CONSOLIDATED FINANCIAL STATEMENTS DRAWN UP ACCORDING TO THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) December 31, 2012

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS DRAWN UP ACCORDING TO THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) December 31,

2 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ON December 31, 2012 (All amounts are expressed in RON, unless otherwise specified) Note December 31, 2010 December 31, 2011 December 31, 2012 Assets Fixed assets Tangible assets 5 218,238, ,784, ,677,290 Intangible assets 6 1,282,446 1,254,610 5,567,882 Financial assets 7 61,125,194 61,224,218 61,245,105 Goodwill 6-2,241,945 2,241,945 Total fixed assets 280,646, ,504, ,732,222 Current assets Inventories 8 7,747,509 12,450,853 11,763,385 Trade receivables and other receivables 9 87,583, ,656, ,253,668 Cash and cash equivalents 10 6,755,923 20,503,096 26,193,219 Current income tax - asset 505, Total current assets 102,592, ,610, ,210,272 Total assets 383,239, ,115, ,942,494 Equity ownership and debts Equity ownership Registered share capital 11 81,861,336 81,861,336 81,861,336 Other reserves 27,608,894 27,608,894 27,608,894 Legal reserves 8,816,568 10,742,235 11,869,536 Revaluation reserves 79,833,303 79,141,116 78,446,843 Profit or loss carried forward 90,181, ,441, ,309,575 Foreign currency translation reserve - - 1,776 Total equity ownership attributable to the owners of the parent company 288,301, ,795, ,097,960 2

3 Interests without control 2,532,189 1,866, ,214 Total equity ownership 290,833, ,661, ,974,174 Long-term liabilities Long-term loans 18 4,822,845 11,815,668 18,764,009 Long-term liabilities to suppliers ,572 2,111,468 9,369,503 Deferred tax liabilities 13 13,084,573 11,950,697 10,898,137 Provisions ,616 7,670,616 13,254,125 Total long-term liabilities 19,407,606 33,548,449 52,285,774 Current liabilities Trade payables and other debts 14 43,818,577 86,213,313 45,603,666 Other taxes and social security costs 15 6,286,179 9,265,601 10,558,512 Current income tax - 1,576,862 1,054,452 Short term bank loans 18 21,424,000 8,639,400 8,857,400 Short term portion of long term liabilities ,950 6,307,662 10,731,283 Deferred income 567, , , 233 Total current liabilities 72,998, ,905,025 77,682,546 Total equity ownership and liabilities 383,239, ,115, ,942,494 These consolidated financial statements, together with the explanatory notes from page 9 to page 56, were approved by the Management of the Company on July 08, 2012 and signed in its name by: General Manager Gehrig Shultz Illegible signature Chief Financial Officer Mihai Gubandru Illegible signature Round stamp: KPMG July 8, 2013 Initialised for identification 3

4 CONSOLIDATED STATEMENT OF THE GLOBAL RESULT ON December 31, 2012 (All amounts are expressed in RON, unless otherwise specified) Note December 31, 2011 December 31, 2012 Continuous activities Operating revenues Revenues from the basic activity of the Group ,848, ,225,355 Other revenues 26 5,480,893 20,930,442 Total operating revenues 324,328, ,155,797 Operating expenses Raw materials (9,068,487) (12,448,032) Materials and consumables (34,640,813) (37,251,647) Repairs and maintenance (2,102,851) (1,506,907) Salaries and other emoluments 19 (85,817,081) (101,465,900) Depreciation and impairment of value (30,944,511) (33,483,440) Other operating expenses 27 (118,694,699) (133,474,776) Total operating expenses (281,268,442) (319,630,702) Operating profit/loss 43,060,529 24,525,095 Financial income 2,567,364 1,536,520 Financial expenses (5,369,581) (6,628,398) Financial result 28 (2,802,217) (5,091,878) Profit before tax 40,258,312 19,433,217 Current tax (7,742,246) (5,670,760) Deferred tax 1,143,200 1,052,560 Profit or loss of the reporting period 33,659,266 14,815,017 Result attributable to: the owners of the parent company 34,324,562 15,805,696 interests without control (665,296) (990,679) Profit or loss of the reporting period 33,659,266 14,815,017 Earnings per shares: Basic earnings per share Profit / (Loss) of the period 33,659,266 14,815,017 Other elements of the global result 4

5 Exchange differences arising from the translation of foreign operations - 1,776 Reserves 169,220 (2,363) Other elements of the global result, before taxation 169,220 (587) Total global result per year 33,828,486 14,814,430 Total global result attributable to: the owners of the parent company 34,493,782 15,805,109 non-controllable interests (665,296) (990,679) CONSOLIDATED STATEMENT OF CASH FLOWS on December 31, 2012 (All amounts are expressed in RON, unless otherwise specified) December 31, 2011 December 31, 2012 Net profit 33,659,266 14,815,017 Adjustments for non-cash items: Depreciation of non-current assets 30,902,620 33,483,440 Profit / (Loss) on disposal of fixed assets (160,271) (180,671) Income from reversal of provisions for depreciation of current assets (291,254) 4,517,953 Expense / (income) concerning provisions for risks and expenses 7,032,104 5,204,696 Income tax expense 6,599,046 4,618,200 Net cost of financing 2,610,904 1,735,369 Interest expense 3,617,092 2,983,466 Interest income (1,006,188) (1,248,097) Operating profit before working capital changes 80,352,415 64,194,003 Changes in net working capital in: Inventories (5,803,374) 687,468 Trade receivables and other receivables (27,713,445) 25,496,820 Trade payables and other debts 48,209,829 (52,004,453) Other debts (provisions) 8,367,612 5,583,509 Changes in the working capital 23,060,622 (20,236,656) Interests paid (3,617,092) (3,005,000) 5

6 Corporate tax paid (5,678,016) (6,174,734) Net cash flow from operating activities 94,117,929 34,777,613 Net cash flow from investing activities Purchase of fixed assets (64,661,760) (18,791,865) Deferred income (10,652) (24,954) Interest received 1,006,188 1,248,097 Proceeds from sale of tangible assets 170, ,087 Acquisition of subsidiaries net of cash acquired (12,008,677) (102,954) Loans given to related parties - (23,371,554) Loans collected from related parties - 8,500,000 Net cash flow used in investing activities (75,503,978) (32,284,143) Cash flow from financial activity Dividends paid - (1,724,932) Drawings on the long term loans 12,900,203 20,760,401 Reimbursement of long term loans - (9,422,828) Lease payments (4,982,381) (6,633,990) Net cash flow from financial activity 7,917,822 2,978,652 Cash and cash equivalents at the beginning of the year (14,668,077) 11,863,696 Net increase in cash and cash equivalents 26,531,773 5,472,123 Cash and cash equivalents at the end of the year 11,863,696 17,335,819 6

7 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY for the financial year ended on December 31, 2012 (All amounts are expressed in RON, unless otherwise specified) Registered share capital Legal reserves Revaluation reserves Other reserves Translation reserves Profit or loss carried forward Total equity ownership attributable to the owners of the parent company Noncontrolling interests Total equity ownership Balance on January 81,861,336 8,816,568 79,833,303 27,608,894-90,181, ,301,234 2,532, ,833,423 1, 2011 Profit or loss of the ,324,562 34,324,562 (665,296) 33,659,266 period Reserves - - (692,187) , , ,220 Formation of legal - 1,925, (1,925,667) reserves Balance on 81,861,336 10,742,235 79,141,116 27,608, ,441, ,795,016 1,866, ,661,909 December 31, 2011 Balance on January 81,861,336 10,742,235 79,141,116 27,608, ,441, ,795,016 1,866, ,661,909 1, 2012 Profit or loss of the ,805,696 15,805,696 (990,679) 14,815,017 period Reserves - - (694,273) ,910 (2,363) - (2,363) Translation reserves ,776-1,776-1,776 Formation of legal - 1,127, (1,127,301) reserves Dividends (4,502,165) (4,502,165) - (4,502,165) Balance on December 31, ,861,336 11,869,536 78,446,843 27,608,894 1, ,309, ,097, , ,974,174 7

8 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On December 31, 2012 (All amounts are expressed in RON, unless otherwise specified) 1. Reporting entity Prospectiuni S.A. ( The Company ) S.C. PROSPECTIUNI S.A. was established in 1991 under Romanian Government Decision 193/March 22, 1991; it has been a legal person with private capital since Its main shareholder is S.C. Tender S.A. Timisoara that holds 55.71% of the registered capital, followed by SIF 4 Muntenia with % and other shareholders with 32.46%. The address of the Company is located in Bucharest, Caransebes Street, no. 1, district 1. The Company is registered with the Trade Register under number J40/4072/1991. The object of activity of the Company is represented by the provision of services in the field of seismic prospecting for soil and subsoil geological research in view of highlighting the accumulation de hydrocarbons and other useful minerals. The main market is Romania. The consolidated financial statements on and for the financial year ended on December 31, 2012 refer to the Company and its subsidiaries (CODECS S.A. 51%, Econsa Grup S.A %, Prospectiuni - Divizia Paza si Protectie S.R.L. 100% and Prospect Geoservices SARL 100%, registered in Morocco in 2012). CODECS S.A. ( Subsidiary ) CODECS S.A. (Centre for Open Distance Education for a Civil Society) is a Romanian company established in Its registered office is located in Bucharest, Agricultori Street, no , district 2. The Company is registered with the Trade Register under number J40/25535/1993. Its main object of activity is training in the field of management and marketing by means of distance education system, CODECS S.A. holding exclusive license for Romania from The Open University Business School of Great Britain. The basic activity is organizing courses of the Open University Business School in Romania up to MBA level (Master in Business Administration). Other important activities of the subsidiary are those related to: - Organizing short training sessions in business at the request of interested companies or continuous improvement programs for managers in open system; - Specialized advice in human resource management, financial assistance, production management; - Editing and publication of books in the field of management and marketing, the most important in the world literature. Econsa Grup S.A. ( Subsidiary ) Econsa Grup S.A. is a Romanian company based in Bucharest, Caransebes Street, no. 1, district 1, registered with The Trade Register of Bucharest under number J40/14852/2011, whose object of activity is the extraction of gravel and sand, as well as exploitation of stone quarries. 8

9 In July 2011, Prospectiuni S.A. acquired - after compensation between receivables and liabilities of Prospectiuni S.A. and Tender S.A, with compensation of the remaining difference in the amount of 659,076 lei in August 2011 a number of 1,691,363 shares totaling % of the registered capital of Econsa Grup S.A., to a total value of 12,008,677 lei, which gives control over this company. We mention that this transaction was made based on the report of an individual valuer, Elf Expert, taking into consideration the market price. Prospectiuni - Divizia Paza si Protectie S.R.L. ( Subsidiary ) Prospectiuni Divizia Paza si Protectie S.R.L. is a Romanian company based in Bucharest, Caransebes Street, number 1, district 1, registered with the Trade Register Office of the Municipality of Bucharest under number J40/21319/2005, whose main object of activity is the investigation and protection of property and individuals. Prospect Geoservices SARL ( Subsidiary ) Prospect Geoservices SARL is a subsidiary registered in Morocco; its sole shareholder is Prospectiuni S.A. The main activity of the Company is the provision of services in the field of seismic prospecting for soil and subsoil geological research in view of highlighting the accumulation de hydrocarbons and other useful minerals in Morocco and neighboring countries. Further on, Prospectiuni S.A., Codecs S.A., Econsa Grup S.A., Prospectiuni - Divizia Paza si Protectie S.R.L. and Prospect Geoservices SARL will be referred to as The Group. 2. Basis of preparation (a) Declaration of conformity The consolidated financial statements have been drawn up according to the International Financial Reporting Standards ( FRS"). This is the first set of consolidated financial statements of the Group drawn up according to IFRS and IFRS 1 First-time Adoption of the International Financial Reporting Standards. The International Financial Reporting Standards (IFRS) include standards and interpretations approved by the International Accounting Standards Board ( IASB ), including International Accounting Standards ("IAS") and interpretations issued by the International Financial Reporting Interpretations Committee ( IFRIC ). The rules for the First-time Adoption of IFRS are presented in IFRS 1 First-time Adoption of the International Financial Reporting Standards. IFRS 1 requires that companies use the same accounting policies when drawing up the opening statement of financial position and for all periods presented as comparative information in the first complete set of financial statements drawn up according to IFRS. The date of the Group s transition to IFRS is January 1, The Group did not prepare in the past financial statements according to IFRS. The Group makes the accounting records in Romanian lei ("Lei") and draws up statutory financial statements according to the Romanian Accounting Standards ( RAS ). 9

10 The attached consolidated financial statements are based upon the statutory accounting entries of the Group, adjusted and reclassified for a fair presentation according to IFRS. Material adjustments to the statutory financial statements refer to: grouping a number of accounts in positions of the more comprehensive statement of financial position; recording some additional adjustments based on the analyses made by the Group on January 1, 2011; recording specific consolidation adjustments; preparation of notes to the consolidated financial statements as well as fulfilling the other requirements of presentation according to IFRS. These consolidated financial statements have been drawn up according to the historical cost convention excepting those listed below in the accounting policies. (b) Basis of evaluation The consolidated financial statements are drawn up at historical cost, excepting land and buildings, presented according to the revalued amount, precious metals valued at quotation available on the date of closing the financial statements on London Platinum & Paladium Market. The registered share capital and reserves were adjusted according to the International Accounting Standard ( IAS ) 29 - Financial Reporting in Hyperinflationary Economies until December 31, (c) Going concern The consolidated financial statements have been drawn up according to the going concern principle. (d) Functional and presentation currency The consolidated financial statements are presented in Romanian LEI ( LEI or RON ) that represent the functional currency of the Group. (e) Use of estimates and judgments The preparation of the consolidated financial statements according to IFRS requires the management to use some judgments, estimates and assumptions that affect the application of accounting policies, as well as the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and assumptions are reviewed periodically. Revisions of accounting estimates are recognised in the period in which the estimate is revised and in subsequent affected periods. The most significant estimates and decisions that have an impact on the amounts recognised in the consolidated financial statements are: estimates of the economic life of tangible assets (for example, equipment), specification of the recoverable amount of tangible assets involving a lease agreement, estimating the provision for doubtful debts, for depreciation of old stocks and inactive inventory, provisions for risks and charges, as well as estimates in determining the fair value of financial assets. 10

11 3. Accounting policies The accounting policies detailed below have been consistently applied by the entities of the Group for all periods presented in the consolidated financial statements and in preparing the opening statement of financial position on January 1, 2011 in order to ensure transition to IFRS. (a) Basis of consolidation Subsidiary is an entity controlled by another entity, known as the parent company, as defined by IAS 27 Consolidated and Separate Financial Statements". In accordance with IAS 27, control exists when the parent company owns more than half of the voting rights of an entity, except for the case when, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control is the power to govern the financial and operating policies of an entity in order to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date of taking over control until the date control ceases. Intra-group balances and transactions, as well as any profit or unrealized loss resulted from intra-group transactions are removed when drawing up the consolidated financial statements. The Group acknowledges goodwill on the date of acquisition as follows: - the fair value of the consideration transferred, including - recognized value of non-controlling interests in the purchased Company, including - if the merger of enterprises is achieved in stages, fair value of the equity interests previously existing in the purchased Company, without the net amount recognized (usually, fair value) of the identified assets and liabilities assumed. The Group decides for each transaction whether non-controlling interests should be presented at fair value or proportionally with the share of net assets identifiable on the date of acquisition. Subsidiaries considered immaterial are registered at cost and they have not been consolidated in these financial statements. Transaction costs, excepting those related to the issuance of equity securities or of indebtedness titles, occurring after the acquisition of a company, are recorded as expense in the profit and loss account, as they arise. (b) Segment Reporting An operating segment is a component of the Group that engages in business activities and from which revenues may be earned and expenses may be incurred including revenues and expenses related to the transactions with any other component of the Group. Inter-segment transactions are carried out in normal market conditions. All operating results of the operating segments are reviewed regularly by the Management of the Group in order to make decisions with respect to the resources to be allocated to the segment and its performance evaluation. The results of the segments to be reported to the management include items directly attributable to a segment, as well as those that can be allocated on a reasonable basis. Performance is measured depending on segment earnings before interest, taxes and depreciation, as included in the internal management reports that are reviewed by the management. 11

12 Capital expenditure of the segments represents total cost borne during the period of acquiring tangible assets and intangible assets, excepting goodwill. The segment is a distinct component of the Group that is engaged either in providing products or related services (production segment) or in providing products and services in a different economic environment (geographical segment) which is subject to risks and benefits that are different from those of other segments. The Group carries out its operations in several locations in Romania and abroad, dealing both with prospecting activities and training, extraction and investigation and protection of property and individuals. In terms of geographical division, the Management of the Group considers the operations in their entirety as one segment. From the point of view of the segment of production, the Management of the Group identified four main business segments: Provision of geological and geophysical prospecting services; Provision of training services; Extraction and sale of various sorts of stone (basalt), sand, gravel; Provision of services of investigation and protection of property and individuals. (c) Foreign currency transactions Foreign currency transactions are expressed in LEI by applying the exchange rate of the transaction date. Monetary assets and liabilities denominated in foreign currencies at the end of the year are expressed in LEI at the exchange rate of that date. Foreign exchange gain or losses, realized or unrealized, are registered in the profit and loss account of the respective year. The main exchange rates on December 31, 2012 are as follows: Currency December 31, EUR USD XAF MAD For XAF and MAD there is no direct parity with RON and Euro parity was used to determine the exchange rate. (d) Financial instruments Non-derivative financial receivables Financial assets mainly include cash and cash equivalents, customers and similar accounts, investments. The acknowledgement and measurement of these items are presented in the respective accounting policies. Financial instruments are classified as receivables from loans granted, liabilities or equity ownership in conformity with the content of the contractual arrangement. Interest, dividends, gains and losses associated with a financial instrument classified as a liability are reported as expense or income as they arise. Payments to the holders of financial instruments classified in equity are registered direct in equity ownership. The Group initially acknowledges the receivables and deposits on the date they are initiated. All other financial assets (including assets designated at fair value through the profit and loss account) are initially recognised on the trade date when the Group becomes part of the contractual conditions of the instrument. 12

13 The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire or when the rights to receive the contractual cash flows of the financial asset through a transaction in which the risks and benefits of ownership of the financial asset are transferred significantly are transferred. Any interest in transferred financial assets that is created or retained by the Group is separately recognized as an asset or liability. The assets and financial debts are compensated and in the statement of financial position net value is presented only when the Group has the legal right to compensate the amounts and intends either to settle them on a net basis, or to realize the asset and simultaneously to settle the obligation. The Group has the following non-derivative financial assets: financial assets at fair value through the profit and loss account, financial assets held to maturity, receivables and financial assets available for sale. (i) Financial assets at fair value through the profit and loss account A financial asset is considered to be at fair value through the profit and loss account if it is classified as held for trading or is designated as such on initial recognition. Financial assets are considered to be evaluated at fair value through the profit and loss account if the Group manages these investments and decides to buy or sell based on fair value according to the strategy of investment and of risk management described in the Group s documents. On initial recognition, attributable transaction costs are recognised in the profit and loss account when incurred. Financial assets at fair value through the profit and loss account are evaluated at their fair value, and subsequent amendments are recognised in profit and loss account. (ii) Trade receivables Customers and similar accounts include issued invoices at face value, unpaid on the reporting date, and estimated claims for services rendered, which are initially recognized at fair value plus transaction costs directly attributable. Afterwards, customers and similar accounts are registered at depreciated cost excepting the impairment losses. The depreciated cost approximates nominal value. Ultimate losses may vary from current estimates. Due to the inherent lack of information related to the financial position of the customers, the estimates concerning probable losses are uncertain. However, the Management of the Group made the best estimate of losses and considers that this estimate is reasonable under given the circumstances. Impairment is analysed on the date of drawing up the financial statements in order to determine if they are correctly estimated. The adjustment of impairment may be reversed if change in existing conditions when determining the recoverable amount occurred. Reversal of impairment adjustments can only be made so that the net asset value does not exceed its net historical book value. (iii) Cash and cash equivalents Cash and its equivalents include petty cash, current bank accounts, bank deposits with a maturity of 3 months at the most and other cash equivalents. Foreign currency cash and cash equivalents are revaluated at the exchange rates at the end of the period. Overdrafts, which are payable on demand and form an integral part of the management of the Group's money funds, as well as the lines of credit are considered part of cash and its equivalents for the purpose of cash flow statement. Overdrafts are presented as loans in current liabilities section. (iv) Financial assets available for sale Financial assets available for sale are non-derivative financial assets designated as available for sale and which are not classified in any of the other categories of financial assets. The investments of the Group in equity ownership 13

14 instruments and certain debt instruments are classified as financial assets available for sale. After initial recognition, they are evaluated at fair value and subsequent modifications, other than impairment losses, are recognized in other elements of the global result and presented within equity, in the reserve concerning fair value. When an investment is derecognized, accumulated gain or loss in other elements of the comprehensive result is transferred to the profit and loss account. Non-derivative financial liabilities The Group initially recognizes liability instruments issued and subordinated liabilities on the date they are initiated. All other liabilities (including liabilities designated at fair value through the profit and loss account) are initially recognised on the trade date when the Group becomes part of the contractual conditions of the instrument. The Group derecognizes a financial liability when contractual obligations are fulfilled, canceled or they fall due. The assets and financial liabilities are compensated and their net value is presented in the statement of financial position only when the Group has the legal right to compensate the amounts and it intends either to settle them on a net basis, or to realize the asset and simultaneously settle the obligation. The Group has the following non-derivative financial liabilities: financial liabilities, loans, overdraft, trade payables and other debts. Such financial liabilities are initially recognised at fair value plus any directly attributable transaction costs. After initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. i) Trade payables Accounts payable and other debts are initially recognised at fair value plus directly attributable transaction costs. Afterwards, they are recognised at depreciated cost excepting the impairment losses using the effective interest method. The depreciated cost approximates face value. Accounts payable and other debts, registered at depreciated cost, include the exchange value of the invoices issued by suppliers of products, works executed and services provided. ii) Interest-bearing loans Loans are initially recognised at fair value, without transaction costs. After initial recognition, interest-bearing loans are registered at amortized cost, and any difference between cost and the redemption value is recognised in the statement of comprehensive income during loan based on an effective interest rate. Net financing costs include interest on loans calculated using the effective interest rate method, excepting expenses capitalized in assets which can be capitalized, interest receivable on the funds invested, dividend income, favorable and unfavorable foreign exchange differences, risk fees and commissions. Interest income is recognised in the profit and loss account of the year of occurrence, using the effective interest rate method. Dividend income is recognised in the profit and loss account when Group's right to receive dividends is recognized. Registered share capital Ordinary shares 14

15 Ordinary shares are classified as part of equity. The additional costs directly attributable to the issue of ordinary shares and stock options are recognised as a reduction of equity to the net value of the tax effects. Registered capital redemption (treasury shares) When the registered share capital recognised as part of equity is redeemed, the amount paid, which includes directly attributable costs net of tax effects, is recognised as a reduction of equity. The shares repurchased are classified as treasury shares and they are presented as a reduction of equity. When treasury shares are subsequently sold or reissued, the amount collected is recognised as an increase in equity and the surplus or deficit resulting from the transaction is transferred to / from retained earnings. (e) Tangible assets Tangible assets are initially registered at the acquisition cost. Tangible assets have been included in the consolidated financial statements at the cost of acquisition, without the groups Land and land improvements and Buildings and constructions, less accumulated depreciation and impairment adjustments or impairment. The latest revaluation of Land and land improvements and Buildings and constructions of the Group took place on December 31, 2010 and it was carried out by the independent valuer ELF EXPERT SRL, member of ANEVAR (National Association of Romanian Valuers), based on The International Valuation Standards. The difference between the carrying amount and fair value established by the valuer s reports before December 31, 2010 and those dated December 31, 2010 has been recognized as revaluation reserve in equity. Historical cost includes expenses that are directly attributable to the acquisition of the respective elements. Tangible assets include land and land improvements, buildings, constructions, plant and machinery. Other tangible assets and tangible assets in course of construction are presented at cost excepting accumulated depreciation and impairment losses. The cost of self-constructed assets includes cost of materials, direct labor cost, the initial estimate, where appropriate, costs of dismantling and relocation of the elements, the expenses to restore the site and a share of indirect costs. Starting with May 1, 2009, statutory reserves from the revaluation of fixed assets, including land, made after January 1, 2004, which are deducted from taxable income through tax depreciation or expenses related to the assets disposed of and/or annulled, are taxed while deducting tax depreciation, namely when these fixed assets are written off, as the case may be. Statutory reserves from revaluation of fixed assets, including land, carried out until December 31, 2003 plus the portion of the revaluation made after January 1, 2004 for the period up to April 30, 2009 will not be taxed when transferred to the reserves representing surplus from the revaluation reserves, but when changing their destination. Statutory reserves made are subsequently taxable, in case of any change in the reserves destination, in the event of the Company dissolution or merging, including their use to cover the accounting losses, excepting the transfer, after May 1, 2009, of reserves afferent to the evaluations made after January 1, When parts of tangible assets have different useful lives, they are considered distinctive parts. Tangible assets which are annulled or sold are written off the statement of financial position together with the appropriate accumulated depreciation. Gains or losses from annulment or disposal are equal to the net proceeds from the disposal (excepting disposal costs), minus the net carrying amount of the asset. They are recognised as income or expense in the profit and loss account. 15

16 Subsequent maintenance cost Subsequent costs are included in the carrying amount of the asset or they are recognized as separate assets, as required by the circumstances, only if it is probable that future benefits associated with the asset are registered by the Group, and the cost associated with that item can be measured accurately. All other repairs and maintenance costs are registered in the profit and loss account during the financial year in which they arise. Depreciation Depreciation of tangible assets is calculated on a straight-line basis over the whole useful life of the assets. The useful lives (in years) used for tangible assets are: Useful life (years) Buildings, constructions and special equipment Plant and machinery 3-28 Instrumentation and control equipment 5-10 Machinery 5-10 Other tangible assets 3-20 Fixed assets in progress are not subject to depreciation. Ongoing investments are paid off starting with their commissioning. Residual values and useful lives of the assets are reviewed and adjusted if applicable on the date of each set of financial statements. The carrying amount of an asset is written down immediately to its recoverable amount if the carrying amount exceeds the estimated recoverable amount. Assets purchased in leasing Lease agreements in which the Group undertakes all risks and benefits related to the property are classified as financial leasing. Tangible assets purchased by financial leasing are presented at the minimum value between the market value and the updated value of future payments, minus the accumulated depreciation and impairment of value. Leasing payments are registered according to the accounting policy presented at point (n) below. Fixed assets purchased in financial leasing are amortized throughout their lifetime or the length of leasing, whichever is shorter. (f) Intangible assets Intangible assets are presented in the statement of financial position at historical cost, excepting accumulated depreciation and impairment losses. The historical cost includes expenses directly attributable to the acquisition of the respective elements. Depreciation is recognized in the profit and loss account based on the straight-line method throughout the expected life of the intangible asset. The expense for the acquisition of software licenses is capitalized based on the costs of procurement and commissioning of those programs. Most intangible assets registered by the Group are represented by dedicated software. They are amortized in a straight line in a period of 3 16

17 years. Costs associated with software development or maintenance are recognized as expenses at the time of recording. Goodwill Goodwill on the date of acquiring a subsidiary in included in intangible assets. Goodwill is presented at cost, excepting accumulated impairment losses. As regards the invested capital the carrying amount of goodwill is included in the carrying amount of the investment and an impairment loss for such investment is not allocated to any asset, including goodwill that is part of the book value of equity. (g) Impairment of assets (i) Financial assets The carrying amount of financial assets is analyzed at the end of each financial year to determine possible value decreases. If such decrease is likely to occur, the recoverable amount of the relevant asset is estimated. If appropriate, an adjustment for depreciation is recognized in the profit and loss account when the carrying amount of the asset is higher than its recoverable value. The recoverable amount of the Group s financial instruments registered at depreciated cost is calculated as the present value of future cash flows updated by the effective interest rate corresponding to these assets. Short-term receivables are not updated. The recoverable amount of other assets is considered the highest value of the fair value (excepting the cost of sale) and use value. The estimate of the use value of an asset involves updating the estimated future cash flows using a pre-tax discount rate that reflects current market assessments on the time value of money and the risks specific to the asset. Impairment losses on financial assets or a claim registered at depreciated cost is reversed where there has been a change in the estimates used to determine the recoverable amount. (ii) Nonfinancial assets The assets subject to amortization are reviewed in terms of depreciation whenever the events or changes in conditions indicate that the carrying amount may not be recovered. An impairment loss is recognized at the value represented by the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is determined as the higher of the asset's fair value, net of costs to sell, and the asset s use value. In order to assess impairment, the assets are grouped at the level at which separate cash flows (cash generating units) are identified. Non-financial assets not affected by the depreciation are analyzed in terms of impairment reversal at each annual reporting date. An impairment loss is recognized if the amount of the asset or its cash-generating unit exceeds its estimated recoverable value. Impairment losses are recognised in the profit and loss account. When the decrease in fair value of a financial asset available for sale is directly recognised in equity and there are indications of impairment of the asset, the cumulative loss recognized directly in equity, is recognized in the profit and loss account even if the financial asset has not been derecognised. The amount of this loss is represented by the difference between the acquisition cost and current fair value, excepting impairment losses related to the previous asset recognized in the profit and loss account. (iii) Calculation of recoverable amount 17

18 The recoverable amount of investments made by the Group in financial instruments and of receivables registered at depreciated cost is calculated as the present value of future cash flows, updated by the effective interest rate corresponding to these assets. Short-term receivables are not discounted. The recoverable amount of other assets is considered the highest value of the fair value minus the selling costs and use value. The estimate of the use value of an asset involves updating the estimated future cash flows using a pre-tax discount rate that reflects current market assessments on the time value of money and the risks specific to the asset. If an asset does not generate independently significant cash flows, the recoverable amount is determined for the cash-generating unit which the asset belongs to. (h) Inventories Inventories consist of consumables, spare parts and other materials, consisting mainly of materials for maintenance and investments made by the Company itself. They are registered upon their entry as inventories when purchased, at the acquisition cost and registered as expenses or they are capitalized, as applicable, upon their consumption. The cost of inventories is determined based on the average weighted cost method (for raw materials and consumables) and it includes costs incurred in purchasing inventories and bringing them to the location and existing condition. The value of work in progress and finished goods includes direct material cost, cost of labour and of incorporating indirect costs. Inventories are registered at the minimum value of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, if appropriate, and the costs of sale. Group s policy is to register a reduction of 100% for inactive inventory and for inventories older than 365 days which will not be used in the future, based on an analysis carried out by the Management of the Group, together with the technical staff. (i) Dividends The Group may pay dividends only from the allotment of statutory profit, taking into account the financial statements drawn up according to Romanian Accounting Principles. Dividends are recognized as debt in the period in which their distribution is approved. (j) Employee benefits Short-term employees rights include wages and social security contributions. Short-term employees rights are recognised as expenses together with the provision of services by them. In the current business carried on, The Group makes payments to the Romanian State on behalf of its employees for social security. All employees of the Group are members of the Romanian State pension plan. Payments are recognised in the profit and loss account together with payroll expenses. The Group has no further legal or constructive obligations to pay future benefits to its employees. On termination of the employment contract, the Group is not required to refund the contributions made by former employees. (k) Provisions 18

19 A provision is recognized whenever and only when the following conditions are met: the Company has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources representing economic benefits is required to settle the obligation; when a reliable estimate can be made as regards the amount of the obligation. Where the effect of time value of money is material, the amount of a provision is the present value of the expenditures foreseen to be required to settle the obligation. The provisions are determined at the present value of cash flows using a discount rate that reflects current market situation and the specific risk of debt. Provisions are reviewed at each annual financial reporting date and they are adjusted so as to reflect the current best estimate of the Group s management in this regard. Where the settlement of an obligation does not involve an outflow of resources, the provision is rendered void and reversed in revenues. (l) Incomes Revenue is recognized when significant risks and benefits are transferred to the buyer, obtaining economic benefits is probable and the associated costs can be estimated correctly. Revenues are recognised at the fair value of the amount received (net value of income), without VAT, returns and discounts. Sales of services are recognised in the period they refer to. (m) Financial expenses and income Financial incomes include income from interest and dividends. Interest incomes are recognised as they accumulate in the profit and loss account, using the effective interest method. Dividend incomes are recognised in the profit and loss account starting with the date on which the Group is entitled to receive the amount paid. Financial expenses include interest expense on loans and impairment losses on financial assets. The interest on borrowed capital to finance the acquisition, construction or production of assets with long manufacturing cycle, as well as the fees for these loans contracted are capitalized in the production costs, while those which are not directly attributable to the acquisition, construction or production are recognised in the profit and loss account using the effective interest method. Gains and losses from exchange rate differences are registered at their net value. (n) Lease Finance lease contracts by means of which the Group assumes substantially the risks and benefits related to the ownership are classified as financial leasing. On initial recognition, the asset that is the subject of the lease is valued at the fair value or the present value of minimum lease payments, whichever is lower. After initial recognition, the asset After initial recognition, the asset is entered in the accounts according to the accounting policy applicable to the asset. Other leases are classified as operational leasing, excepting those based on investments, and the assets subject to lease are not recognised in the Group s statement of financial position. Real estate investments held under operating leases are recognised in the Group s statement of financial position at fair value. (o) Income tax 19

20 Tax expense recognised in profit or loss account comprises the sum of current tax and deferred tax. Income tax is registered in the profit and loss account unless it relates to equity ownership items; in this case, income tax is registered in equity section. Current tax represents the expected payable tax that refers to the taxable profit of the current year, using tax rates set by law at the reporting date, adjusted with the corrections to previous years. Deferred tax payment is calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. Deferred income taxes are calculated based on the tax rates which the legislation in force requires to be applied during the period of temporary difference. Deferred income taxes for the assets and liabilities are compensated if there is a legal right to compensate current tax afferent to the assets and liabilities and if they refer to the income tax issued by the same taxation authority and for the same entity. Deferred tax payment (asset) is recognized only to the extent that it is probable to obtain future taxable profit, so that tax losses carried forward and temporary differences can be used. Deferred tax payment - asset is reviewed at each reporting date and reduced to the extent that the related tax benefit is unlikely to be achieved. The impact of change in tax rates on deferred tax is recognized in the profit and loss account unless it relates to positions previously recognized directly in equity. Income tax on the distribution of dividends is registered at the same time with the liabilities regarding the payment of relevant dividends. (p) Related parties Parties are considered related when one of them holds direct or indirect control over them or if it has a significant influence on another party, through ownership, contractual rights, family relationships or of another kind. (q) Contingent liabilities Contingent liabilities are not recognized in the enclosed financial statements. They are presented if the possibility of an outflow of resources representing economic benefits is possible, not probable. A contingent asset is not recognized in the enclosed financial statements but it is presented when an input of economic benefits is probable. (r) Subsequent events The consolidated financial statements enclosed herewith reflect events after the end of the year that provide additional information about the position of the Group on the closing date of the statement of financial position or information indicating a possible violation of the going concern principle (events that determine adjustments). Subsequent events which are not events that determine adjustments are presented in notes, when considered significant. (s) Earning per share According to IAS 33, earning per share is calculated by dividing the profit or loss assigned to the Group s shareholders to the weighted average of the remaining ordinary shares of the period. 20

21 Weighted average of the outstanding shares during the financial year represents the number of shares from the beginning of the period, adjusted with the number of shares issued, multiplied by the number of months when shares were in circulation during the financial year. Dilution is a reduction in earnings per share or an increase in the loss per share resulting from the assumption that convertible instruments are converted, options or warrants are exercised or ordinary shares are issued after fulfilling certain special conditions. The subject of diluted earnings per share is consistent with that of basic earnings per share that is to assess the interest of each ordinary share in the performance of an entity. (t) Consequences of the new International Financial Reporting Standards (IFRS) New standards and interpretations not adopted A number of new standards, amendments to the standards and interpretations entered into force on January 1, 2011 and were applied in preparing these consolidated financial statements. None of the new standards, amendments to standards and interpretations that came into force on January 1, 2011 and which were not applied does influence on the consolidated financial statements of the Group excepting IFRS 9 Financial instruments that becomes mandatory for the Group s consolidated financial statements of the year 2013 and that could have an impact on the classification and measurement of financial assets. The Group does not plan to adopt this standard before it becomes binding and the effects of its adoption have not been determined. IFRS 10 Consolidated financial statements has been published by International Accounting Standards Board (IASB) on May 12, IFRS 10 replaces the requirements concerning consolidation included in SIC 12 Consolidation Special Purpose Entities and in IAS 27 - Consolidated and Separate Financial Statements. IFRS 10 is based on the exiting principles, identifying the concept of control as the determining factor in the decision to include or not an entity in the consolidated financial statements of the parent company. The new standard provides additional guidance to assist in determining control, if difficulties arise in this respect. The Group does not anticipate that the new standard would have an impact on the financial statements, since the assessment of control over the entities in which it has invested in accordance with the new standard is expected not to change the previous conclusions on the control exercised by the Group on the entities in which it has invested. IFRS 11 Joint Ventures was published by International Accounting Standards Board (IASB) on May 12, IFRS 11 supersedes IAS 31 Interests in Joint Ventures. The standard resolves the inconsistencies in reporting of a joint venture, stipulating a single method of accounting for interests in jointly controlled entities, namely, the equity method. IFRS 11 focuses on the rights and obligations within a partnership, not on its legal form. The Group is in the process of evaluating the potential effects of the standard IFRS 11 Joint Ventures on the financial statements. IFRS 12 Disclosure of Interests in Other Entities" (in force for the annual financial statements covering periods beginning on January 1, 2013 or after this date); IFRS 12 establishes disclosure requirements for subsidiaries, jointly controlled entities, associates and structural entities. IFRS 12 replaces the requirements previously included in the following standards: IAS 27, IAS 31 and IAS 28. IFRS 12 includes all requirements previously included in IAS 27 regarding consolidated financial statements and disclosures that were included in IAS 31 and IAS 28. These disclosures are related to the investments of the entity in subsidiaries, joint ventures, associates and structural entities. The Group is in the process of evaluating the potential effects of the standard IFRS 12 Disclosure of Interests in other Entities in the financial statements. 21