ANNUAL REPORT Everything flows, nothing stands still. Ljubljana

Transcription

1 Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report ANNUAL REPORT 2011 Everything flows, nothing stands still. Ljubljana

2 The most consistent thing in the universe is change. Even the sun is new each day. Heraclitus (540 BC 475 BC) Ljubljana Annual report for the financial year ended ember 2011

3 Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Contents 1 Business report 2 Auditor s report 3 Financial statements 4 Accounting policies 5 Notes to the financial statements

4 Business report Challenges Changes can either better our lives or take away our attention and energy. We can see them as challenges that encourage us to develop, explore and adjust.

5 6 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Statement by the director Dear Ladies and Gentlemen! In 2011, we still felt the effects of the general financial and economic crisis. The crisis had particularly negative effects in the south-eastern Europe, where the Prvi faktor Group is present. The situation is not getting any better and uncertainties persist. After posting a loss in 2010 both at parent and Group level, all Group companies and the Group as a whole saw better times in This is mainly explained by the fact that factoring has proved to have a mitigating effect in times of crisis. The volume of business of the Prvi faktor Group has increased together with the demand for factoring services. These are increasingly interesting also for companies that used to have access to other sources of financing in the past. This is not a trend merely in the markets where the Prvi faktor Group is present, but is global in times of crisis. Factoring is achieving high growth rates both in financially stable countries and in those that are coping with financial difficulties. In 2011, the Group achieved its objectives as regards the volume of business and revenues, as well as cost effectiveness. The Group pulled out of certain industries that were the most badly hit by the crisis and strengthened its presence in other indu- stries not so badly hit. It also consolidated its market position. All Group companies and the Group as a whole achieved favourable results. The parent again earned a profit. Share capital of Prvi faktor Sarajevo was increased to financially stabilise the company, which also underwent restructuring of its operations. Prvi faktor Belgrade and Prvi faktor Zagreb achieved the best results of all. Being satisfied with the 2011 results, we must nevertheless concentrate on the future. There are new challenges awaiting us. This year will be marked by uncertainties, as the effects of the crisis are not easing. Liquidity in the region is expected to deteriorate further both in the economy and in the financial sector. This means that the Group will be exposed to significant risks and threats, but at the same time there will be opportunities to grab. Demand for factoring services will increase further, also from companies with high credit ratings. The results achieved in 2011 prove that the Group successfully 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 2012, supported also by our owners. We will achieve our objectives in 2012 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

6 8 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Company profile The company is owned by two Slovenian banks: Owner Delež v % Delež v 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, 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. Governance bodies Shareholders' Meeting Director Ernest Ribič as Director represents the company without limitations. 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 35 employees as at 1 January and 32 employees as at ember 2011, while the average number of employees in 2011 was 33. In 2011, one new employment relationship was concluded and four were terminated. 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-percent owned by PF Ljubljana, commenced operations in March Its share capital stood at HRK 19,466, as at ember 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-percent owned by PF Ljubljana, commenced operations in March Its share capital stood at EUR 1,250, as at ember 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-percent owned by PF Ljubljana, commenced operations in March The parent last increased its share capital on 26 April 2011 by KM 1,955,830.00, so that it stood at KM 2,838, as at ember 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-percent owned by PF Ljubljana, has not yet commenced operations. As at ember 2011, 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.

7 10 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Agencies, business units PF Ljubljana does not have agencies but has one business unit, in Maribor. 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. 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 Riva Rijeka, Croatia Phone: Faks: 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 Ul. Svetozara Markovića br. 27, II/I Niš, Serbia Phone: Fax: Novi Sad agency Ul. Katolička porta br. 6/ Novi Sad, Serbia Phone: Fax: PRVI FAKTOR, d.o.o., Sarajevo Registered office: Džemala Bijedića bb, Sarajevo, Bosnia and Herzegovina Phone: Fax: Director: Đenan Bogdanić đenan.bogdanic@prvifaktor.ba Podružnica Mostar Kralja Petra Krešimira IV bb Mostar, Bosnia and Herzegovina Phone: Fax: Podružnica Banja Luka Aleja svetog Save 7a Banja Luka, Bosnia and Herzegovina Phone: Fax: Split agency Bihačka 2 a Split, Croatia Phone: Fax: PRVI FAKTOR, d.o.o.skopje (the company has not yet commenced operations) Registered office: Mito Hađivasiljev Jasmin Skopje, Macedonia Phone: - Fax: - Director: Ernest Ribič -

8 12 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Performance in 2011 New contracts concluded in 2011 as compared with 2010 and plan 2011 (EUR): Factoring services provided in 2011 by client activity: Import factoring 9% Export factoring 17% Domestic factoring 74% Companies having as their main activity one of the top 9 activities shown in the chart accounted for as much as 92 percent of the total new contracts concluded. Manufacture of motor vehicles accounted for the largest share of new contracts concluded, followed by retail trade, wholesale trade and manufacture of fabricated metal products. Deterioration of business conditions, in particular in construction, explains the shrinking share of this activity: in 2011, it represented only 7 percent of the total new contracts concluded Plan 2011 Indeks 2011/ 2010 Indeks 2011/ plan =2/1 5=2/3 PF Ljubljana Domestic factoring 179,959, ,339, ,000, Export factoring 22,398,255 41,215,195 22,500, Import factoring 25,473,737 21,346,741 22,500, Total 227,831, ,901, ,000, Share% Domestic factoring Export factoring Leather and leather goods 2% Paper and paper goods 2% Chemicals and chemical products 2% Furniture 2% 21% Motor vehicles, trailer and semi-trailers 15% Retail trade As planned, Prvi faktor increased the number of new contracts concluded in the manufacturing sectors, and reduced them in construction. Consequently, the share of export factoring increased to a record 17 percent of the total new contracts concluded. International operations, which include export and import factoring, thus represented already 20 percent of the total new contracts concluded, which is above Slovenia's average. The above results prove the correctness of our decisions and activities undertaken in Compared to 2010, the amount of new contracts concluded increased by four percent and was five percent above the plan. Electrical equipment 4% Other activities 5% Foods and beverages 6% Specialised construction works 7% Rubber and plastic products 10% 12% Wholesale trade 12% Fabricated metal products

9 14 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Plans for Internal audit department in 2011 Plans for 2012 comprise above all an increase in the market share held by the company, as well as management of subsidiaries and risks of all types. Key elements of the 2012 plan: EUR 200,000 thousand of new contracts concluded; EUR 1,197 thousand of profit after tax; further upgrading of the IT system to ensure accurate and timely reporting. The company s long-term objectives remain the following: to maintain its leading position in the domestic market, to consolidate its position in new markets, and to achieve at least a 15-percent year-on-year growth in new contracts concluded and return on equity. Other objectives relate to the organisation of the company itself and comprise: improvement of its risk management policy, internal rules and internal controls, development of an effective IT support at the Group level, as well as product development. 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 2011, the department conducted three regular internal audit reviews and is still preparing the report on the last one. Two reviews related to risk management at Group level, while one was conducted in one of the Group companies. 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 55 percent conducting internal audit reviews, 20 percent 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 2011 annual report, and 25 percent on other tasks. The department fulfilled only 75 percent of its plan for 2011, which, however, is attributable to the larger number of unplanned activities (consulting and others).

10 16 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Information technology in 2011 INFRASTRUCTURE DOCUMENTARY SYSTEM All information technology-related activities were conducted in accordance with the strategic IT plan. They were focused on improvements and upgrades of the documentary and ERP systems, as well as on the supporting infrastructure. Both main applications (InteliDoc and Navision ERP) underwent many changes due to continuing changes in the market and improvements in business processes. Hardware underwent the following changes in 2011: All new personal computers were installed the Windows 7 operating system. For the needs of a due diligence, an isolated server (no network access, no internet access) was installed, as well as software with special functionalities. At the backup location, a new internet connection was set up. To support virtualisation in PF Belgrade, three servers were replaced with a new one with more capacity. Certain elements of the equipment were changed (a router, a switch, etc.) The business continuity project was completed. Certain computer equipment was moved to the backup location at Šmartinska 132 (to NLB premises), which was connected with the primary location at Slovenska 17. Data synchronisation between disk arrays was activated. Documentary system underwent the following changes in 2011: Users can now split the main window into several frames, such as cases, inbox and calendar. New fields related to credit limit were added: maximum amount and date, and credit rating, to be completed in»contacts«and then available in»credit limit requests«and»records«. A new function was added that allows users to archive inactive cases. A new function was added that allows users to set an alarm for an event. Certain templates were changed. A new function was added that allows users to manage folders: create new folders and move / copy documents to folders. A new function was added that allows users to rename case / subject when using the command»copy to InteliDoc«. A new»scan to attachment«function was added.

11 18 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report ERP SYSTEM The Navision ERP system was upgraded several times and added new functions. The most important were the following: New functions were added that allow netting, revenue accruing and deferring, and allowance formation, first in PF Ljubljana (2010) and then in other Group companies (2011). In PF Belgrade, the function»reminders«was changed. In all subsidiaries, COGNOS processing was upgraded. In PF Belgrade, late interest calculation using the compound method was upgraded. Certain reports were added the possibilities of filtering by annex and exporting to excel. Objects for salary calculation were updated. To reflect the amendments to the Value Added Tax Act, a new VAT-0 form corresponding to the amended XML scheme was added. For the needs of auditors in PF Sarajevo, certain main ledger items were exported to Excel. To allow calculation of late interest within discount factoring, a new processing was developed. To reflect the introduction of the SEPA universal payment order, a new functionality was added. SEPA, a Single Euro Payments Area, allows customers to make cashless national or cross-border payments throughout the euro area from a single account under the same basic conditions. In PF Sarajevo, due to»fiscalisation«(to prevent tax evasion, all taxpayers in BiH must install fiscalised tax register/fiscal memory devices that are connected via GSM with the tax authority), a new function was added. A special processing was developed to fill the data storage, and the QlikView application using these data was changed. Data structure of the data storage was changed accordingly, including interest, which are now classified into: financing interest assignor financing interest debtor late interest assignor later interest debtor late payment cost assignor late payment cost debtor There were many others minor improvements and upgrades to reflect changes in the business environment or to improve efficiency. All are listed in the following documents: 1. LJ -Dodelave in spremembe 2011.doc 2. ZG-Dodelave in spremembe 2011.doc 3. BG-Dodelave in spremembe 2011.doc 4. SA-Dodelave in spremembe 2011.doc 1. 6 Internal control system in 2011 Already in 2009 and 2010, the final steps were undertaken towards business process standardisation in three 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 NLB s central internal audit department, etc.). 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.)

12 20 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Corporate communications in 2011 Communications in general Communications within the Group Communications with the external environment Sound communications enhance the understanding of our mission, which is ensuring the safety of operations and financing growth and managing cash flows of our clients, and allow us to achieve our objectives. Open, consistent and stable communications are based on interactivity and feedback arising from our working together and thus knowing and trusting each other. Quality, responsiveness and dynamics are the characteristics we pursue when planning and managing our communications activities aimed at: enhancing the reputation of the Prvi faktor Group; supporting, both internally and externally, the decisions taken by management; fostering good relationships with the media, clients and owners; supporting marketing strategy; enhancing social responsibility; and fostering good relationships with the local community. In order to achieve and exceed its objectives, the Group must have highly skilled employees. By means of balanced one-way and two-way communications and personal and electronic communications, as well as by means of teambuilding, strategic conferences and other social events, we build a corporate culture of mutual trust and respect, continuous learning, and responsible and effective work. We also care about the future of our employees and thus finance their additional pension insurance. The Group is aware that good external communications contribute towards its objectives. To this end, it prepares press releases, promptly answers questions from journalists, and consistently informs the public and its owners of any events. Very important are also factoring-related and corporate articles, as well as client relationships and support to marketing activities. Social responsibility Prvi faktor Group knows that it can be successful only as an integral part of the social environment, for which reason it participates in and co-creates local communities in which it operates. It supports various projects in the sports, education, culture and charity areas.

13 22 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Statement of management s responsibilities STATEMENT OF MANAGEMENT'S RESPONSIBILITIES The management approves the separate financial statements for the year ended ember 2011, 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 35 to 100 of this annual report. 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 Ljubljana, 1 March 2012

14 2.0 Auditor s report Changes Nothing in life is static. Everything stirs and changes as a restless river. Unpredictable events, unexpected crisis, surprising falls and stunning successes. The only constant we know is change, how we respond to the change depends solely on us.

15 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 which comprise statement of financial position as of ember 2011 and consolidated statements of comprehensive income, statement of changes in shareholders equity and statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Report on Other Legal and Regulatory Requirements Management is also responsible for preparing the Directors Report in accordance with the Slovene Companies Act. We are required by the Slovene Companies Act to read the Directors Report and to express an opinion whether the Directors Report is consistent with the financial statements. In our opinion, the Directors Report is consistent with the accompanying financial statements of Prvi faktor d.o.o., Ljubljana as of ember Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatement, whether due to fraud or error. Ljubljana, March 1, 2012 Mojca Vrečar PricewaterhouseCoopers d.o.o. Francois Mattelaer Auditor s Responsibility Our responsibility is to express an opinion on these 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 financial statements are free from material misstatement. Certified Auditor Partner An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the 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 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 financial statements. 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. 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 financial statements present fairly, in all material respects, the financial position of Prvi faktor d.o.o., Ljubljana standing alone as of ember 2011, 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. 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.

16 3.0 Financial statements Responses Certain events surprise us instantly. Actions take our breath away. We get shocking information. Some relations cut the ground from under our feet. How we respond to changes defines our future. Are we adaptable, capable and lucid enough to respond to challenges in a timely manner?

17 30 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Statement of financial position as at ember 2011 (thousand EUR) Statement of comprehensive income for 2011 (thousand EUR): Note ASSETS 137, ,918 NON-CURRENT ASSETS 7,977 6,680 Intangible assets Property, plant and equipment Interests in subsidiaries 5.3 4,906 3,906 Deferred tax assets ,823 2,463 CURRENT ASSETS 129, ,238 Loans and receivables , ,710 Current tax assets Cash and cash equivalents EQUITY AND LIABILITIES 137, ,918 EQUITY 5.6 4,209 3,247 Called-up capital 3,168 3,168 Equity premium 1,890 1,890 Revenue reserves Retained earnings ,898 NON-CURRENT LIABILITIES ,129 Non-current borrowings 0 28,000 Provisions CURRENT LIABILITIES 132,837 98,542 Short-term borrowings ,995 97,249 Trade and other payables 5.9 1,842 1,293 Note Interest and similar income ,311 10,008 Interest and similar expenses ,878-5,792 Net interest 3,433 4,216 Dividend income ,107 1,125 Other operating income Costs of service Labour costs ,573-1,714 Impairment charges ,924-7,903 Other operating expenses Foreign exchange gains, net Net gains on financial assets not at FVTPL Profit / loss from regular activities 1,027-5,121 Income tax ,197 Net profit / loss for the period 962-3,924 Other comprehensive income - Total comprehensive income 962-3,924 The notes on pages 35 to 100 are an integral part of these financial statements. The financial statements on pages 30 to 33 were confirmed and signed by the company s director on 1 March 2012 (see Statement of management s responsibilities). Director družbe Ernest Ribič Finance director Matej Špragar The notes on pages 35 to 100 are an integral part of these financial statements. The financial statements on pages 30 to 33 were confirmed and signed by the company s director on 1 March 2012 (see Statement of management s responsibilities). Director družbe Ernest Ribič Finance director Matej Špragar

18 32 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Cash flow statement for 2011 (thousand EUR): Statement of changes in equity (thousand EUR): Note Called-up capital Equity premium Other reserves Retained earnings Total Net profit / loss for the period 962-3,924 Adjustments: Amortisation / depreciation Impairment charges 1,924 7,903 Other non-monetary items Interest expense 6,878 5,792 Interest income - 10,311-10,008 Exchange rate differences ,370 3,865 Changes in net operating assets: Opening less closing loans and receivables - 5,902 4,411 Opening less closing other liabilities 549-4,754 Interest received 10,765 8,626 Interest paid - 7,130-6,254 Income tax ,997 Net cash from operating activities - 2, 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 paid 0-4,671 Dividends received 1,107 1,125 Cash proceeds from increase in borrowings 294, ,938 Cash repayments of borrowings - 292, ,440 Net cash from financing activities 2,811-1,048 Net cash inflow or outflow for the period 56-1,161 Opening balance of cash and cash equivalents 96 1,257 Closing balance of cash and cash equivalents January ,168 1, ,026 7,171 Comprehensive income Profit / loss for the period ,924-3,924 Total comprehensive income ,924-3,924 Transactions with owners Dividends paid Total transactions with owners ember ,168 1, ,898 3,247 1 January ,168 1, ,898 3,247 Comprehensive income Profit / loss for the period Total comprehensive income Transactions with owners Dividends paid Total transactions with owners ember ,168 1, ,209 The notes on pages 35 to 100 are an integral part of these financial statements. The financial statements on pages 30 to 33 were confirmed and signed by the company s director on 1 March 2012 (see Statement of management s responsibilities). Director družbe Ernest Ribič Finance director Matej Špragar The notes on pages 35 to 100 are an integral part of these financial statements. The financial statements on pages 30 to 33 were confirmed and signed by the company s director on 1 March 2012 (see Statement of management s responsibilities). Director družbe Ernest Ribič Finance director Matej Špragar

19 4.0 Accounting policies Results There are institutions and people that always strive for the top. They act effectively, decide profitably and get impressive results. They see a chance to grow and develop everywhere. They are successful and justly proud of that.

20 36 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. 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. 4.2 Summary of significant accounting policies Basis of preparation The financial statements for the year ended ember 2011 have been prepared in accordance with International Financial Reporting Standards (hereinafter IFRS), as adopted by the European Union. The owners of the company are two banks: Nova Ljubljanska banka d.d., Ljubljana (hereinafter NLB), and SID Slovenska izvozna in razvojna banka, d.d., Ljubljana (hereinafter SID bank). The company s main activities are domestic and export factoring. 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. The company first prepared its financial statements in accordance with IFRS, as adopted by the European Union, for the year ended ember Until ember 2006, the company used to prepare the financial statements in accordance with Slovenian Accounting Standards (hereinafter SAS). The date of transition to IFRS, as adopted by the European Union, is 1 January This is also the date of the opening balance sheet. No exemptions were used. 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 mana-

21 38 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report gement to exercise its judgment 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, SI-1000 Ljubljana, Slovenia. Users of these separate financial statements should read them together with the Group's consolidated financial statements for the year ended ember 2011 in order to obtain full information on the financial position, results of operations and cash flows of the Group as a whole. In 2011, the company implemented all new and revised standards and interpretations issued by the competent EU bodies (International Accounting Standards Committee (IASC) and the International Financial Reporting 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 2011 that were endorsed by EU and adopted by us. IAS 24 (amendment) Related Party Disclosures (effective for annual periods beginning on or after 1 January 2011 with earlier application permitted). The revised standard simplifies the definition of a related party and provides a partial exemption from the disclosure requirements for government-related entities. If the exemption is applied, the entity shall disclose the nature and amount of each individually significant transaction. The amendment impacts presentation. 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 2011, with earlier application permitted. IAS 27 clarifies the transition rules for amendments to IAS 21, 28 and 31 made by the revised IAS 27 (as amended in January 2008). Amendments to IAS 34 refer to interim financial reporting and affect the presentation of the company s interim financial statements. Disclosure requirements in IFRS 7 emphasize the link between quantitative and qualitative disclosures regarding the nature and extent of financial risk and eliminate disclosures for renegotiated loans that would otherwise be past due or impaired, while disclosures regarding the fair value of collateral is replaced with a more general requirement, i.e. clarification of effect of collateral on mitigating the credit risk. Amendments to IFRS 3 require measurement of non-controlling interests at fair value, in certain cases provide guidance on an acquirer s share- -based payment arrangements that were not replaced or were voluntarily replaced as a result of a business combination, and require that the contingent considerations from business combinations that occurred before the effective date of revised IFRS 3 are calculated using the previous IFRS 3. The amendment to IAS 1 clarifies the requirements for the presentation and content of the statement of changes in equity. Reconciliation between the carrying amount at the beginning and the end of the period for each component of equity must be presented in the statement of changes in equity, but its content is simplified by allowing an analysis of other comprehensive income by item for each component of equity to be presented in the notes. The amendments do not significantly affect the company s financial statements. IFRS 7 (amendment) Disclosures, Transfers of Financial Assets (effective for annual periods beginning on or after 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 company is currently assessing the impact of the amended standard on disclosures in its financial statements. IAS 32 (amendment) Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after 1 January 2013). 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 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. Other revised standards and interpretations, effective for the current period: IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, amendments to IAS 32 Classifications of Rights of Issues, clarifications in IFRIC 14 Prepayments of a Minimum Funding Requirement, and amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters, did not have any impact on these financial statements. Accounting standards and amendments to existing standards issued but not 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. Key features of the standard are as follows: 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 for managing its financial instruments.

22 40 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report 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. 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 2013, with earlier application permitted. The company is considering the implications of the standard and the timing of its adoption. IAS 1 (amendment) Presentation of Financial Statements (effective for annual periods beginning on or after 1 July 2012, with earlier application permitted). 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 will affect presentation of the Group's consolidated financial statements. 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 Investment 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 2013, 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 Group 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, which 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 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under IAS 31 can 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 in the current standards. IFRS 13 (new standard) Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013, with earlier application permitted). 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 the 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 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 Group is currently evaluating the potential impact that the adoption of the standard will have on its consolidated financial statements. Other revised standards and interpretations: amendments to IAS 19 Employee Benefits, relating to the recognition and measurement of defined benefit obligation and the disclosure of all employee benefits, amendments to IFRS 1 Fist Time Adoption of IFRS relating to severe hyperinflation and removal of fixed dates for first-time adopters, amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets investment property measured at fair value, and amendments to IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine, are not expected to affect the company s financial statements.

23 42 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Foreign currency translation Intangible assets Property, plant and equipment (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 reported in euros (EUR), which has been the company's functional and presentation currency since 1 January (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 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. 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 2011: 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. The residual value of an asset is the estimated amount that the company would currently obtain from disposal of the asset, less the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life. The residual value of an asset is nil if the company expects to use the asset until the end of its physical life. The assets residual values and useful lives are reviewed and adjusted, if appropriate, at each statement of financial position date. 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.

24 44 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Interests in subsidiaries Loans and receivables Interests in subsidiaries are accounted for 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 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. 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 and non-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. Individually material 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. 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. Collective impairments are recognised based on the average of receivables reclassified from previously unimpaired to impaired in the last four quarters. Using an item-by-item approach, the company may write off loans and receivables with a fair or collectable value that is unquestionably zero. 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. 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 on impairment, such as: 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).

25 46 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Cash and cash equivalents Borrowings Trade and other payables Provisions Cash and cash equivalents comprise cash on hand, deposits and cash in transit. Cash on hand comprises banknotes, coins and cheques received. Deposits comprise deposits with banks or other financial institutions that can be used for payment purposes, i.e., readily available cash. 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 comprises also cash equivalents that are readily convertible to known amounts of cash with an insignificant risk of changes in value. Borrowings are originally recognised at fair value, net of transaction costs incurred. Subsequently they shall be measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of borrowings using the effective interest method. Borrowings 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 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. 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 law, employees retire when they have 35 to 40 years of service, 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. 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.

26 48 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Equity Total equity consists of called-up capital, equity premium, other reserves and retained earnings. Called-up capital was paid in by the company s 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 paid-in capital by company members with the purpose of acquiring additional 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 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 balance sheet. 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 revenues 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 and discounted bills of exchange. 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 or a financial liability are recognised as interest income or interest expense. (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.

27 50 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Dividend income Dividend income (shares of subsidiaries profits) is recognised in the statement of comprehensive income when the right to receive payment is established Available-for-sale financial assets and the associated gains / losses Available-for-sale financial assets are non-derivative assets intended to be held for an indefinite period, but may be sold to address the need for liquidity or to respond to changes in interest rates, foreign exchange rates or prices. Financial assets other than those carried at fair value through profit or loss are initially recognised at fair value, plus transaction costs. Acquisitions and disposals of available-for-sale financial assets are recognised on the trade date. Gains / losses resulting from the fair value measurement of available-for-sale financial assets are recognised in other comprehensive income and recycled to profit or loss when the financial asset is derecognised or impaired. Interest calculated using the effective interest method and exchange rate differences arising from the translation of monetary items classified as available-for-sale assets are recognised directly in profit or loss 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 the liabilities relating to financial guarantee contracts is taken to the statement of comprehensive income under other operating expenses Critical accounting estimates and judgements 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 those 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 material 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. 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 100%. 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.

28 52 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Financial risk management The company s activities expose it to a variety of financial risks including currency risk, interest rate risk, credit risk and liquidity risk. 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. The commercial department has certain powers with regard to the approval of credit limits and investments, but most are nevertheless approved by the 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 very 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 the majority 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. Maximum exposure to credit risk (thousand EUR) Loans and receivables 128, ,710 Cash and cash equivalents Financial guarantee contracts 3,832 2,650 Financial guarantees issued for Group companies 188, ,289 Total 321, ,745 The above table represents the worst-case scenario of the company s credit risk exposure as at ember 2011 and 2010, 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 (including those issued for Group companies) was past due.

29 54 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Loans and receivables (thousand EUR) Current, not impaired 112,226 81,544 Overdue, not impaired 8,024 10,942 Overdue, impaired 22,393 42,237 Impairment allowances -14,031-12,013 Total 128, ,710 Current, not impaired loans and receivables by client rating (thousand EUR) 2011 Amount Share % Credit rating A 72, % Credit rating B 31, % Credit rating C 8, % Credit rating D 0 0 Total 112, % 2010 Amount Share % Credit rating A 65, % Credit rating B 11, % Credit rating C 4, % Credit rating D % Total 81, % Loans and receivables overdue (not impaired and impaired) by days overdue (thousand EUR) Overdue, not impaired Overdue, impaired Overdue, not impaired Overdue, impaired Current 2,336 8,430 Overdue up to 1 month 6, ,877 15,418 Overdue up to 3 months 1, ,028 4,722 Overdue up to 1 year 129 4, ,157 Overdue over 1 year 14,406 4,510 Total 8,024 22,393 10,942 42,237 Overdue but not impaired loans and receivables of EUR 8,024 thousand (2010: EUR 10,942 thousand) were secured by mortgages or insured with SID-PKZ or foreign factoring companies in the amount of EUR 8,132 thousand (2010: EUR 11,068 thousand). For impaired loans and receivables amounting to EUR 22,393 thousand (2010: EUR 42,237 thousand), the company recognised impairments of EUR 14,031 thousand (2010: EUR 12,013 thousand). They were secured by mortgages of EUR 5,868 thousand (2010: EUR 7,472 thousand) or insured with SID-PKZ in the amount of EUR 2,101 thousand (2010: EUR 7,219 thousand). Financial assets showing signs of impairment are impaired individually. Others are impaired collectively using on historical data. Collective impairments in 2011 amounted to EUR 120 thousand (2010: EUR 110 thousand). Bank deposits are also individually assessed for impairment. Those with A- and B- -rated banks are not impaired. Receivables from banks are not impaired collectively. As at year-end 2011, the share of impaired loans and receivables decreased compared to a year ago. This mainly reflected better credit ratings of certain important clients.

30 56 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Impaired loans and receivables by client rating (thousand EUR) 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 142,643 14, Amount Impairment Share % Share of impairment % Credit rating A 69, Credit rating B 25, Credit rating C 25,077 1, Credit rating D 15,374 10, Total 134,723 12, Loans and receivables by client rating and collateral type (thousand EUR) Stanje Loans and receivables Stanje Loans and receivables Bonitetna ocena A Bonitetna ocena A SID PKZ 5,483 SID PKZ 7,570 FCI 250 FCI 150 Credit rating B Credit rating B Mortgage 4,686 Mortgage 1,423 SID-PKZ 16,058 SID-PKZ 24,417 FCI 3,095 FCI 1,945 Credit rating C Credit rating C Mortgage 4,025 Mortgage 4,423 SID-PKZ 1,901 SID-PKZ 892 The quality of portfolio improved in 2011: the share of loans and receivables owed by A-rated and B-rated debtors increased. The share of C-rated debtors decreased, while the share of D- -rated debtors increased slightly. This mainly reflected better credit ratings of certain important clients. Performing loans and receivables are rated A are only impaired collectively. Collective impairments in 2011 were EUR 120 thousand. Credit rating D Credit rating D Mortgage 1,950 Mortgage 3,110 SID-PKZ 300 SID-PKZ 1,266 Total collateral 37,748 Total collateral 45,196 Uninsured 104,895 Uninsured 89,527 Total 142,643 Total 134,723 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)

31 58 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Concentration of risks of financial assets with credit risk exposure The table below shows (at carrying amounts) the majority of 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 7,935 55, ,925 Trade and other receivables 36,719 25,194 2,774 64, ,654 81,184 2, , ,269 65,342 3, ,710 The company s credit risk exposure is concentrated in the manufacturing and trade industries. As at year-end 2011, the company had renegotiated loans and receivables of EUR 5,159 thousand (2010: EUR 5,764 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 majority of restructured loans and receivables are impaired. The company resorts to restructuring if initially agreed payment terms and conditions change due to deterioration in the debtor s economic and financial position resulting in the debtor s failure to settle its liabilities when due. Loans and receivables are restructured using one or several activities that would otherwise not be used, such as: prolongation of the principal payment date, reduction of the amount due, and other activities. The company does not have repossessed collateral. 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 short-term, which significantly decreases liquidity risk. The (thousand EUR) ember 2011 Up to 1 month 1 to 3 month company also uses short-term financial sources to secure adequate liquidity. The table below shows the company s assets and liabilities as at ember 2011 by the remaining term to maturity: 3 to 12 month 1 to 5 years Over 5 years FINANCIAL ASSETS 33,699 71,149 23, ,764 Loans and receivables 33,547 71,149 23, ,612 Cash and cash equivalents LIABILITIES 14,835 71,375 54, ,132 Short-term borrowings 10,984 69,592 54, ,458 Trade and other payables 1, ,842 Financial guarantee contracts 2,206 1, ,832 Assets less liabilities 18, , ,368 ember 2010 FINANCIAL ASSETS 32,854 78,068 11, ,806 Loans and receivables 32,758 78,068 11, ,710 Cash and cash equivalents LIABILITIES 2,560 43,571 58,903 29, ,623 Short-term borrowings 1,132 41,099 58,859 29, ,679 Trade and other payables ,293 Financial guarantee contracts 434 2, ,650 Assets less liabilities 30,294 34,496-47,019-29, ,816 Total

32 60 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Currency risk Interest rate risk The company is to some extent exposed to currency risk. It would usually not actively manage currency risk, but would link to EUR advances to assignors in order to neutralise the effect of exchange rate movements on EUR-denominated borrowings. Statement of financial position by currencies (thousand EUR): ember 2011 EUR USD GBP Other currencies Skupaj FINANCIAL ASSETS 128, ,764 Loans and receivables 128, ,612 Cash LIABILITIES 132, ,837 Short-term borrowings 130, ,995 Trade and other payables 1, ,842 Assets less liabilities -4, ,073 ember 2010 FINANCIAL ASSETS 122, ,806 Loans and receivables 122, ,710 Cash LIABILITIES 126, ,542 Short-term borrowings 125, ,249 Trade and other payables 1, ,293 Assets less liabilities -3, ,736 The company s revenues 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. (thousand EUR) Stanje 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 128,764 4, , ,241 3,577 14, Loans and receivables 128,612 4, , ,089 3,577 14, Cash and cash equivalents LIABILITIES 132,837 2, ,268 34,468 54,829 40, Short-term borrowings 130, ,268 34,468 54,829 40, Trade and other payables 1,842 1, Assets less liabilities -4,073 1,633-5,706 71,773-51,252-26, Stanje FINANCIAL ASSETS 122,806 2, , ,337 3, Loans and receivables 122,710 2, , ,241 3, Cash and cash equivalents LIABILITIES 126,672 2, ,605 50,300 40,338 33, Borrowings 125, ,605 50,300 40,338 33, Trade and other payables 1,423 1, Assets less liabilities -3, ,357 66,037-36,830-33,

33 62 - Annual report Prvi Faktor Ljubljana Everything flows, nothing stands still. Everything flows, nothing stands still. Prvi Faktor Ljubljana - Annual report Fair value of financial assets and liabilities Sensitivity analysis Company in the global financial crisis The management estimates that there are no significant differences between the carrying amounts and fair values of the company s financial assets and financial liabilities. Sensitivity analysis was prepared assuming a change in market interest rates of 100 basis points (1% p.a.), which the management at that time 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 2011 would have increased by EUR 137,000 (2010: EUR 160,000). 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 2011 would have decreased by EUR 137,000 (2010: EUR 160,000). The company is not significantly exposed to currency risk as the majority of its transactions are in EUR, its functional currency. 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 inter-bank 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. The worst hit were Portugal, Ireland, Italy, Greece and Spain (now collectively known as PIGGS). Greece, where the situation is by far the worst, went practically bankrupt. Assessing the whole range of effects of the current global and financial crisis is difficult, as is difficult to protect a business against such effects. The management cannot reliably estimate the effects that any further worsening of business conditions might have on the company s financial position. It is of opinion, however, that it has taken all the measures necessary to secure stability and future development of the company under the current circumstances. 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 terms and conditions that would be comparable to those under current contracts. 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.

34 5.0 Notes to the financial statements Adjustments Adjustment is inevitable in the modern world. Those who are wise/prudent know how to quickly and efficiently adjust to changing circumstances. Therefore, they always listen to the flow of information and never miss the important indicators. They know when to listen, when to wait and when to react. Consequently, they achieve the best results.