SERBIAN EXPORT AND INSURANCE AGENCY j.s.c., UŽICE. Restated Financial Statements for the Year Ended 31 December 2013 and Independent Auditor s Report

Transcription

1 SERBIAN EXPORT AND INSURANCE AGENCY j.s.c., UŽICE Restated Financial Statements for the Year Ended 31 December 2013 and Independent Auditor s Report This version of our report/ the accompanying documents is a translation from the original, which was prepared in Serbian. 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, MOORE STEPHENS Revizija i Računovodstvo d.o.o., Beograd, Studentski trg 4/V Tel: , , Fax: office@revizija.co.rs Matični broj , PIB ,

2 SERBIAN EXPORT AND INSURANCE AGENCY j.s.c., UŽICE TABLE OF CONTENTS Pages INDEPENDENT AUDITORS REPORT 1-2 RESTATED FINANCIAL STATEMENTS Restated income statement 3 Restated balance sheet 4 Restated cash flow statement 5 Restated statement of changes in equity 6 Notes to restated financial statements 7-63

3 Privredno društvo za reviziju računovodstvo i konsalting MOORE STEPHENS Revizija i Računovodstvo d.o.o. Studentski Trg 4/V, Beograd, Srbija Tel: +381 (0) , ; Fax: office@revizija.co.rs, Matični broj/id: ; PIB/VAT: taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, INDEPENDENT AUDITOR S REPORT To the shareholders of AOFI Serbian Export Credit and Insurance Agency, j.s.c. Užice Report on the Restated Financial Statements We have audited the accompanying restated financial statements of AOFI Serbian Export Credit and Insurance Agency, j.s.c. Užice (the Agency), which comprise the balance sheet as at 31 December 2013, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the current accounting regulations in effect in the Republic of Serbia 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. 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 about whether the financial statements are free from material misstatement. 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 control 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. Basis for Qualified Opinion As of 31 December 2013 the Agency had time deposits with Universal Banka ad in the amount of EUR 2,000, disbursed with a maturity date of 09 February On 31 January 2014 the National Bank of Serbia revoked bank s operating license whereby deposed amount remained with the legal successor of Universal Bank - in bankruptcy, and has been reported to the bankruptcy estate. Considering the accounting principle of prudence, we believe that the allowance for estimated amount of possible bad debt should be booked and charged against expenses for the period.

4 INDEPENDENT AUDITOR S REPORT To the shareholders of AOFI Serbian Export Credit and Insurance Agency, j.s.c. Užice - Continued Qualified Opinion In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the restated financial statements, in all material respects, give a true and fair view of the financial position of AOFI Serbian Export Credit and Insurance Agency, j.s.c. Užice as at 31 December 2013, and its financial performance and its cash flows for the year then ended in accordance with the current accounting regulations in effect in the Republic of Serbia and accounting policies disclosed in the notes to the financial statements. Emphasis of Matter We draw attention that - The Agency carries out banking and insurance activities (in accordance with the Law on AOFI for the purpose of export promotion and development of foreign economic relations) that does not comply with the Law on Banks and the Insurance Law, particular in terms of supervision of the National Bank of Serbia over the banking and insurance activities; - The financial statements of the Agency are presented in the format prescribed by the Rulebook on the Contents and Form of Financial Statements of Enterprises, Cooperatives and Entrepreneurial Ventures. Accordingly, as disclosed in Note 9 to the financial statements, the financial income incurred in 2013 amounted to RSD 1,159,786 thousand including the figure of RSD 592,822 thousand, which represents income from operating activities. Our opinion is not qualified in respect of this matter. Other Matter The financial statements of the AOFI Serbian Export Credit and Insurance Agency, j.s.c. Užice for the year ended 31 December 2012 were audited by another auditor, who expressed an unmodified opinion with emphasis of matter on those financial statements on 07 March Belgrade, 25 June 2014 MOORE STEPHENS Revizija i Računovodstvo d.o.o. Beograd Jelena Knežević Certified Auditor MOORE STEPHENS Revizija i Računovodstvo d.o.o. Beograd Bogoljub Aleksić Managing Partner

5 RESTATED INCOME STATEMENT for the Period from 01 January to 31 December 2013 (In RSD thousand) Notes Operating incomes - - Operating expenses (260,093) (252,254) Cost of material 5 (2,527) (2,948) Wages, salaries and other personnel expenses 6 (146,389) (121,155) Depreciation, amortization and provisions 7 (14,150) (17,937) Other operating expenses 8 (97,027) (110,214) Operating profit / (loss) (260,093) (252,254) Financial income 9 1,159,786 1,678,561 Financial expenses 10 (184,312) (191,407) Other income , ,364 Other expenses 12 (777,554) (1,217,583) Profit before tax 66, ,681 Current tax expense 13 (11,932) (19,806) Deferred tax expense 13 (865) - Deferred tax income Net profit 53, ,606 Earnings per share 19 0,97 3,06 3 taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions,

6 RESTATED BALANCE SHEET As of 31 December 2013 (In RSD thousand) taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, Notes As of 31 December 2013 As of 31 December 2012 ASSETS Non-current assets 6,970 18,095 Intangible assets 14 1,276 2,637 Equipment 14 5,636 6,662 Equity investments ,796 Current assets 7,404,360 7,209,068 Inventories 183 1,667 Accounts receivable ,626 1,185,003 Receivables for overpaid income tax - 26,753 Short term financial placements 17 5,705,708 5,884,242 Cash equivalents and cash ,433 72,843 Value added tax, prepayments and accrued income 31,410 38,560 Deferred tax assets ,004 Total Assets 7,411,469 7,228,167 Equity and Liabilities Capital 19 6,683,721 6,440,480 Issued capital 5,512,400 5,512,400 Reserves 760, ,474 Retained earnings 410, ,606 Provisions and liabilities 441, ,014 Long term provisions , ,014 Long term borrowings , ,000 Current liabilities 286, ,673 Short term financial liabilities Liabilities from business operations , ,933 Other current liabilities Value added tax, other public liabilities and accruals and deferred income 16,374 35,095 Income tax payable 33,371 - Deferred tax liability - - Total Equity and Liabilities 7,411,469 7,228,167 Off-balance sheet items 25 18,370,568 8,530,506 4

7 RESTATED CASH FLOW STATEMENT For the Period from 01 January to 31 December 2013 (In RSD thousand) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and advances received Interest receipts from operations 221, ,459 Other receipts from operations 354, ,196 Payments to suppliers and advance payments to suppliers (174,518) (177,622) Payments for wages, salaries and other personnel expenses (150,529) (123,200) Income tax paid - (8,589) Other public charges paid (4,835) (3,941) Net cash flows from operating activities 246, ,984 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 81,930 52,317 Other financial placements (net inflows) 23,559,314 25,568,028 Purchase of property and equipment (354) - Other financial placements (net outflows) (23,150,943) (25,805,977) Net cash flows provided by / (used in) investing activities 489,947 (185,632) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (83,803) (38,438) Net cash flows used in financing activities (83,803) (38,438) Net increase in cash and cash equivalents 652,277 (26,086) Cash and cash equivalents at beginning of year 72,843 88,031 Foreign exchange gains on translation of cash and cash equivalents, net 15,609 11,136 Foreign exchange (losses) on translation of cash and cash equivalents, net (1,296) (238) Cash and cash equivalents at end of year (Note 18) 739,433 72,843 5 taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions,

8 RESTATED STATEMENT OF CHANGES IN EQUITY for the period from 01 January to the 31 December 2013 (In RSD thousand) Share capital Share issue premium Reserves Retained earnings Total Balance as of 01 January ,262, , ,778 76,877 6,061,313 Increase in capital 250, ,000 Dividends paid (38,439) (38,439) Transfer to reserves ,438 (38,438) - Profit for the year , ,606 Balance as of 31 December ,512, , , ,606 6,440,480 Increase in capital Dividends paid (83,803) (83,803) Transfer to reserves Profit for the current year , ,044 Balance as of 31 December ,512, , , ,847 6,683,721 taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, 6

9 1. CORPORATE INFORMATION Serbian Export Credit and Insurance Agency, j.s.c. Užice (The Agency) is the official export credit agency of the Republic of Serbia established by a special Law on AOFI for the purpose of export promotion and development of foreign economic relations ( Official Gazette of the Republic of Serbia No. 61 / 2005 dated July 15, 2005). Agency was founded on 26 July 2005 for indefinite period of time. On 16 August 2005 the agency was registered in the Register of Business Entities, whereby became the legal entity. The Agency is a closed joint stock company founded by the Republic of Serbia, with registered capital of EUR 25,000, of which in 2005 were paid EUR 12,507, (50.03% of total subscribed capital) and in 2006 the remain amount was paid at dinar equivalency at the average exchange rate in effect on the payment date. Payment transactions related to ordinary activities are carried out through sub-account (sub-account for regular operations and sub-accounts for own income) opened within consolidated treasury account with the Treasury. Merge of the fund SMECA performed on 22 May 2009, previously opened dinar and foreign currency accounts with commercial banks were taken over. Amendments to the Law on Agency (Official Gazette of the Republic of Serbia no. 88/10) from 01 December 2010 occurred amendments to activities of the Agency as follows: The core business of the Agency remained insurance, including: Insurance and reinsurance of overseas business and investments performed by domestic legal entities and entrepreneurs from the commercial and non-commercial risks, and insurance of accounts receivable collection of exporters in the domestic market up to a maximum amount of export business, both independently or in cooperation with other insurance companies, or agencies; Financing of export operations made by domestic legal entities and entrepreneurs, co-financing of export transactions with commercial banks and other financial institutions, refinancing of exporter credit commercial banks; Financing of preparatory exports of domestic legal entities and entrepreneurs in accordance with the Export Agreement made; Financing of domestic legal entities and entrepreneurs investments in the foreign markets in order to encourage exports; Insuring pre-export activities of domestic legal entities and entrepreneurs from non-commercial and commercial risks concluded upon Export Agreement, both independently or in cooperation with other insurance companies, or agencies; Financing of foreign buyer or his bank in relation with export of domestic legal entity or entrepreneur; Insuring of local banks in relation with loans and guarantees for export business and investments abroad, and signed credit lines with foreign banks; Issuance of guarantees and other warranties for export business and abroad investments; providing other services in relation with financing, guarantees and export insurance and investments in domestic and foreign markets. 1

10 Other registered activities are: lending and borrowing (credit business), purchase and sale of securities (effects and emission operations), factoring and other financial services. According to adoption of amendments to the Law on Agency (Official Gazette of the Republic of Serbia No. 88/10 from 01 December 2010) the register seat of the Agency was changed. On 26 January 2011 the change was registered with the Serbian Business Registers Agency. Thus the seat of the Agency is in Uzice, 30 Nikola Pasic street, Republic of Serbia. At 31 December 2013 the Agency had 59 employees (2012: 51 employees). The Company's registration number is , whereas its tax identification number is Entering into the force of the Law on Termination the Law on Insurance Fund and Export Financing - SMECA, (Official Gazette of the Republic of Serbia, No. 36 from 15 May 2009) on 22 May 2009 Export Credit and Insurance Agency took over all employees, rights and obligations, cash, items, equipment, tools and archives. The phrase "financial statements" hereinafter refers to the restated financial statements. 2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently applied to all presented years, unless otherwise stated Basis of Preparation and Presentation of the Financial Statements The accompanying financial statements have been prepared in accordance with the Law on Accounting of the Republic of Serbia (hereinafter the "Law") published in the Official Gazette of the Republic of Serbia no. 61/2013, which requires that the financial statements should be prepared in accordance with all translated IFRS up to 01 January Specific requirements of the Law differ from IFRS due the adopted standards are those that were translated, and thus the financial statements do not include the effects of IFRS that were issued since 1 January In addition, the law requires a certain presentation and treatment of accounts and balances, which resulted in departures from IFRS as follows: a) The Company has prepared the financial statements in the format prescribed by the Ministry of Finance of the Republic of Serbia, which is not in accordance with IAS 1 (Revised) - "Presentation of Financial Statements" and IAS 7 - "Statement of Cash Flows"; b) "Off-balance sheet assets and liabilities" are disclosed in the balance sheet form (note 25). These items, by definition of IFRS are either an asset or liability; 2

11 c) The Decision made by the Ministry of Finance of the Republic of Serbia (number /2010 from 25th October 2010) determined the translation of the IAS basic texts, i.e. IFRS, which were issued by the Committee for International Accounting Standards until 1st January 2009, as well as their interpretation issued by the Committee for the Interpretation of Accounting Standards until 1st January By the date of the accompanying financial statements no amendment or addition to the existing or revised standards were translated, as well as any new interpretations issued by the IASB and IFRIC after 1 January The following standards and interpretations have not been officially translated in the Republic of Serbia: IAS 2R - "Separate Financial Statements", IFRS 9 - "Financial Instruments", IFRS 10 - "Consolidated Financial Statements", IFRS 11 - "Joint Arrangements", IFRS 12 - "Disclosure of interest in other entities", IFRS 13 - "Fair Value Measurement", IFRIC 18 - "Transfers of funds from the customer", IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments", IFRIC 20 -" Stripping Costs in the Production Phase of a Surface Mine", IFRIC 21 -"Levies". Preparation and disclosure of the financial statements in accordance with accounting regulations prevailing in the Republic of Serbia requires that Management uses the best assessments and reasonable assumptions, which effect on the figures in the financial statements and notes to the financial statements (note 2.3) Comparative Figures Comparative figures represent the audited financial statements for the year ended 31 December 2012, prepared in accordance with the accounting regulations prevailing in the Republic of Serbia. On 27 May 2014 the Auditing, Accounting and Consulting firm Moore Stephens Auditing and Accounting doo, Beograd was engaged to audit the financial statements for 2013 and to issue independent auditors opinion of the Agency s financial statements. In the auditor s report it has been disclosed that accounts receivable, from "Beohemija" doo and "Interkomerc" ad, as at 31 December 2013 amounted to RSD 348,636 thousand and RSD 110,339 thousand, respectively, were impaired by 30% in the amount of RSD 137,692 thousand, and in auditor opinion due to extremely worsening of the financial condition, poor collaterals, and significant overdue of 200 days the impairment should been made in the amount of 100% i.e. RSD 458,975 thousand. In respect of this accounts receivable have been overstated, and impairment of assets understated by the amount of RSD 321,282 thousand. The information in the column for the current year is the amounts from regular financial statements in 2013 with adjustments booked in accordance with the independent auditors opinion. 3

12 The following adjustments have been made: Restated Income Statement 2013 Adjustment Restated in Operating incomes Operating expenses (260,093) - (260,093) (252,254) Cost of material (2,527) (2,527) (2,948) Wages, salaries and other personnel expenses (146,389) (146,389) (121,155) Depreciation, amortization and provisions (14,150) (14,150) (17,937) Other operating expenses (97,027) (97,027) (110,214) Operating profit / (loss) (260,093) - (260,093) (252,254) Financial income 1,159,786 1,159,786 1,678,561 Financial expenses (184,312) (184,312) (191,407) Other income 128, , ,364 Other expenses (456,272) (321,282) (777,554) (1,217,583) Profit before tax 388,033 (321,282) 66, ,681 Current tax expense (60,124) 48,192 (11,932) (19,806) Deferred tax expense (865) (865) Deferred tax income 731 Net profit 327,044 (273,090) 53, ,606 Earnings per share

13 Restated Balance Sheet As of 31 December 2013 Restated as of 31 December 2013 As of 31 December 2012 Adjustment ASSETS Non-current assets 6,970 6,970 18,095 Intangible assets 1,276 1,276 2,637 Equipment 5,636 5,636 6,662 Equity investments ,796 Current assets 7,404,360 (306,461) 7,097,899 7,209,068 Inventories Accounts receivable 927, ,626 1,185,003 Receivables for overpaid income tax 14,821 14,821 26,753 Short term financial placements 5,705,708 (321,282) 5,384,426 5,884,242 Cash equivalents and cash 739, ,433 72,843 Value added tax, prepayments and accrued income 31,410 31,410 38,560 Deferred tax assets ,004 Total assets 7,411,469 (306,461) 7,105,008 7,228,167 EQUITY AND LIABILITIES CAPITAL 6,683,721 (273,090) 6,410,631 6,440,480 Share capital 5,512,400 5,512,400 5,512,400 Reserves 760, , ,474 Retained earnings 410,847 (273,090) 137, ,606 Provisions and liabilities 441, , ,014 Long term provisions 191, , ,014 Long term borrowings 250, , ,000 Current liabilities 286,337 (33,371) 252, ,673 Short term financial liabilities Liabilities from business operations 236, , ,933 Other current liabilities Value added tax, other public liabilities and accruals and deferred income 16,374 16,374 35,095 Income tax payable 33,371 (33,371) Deferred tax liabilities Total Equity and Liabilities 7,411,469 (306,461) 7,105,008 7,228,167 Off Balance Sheet Items 18,370,568 18,370,568 8,530,506 5

14 Restated Statement of Changes in Equity Issued capital Share issue premium Retained earnings Adjusted retained earnings Reserves Adjustments Total Opening balance as of 01 January Increase in capital Dividends paid (38.439) (38.439) (38.439) Transfer to reserves (38.438) (38.438) 0 Current year profit As of 31 December 2012 Increase in capital Dividends paid (83.803) (83.803) (83.803) Transfer to reserves 0 0 Current year profit ( ) As of 31 December ( ) Valuation using Preparation and presentation of the financial statements in accordance with IAS/IFRS and accounting regulations prevailing in the Republic of Serbia requires the Management to make the best assessments and reasonable assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as income and expenses for the reported period. These estimations and related assumptions are based on information available on the balance sheet date. Substantial results may be different from aforementioned assessments. The estimates and underlying assumption are reviewed on an ongoing basis and changes in estimated are recognized in the income statement in the periods in which they become known. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. 6

15 a) Impairment of Financial Assets The Agency assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The assessment of impairment losses on short-term investments and other receivables, the Agency reviews its loan portfolio at least quarterly in order to assess impairment. In determining whether an impairment loss should be recorded in the income statement, the Agency makes judgments as to whether there is any reliable evidence indicating that there is a measurable decrease in estimated future cash flows from a loans portfolio before decrease that can be identified with an individual loan in the portfolio. The evidence may include available data indicating an unfavourable change in the payment status of borrowers toward the Bank, or national and local economic conditions that correlate with defaults on assets of the Agency. Management performs estimates based on historical loss experience of realized losses on short-term investments and other receivables from prior periods for assets with credit risk characteristics and objective evidence of impairment similar to that in the loan portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly, in order to reduce any differences between estimated and actual losses. (b) Financial Instruments Fair Value The fair value of financial instruments traded in an active markets at the balance sheet date is based on quoted market bid prices or demand, without any deduction for transaction costs. The fair value of financial instruments that are not listed in an active market is determined using appropriate valuation techniques, which include net present value technique, comparison to similar instruments for which market observable prices exist and other relevant. When market inputs are not available, they are determined by estimates that involve a degree of judgment in assessing the "fair" value. Valuation models reflect current market conditions at the measurement date and do not represent market conditions either before or after the date of measurement. Therefore, valuation techniques are reviewed periodically in order to appropriately reflect current market conditions. (c) Impairment of Equity Investments Agency considers equity investments available for sale to be impaired when there is a documented (market data) or estimated decline in the fair value of the asset below its cost. 7

16 (d) Useful Lives of Intangible Asset, Property and Equipment The determination of the useful lives of intangible assets and fixed assets is based on historical experience with similar assets as well as on any anticipated technological development and changes influenced by wide range of economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually or whenever there is an indication of significant changes in the underlying assumption. (e) Impairment of Non-Financial Assets At the end of each balance sheet date, the Agency reviews the carrying amounts of its intangible assets and property and equipment presented in the financial statements. If there is any indication that such assets have been impaired, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying value, the currying amount of the asset is reduced to its recoverable amount. An impairment review requires from management to make subjective judgments concerning the cash flows, growth rates and discount rates of the cash generating units under review. (f) Provision for Legal Proceedings The Agency is subject to a number of legal proceedings arising from daily operations that relate to commercial, contractual and labour disputes, which are resolved and considered in the course of regular business activity. The Agency regularly estimates the probability of negative outcomes to these matters, as well as amounts of probable or reasonable estimated losses. Reasonable estimates include judgments made by management, after considering information including notifications, settlements, estimates performed by the legal department, available facts, identification of other potentially responsible parties and their ability to contribute as well as prior experience. Provision for legal proceedings is recognized when it is probable that an obligation exists for which a reliable estimation can be made of the obligation after careful analysis of the individual matter. The required provision may change in the future, due to occurrence of new events or obtaining additional information. Matters that are either contingent liabilities or that do not meet recognition criteria for a provisioning is disclosed, unless the possibility of outflow of resources embodying economic benefits is remote. (g) Retirement and Other Post-Employment Benefits The cost of defined employee benefits payable upon termination of employment, i.e. retirement in accordance with the fulfilled legal requirements are determined based on actuarial valuation. The actuarial valuation involves an assessment of the discount rate, future movements in salaries, mortality rate and fluctuation of employee. As these plans are long-term, significant uncertainties influence the outcome of the estimation. 8

17 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Other Operating Income Other operating income is income originated from service rendered. The recognition is done at the time of entire receiving in favour of revenue. 3.2 Operating Lease Operating leases relate to the rent of the premises. The costs are recognized in the income statement as incurred in accordance with the concluded contracts Operating Expenses Operating expenses are cost of materials, wages, salaries and other personnel expenses, depreciation charges, impairment and provisions, production and non-material costs. Operating expenses are recognized and recorded at the time they are incurred Financial Income Financial income relates to income from interest on short-term loans granted to customers, income from interest on short-term deposits with commercial banks, interest income from purchase of receivables (international and local factoring), commissions based on the processing of requests for approval short-term loans and factoring, accrued insurance premiums, as well as foreign exchange gains and income from foreign currency clause (Note 9). Interest income, including penalty interest and other income from interest bearing assets are computed for on an accrual basis and obligatory terms, defined by the contract made between the Agency and the client. For all financial instruments measured at amortized cost and interest bearing financial instruments classified as available-for-sale, interest income are recorded at the agreed interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when it is appropriate, a shorter period, to the net carrying amount of the financial asset or liability Financial Expenses Financial expenses relate to payment of damages in respect of insurance and other costs arising from insurance contracts, foreign exchange losses and interest expense (Note 10) Foreign Currency Translation Items reported in the financial statements are measured using the currency of the Agency s primary economic environment (functional currency). The accompanying financial statements are stated in thousands of RSD, which represents the functional and official reporting currency of the Agency. 9

18 Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into dinars at the official median exchange rate of the National Bank prevailing at the balance sheet date. Transactions denominated in foreign currencies are translated into dinars at the official exchange rate of the National Bank of Serbia prevailing at the transaction date. Gains and losses arising upon the translation of financial assets and liabilities denominated in foreign currencies and translation of transactions during the year are credited or debited as appropriate, to the income statement as financial income or expense. Positive and negative effects of contracted foreign currency clause of financial assets and liabilities, incurred by applying the agreed rate, are also credited or debited as appropriate, to the income statement as financial income or expense Other Income and Expenses Other income is income incurred from value adjustment of short-term investments at the market (fair) value on the balance sheet due to change in fair value compared to their net book value, as well as income from reversal of provisions. Other expenses mostly relate to expenses from impairment of loans and placements (Note 12), and to other expenses not mentioned Equipment Equipment is considered as assets with an expected useful life over a year, and a single value is greater than the average gross salary in Serbia at the time of purchase in accordance with the latest data published by the Institute of Statistics. Equipment is stated at cost, less accumulated depreciation and accumulated impairment losses, if any. Equipment acquired under finance leases is recognized as asset and related liabilities are recognized for amounts that are equal to the value of the leased asset at the inception of the lease. Any gains or losses arising on disposal of the asset are credited or debited as appropriate, to the income statement as other income or expenses. Investment that increases the useful lives of fixed assets is recognized as part of the property, while investment in maintenance and repairs that do not extend useful life, are debited operating expenses Impairment of Non-Financial Assets According to the adopted accounting policy, at the end of each reporting period, the Agency reviews the carrying amounts of the property, plant and intangible assets and assesses whether there is any indication of impairment of an asset. If there is any indication that such asset has been impaired, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying value at which the asset is disclosed, the carrying amount of the asset is reduced to its recoverable amount, being the higher of net selling price and value in use. 10

19 3.10. Depreciation and Amortization Depreciation of equipment is calculated using the straight-line method applied the cost of fixed assets using prescribed annual rates in order to write them off over their estimated useful lives. The depreciation base is the cost of asset less residual value. Depreciation is provided at rates which are based on the estimated useful life of assets, estimated by the Management and approved by the Governing Board. Review of useful life is carried by the Agency s relevant departments. Depreciation rates for the main categories of equipment are shown in the following table: Vehicles 10% Computers and appropriate equipment 20% Other equipment 10% 30% The annual depreciation rates that the agency applied for computing the depreciation of the annual account for 2013 for financial reporting purposes are different from depreciation rates prescribed and recognized in the tax return for determining taxable profit. The calculation of depreciation for tax purposes is determined in accordance with the Law on Corporate Income Tax and the Rules on the Manner of Fixed Assets Classification in Groups and Depreciation for Tax Purposes. Different depreciation methods used for the financial reporting purposes and the tax purposes give raise to deferred taxes (Note 13) Unearned Premiums Calculation of unearned premium is done in accordance with the Criteria and the Manner of Calculating Unearned Premiums, which determines the amount of unearned premiums and the amount of the bonus policy for the next period, as well as the participation of unearned reinsurance and mutual insurance premiums. Unearned premium is the portion of premiums used to cover insurance liabilities that arise in the next accounting period. The basis for founding and computing unearned premium is invoiced gross premiums. The calculation of unearned premium is done on the number of days of insurance in the next accounting period (pro rata temporis). The basis for calculating insurance premiums is multiplied by the number of days that insurance exists in the next accounting period, and obtained result is divided by the total number of days of insurance. Duration of insurance with insurance receivable is a contractual term of payment for each customer within each insurance policy on the basis of reported data on transactions and maturities that are contained therein. Unearned premium is calculated at pro rata temporis method, at each insurance policy, whereby exactly time separation between past and remaining period of the policy is done (applies to policies where the amount of insurance coverage does not change during the insurance period). Such a calculated unearned insurance premium, does not contain only carried forward premium for covering liabilities in the next accounting period, but 11

20 also includes a proportionate share of the profits arising from insurance, which is transferred to the next accounting period. The parameter used in calculating of unearned premium is only the remaining period of insurance policy, and it is not the criterion whether the premium will be sufficient for damage payments, nor possibility of computing the reserve for unexpired risks, which would ensure the adequacy of unearned premiums. The computing method does not entire comply with the requirements that as a minimum, should be met in performing the adequacy of liabilities test Outstanding Claims Calculating of claims incurred and reported but not settled by the end of the current maintenance period and claims incurred but not reported by the end of the current maintenance period is regulated by the Decision on Detailed Criteria and Manner of Calculating Outstanding Claims. For the purpose hereof, outstanding claims mean: - Claims incurred and reported but settled by the end of the current maintenance period. - Claims incurred but not reported by the end of the current maintenance period. Reported, but not settled claims are damages that are reported to the Agency, but not calculated and settled by the end of the maintenance period. Incurred but not reported claims are damages that are incurred but not reported to the Agency by the end of the maintenance period. The Agency is obliged to provide a sufficient amount of funds to cover liabilities in respect of claims incurred and reported but not settled by the end of the current maintenance period and in respect of claims incurred but not reported claims by the end of the current maintenance period. The Agency is obliged to calculate in respect of claims reported but not settled, and claims incurred but not reported, on the last day of the current maintenance period ending on 31 December. Outstanding claims incurred and reported but not settled by the end of the maintenance period is calculated with reference to individual appraisal of each claim. In case of liability insurance, outstanding claims incurred and reported at the end of previous financial year, but not settled in the current year, the outstanding claim is calculated again. Liability insurance for claims reported but not settled in respect of interim reports is determined by individual assessment of each claim. Specific amount for claims reported from 01 January to the end of the maintenance period is determined by multiplying the number of such damage with the average amount of all claims settled from January 1 until the end of the maintenance period, and not settled but outstanding claims as at 31 December of the previous year in the liability claim at 31 December of the previous year. Claims incurred but not reported are liabilities incurred by 31 December of the current year or a prior period, reported and for which the Agency has an obligation. Book of the damages is done according to the information 12

21 on resolved and reserved incurred, reported and pending claims as well as the application of recognized actuarial methods. The provisioned amount of incurred but unreported claims by interim reports is determined by multiplying the total amount of outstanding damages reported with the coefficient of participation of incurred but not reported claims in the total provisioned amount as at 31 December of the previous year. The amount of outstanding claims is determined by multiplying calculated reserve reported outstanding claims and incurred but not reported claims incurred with ratio related to the settlement of damages. The effects of changes in outstanding claims are credited or debited in the profit and loss account as appropriate through recognition of revenue and expenses in the amount of the change in status of outstanding amounts on all types of insurance rates, separately Such method is inconsistent with the prescribed requirements stipulated by the liability adequacy test. The regulations on detailed criteria and the method of calculation of risk equalization reserves are governed by the criteria and the manner of calculation of equalization reserves for risk and calculate the upper limit of liability for the formation of these reserves, the calculation amount and the increase and decrease of the reserves, the basic data for the calculation of the annual authoritative technical results and the standard deviation of the results from the average of the applicable technical result of the period. Equalization reserves are created based on annual standard deviation of the claims ratio of the claims ratio relative to the average claim ratio achieved during the period observed for each type of non-life insurance (hereinafter referred to as the standard deviation). The bases for the calculation of equalisation reserves is the net retained premium in the current year and the standard deviation Equalisation reserves are calculated as of 31 December of the current year. In each calculation, the Agency makes additional transfer in for each calculation of its equalization reserves for each type of insurance for which the annual claims ratio for the respective type of insurance in the current year is below the average claims ratio for the respective type of insurance in the period observed. Such additional transfer in calculated by multiplying the difference between the average claims ratio and the annual claims ratio by the net retained premium for that type of insurance in the current year. In case that the difference exceeds average of the applicable technical result of the period, the reserve should be reduced. Reduction is calculated by dividing annual difference with the applicable technical results in the period multiplied by technical retained premium realized in the current year for type of insurance. The recognition of liability for future payments, i.e. liability that has not appeared at the reporting date (in the event of a disaster or an equalizer), is not allowed by IFRS 4 Insurance contract. The Agency is required under the applicable regulations issued by the competent authority, to create equalization reserves. Risk equalization reserves are standard deviation amounts or if the annual claims ratio for the respective type of insurance within that period has, at least once, been higher than one. 13

22 3.14. Short-term Financial Placement Short term financial placement are financial instruments and relate to short-term loans disbursed by Agency, receivables from specific transactions, held-to-trade and to maturity securities and term cash deposits placed with commercial banks. All financial instruments are initially recognized at fair value including transaction costs (other than financial assets or financial liabilities that are measured at fair value through profit or loss), which are directly attributable costs of acquisition or issue of financial asset or liability. Financial assets and liabilities are recorded in the balance sheet of the Agency, on the date upon which the Agency becomes counterparty to the contractual provisions of a specific financial instrument. All regular purchases and sales of financial assets are recognized on the settlement date, which is the date the asset is delivered to the counterparty. Financial asset is derecognized when the Agency loses control over the contractual rights of such instruments, which occurs when the rights of use are realized, expired, abandoned or relinquished. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. The Agency classifies its financial assets in the following categories: financial assets at fair value through profit and loss, loans and receivables, securities held-to-maturity and securities available for sale. Management of the Agency determines the classification of its investments at the time of initial recognition Financial Assets at Fair Value through Profit or Loss This category includes financial assets held for trading and those designated at fair value through profit or loss. Financial assets are classified as held for trading if acquired or incurred principally for the purpose of selling or repurchasing in the near term and generating profit from short-term price fluctuations. These assets are stated at fair value in the balance sheet. Securities held for trading consist of financial derivatives and Government savings bonds. All realized or unrealized gains and losses from changes in fair value of trading securities are recognized in the income statement Loans and Receivables Loans and other placements to clients (including receivables from factoring) approved by the Agency are recorded in the balance sheet when they are disbursed. At each balance sheet date, loans and other placements are measured at amortized cost using the contractual interest rates, net of accumulated depreciation and impairment amounts written off. The effects of non-application of the effective interest rate in accordance with IAS 39 "Financial Instruments: Recognition and Measurement", in which loans are measured at amortized cost using the effective interest method are not material significant on disclosed loans to customers and financial statements taken as a whole 14

23 by the management assessment, due the agency fee which is an integral part of the effective interest rate is charged in advance and the loans have been granted on the short term. The Agency, in accordance with internal policy, assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in principal or interest payments, the probability that they will enter bankruptcy or other financial reorganization, breach of contractual obligations, worsening the competitive position of debtors, reducing the value of collateral as well as other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. According to internal policy, the Agency first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Agency identifies that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it is included in a group of financial assets with similar credit risk characteristics that are collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognized, are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (discounted by contractual interest rate). The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling that collateral. Agency has made the policies and procedures in order to obtain adequate and effective credit risk management to which Agency is exposed in its operations. The policy determines methodology and procedures for the identification, measurement and assessment of the credit risk by certain receivables and investments (products) and the method of calculation and recording of reserves for potential losses that may arise in respect of balance sheet assets. The Agency is committed to, on an individual basis (individual assessment) book impairment of balance sheet assets and off-balance sheet items. For the measurement and assessment of receivables the Agency identified five categories based on the following parameters: assessment of the financial position of the debtor in the last two operating years, timely settlement of obligations (default) and obtained collaterals. 15

24 For the classification of receivables from the internal factoring operations and calculation of the provision as stipulated by the policies and Procedures for Credit Risk Management, the Agency has identified five categories: assessment of debtor financial rating, timely payment of purchased receivables (arrears) and obtained collaterals. The basis for the calculation of potential losses and specific reserves for factoring the Agency determines for each borrower (insurer), considering the total amount of the receivable. The allowance is calculated on the base that is equal to the amount of receivable, applying the following percentages: category A - 0%, category B- 2%, category V - 15%, category G - 30% and D -100%. The Agency adopted these percentages in Investments in deposit (dinars and foreign currency) termed with banks over seven days are classified in category A, and as such are not impaired. The losses arise from impairment of loans and receivables as well as other financial assets are recorded in the income statement as an impairment of loans and receivables (Note 12). If there are no real possibilities for debt collection and when all securing instruments activated, the write-off is done in accordance with court decision and the Board of Directors. If in a subsequent period, the amount of the impairment loss decreases due to credit events that occurred after recognition of the impairment loss previously recognized, impairment loss is adjusted by changes in the allowance account and the amount of the reversal is recognized in profit or loss as a Reversal of impairment. Loans in dinars, which are hedged by exchange rate, are revalued in accordance with the contract signed for each loan. The difference between the carrying amount and the amount calculated by applying the currency clause is disclosed within the client's investments. Currency clause is an embedded derivative that is not accounted for separately from the base contract, with respect to the economic characteristics and risks of the embedded derivative are closely related to the base contract. Gains / losses arise from the revaluation applying foreign currency clause is recognized in the income statement as gains / losses on foreign currency clause Operating Liabilities Trade payables and other short-term operating liabilities are stated at nominal value Cash and cash equivalents Cash and cash equivalents include bank accounts hold with the Ministry of Finance and commercial banks and foreign exchange accounts with the National Bank of Serbia and the commercial banks. 16

25 3.16. Provisions Provisions are recognized when the Agency has a present obligation, legal or constructive, as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions for insurance of commercial risks - export are receivables recognized in the off balance sheet accounts formed in accordance with established criteria and methodology Credit Risk Management Procedure. Provisions for litigations are booked in the amount of management's best estimates in respect of the expenditure to be incurred to settle such obligations. Provision for post-employment payments are booked in accordance with independent actuarial report and disclosed at the present value of expected future payments considering the assessment of the discount rate, future salary trends, mortality and employee turnover Leasing Operating Leases - Agency as a Lessee A lease is classified as an operating lease if it does not transfer to the Agency substantially all the risks and rewards incidental ownership. Total payments made under operating leases are included in Other operating expenses when incurred in the income statement using a straight-line basis over the period of the lease (Note 8). Finance Leases Leases are classified as finance, when all significant risks and benefits incidental to ownership of the leased item are transferred to the lessee, where formal ownership may not be transferred. Assets taken under finance leases are initially recognized at the present value of the minimum lease payments. Lease liabilities are initially recognized for the present value of the minimum lease payments. At the balance sheet lease liabilities are measured at the amount initially recognized less repayments of lease obligations in respect of principal and interest expense included in the lease, or in obligations under finance lease liabilities are not liabilities for non-due interest, the repayment schedule Employee Benefits a) Employee Taxes and Contributions for Social Security In accordance with the regulations prevailing in the Republic of Serbia, the Agency is required to pay contributions to various state social security funds. These obligations involve the payments of contributions on behalf of 17

26 the employee by the employer, in an amount calculated by applying specific rates prescribed by law. The Agency is also legally obligated to withhold contributions from gross salaries to employees, and on their behalf to transfer the withheld portions directly to the appropriate government funds. Contributions on behalf of employee and employer are charged to expenses in period in which they arise. b) Retirement Benefits In accordance with the Regulation of Procedure, the Agency is obligated to pay retirement benefits in the amount equal to 3 average salaries realized in the Republic of Serbia in the month preceding the month in which the retirement is made. The entitlement to these benefits usually depends on the employee remaining in service up to retirement age and / or the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. Provision for retirement benefits is calculated by an independent actuary and are recognized in the balance sheet at present value of expected future payments. Since this is a long-term employee benefits, rather than on post employment benefits, actuarial gains and losses and past service cost are recognized in the period in which they arise Income Taxes a) Current Income Tax Current income tax represents an amount that is calculated and paid in accordance with the provisions of the Law on Corporate Income Tax of the Republic of Serbia. Income tax is payable at the rate of 15% on the tax base reported in the corporate income tax return, and can be reduced by any applicable tax credits. The taxable base includes taxable profit, determined by adjusting the taxpayer s result (profit or loss) reported in the income statements in the manner prescribed by the Law. Tax regulations in the Republic of Serbia do not allow for any tax losses of the current period to be used to recover taxes paid within a specific carry back period. Losses of the current period may be transferred to the account of profit determined in the annual tax return for future accounting periods, but not longer than 5 ensuing years. b) Deferred Income Tax Deferred income tax is calculated, using the liability method, on all temporary differences at the balance sheet date between the carrying amount of assets and liabilities in the financial statements and their tax bases. Currently enacted tax rates at the balance sheet date are used to determine the amount of deferred taxes. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits, to the extent that it is probable taxable profits will be available against which the deferred tax asset can be utilized. 18

27 3.20. Fair Value It is a policy of the Agency to disclose the fair value information of those components of assets and liabilities for which published or quoted market prices are available, and of those for which the fair value may be materially different than their recorded amount. In the Republic of Serbia, sufficient market experience, stability and liquidity do not exist for the purchase and sale of receivables and other financial assets or liabilities, for which published market prices are presently not available. As a result, fair value cannot reliably be determined in the absence of an active market. The management assesses its overall risk exposure, and in instances in which it estimates that the value of assets stated in its books may not have been realized, it recognizes a provision. In Agency s opinion, the amounts in these financial statements reflect the value that is the most valid and useful reporting Earnings per Share Agency calculates and discloses basic and diluted earnings per share. Basic earnings per share is calculated by dividing net profit for the accounting period by the weighted average number of ordinary shares outstanding (Note 19). 4. RISK MANAGEMENT Owing to the nature of its activities, the Agency is in different levels exposed to the following major risks: market risk (foreign currency risk and interest rate risk), liquidity risk and credit risk. Risk management is focused on minimizing negative effects on the financial position and operations of the Agency under unpredictable financial markets Market Risk (a) Foreign Currency Risk Foreign currency risk is the risk of negative effects on the Agency s financial result and equity due to changes in foreign exchange rates. The Agency is exposed to the foreign currency risk originated from performed transactions locally and abroad, and from various currency exposures, primarily in EUR. The Agency has accounts receivable and payable denominated in foreign currency, and hence the compliance of inflows and outflows in the same currency is maximized in order to protect the agency against changes in exchange rates. Otherwise, the Agency has not used hedge against foreign exchange risk with respect to the existing regulations and underdeveloped financial markets. 19

28 The Agency s exposure to foreign exchange risk as of 31 December 2013 is shown in the table below. The assets and liabilities disclosed at their carrying amounts are included in the table: EUR USD + GBP Total in foreign currency Total in RSD Total ASSETS Non-Current Assets 6,970 6,970 Intangible assets 1,276 1,276 Property, plant and equipment 5,636 5,636 Property, plant and equipment 5,636 5,636 Long term financial investments Equity investments Current Assets 6,200,078 32,106 6,232, ,715 7,097,899 Inventories Receivables, placements and cash 6,200,078 32,106 6,232, ,532 7,097,716 Accounts receivable 577, , , ,626 Receivable for overpaid income tax ,821 14,821 Short term financial investments 5,208,954 31,336 5,240, ,136 5,384,426 Cash and cash equivalents 396, , , ,433 Value added tax, prepayments and accrued income 17,114-17,114 14,296 31,410 Deferred tax assets Operating assets 6,200,078 32,106 6,232, ,824 7,105,008 Loss over the capital value Total Assets 6,200,078 32,106 6,232, ,824 7,105,008 20

29 EUR USD Total in foreign currency Total in RSD Total EQUITY AND LIABILITIES Capital 6,410,631 6,410,631 Share capital 5,512,400 5,512,400 Reserves 760, ,474 Retained Earnings 137, ,757 Provision and Liabilities 197, , , ,377 Long term provision - 191, ,411 Long term liabilities - 250, ,000 Long term loans Other long term liabilities - 250, ,000 Short term liabilities 197, ,564 55, ,966 Short term financial liabilities Liabilities from business operations 197, ,564 38, ,508 Value added tax, other public liabilities and accruals and deferred income ,374 16,374 Other short term liabilities Income tax liabilities ,371 33,371 Deferred tax liabilities Total Equity and Liabilities 197, ,564 6,907,444 7,105,008 Net currency figure as of 31 December ,002,514 32,106 6,034,620 (6,034,620) - b) Interest Rate Risk Interest rate risk is the risk of the occurrence of adverse effects on the Agency s financial result and equity due to changes in market interest rates. The Agency is exposed to interest rate risk in case of maturity mismatch of interest-bearing assets and liabilities with fixed interest rates and in case of date mismatch of interest-bearing assets and liabilities with variable interest rates. The interest rate risk arises from the possibility that changes in interest rates affect the future profitability of market values of financial instruments. The Agency is exposed to interest rate risk associated with the effects of changes in market interest rates on its financial position and cash flows, as a result of maturity mismatches of assets and liabilities with contractual fixed interest rate. The Agency is exposed to various risks associated which affects its financial position and cash flows through changes in the level of market interest rates. According to the established Policies, the Agency is obliged to apply pre-determined interest rates in line with its core activity, to support and encourage local exporters. Executive Board of the Agency that is in charge of organization and risk management, the rules and procedures of risk management are determined. Risk management policies define primary principles and objectives of 21

30 management of individual types of risks to which the Agency is exposed in its operations, as well as risk management system. Management in cooperation with the organizational units where the transactions are identified, measure, monitor and control the risks to which the Agency is exposed. The following table shows the Reprising Gap report, i.e. the Agency's exposure to the interest rate risk as at 31 December The table includes the Agency s assets and liabilities at their carrying amounts, categorized by the earlier of contractual re-pricing or maturity date. Up to 1 month From 1 to 3 months From 3 to 12 months Over a year Noninterestbearing assets Total ASSETS Non-Current Assets ,970 6,970 Intangible assets 1,276 1,276 Property, plant and equipment ,636 5,636 Property, plant and equipment ,636 5,636 Long term financial investments Equity investments Current Assets 3,436,565 1,598,260 1,033,127-1,029,947 7,097,899 Inventories Receivables, placements and cash 3,436,565 1,598,260 1,033,127-1,029,764 7,097,716 Accounts receivable - 575, , ,626 Receivable for overpaid income tax ,821 - Short term financial investments 3,292,365 1,022,309 1,033,127-36,625 5,384,426 Cash and cash equivalents 144, , ,433 Value added tax, prepayments and accrued income ,410 31,410 Deferred tax assets Operating assets 3,436,565 1,598,260 1,033,127-1,037,056 7,105,008 Loss over the capital value Total Assets 3,436,565 1,598,260 1,033,127-1,037,056 7,105,008 22

31 Up to 1 month From 1 to 3 months From 3 to 12 months Over a year Noninterestbearing liabilities Total EQUITY AND LIABILITIES Capital ,410,631 6,410,631 Share capital 5,512,400 5,512,400 Reserves 760, ,474 Retained Earnings 137, ,757 Provision and Liabilities , ,377 Long term provision 191, ,411 Long term liabilities , ,000 Long term loans Other long term liabilities 250, ,000 Short term liabilities , ,966 Short term financial liabilities Liabilities from business operations , ,508 Value added tax, other public liabilities and accruals and deferred income ,374 16,374 Other short term liabilities Income tax liabilities Deferred tax liabilities Total Equity and Liabilities ,105,008 7,105,008 Net currency figure as of 31 December ,757,847 1,598,260 1,033,127 - (6,067,957) Liquidity Risk Liquidity risk is the risk of adverse effect on the financial results due the Agency would not be able to discharge its liabilities when they fall due. Liquidity management is centralized in the Agency. The Agency manages with its assets and liabilities in a way that ensures fulfillments of its liabilities properly and on time. Providing permanent liquidity, the Agency monitors liquidity through a review of expected cash inflows and outflows in the future, as well as through defined liquidity indicators. The Agency does not use financial derivatives. Liquidity and solvency risks management is provided through regular monitoring of the maturities of assets and investments, as well as liabilities incurred. 23

32 The Agency has not established policies and procedures for liquidity management. The liquidity is followed through various produced reports on assets quality: daily report on cash, daily report on loans and receivables, report on planned outflows and inflows for certain types of receivables and investments prepared weekly, monthly and quarterly Credit Risk Credit risk is the risk that a contractual party will not be able to fulfill the related contractual obligation in a timely manner, causing financial loss for the other party. The Agency regularly monitors the risks and investigates them at least quarterly or more often, if it is necessary. The Agency manages credit risk through regular analysis of the ability of customers and potential customers to meet their repayment obligations (interest, fees and other receivables), as well as through providing allowance for impairment of receivables. Through its internal regulations, policies and procedures, the Agency implements an adequate system of credit risk management and reduces credit risk to an acceptable level. Credit risk is strictly conditioned by the creditworthiness of each customer, his settlement of obligations, and by quality of collaterals placed. The risk is identified, evaluated and monitored according to internal credit risk management and in line with decisions governing the classification of balance sheet and off-balance sheet items. Risks allied to credit risk The Agency is involved in insurance activities from commercial risks and issues guarantees to its customers, based on which the Agency has the potential liability to make payments on behalf of third parties. In this way, the Agency is exposed to risks related to credit risk, which can be mitigated by the same control processes and procedures used for credit risk. Concentration Risk The Agency is involved in various allocation of placements and the loss risk of can occur due to an excessive volume of placements in a particular type: loans, international and internal factoring. Concentration risk is the risk of incurring losses due to an excessive volume of placements to a certain group of customers / debtors. Concentration occurs when a significant number of customers belong to a similar industry or the same geographic territory, or have similar economic characteristics that may influence the settlement of their contractual obligations in the event of changes in economic, political or other conditions that affect them equally. In order to provide more safety and stability loan portfolio and to minimize the risk of a credit transaction, the security measures are established over the definition of the exposure level and credit limits. The Agency is exposed to credit risk to a limited extent. Taking certain measures and activities the credit risk is managed. In case of default liability payments, the Agency uses the following measures: activation of collaterals (bank guarantees, promissory notes, pledge), suits, out-of-court settlements and others. 24

33 In addition, the Agency has no significant concentration of credit risk for accounts receivable, due the majority of customers are non-related parties with individually small amounts. a) Maximum Exposure to Credit Risk Placed short term domestic loans 6,410,367 6,977,781 Short term receivables from domestic factoring 191, ,798 Receivable from discount bonds 123, ,472 Receivable from termed foreign currency deposits with foreign banks (c) 31,336 32,485 Short term dinars deposits (b) 144, ,600 Receivables from damages (Note 17) 586, ,591 Receivables from damages - reinsurance Receivables from foreign currency deposits (a) 2,201,092 1,278,951 Total 9,688,669 9,430,725 Receivables from specific operations factoring 1,154,698 1,376,833 Interests 275, ,972 Insurance premiums 13,833 9,468 Other 17,950 25,393 1,461,883 1,584,666 Total Balance Exposure 11,150,553 11,015,391 Insurance of commercial risk 8,425,339 7,941,404 Issued guarantees 9,945, ,102 Total Off-Balance Exposure 18,370,568 8,530,506 Gross Exposure as of 31 December 29,521,121 19,545,897 The maximum credit risk exposure (risk balance and off-balance sheet items, gross, classified) as of 31 December 2013 and 2012, respectively, before considering collaterals and other credit risk protection meanings, refers to the Republic of Serbia. 25

34 Exposure to Credit Risk The most significant financial assets, before considering collaterals and other credit risk protection meanings, may be analyzed by geographical sectors in the Republic of Serbia. The portfolio structure as of 31 December 2013 by geographical sectors is shown in the table below: Region Number of loans In EUR In RSD 000 Percentage Beograd 46 19,038,198 2,182,579 34% Južno Bački 17 6,260, ,771 11% Moravički 14 3,684, ,348 7% Zlatiborski 13 6,945, ,298 12% Mačvanski 8 1,470, ,524 3% Rasinski 7 1,720, ,184 3% Severno Banatski 7 2,019, ,493 4% Sremski 5 1,188, ,237 2% Other 39 13,589,536 1,557,933 24% Total ,916,343 6,410, % 26

35 The Agency s financial assets, before considering collaterals and other credit risk protection meanings, may be analyzed by industrial sectors in the Republic of Serbia and it is shown in the table below: Industry Sector Number of loans In EUR In RSD 000 Percentage Processing 65 25,467,800 2,919,682 46% Food 62 19,028,133 2,181,425 34% Wood 5 383,000 43,908 1% Machinery 5 1,250, ,303 2% Textile 5 1,080, ,814 2% Chemical 4 2,068, ,161 3% Metal 4 3,849, ,371 7% Other 6 2,788, ,703 5% Total ,916,343 6,410, % The type and level of the collateral required depends on an assessment of credit risk evaluation of each customer. Terms of collateral with respect to each placement are determined by the analysis of the client s solvency, type of exposure to the credit risk, placement s maturity, as well as the amount itself. Contractual authorization, as well as bills of exchange is provided by customers as standard collaterals, while depending on the assessment, additional collaterals may be required, such as real estate mortgage, movable property pledges, partial or entire coverage of placements with deposits, guarantees issued by another bank or legal entity. In case of real estate 27

36 mortgages or movable property pledges, the agency always obtains a valuation of the assets, as carried out by a certified appraiser, in order to minimize potential risk. The Agency manages with the quality of financial assets using internal placements classification. The following table shows credit quality by types of collateral from the balance sheet, based on classification system of the Agency: Collaterals Number of loans In EUR In RSD 000 Percentage bills of exchange 13 6,693, ,309 12% promissory notes 43 11,863,682 1,360,077 21% pledges 61 21,195,797 2,429,931 38% mortgages 30 12,733,781 1,459,827 23% guarantees 9 3,430, ,223 6% Total ,916,343 6,410, % 28

37 The following table shows placements disbursed considering the export country: Export country Number of loans In EUR In RSD 000 Percentage Germany 27 9,096,784 1,042,874 16% Bosnia 18 7,844, ,324 14% Russia 16 5,345, ,787 10% Montenegro 14 4,088, ,697 7% Italy 14 2,347, ,175 4% Cyprus 8 6,492, ,279 12% Holland 5 1,276, ,319 2% Romania 5 1,895, ,247 3% Slovenia 5 1,903, ,213 3% FYR Macedonia 65, ,907 1% Other 40 15,057,572 1,726,231 28% Total ,916,343 6,410, % 29