The management is not aware of any circumstances that could give rise to a material liability in this respect. Ernest Ribič, Director Matej Špragar, Director Ljubljana, 12 March 2013

24 24 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012

25 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Auditor s report

26 INDEPENDENT AUDITOR S REPORT To the owners of Prvi faktor d.o.o., Ljubljana Report on the Financial Statements We have audited the accompanying separate financial statements of Prvi faktor d.o.o., Ljubljana ( the Company ) which comprise statement of financial position as of 31 December 2012 and statements of income, comprehensive income, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with the requirements of the Slovene Companies and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these separate financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity s preparation and fair presentation of the separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying separate financial statements present fairly, in all material respects, the financial position of Prvi faktor d.o.o., Ljubljana standing alone as of 31 December 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with the requirements of the Slovene Companies Act. Report on Other Legal and Regulatory Requirements Management is also responsible for preparing the Directors Report in accordance with the Slovene Companies Act. Our responsibility is to assess whether the management report is consistent with the accompanying separate financial statements of the Company. The management report is consistent with the accompanying separate financial statements. Ljubljana, 12 March 2013 PricewaterhouseCoopers d.o.o. Leon Živec Certified Auditor Francois Mattelaer Partner PricewaterhouseCoopers d.o.o., Cesta v Kleče 15, SI-1000 Ljubljana, Slovenia T: +386 (1) , F:+386 (1) , Matriculation No.: , VAT No..: SI The company is registered by District court in Ljubljana under the number as well in to the register of the Auditing companies by Slovene Audit Institute under the number RD-A-014. The amount of the registered share capital is EUR The list of employed auditors is available at the registered office of the company.

27 Translation note: This version of our report is a translation from the original, which was prepared in Slovene language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation. This translation is provided for the reference purpose only and is not to be signed.

28 28 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Success would be nothing but a bunch of numbers and letters if we did not know that behind it there are hard working and committed employees. Tanja Sibinčič, Head of Finance Department

29 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Financial statements

30 30 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Statement of financial position Note 31 Dec Dec 2011 ASSETS 135, ,176 NON-CURRENT ASSETS 12,690 7,977 Intangible assets Property, plant and equipment Investment property Shares and interests in subsidiaries 5.4 6,406 4,906 Loans and receivables 5.5 3,499 0 Deferred tax assets ,596 2,823 CURRENT ASSETS 122, ,199 Loans and receivables , ,612 Current tax assets Cash and cash equivalents EQUITY AND LIABILITIES 135, ,176 EQUITY 5.7 4,812 4,209 Called-up capital 3,168 3,168 Equity premium 1,890 1,890 Revenue reserves Retained losses NON-CURRENT LIABILITIES 54, Non-current borrowings ,500 0 Provisions CURRENT LIABILITIES 75, ,837 Current borrowings from banks and affiliates , ,995 Trade and other payables 5.9 1,582 1,842 The notes on pages 36 to 91 are an integral part of these financial statements. The financial statements on pages 30 to 33 were confirmed and signed by the company s directors on 12 March 2013 (see Statement of management s responsibilities). Ernest Ribič Director Matej Špragar Director

31 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 31 Statement of comprehensive income Note Interest and similar income ,635 10,311 Interest and similar expenses ,869-6,878 Net interest 3,766 3,433 Dividend income ,063 1,107 Other operating income Costs of services Labour costs ,640-1,573 Impairment charges ,111-1,924 Other operating expenses Foreign exchange gains, net Net gains on financial assets not at fair value through profit or loss Profit from regular activities 1,120 1,027 Income tax Net profit for the period Other comprehensive income Total comprehensive income The notes on pages 36 to 91 are an integral part of these financial statements. The financial statements on pages 30 to 33 were confirmed and signed by the company s directors on 12 March 2013 (see Statement of management s responsibilities). Ernest Ribič Director Matej Špragar Director

32 32 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Cash flow statement Net profit for the period Adjustments: Amortisation / depreciation Impairment charges 1,111 1,924 Other non-monetary items Interest expense 6,869 6,878 Interest income -10,635-10,311 Exchange rate differences ,573-1,370 Changes in net operating assets: Opening less closing loans and receivables 3,129-5,902 Opening less closing other liabilities Interest received 9,894 10,765 Interest paid -7,322-7,130 Income tax Net cash from operating activities 5,001-2,237 Cash flows from investing activities: Cash payments to acquire property, plant and equipment, and intangible assets Net cash from investing activities Cash flows from financing activities: Dividends received 1,063 1,107 Cash proceeds from increase in borrowings from banks and affiliates 368, ,304 Cash repayments of borrowings from banks and affiliates -372, ,600 Net cash from financing activities -2,983 2,811 Net cash inflow or outflow for the period 8 56 Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents The notes on pages 36 to 91 are an integral part of these financial statements. The financial statements on pages 30 to 33 were confirmed and signed by the company s directors on 12 March 2013 (see Statement of management s responsibilities). Ernest Ribič Director Matej Špragar Director

33 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 33 Statement of changes in equity Called-up capital Equity premium Other reserves Retained earnings / losses Total 1 January ,168 1, ,898 3,247 Comprehensive income Profit for the period Total comprehensive income December ,168 1, ,209 1 January ,168 1, ,209 Comprehensive income Profit for the period Total comprehensive income December ,168 1, ,812 The notes on pages 36 to 91 are an integral part of these financial statements. The financial statements on pages 30 to 33 were confirmed and signed by the company s directors on 12 March 2013 (see Statement of management s responsibilities). Ernest Ribič Director Matej Špragar Director

34 34 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012

35 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Accounting policies

36 36 PRVI FAKTOR LJUBLJANA ANNUAL REPORT General information Prvi faktor d.o.o. (hereinafter also the company) is a limited liability company established in Slovenia in accordance with the Slovenian law. It was entered in the register kept by the Ljubljana District Court on 23 March 1994, and commenced operations on 1 September The company's registered office is at Slovenska 17, Ljubljana, Slovenia. The owners of the company are two banks: Nova Ljubljanska banka d.d., Ljubljana (NLB), and SID Slovenska izvozna in razvojna banka, d.d., Ljubljana (SID bank). The most important activities of the company are domestic and import and export factoring.

37 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Summary of significant accounting policies Basis of preparation The financial statements for the year ended 31 December 2012 have been prepared in accordance with International Financial Reporting Standards (hereinafter IFRS), as adopted by the European Union. The policies set out below have been consistently applied to all the years presented. The financial statements have been prepared under the historical cost convention. Preparation of the financial statements in accordance with IFRS, as adopted by the European Union, requires the use of certain critical accounting estimates. It also requires the management to exercise its judgement when applying the company s accounting policies. The company has prepared these separate financial statements in accordance with IFRS, as adopted by the European Union, and the Companies Act. The company has also prepared consolidated financial statements in accordance with IFRS, as adopted by the European Union, for itself and its subsidiaries (hereinafter the Group). Subsidiaries those companies in which the company, directly or indirectly, has an interest of more than half of the voting rights or otherwise has power to exercise control over the operations have been fully consolidated. The consolidated financial statements are available at: PRVI FAKTOR d.o.o., Slovenska 17, 1000 Ljubljana, Slovenia. Users of these separate financial statements should read them together with the Group's consolidated financial statements for the year ended 31 December 2012 in order to obtain full information on the financial position, results of operations and cash flows of the Group as a whole. In 2012, the company implemented all new and revised standards and interpretations issued by the competent EU bodies (the International Accounting Standards Committee (IASC) and the International Financial Re- porting Interpretations Committee (IFRIC)) and applicable for the accounting period beginning on 1 January Accounting standards and amendments to existing standards effective for annual periods beginning on or after 1 January 2012 that were endorsed by EU and adopted by us: - IFRS 7 (amendment) Transfers of Financial Assets (in effect since 1 July 2011). The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity's statement of financial position. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. Where financial assets have been derecognised but the entity is still exposed to certain risks and rewards associated with the transferred asset, additional disclosures are required to enable the effects of those risks to be understood. The amendments affect the presentation of the company's financial statements. - Other revised standards, amendments and interpretations: IFRS 1 Firsttime Adoption of International Financial Reporting Standards. Revisions relating to severe hyperinflation and removal of fixed dates for first-time adopters; and IAS 12 Income Taxes. Revisions relating to recovery of underlying assets, i.e., investment property measured at fair value. The amendments do not affect the company s financial statements. Accounting standards and amendments to existing standards that were endorsed by EU but not adopted early by us: - IFRS 19 Employee Benefits (effective for annual period beginning on or after 1 January 2013). Amendments relating to recognition and measurement of certain benefits and disclosure of all employee benefits. The amendments will not affect the company s financial statements.

38 38 PRVI FAKTOR LJUBLJANA ANNUAL REPORT IAS 1 (amendment) Presentation of Financial Statements (effective for annual periods beginning on or after 1 July 2012). The amendments retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories: items that will not be reclassified subsequently to profit or loss; and items that will be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis. The amendment affects the presentation of the Group's consolidated financial statements. - IFRS 7 (amendment) Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after 1 January 2013). The amendment requires additional disclosures to allow financial statement users to better assess the effect or potential effect of offsetting arrangements, including gross settlement. The amendment affects the presentation of the company's financial statements. - IAS 32 (amendment) Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after 1 January 2014). The amendment addresses inconsistencies in current practice when applying the offsetting criteria. It clarifies the meaning of currently and legally enforceable right to set-off, and that some gross settlement systems may be considered equivalent to net settlement. - IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities, a revised version of IAS 27 Separate Financial Statements, which has been amended for the issuance of IFRS 10 but retains the current guidance for separate financial statements, and a revised version of IAS 28 Investments in Associates and Joint Ventures, which has been amended for conforming changes based on the issuance of IFRS 10 and IFRS 11. Standards are effective for annual periods beginning on or after 1 January 2014, with earlier application permitted as long as each of the other standards is also applied early. However, entities are permitted to include any of the disclosure requirements in IFRS 12 into their consolidated financial statements without early adopting IFRS 12. The company is currently evaluating the potential impact that the adoption of the standards will have on its consolidated financial statements. - IFRS 10 (new standard). The new standard replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements. SIC-12 Consolidation Special Purpose Entities was withdrawn upon the issuance of IFRS 10. Under IFRS 10, there is only one basis for consolidation, that is control. In addition, IFRS 10 includes a new definition of control that contains three elements: power over an investee, exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investor's returns. Extensive guidance has been added in IFRS 10 to deal with complex scenarios. - IFRS 11 (new standard). The new standard replaces IAS 31 Interests in Joint Ventures. IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified. SIC-13 Jointly Controlled Entities Non-monetary Contributions by Venturers was withdrawn upon the issuance of IFRS 11. Under IFRS 11, joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. In contrast, under IAS 31, there are three types of joint arrangements: jointly controlled entities, jointly controlled assets and jointly controlled operations. In addition, joint ventures under IFRS 11 must be accounted for using the equity method of accounting, whereas jointly controlled entities under IAS 31 may be accounted for using the equity method of accounting or proportionate accounting. - IFRS 12 (new standard). The new standard is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than those required in the current standards.

39 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 39 - IFRS 13 (new standard) Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013). The standard establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The scope of standard is broad; it applies to both financial instrument items and non-financial instrument items for which other standards require or permit fair value measurements and disclosures about fair value measurements, except in specified circumstances. In general, the disclosure requirements in IFRS 13 are more extensive than those required in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only under IFRS 7 Financial Instruments: Disclosures will be extended by IFRS 13 to cover all assets and liabilities within its scope. The company is currently evaluating the potential impact that the adoption of the standard will have on its consolidated financial statements. - Other revised standards, amendments and interpretations: amendment to IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. The amendment will not affect the company s financial statements. Accounting standards and amendments to existing standards issued but not yet endorsed by EU: - IFRS 9 Financial Instruments. IFRS 9 issued in November 2009 replaces those parts of IAS 39 relating to the classification and measurement of financial assets. IFRS 9 was further amended in October 2010 to address the classification and measurement of financial liabilities. Its key requirements are the following: - Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity s business model. - An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset s contractual cash flows represent only payments of principal and interest (i.e., it bear only basic loan features ). All other debt instruments are to be measured at fair value through profit or loss. - All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. All other equity investments will be measured at fair value through other comprehensive income with no recycling to profit or loss. Dividends are to be presented in profit or loss, as long as they represent a return on investment. - Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated as at fair value through profit or loss in other comprehensive income. - Adoption of IFRS 9 is mandatory from 1 January 2015, whit earlier adoption permitted. The company is currently evaluating the impact that the adoption of the standard will have on its consolidated financial statements and the timing of its adoption. - Amendments to IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities Transition Guidance (effective for annual periods beginning on or after 1 January 2014). Amendments were issued to ease transition to new standards by restrictions of requirements regarding assurance of adjusted comparable data for comparable period. - Amendments to IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities Investment Entities (effective for annual periods beginning on or after 1 January 2014). Amendments include the creation of a definition of an invest-

40 40 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 ment entity, the requirement that such entities measure investment in subsidiaries at fair value through profit and loss instead of consolidating them, new disclosure requirements for investment entities and requirements for an investment entity s separate financial statements. - Annual improvements to IFRS The improvements consist of a mixture of substantive changes and clarifications and are affective for annual periods beginning on or after 1 January Amendments to IFRS 1 Fist time Adoption of International Financial Reporting Standards include explanations of additional comparative information disclosures. If additional comparative information is provided, the information should include disclosure of comparative information for any additional statements included beyond the minimum comparative financial statement requirements. Presenting additional comparative information voluntarily would not trigger a requirement to provide a complete set of financial statements. Amendments to IAS 16 Property, plant and equipment classifies spare parts, stand-by equipment and servicing equipment as property, plant and equipment when they meet the definition of property, plant and equipment in IAS 16 and as inventory otherwise. Amendments to IAS 32 Financial Instruments: Presentation require that income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction should be accounted for in accordance with IAS 12 Income Taxes. Amendments to IAS 34 Interim Financial Reporting require separate disclosure of total assets and total liabilities for a particular reportable segment in interim financial reporting in accordance with IFRS 8 Operating Segments only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amounts disclosed in the last annual financial statements for that reportable segment. Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards require that borrowing costs incurred on or after the date of transition to IFRSs that relate to qualifying assets under construction at the date of transition should be accounted for in accordance with IAS 23 Borrowing Costs. - Other revised standards, amendments and interpretations: IFRS 1 Fist time Adoption of International Financial Reporting Standards, relating to prospective application related to government loans are not expected to affect the company's financial statements Foreign currency translation (i) Functional and presentation currency Items reported in these financial statements are measured using the currency of the primary economic environment in which the company operates (the functional currency). The financial statements are presented in euros (EUR). (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates ruling on the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the statement of comprehensive income. Exchange rate differences arising from the translation of non-monetary items are recognised as part of the fair value gain or loss. Exchange rate differences arising from the translation of non-monetary items, such as equity instruments classified as available for sale, are recognised in revaluation surplus, together with the effect of fair value valuation Intangible assets Intangible assets comprise computer software licences. These assets are capitalised on the basis of costs incurred to acquire and bring to use the specific software. These costs are amortised over the estimated useful life of such software (4 years). Intangible assets are carried at cost, less accumulated amortisation and impairment losses. Amortisation of intangible assets starts upon their availability for use.

41 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Property, plant and equipment An item of property, plant and equipment is recognised in the statement of financial position at historical cost less accumulated depreciation and impairment. The cost of an item of property, plant and equipment includes expenditure that is directly attributable to its acquisition. Subsequent costs are included in the assets' carrying amount or recognised as a separate asset, as appropriate, but only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance costs are recognised in the statement of comprehensive income during the financial period in which they are incurred. Property, plant and equipment are depreciated using the straight line method. Annual depreciation rates based on the useful life of assets were as follows in 2012: Leasehold improvements 12.24% to 20.00% Computer equipment 25% Motor vehicles 20% Other equipment 20% Depreciation of property, plant and equipment starts upon their availability for use. An assets carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. They are recognised in the statement of comprehensive income Investment property Investment property is property that the company does not use directly in the carrying out of its activities, but holds to earn rental income. Investment property is measured at fair value determined by a certified appraiser and based on market prices. Any gains or losses arising on measurement at fair value are recognised in the statement of comprehensive income. If the intended use of investment property changes, this shall be transferred to owner-occupied assets Shares and interests in subsidiaries Shares and interests in subsidiaries are recognised as assets in the statement of financial position when, and only when, the company becomes party to the contractual provisions of the financial instrument, and are subsequently measured at cost. At cost means that the investor recognises investment income when the right to receive payment is established and only to the extent that the investor receives distributions from accumulated profits of the investee arising after the date of acquisition. Distributions received in excess of such profits are regarded as a recovery of investment and are recognized as a reduction of the cost of the investment. The investor also applies the requirements of IAS 36 to determine whether it is necessary to recognise any additional impairment loss Loans and receivables Loans and receivables are initially recognised at fair value, increased by any directly attributable transaction costs. Subsequently they shall be measured at amortised cost using the effective interest method. In the statement of financial position, loans and receivables are classified as either current (short-term) or non-current (long-term) assets.

42 42 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Advances shall be recognised in the statement of financial position under items to which they relate: advance payments for equipment are shown under equipment, advance payments for intangible assets are shown under intangible assets, while advance payments for inventories are shown under inventories. Receivables arising from recourse factoring are included in the statement of financial position at their net value, i.e., at the amount of cash provided in exchange for accounts receivable purchased. Receivables arising from non-recourse factoring are included at their gross value. Individually significant loans and receivables that show signs of impairment are impaired individually, while others are impaired collectively. An individually assessed loan or receivable not showing signs of impairment is included in a group of loans and receivables with similar credit risk characteristics and impaired collectively. Allowances shall be established or impairments losses recognised if the company assesses that certain receivables cannot be collected in accordance with the contractual provisions and therefore expects losses to occur. Evidence must exist of impairment, such as: significant financial difficulties of the debtor, a breach of contractual obligations by the debtor, concessions granted due to financial difficulties of the debtor, probable or existing bankruptcy or financial reorganisation of the debtor, unfavourable changes in the debt repayment pattern by the debtor, unfavourable changes in economic conditions that affect debt repayment by the debtor. The allowance or impairment amount shall be estimated for individually significant loans and receivables using an item-by-item approach. Using an item-by-item approach, the company may write off loans and receivables with a fair or collectable value that is unquestionably zero. Collective impairments are recognised based on the average of receivables reclassified from previously unimpaired to impaired in the last four quarters. Loans and receivables are classified as financial and as non-financial assets. Factoring receivables Factoring receivables are receivables arising from the company s core business. Their payments are fixed or determinable, and they are not actively traded. The company finances receivables of its clients either with the right to return the receivable back if not paid (factoring receivables with recourse) or without such a right (factoring receivables without recourse). Factoring receivables are subsequently measured at amortised cost using the effective interest rate method, less impairment allowances. Factoring receivables are derecognised when the rights to receive cash flows from the financial assets have expired or when the company has transferred substantially all the risks and rewards of ownership. Financial liabilities relating to factoring receivables are derecognised when they are extinguished, i.e., when the obligation is discharged, cancelled or expires. Factoring-related loans Factoring-related loans arise under contracts on reverse factoring. By entering into such contracts, the company assumes certain obligations from the client. This is non-recourse factoring, which means that the company can get paid only from the debtor Cash and cash equivalents Cash comprises cash on hand, deposits and cash in transit. Cash on hand comprises banknotes, coins and cheques received. Cash in transit is cash being transferred from a cash register to a relevant account with a bank or another financial institution that will not be credited to that account on the same day. Cash also comprises cash equivalents that are readily convertible to known amounts of cash with an insignificant risk of changes in value.

43 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Borrowings from banks and affiliates Borrowings from banks and affiliates are initially recognised at fair value, net of transaction costs. Subsequently they shall be measured at amortised cost. Any difference between the original amount (net of transaction costs) and the amount due for repayment is recognised in the statement of comprehensive income over the period of borrowing using the effective interest method. Borrowings from banks and affiliates are classified as current liabilities, unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date Trade and other payables Trade and other payables are initially recognised at fair value. Subsequently they shall be measured at amortised cost using the effective interest method. Factoring payables Factoring payables represent amounts owed to the assignors of factored receivables, net of cash advances paid. These payables usually represent 10% to 20% of the assigned amounts and are used for settlement of interest and fees charged to the assignors, when due. On collection of the underlying factored receivable from the original debtor, the remaining amount of these payables is payable to the assignor. Trade and other payables are classified as financial and as non-financial liabilities Employee benefits The company offers its employees all the mandatory benefits: long service and retirement benefits. Valuation of provisions for these obligations is carried out by independent qualified actuaries. The actuarial assumptions they use are the following: - salary increase based on inflation, promotion and seniority; - a discount rate of 4.90% per annum; and - the number of employees eligible to claim benefits. Under Slovenia's regulations adopted in 2012, employees retire when they have 40 years of service (38-40 years in the transitional period). Upon retirement, they are entitled to a retirement benefit payable in a lump sum. Employees are also entitled to a long service benefit for every ten years of service with the company or the Group. These employee benefits are included in the statement of comprehensive income at the present value of future cash outflows, including any attributable gains or losses. Social security payments, which are calculated together with salaries, are charged to the statement of comprehensive income when incurred Equity Total equity consists of called-up capital, equity premium, other reserves and retained earnings. Called-up capital was paid in by the companies owners and is carried at nominal value. Equity premium arises through payments of company members and shall be mainly used to settle potential future losses. Equity premium consists of the amounts acquired by the company through payments in excess of the nominal value of founding shares and interests (share premium); the amounts in excess of the carrying amount gained on disposal of the previously purchased own shares and interests; the amounts obtained with the issue of convertible bonds or warrant bonds sold at a premium over their nominal value; the amounts of additional paidin capital by company members with the purpose of acquiring additional

44 44 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 rights arising from their shares or interests; the amounts of other payments made by the company members on the basis of the articles of association, the amounts arising from a simplified decrease in nominal capital by cancellation of shares or interests; the amounts arising from the reversal of the general equity revaluation adjustment; and the effects of an approved compulsory settlement. Other reserves must be used for the purposes laid down in the applicable legislation. They comprise legal and other reserves Taxation Tax expenses of the company in the accounting period comprise current and deferred tax. Current tax is calculated in accordance with applicable legislation in the country where the company operates and generates taxable income. The company accounts for deferred tax by applying the balance sheet liability method, which focuses on temporary differences. Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the statement of financial position. In the company, temporary differences arise mainly on valuation of receivables. Deferred tax assets are recognised when it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. The carrying amounts of deferred tax assets and the amounts of taxable profit against which the deductible differences can be utilised are reviewed at each statement of financial position date. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period in which the asset is realised or the liability is settled Recognition of income and expenses (i) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the financial asset or financial liability. When a receivable is impaired, the company reduces its carrying amount to its recoverable amount, which is the estimated future cash flows discounted at the financial asset s original effective interest rate. Interest income on impaired loans and receivables is recognised using the original effective interest rate. Interest income mainly includes interest on amounts paid to the assignors of factoring receivables, as well as interest on short-term loans. Fees are usually recognised in the statement of comprehensive income when the relevant service has been provided. Fees mainly comprise those relating to the core factoring business. Fees included in the calculation of the effective interest rate of a financial asset are recognised as interest income. (ii) Interest expense Interest expense mainly relates to borrowings and is recognised in the statement of comprehensive income as it accrues, taking into account the effective interest method Dividend income Dividend income (shares of subsidiaries profits) is recognised in the statement of comprehensive income when the right to receive payment is established.

45 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Financial guarantee contracts Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms. Such financial guarantees are issued to others on behalf of clients to secure their loans, overdrafts and other facilities. Financial guarantees are initially recognised in the financial statements at fair value when issued. Subsequently, the company`s liabilities under financial guarantee contracts are measured at the higher of the following two values: the initial measurement, less amortisation of the fee income recognised on a straight-line basis over the financial guarantee term, and the best estimate of the expenditure required to settle the present obligation at the statement of financial position date. Such estimate is determined based on experience of similar transactions, supplemented by the judgement of the management. Any increase in liabilities related to financial guarantee contracts is taken to the statement of comprehensive income under other operating expenses Critical accounting estimates and judgements Impairment of loans and receivables The company reviews its portfolio of loans and receivables to assess impairment at least on a quarterly basis. The company first makes judgments in determining whether there is observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans and receivables, and only then determines whether a decrease can be identified with individual assets in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in the portfolio, or national or local economic conditions that correlate with defaults on the assets in the portfolio. The management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to that in the portfolio for which the future cash flows are being estimated. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Individually significant financial assets that show signs of impairment are impaired individually, while others are impaired collectively. An individually assessed financial asset not showing signs of impairment is included in a group of financial assets with similar credit risk characteristics and impaired collectively. When assessing loans to and receivables from subsidiaries for impairment, the company follows the above procedure, but also takes account of content aspects as regards a subsidiary's operations, as well as the characteristics of its environment, taking account of content aspects as regards the subsidiary's business plan and its implementation. Given the short-term nature of its portfolio, and given its regular monitoring of receivables, the company uses one quarter as loss identification period for the purpose of collective impairment. Collective impairments are recognised based on the average of receivables reclassified from previously unimpaired to impaired in the last four quarters. A deterioration of portfolio quality would affect the amount of collective impairments. In the worst case, they would increase by around EUR 150 thousand. This, however, would not affect significantly total impairments, as the majority is made individually. The amount of impairment losses shall be measured as the difference between a financial asset s carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate of the financial asset or, if this is no longer applicable, at the interest rate defined internally. Impairment losses are recognised in the statement of comprehensive income.

46 46 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Our good results are really worth something only when we can share them with you who put trust in us. Blaž Peterc, Head of Controlling Department

47 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Financial risk management In accordance with IAS 32 and IFRS 7, this section presents items of the statement of financial position, broken down into financial and non-financial assets and liabilities. 31 Dec 2012 FINANCIAL ITEMS NON-FINANCIAL ITEMS TOTAL ASSETS 125,597 3, ,817 NON-CURRENT ASSETS 3,499 2,785 6,284 Intangible assets Property, plant and equipment Investment property Loans and receivables 3, ,499 Deferred tax assets 0 2,596 2,596 CURRENT ASSETS 122, ,533 Loans and receivables 121, ,984 Current tax assets Cash and cash equivalents LIABILITIES 130, ,411 NON-CURRENT LIABILITIES 54, ,634 Non-current borrowings 54, ,500 Provisions CURRENT LIABILITIES 75, ,777 Current borrowings from banks and affiliates 74, ,195 Trade and other payables 1, ,582

48 48 PRVI FAKTOR LJUBLJANA ANNUAL REPORT Dec 2011 FINANCIAL ITEMS NON-FINANCIAL ITEMS TOTAL ASSETS 128,719 3, ,270 NON-CURRENT ASSETS 0 3,071 3,071 Intangible assets Property, plant and equipment Deferred tax assets 0 2,823 2,823 CURRENT ASSETS 128, ,199 Loans and receivables 128, ,612 Current tax assets Cash and cash equivalents LIABILITIES 132, ,967 NON-CURRENT LIABILITIES Provisions CURRENT LIABILITIES 132, ,837 Current borrowings from banks and affiliates 130, ,995 Trade and other payables 1, ,842 The company s activities expose it to a variety of financial risks including currency risk, interest rate risk, credit risk and liquidity risk.

49 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 49 Credit risk To manage credit risk, the company has internal instructions in place for approving ratings, credit limits and transactions. These instructions include all the necessary information, criteria and a model for classifying clients and investments. Credit limits and investments are approved by the company's credit committee. Client ratings depend on their financial standing, business performance, relationship with the company to date, and the ability to provide a sufficient cash flow to meet future obligations. Clients rated A are financially strong and the company expects no problems with their meeting of obligations. Clients rated B are also financially strong but are more likely to be affected by adverse market developments. Clients rated C are of a higher risk level, as they usually settle their liabilities with a delay of up to 180 days. Clients rated D are illiquid and insolvent. Client credit limits are established on the basis of their creditworthiness, feasibility of the transaction, as well as other elements which might influence their capacity to settle their liabilities. The company reduces credit risk by accepting different types of collateral. Loans and receivables are usually secured by normal collateral instruments (bills of exchange) or mortgages, or are insured with the SID-PKZ insurance company or a correspondent foreign factoring company. It is of key importance that around 85% of factoring is with the recourse to the assignor, which means that in case of a buyer s default, the company can still recover from the client, i.e., the assignor of accounts receivable. Credit risk is thus reduced significantly. Maximum exposure to credit risk 31 Dec Dec 2011 Loans and receivables 125, ,567 Cash and cash equivalents Financial guarantee contracts 173, ,383 Total 299, ,102 The above table represents the worst-case scenario of the company s credit risk exposure as at 31 December 2012 and 2011, without taking account of collateral received. The exposure was calculated using carrying amounts as shown in the statement of financial position in case of balance sheet items and nominal values in case of off-balance sheet items. None of financial guarantees was past due.

50 50 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Loans and receivables 31 Dec Dec 2011 Current, not impaired 113, ,579 Overdue, not impaired 3,642 3,548 Overdue, impaired 23,212 21,471 Impairment allowances -15,202-14,031 Total 125, ,567 Current, not impaired loans and receivables by client rating 31 Dec 2012 Amount Share (%) Credit rating A 75, Credit rating B 36, Credit rating C 1, Credit rating D Total 113, Dec 2011 Amount Share (%) Credit rating A 74, Credit rating B 35, Credit rating C 8, Credit rating D Total 117, Overdue, not impaired and impaired loans and receivables by days overdue 31 Dec Dec 2011 Overdue, not impaired Overdue, impaired Overdue, not impaired Overdue, impaired Current 0 1, ,540 Overdue up to 1 month 2, , Overdue up to 3 months 1, , Overdue up to 1 year 59 1, ,392 Overdue over 1 year 6 19, ,407 Total 3,642 23,212 3,548 21,471

51 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 51 Overdue but not impaired loans and receivables of EUR 3,642 thousand (2011: EUR 3,548 thousand) were insured with mortgages, SID-PKZ or foreign factoring companies in the amount of EUR 6,825 thousand (2011: EUR 6,641 thousand). For impaired loans and receivables amounting to EUR 23,212 thousand (2011: EUR 21,471 thousand), the company recognised impairments of EUR Impaired loans and receivables by client rating 15,202 thousand (2011: EUR 14,031 thousand). They were secured by mortgages of EUR 7,814 thousand (2011: EUR 5,868 thousand) or insured with SID-PKZ in the amount of EUR 516 thousand (2011: EUR 955 thousand). As at year-end 2012, the share of impaired loans and receivables increased compared to a year ago. This mainly reflected worse credit ratings of certain clients rated C. 31 Dec 2012 Amount Impairment Share (%) Share of impairment (%) Credit rating A 76, Credit rating B 39, Credit rating C 5, Credit rating D 19,146 14, Total 140,639 15, Dec 2011 Amount Impairment Share (%) Share of impairment (%) Credit rating A 74, Credit rating B 38, Credit rating C 11, Credit rating D 17,829 13, Total 142,598 14, The quality of portfolio improved in 2012: the share of loans and receivables owned by A-rated and B-rated clients increased. The share of C- rated clients decreased, while the share of D-rated clients increased. The observed changes in the quality of portfolio are mainly explained by the changes in C-rated clients. Performing loans and receivables are rated A and only impaired collectively. Collective impairments for A-rated and B-rated clients amounted to EUR 149 thousand as at year-end 2012 (2011: EUR 120 thousand).

52 52 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Loans and receivables by client rating and collateral type 31 Dec 2012 Collateral amount Gross loans and receivables Credit rating A SID-PKZ 8,271 8,271 FCI Uninsured 67,744 Credit rating B Mortgage 3, SID-PKZ 7,144 7,458 FCI 2,720 1,058 Uninsured 30,957 Credit rating C Mortgage 5,158 2,355 SID-PKZ 1,139 1,158 Uninsured 2,383 Credit rating D Mortgage 2,658 3,344 SID-PKZ Uninsured 15,302 Total 31, ,639 SID PKZ insurance with a local insurance company SID Prva kreditna zavarovalnica d.d., Ljubljana FCI insurance with a foreign factoring company member of Factors Chain International (a global network of leading factoring companies)

53 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA Dec 2011 Collateral amount Gross loans and receivables Credit rating A SID-PKZ 3,742 4,414 FCI Uninsured 70,211 Credit rating B Mortgage 4, SID-PKZ 10,106 10,857 FCI 3,095 1,654 Uninsured 24,877 Credit rating C Mortgage 4,025 1,906 SID-PKZ Uninsured 8,955 Credit rating D Mortgage 1,950 3,855 SID-PKZ Uninsured 13,918 Total 28, ,598 SID PKZ insurance with a local insurance company SID Prva kreditna zavarovalnica d.d., Ljubljana FCI insurance with a foreign factoring company member of Factors Chain International (a global network of leading factoring companies) It is of key importance that around 85% of factoring is with the recourse to the assignors, which means that in case of a buyer s default, the company can still recover from the client, i.e., the assignor of accounts receivable. Credit risk is thus reduced significantly.

54 54 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Concentration of risks of financial assets with credit risk exposure The table below shows (at carrying amounts) the company s credit risk exposures by geographical segments. Debtors were assigned to these based on the place of their registered office. Slovenia SE Europe Other Total Loans 7,916 57, ,586 Receivables 35,727 20,531 3,593 59, Dec ,643 78,201 3, , Dec ,615 81,184 2, ,567 The company s credit risk exposure is concentrated in the manufacturing and trade industries. As at year-end 2012, the company had renegotiated loans and receivables of EUR 5,778 thousand (2011: EUR 5,159 thousand). After restructuring, an overdue loan or receivable is treated in the same manner as current loans and receivables, and managed together with similar loans and receivables. Only those loans and receivables are restructured for which the selected indicators and criteria used by the management indicate that their debtors will continue paying. The company does not have repossessed collateral.

55 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 55 Liquidity risk Liquidity risk management implies maintaining sufficient cash and working capital and the availability of funding through adequate renewable resources. The company s placements are mainly short-term, which significantly decreases liquidity risk. The company also uses both short- and long-term financial sources to secure adequate liquidity. The table below shows the company s assets and liabilities as at 31 December 2012 by the remaining term to maturity: 31 Dec 2012 Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total FINANCIAL ASSETS 35,310 71,265 15,523 3, ,597 Loans and receivables 35,150 71,265 15,523 3, ,437 Cash and cash equivalents LIABILITIES 4, ,473 71,124 95, ,495 Borrowings from banks and affiliates 1,352 69,664 7,836 56, ,070 Trade and other payables 1, ,513 Financial guarantee contracts 2,206 69,418 63,288 39, ,912 Assets less liabilities 30,630-68,208-55,601-91, , Dec 2011 Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total FINANCIAL ASSETS 33,699 71,149 23, ,719 Loans and receivables 33,547 71,149 23, ,567 Cash and cash equivalents LIABILITIES 18,756 98, ,001 7, ,632 Borrowings from banks and affiliates 10,984 69,592 54, ,458 Trade and other payables 1, ,791 Financial guarantee contracts 6,178 29, ,107 7, ,383 Assets less liabilities 14,943-27, ,130-7, ,913

56 56 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Currency risk The company does not actively manage currency risk, but does link to EUR advances to assignors in order to neutralise the effect of exchange rate movements on EUR-denominated debts. 31 Dec 2012 EUR GBP Total FINANCIAL ASSETS 125, ,597 Loans and receivables 125, ,437 Cash and cash equivalents LIABILITIES 130, ,208 Borrowings from banks and affiliates 128, ,695 Trade and other payables 1, ,513 Assets less liabilities -4, , Dec 2011 EUR Total FINANCIAL ASSETS 128, ,719 Loans and receivables 128, ,567 Cash and cash equivalents LIABILITIES 132, ,786 Borrowings from banks and affiliates 130, ,995 Trade and other payables 1,791 1,791 Assets less liabilities -4,067-4,067

57 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 57 Interest rate risk The company s income and operating cash flows are affected by changes in market interest rates. However, as the majority of its assets and liabilities are short-term, the company assesses this risk as insignificant. The table below shows the company s exposure to interest rate risk. Financial assets and financial liabilities were classified based on the earlier of payment date or interest rate adjustment date. 31 Dec 2012 Total Non-interest bearing Total interest bearing Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years FINANCIAL ASSETS 125,597 5, , ,192 3,586 11, Loans and receivables 125,437 5, , ,032 3,586 11, Cash and cash equivalents LIABILITIES 130,208 2, ,877 14,475 81,058 32, Borrowings from banks and affiliates 128, ,877 14,475 81,058 32, Trade and other payables 1,513 1, Assets less liabilities -4,611 3,454-8,065 90,717-77,472-21, Dec 2011 Total Non-interest bearing Total interest bearing Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years FINANCIAL ASSETS 128,719 4, , ,241 3,577 14, Loans and receivables 128,567 4, , ,089 3,577 14, Cash and cash equivalents LIABILITIES 132,786 2, ,268 34,468 54,829 40, Borrowings from banks and affiliates 130, ,268 34,468 54,829 40, Trade and other payables 1,791 1, Assets less liabilities -4,067 1,639-5,706 71,773-51,252-26,

58 58 PRVI FAKTOR LJUBLJANA ANNUAL REPORT 2012 Sensitivity analysis Sensitivity analysis was prepared assuming a change in market interest rates of 100 basis points (1% p.a.), which the management assessed as reasonable. The effect on net interest income in the first year after such change was calculated. Had market interest rates increased by 100 basis points, the company s net interest income in 2012 would have increased by EUR 104 thousand (2011: EUR 137 thousand). The change would therefore result in higher income (included in the statement of comprehensive income). Had market interest rates decreased by 100 basis points, the company s net interest income in 2012 would have decreased by EUR 104 thousand (2011: EUR 137 thousand). Fair value of financial assets and liabilities The management estimates that there are no differences between the carrying amounts and fair values of the company s financial assets and financial liabilities. Company in the global financial crisis The current global financial and economic crises, which started due to the marked decrease in liquidity worldwide (often called credit crunch), has amongst its effects also a reduced loan volume in the capital markets, a reduced liquidity of the banking sector and whole economies, higher interbank rates, and very high volatility in stock and currency markets. Instability in the global financial markets brought about bankruptcy of certain banks and other corporations, and consequently rehabilitation of the banking sector in USA, Western Europe, Russia and some other countries. The crisis affected negatively many countries, including those in the European Union. What is clear is that the economic situation will remain very unpredictable in The management continuously monitors the developments in Slovenia and abroad. It has also prepared various scenarios that provide an insight into how a range of effects of the current crisis on the economies in the region where the company operates could affect the company's results. Making such assessments is difficult as the future is very unpredictable. Loan volume in the inter-bank markets decreased significantly after August This could negatively affect the company s capacity to raise new loans or refinance the existing loans under currently applicable terms and conditions. The financial and economic crisis also affected negatively the financial position of the company's debtors, i.e., their capacity to serve debts. This in turn could affect the company s expected cash flows, as well as the estimated allowances. Based on available information, the management, in assessing allowances, correctly considered the changed circumstances affecting the expected cash flows.

59 ANNUAL REPORT 2012 PRVI FAKTOR LJUBLJANA 59 Professionalism, accuracy and accountability are the values that we base our work on and that ensure you get a trustworthy service. Dušanka Ašič, Head of Accounting