NCC Group Limited and subsidiaries. Consolidated Financial Statements for the Years Ended 31 December 2012, 2011 and 2010

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1 NCC Group Limited and subsidiaries Consolidated Financial Statements for the Years Ended, and

2 TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT S RESPONSIBILITIES 3 INDEPENDENT AUDITOR S REPORT 4-5 CONSOLIDATED FINANCIAL STATEMENTS : Consolidated statements of comprehensive income 6 Consolidated statements of financial position 7 Consolidated statements of changes in equity 8 Consolidated statements of cash flows 9 Notes to the consolidated financial statements 10-47

3 STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER, and Management is responsible for the preparation of the consolidated financial statements that present fairly the financial position of NCC Group Limited (the Company ) and its subsidiaries (the Group ) as at, and and the results of its operations, cash flows and changes in shareholders equity for the years then ended, in accordance with International Financial Reporting Standards as adopted by the European Union. In preparing the consolidated financial statements, management is responsible for: Properly selecting and applying accounting policies; Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; Providing additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's consolidated financial position and financial performance; Making an assessment of the Group's ability to continue as a going concern. Management is also responsible for: Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group; Maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS; Maintaining statutory accounting records for the Group s entities in compliance with the legislation and accounting standards of the Russian Federation and other jurisdictions in which the Group s entities are established and operates; Taking such steps as are reasonably available to them to safeguard the assets of the Group; and Preventing and detecting fraud and other irregularities. The consolidated financial statements of the Group for the years ended, and were approved by management on 15 August On behalf of the Board of Directors: 3

4 ZAO Deloitte & Touche CIS 5 Lesnaya Street Moscow, Russia Tel: +7 (495) Fax: +7 (495) INDEPENDENT AUDITOR S REPORT To the Shareholders and the Board of Directors of NCC Group Limited: Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of NCC Group Limited (the Company ) and its subsidiaries (the Group ), on pages 6 47 which comprise the consolidated statements of financial position as at, and and the consolidated statements of comprehensive income, statements of changes in equity and cash flow statements for the years then ended, and a summary of significant accounting policies and other explanatory information. Board of Directors responsibility for the Consolidated Financial Statements The Board of Directors is responsible for the preparation and fair presentation of consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as Board of Directors determines is necessary to enable the preparation of consolidated 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 consolidated financial statements based on our audits. We conducted our audits 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see for a detailed description of the legal structure of Deloitte CIS ZAO Deloitte & Touche CIS. All rights reserved. Member of Deloitte Touche Tohmatsu Limited

5 We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at, and, and its financial performance and cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the European Union. 15 August

6 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Notes Year ended Year ended Year ended Revenue 5 253, , ,215 Cost of sales* 6 (67,817) (64,322) (57,590) GROSS PROFIT 185, , ,625 Depreciation and amortization expenses 12 (33,400) (20,141) (18,045) Selling, general and administrative expenses* 7 (14,436) (15,147) (14,904) Other (expenses)/income, net 8 (6,154) 9,702 (6,777) Finance income 9 39,994 54,892 5,974 Finance costs (71,973) (57,286) (8,329) Foreign exchange gain/(loss), net 7,848 (10,059) 3,550 PROFIT BEFORE INCOME TAX EXPENSE 107, , ,094 INCOME TAX EXPENSE 10 (27,680) (30,735) (22,776) PROFIT FOR THE YEAR 79, , ,318 OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR Exchange differences on translating foreign operations 17,488 (19,425) (4,197) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 97, , ,121 PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO: Shareholders of the Parent 86, , ,199 Non-controlling interests (6,459) (2,422) (2,881) 79, , ,318 Total comprehensive income/(loss) for the year attributable to: Shareholders of the Parent 103, , ,952 Non-controlling interests (6,682) (2,292) (2,831) 97, , ,121 * Certain amounts shown here do not correspond to the statutory consolidated financial statements for, and and reflect adjustments made as detailed in Note 6. Signed on behalf of the Board of Directors on 15 August 2013 The notes on pages 10 to 47 form an integral part of these consolidated financial statements. 6

7 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER, AND ASSETS Notes NON-CURRENT ASSETS: Goodwill , , ,765 Property, plant and equipment , , ,531 Finance lease receivables 1, Other intangible assets - - 1,580 Loans receivable , , ,443 Deferred tax assets Other non-current assets 13 1,741 3,638 12,266 Total non-current assets 1,257,774 1,200,877 1,387,869 CURRENT ASSETS: Inventories 14 3,064 2,810 3,214 Trade and other receivables 15 19,844 25,591 27,531 Advances paid and prepaid expenses 3,306 3,770 4,462 Finance lease receivables Taxes reimbursable and prepaid 16 3,807 31,981 10,429 Prepaid current income tax 2, Loans receivable , , Cash and cash equivalents 18 36,971 60,388 27,415 Total current assets 224, ,784 73,143 TOTAL ASSETS 1,482,638 1,501,661 1,461,012 EQUITY AND LIABILITIES SHAREHOLDERS EQUITY: Share capital Share premium 294, , ,995 Retained earnings 194, , ,275 Foreign currency translation reserve (50,463) (68,174) (48,619) Equity attributable to shareholders of the Parent 438, , ,660 Non-controlling interests (8,229) (1,547) (8,005) TOTAL SHAREHOLDERS EQUITY 430, , ,655 NON-CURRENT LIABILITIES: Loans and borrowings , , ,527 Deferred tax liabilities 10 36,953 30,474 30,493 Long-term obligations under finance leases 2, Total non-current liabilities 739,753 1,000, ,020 CURRENT LIABILITIES: Trade and other payables 3,139 3,650 1,886 Loans and borrowings ,035 71, ,870 Taxes payable 21 1,576 2,711 12,132 Current income tax payable - 1,266 2,903 Obligations under finance lease Other current liabilities and accrued expenses 22 4,118 3,558 2,546 Total current liabilities 312,270 82, ,337 TOTAL LIABILITIES 1,052,023 1,083,395 1,111,357 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 1,482,638 1,501,661 1,461,012 Signed on behalf of the Board of Directors on 15 August 2013 The notes on pages 10 to 47 form an integral part of these consolidated financial statements. 7

8 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share capital Share premium Retained earnings Foreign currency translation reserve Total shareholders equity Noncontrolling interests Balance at 1 January 9 294, ,112 (44,372) 442,744 (5,174) 437,570 Profit/(loss) for the year , ,199 (2,881) 141,318 Other comprehensive income/(loss) for the year (4,247) (4,247) 50 (4,197) Total comprehensive income/(loss) for the year ,199 (4,247) 139,952 (2,831) 137,121 Effect of recognition of financial liabilities due to entities under common control - - (103) - (103) - (103) Effect of recognition of financial assets due from entities under common control (Note 17) Dividends (Note 19) - - (218,350) - (218,350) - (218,350) Other distribution to shareholders - - (7,065) - (7,065) - (7,065) Balance at 9 294, ,275 (48,619) 357,660 (8,005) 349,655 Profit for the year , ,865 (2,422) 184,443 Other comprehensive income/(loss) for the year (19,555) (19,555) 130 (19,425) Total comprehensive income/(loss) for the year ,865 (19,555) 167,310 (2,292) 165,018 Effect of recognition of financial assets due from entities under common control (Note 17) - - (7,722) - (7,722) - (7,722) Dividends (Note 19) - - (97,435) - (97,435) - (97,435) Share of non-controlling interests in debts forgiven in a subsidiary (Note 19) ,750 8,750 Balance at 9 294, ,983 (68,174) 419,813 (1,547) 418,266 Profit/(loss) for the year ,132-86,132 (6,459) 79,673 Other comprehensive income/(loss) for the year ,711 17,711 (223) 17,488 Total comprehensive income/(loss) for the year ,132 17, ,843 (6,682) 97,161 Effect of recognition of financial assets due from entities under common control (Note 17) - - (812) - (812) - (812) Dividends (Note 19) - - (84,000) - (84,000) - (84,000) Balance at 9 294, ,303 (50,463) 438,844 (8,229) 430,615 Total Signed on behalf of the Board of Directors on 15 August 2013 The notes on pages 10 to 47 form an integral part of these consolidated financial statements. 8

9 CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended Year ended Year ended Cash flows from operating activities Receipts from customers 265, , ,338 Other receipts 36,820 25,423 15,916 Payments to suppliers and employees (74,827) (76,073) (96,996) Other payments (27,368) (48,689) (21,264) Cash generated from operations 199, , ,994 Interest paid (66,943) (77,226) (10,795) Income tax paid (26,789) (30,357) (22,110) Net cash generated by operating activities 106, , ,089 Cash flows from investing activities Purchases of property, plant and equipment (18,490) (84,017) (45,212) Proceeds from disposal of property, plant and equipment Cash received on settlement of loans receivable and time deposits 20, ,771 8,072 Payments of loans receivable and time deposits (33,000) (182,532) (713,649) Acquisition of subsidiary under common control (237) - - Interest received 1, ,718 Net cash used in investing activities (30,717) (44,413) (748,284) Cash flows from financing activities Proceeds from borrowings 117, , ,734 Principal payments on borrowings (171,592) (329,724) (54,292) Payments for finance lease (475) - - Proceeds from finance sublease Distribution to shareholders paid - - (7,065) Dividends paid (44,000) (49,400) (217,950) Net cash (used in)/generated by financing activities (98,635) (39,019) 576,427 Net (decrease)/increase in cash and cash equivalents (23,254) 38,787 (20,768) Effect of foreign exchange rate changes (163) (5,814) (179) Cash and cash equivalents at the beginning of year 60,388 27,415 48,362 Cash and cash equivalents at the end of year 36,971 60,388 27,415 Non-cash transactions Set off of loans receivable and dividends payable 40,000 48,435 - Acquisition of property, plant and equipment through vendor financing and on account 1,984 2,260 1,499 Signed on behalf of the Board of Directors on 15 August 2013 The notes on pages 10 to 47 form an integral part of these consolidated financial statements. 9

10 1. NATURE OF BUSINESS First Quantum Holding Limited was incorporated in Cyprus as a limited liability company on 2 August The company s name was changed to NCC Group Limited (the Parent ) on 26 January NCC Group Limited and its subsidiaries (the Group ) operate container terminals in the Russian Federation and provide cargo handling, stevedoring, container storage and rental, and related port services and facilities. The legal address of NCC Group Limited is Thermopylon, 8, Paliometocho, P.C. 2682, Nicosia, Cyprus. The main operating facilities of the Group are located in Saint-Petersburg, the Russian Federation. The Parent s ownership interest and voting power in its subsidiaries as at, and were as follows: Country of Ownership interest and voting power Operating Entities incorporation Т.О. Services Limited British Virgin Islands 100% 100% 100% NCC Finance Limited Cyprus 100% 100% 100% NCC South Investments Limited Cyprus 100% 100% 100% Belvo Establishment Limited Cyprus 100% 100% 100% Alocasia Limited Cyprus 100% 100% 100% OJSC Ust-Luga Container Terminal ( OJSC ULCT ) Russian Federation 80% 80% 80% CJSC First Container Terminal Russian Federation 100% 100% 100% CJSC Logistika-Terminal Russian Federation 100% 100% 100% LLC National Container Company Russian Federation 100% 100% 100% LLC NCC Logistika Russian Federation 100% 100% - LLC National Container Depo Russian Federation 100% - - LLC National Container Depo is a company that has been acquired from an entity controlled by the same shareholders of the Group during and has no significant balances or operations. The impact of this acquisition was not significant for the Group s non-statutory consolidated financial statements. Operating environment The Group operations are located primarily in the Russian Federation, while geography of the Group spreads beyond Cyprus and British Virgin Islands. Accordingly, the Group is exposed to a variety of macroeconomic risks, associated with both availability of financing and level of demand for its services primarily in the Russian Federation. Because the Russian Federation produces and exports large volumes of oil and gas, Russia s economy is particularly sensitive to the price of oil and gas on the world market. In addition, the Russian Federation, the primary market for the Group s corporate borrowings continued to demonstrate relatively high levels of inflation and perceived country risk, which increases the cost of capital to the Group. During March and April 2013, the Republic of Cyprus announced a macroeconomic adjustment program ( MAP ) with the objective of re-structuring and stabilising the Cypriot financial sector. The Group is not materially exposed to the Cypriot economy due to insignificant operating activity in that country. 10

11 Currently it is not possible to fully predict the economic outcome of the MAP nor its potential impact on the Group. However, management of the Group believes that this will be limited to change in the Cypriot income tax rate to 12.5% (currently 10%). Management will continue to monitor further developments in Cyprus and take measures to protect the economic interests of the Group from any potential adverse impact of further development of situation in Cyprus. Going concern assumption These non-statutory consolidated financial statements were prepared on a going concern basis. In determining whether this basis is appropriate (i.e. whether the Group will continue as a going concern for the foreseeable future), management considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities, the risks and uncertainties relating to its business activities. As at the Group s current liabilities exceeded its current assets for the amount of USD 87,406 thousand. The Group management believes that preparation of these consolidated financial statements on going concern assumption is appropriate as such liquidity gap was caused by classification of long-term loan from one of the banks in the amount of USD 226,127 thousand as current liabilities due to breach of financial covenants and for which the waiver has been obtained subsequent to the reporting date (Note 20). 2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS Standards and Interpretations effective in the current year The following new standards, amendments to standards and interpretations have been adopted in the current period: Amendments to IAS 12 Income Taxes Limited scope amendment (recovery of underlying assets); effective for annual period beginning on or after 1 January ; Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards Replacement of fixed dates for certain exceptions with the date of transition to IFRSs and Additional exemption for entities ceasing to suffer from severe hyperinflation; effective for annual period beginning on or after 1 July ; Amendments to IFRS 7 Financial instruments: Disclosures Transfers of financial assets; effective for annual period beginning on or after 1 July. The adoption of the amendments listed above did not have any impact on the Group s non-statutory consolidated financial statements but may affect accounting for future transactions and arrangements. IFRS and IFRIC interpretations not yet effective At the date of authorization of these non-statutory consolidated financial statements, the following new standards and interpretations were issued, but not yet effective, and which the Group has not early adopted: IFRS 9 Financial Instruments 5 ; IFRS 10 Consolidated Financial Statements 2 ; IFRS 11 Joint Arrangements 2 ; IFRS 12 Disclosure of Interest in Other Entities 2 ; IFRS 13 Fair Value Measurement 1 ; IAS 19 Employee Benefits (as amended in June ) 1 ; 11

12 IAS 27 reissued as IAS 27 Separate Financial Statements (as amended in May ) 2 ; IAS 28 reissued as IAS 28 Investments in Associates and Joint Ventures (as amended in May ) 2 ; Amendments to IFRS 9 and 7 Mandatory Effective Date of IFRS 9 and Transition Disclosures 5 ; Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance 2 ; Amendments to IAS 1 Presentation of Items of Other Comprehensive Income 4 ; Amendments to IFRS 7 and IAS 32 Offsetting Financial Assets and Financial Liabilities 2 ; Amendments to IFRSs Annual Improvements to IFRSs Cycle Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 July. Not yet adopted in European Union. Management is currently evaluating the impact of the adoption of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities, IFRS 13 Fair Value Measurement, amendment to IFRS 7 Financial instruments: Disclosures, amendments to IAS 19 Employee benefits Post employment benefits and termination benefits projects and amendments to IAS 12 Income Taxes. For other Standards and Interpretations management anticipates that their adoption in future periods will not have material effect on the nonstatutory consolidated financial statements of the Group. 3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Statement of compliance These non-statutory consolidated financial statements for the years ended, and (the consolidated financial statements ) have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union (EU). Basis of preparation The entities of the Group maintain their accounting records in accordance with accounting standards and other statutory requirements to financial reporting in the countries of their incorporation. Local statutory accounting principles and procedures differ from accounting principles generally accepted under IFRS. Accordingly, the accompanying consolidated financial statements, which have been prepared from the Group entities statutory accounting records, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS. Starting 1 January the Group changed the basis of preparation of its financial statements from IFRS as issued by International Accounting Standards Board to IFRS as adopted by EU to ensure the Group s compliance of filing requirements of the Parent. This change in the Group s accounting policies did not have a significant impact on the Group s consolidated financial statements. The Group also prepares statutory consolidated financial statements which are based on IFRS as adopted in EU and the requirements of the Cyprus Companies Law, Cap.113, which provides for certain additional disclosure requirements in such consolidated financial statements and which are filed in Cyprus. The consolidated financial statements have been prepared on the historical cost basis except for the revaluation of certain non-current assets made for determining the net assets for acquisition accounting for business combinations. Such revalued amounts became the new cost basis for these non-current assets in the consolidated financial statements after the business combinations. The principal accounting policies are set out below. 12

13 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Parent and entities (including special purpose entities) controlled by the Parent (its subsidiaries). Control is achieved where the Parent has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Group and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Changes in the Group's ownership interests in existing subsidiaries Changes in the Group s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Parent. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less the liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity. Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively; Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date ; and Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. 13

14 Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquired subsidiary, and the fair value of the Group s previously held equity interest in the acquired subsidiary (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed exceeds the sum of the consideration transferred, the amount of non-controlling interest in the subsidiary and the fair value of the Group s previously-held interest in the subsidiary (if any), the excess is recognised in profit or loss. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the subsidiary s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests proportionate share of the recognised amounts of the subsidiary s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests, if any, are measured at fair value or, when applicable, on the basis specified in other Standards. When the consideration transferred by the Group in a business combination includes assets and liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and is included as part of the consideration transferred. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which may not exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39 Financial Instruments: Recognition and Measurement, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss. When a business combination is achieved in stages, the Group s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interests were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date. When an acquisition of a legal entity does not constitute a business, the cost of the group of assets is allocated between the individual identifiable assets in the group based on their relative fair values. Non-controlling interests Non-controlling interests in subsidiaries and consolidated entities are identified separately from the Group s equity therein. The interests of non-controlling shareholders consist of the amount of those interests at the date of the original business combination (see above) and the non-controlling interests share of changes in equity since the date of the combination. 14

15 Revenue recognition The Group generates revenue primarily from the sale of cargo handling and storage services. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of sales related taxes. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is reduced for estimated trade discounts and other similar allowances. Revenue from sale of cargo handling services is recognised in the accounting period in which the services are rendered. Revenue from storage services is recognised on a straight-line basis over the accounting period in which the services are rendered. Interest income Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. The Group as lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Foreign currencies The individual financial statements of each of the Group s entities are prepared in the currency of the primary economic environment in which the entity operates (its functional currency). The functional currency for Russian subsidiaries of the Group is the Russian Ruble ( RUB ), and for Cypriot and British Virgin Islands ( BVI ) subsidiaries, it is the United States Dollar ( USD ). For purposes of the consolidated financial statements, the results and financial position of each Group s entity are expressed in USD, which is the functional currency of the Parent and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. 15

16 Exchange differences are recognised in profit or loss in the period in which they arise, except for: Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the net investment. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group s foreign operations are translated into USD using exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences ( Foreign currency translation reserve ) arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate). Cash flows are translated using the exchange rates existing at the dates of the significant transactions or at the average rate for a period. Resulting differences are presented separately as effect of exchange rate changes on cash and cash equivalents. On the disposal of a foreign operation (i.e. a disposal of the Group s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the shareholders of the Parent are reclassified to profit or loss. In the case of a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences is reattributed to non-controlling interests and is not recognised in profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate at each reporting period end. Exchange differences arising are recognised in other comprehensive income. RUB/USD exchange rates Closing rate Average rate for the period Year ended Year ended Year ended Income Tax Income tax expense represents the sum of the current tax and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. 16

17 Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Deferred tax for the period is charged or credited to the profit or loss, except when it relates to items credited or charged to other comprehensive income or directly in equity, in which case the deferred tax is also dealt with in equity or other comprehensive income. Property, plant and equipment Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the statement of financial position at their historical cost (or new cost basis arisen as a result of a business combination), less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The historical cost of an item of property, plant and equipment comprises (a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; (b) any costs directly attributable to bringing the item to the location and condition necessary for it to be capable of operating in the manner intended by the management of the Group; (c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which the Group incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. The cost of self-constructed assets includes the cost of material, direct labour and an appropriate portion of production overheads. Subsequently capitalized costs include major expenditures for improvements and replacements that extend the useful lives of the assets or increase their revenue generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalization are charged to the profit or loss as incurred. Freehold land is not depreciated. 17

18 Depreciation is charged so as to write off the cost of assets, other than freehold land and properties under construction, over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Categories of property, plant and equipment Useful life in years Buildings and constructions 2-49 Machinery and equipment 2-25 Transportation vehicles 2-25 Other 2-6 The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Construction in progress comprises costs directly related to construction of property, plant and equipment including an appropriate allocation of directly attributable variable overheads that are incurred in construction. Construction in progress is not depreciated. Depreciation of the construction in progress, on the same basis as for other property, plant and equipment items, commences when the assets are available for use, i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by the management. Intangible assets Intangible assets acquired separately Intangible assets acquired separately are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. Impairment of tangible and intangible assets excluding goodwill At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually as at, and whenever there is an indication that the asset may be impaired. 18

19 Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cashgenerating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. Inventories Inventories are stated at the lower of cost and net realisable value. Costs are assigned to inventories by the method most appropriate to the particular class of inventory, with the majority being valued on a weighted-average basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Financial instruments The Group recognises financial assets and liabilities on its consolidated financial statements when it becomes a party to the contractual obligation of the instrument. Purchases and sales of the financial assets and liabilities are recognised using settlement date accounting. Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the entity, and (b) the derecognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the entity. Financial assets and liabilities are initially recognised at fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to acquisition or issue of the financial asset or financial liability. The accounting policies for subsequent re-measurement of these items are disclosed in the respective accounting policies set out below. The effect of initial recognition of financial assets and liabilities obtained/incurred at terms below market is recognised net of tax effect as income or expense, except for financial assets and liabilities with shareholders or entities under common control, whereby the effect is recognised through equity. Financial assets and financial liabilities are only offset and the net amounts are reported in the consolidated statement of financial position when the Group has a legally enforceable right to set off the recognised amounts and intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset (liability) and of allocating interest income (expense) over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (payments) including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts through the expected life of the financial asset (liability), or, where appropriate, a shorter period. Financial assets Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss ( FVTPL ), held-to-maturity investments, available-forsale ( AFS ) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. 19