FERTIL d.o.o., Bačka Palanka Financial Statements Year Ended December 31, 2012 and Independent Auditors Report

Transcription

1 FERTIL d.o.o., Bačka Palanka Financial Statements Year Ended and Independent Auditors Report This is a translation of the original Auditors Report issued in the Serbian language

2 FERTIL d.o.o., Bačka Palanka CONTENTS Page Independent Auditors Report 1-2 Financial statements: Income Statement 3 Balance Sheet 4 Statement of Changes in Equity 5 Cash Flow Statement 6 Notes to the Financial Statements 7-34 This is a translation of the original Auditors Report issued in the Serbian language

3 INDEPENDENT AUDITORS REPORT To the Founders and Management of the Company Fertil d.o.o., Bačka Palanka We have audited the accompanying financial statements of Fertil d.o.o., Bačka Palanka, (the Company ), which comprise the balance sheet as at, and the related income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of the significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the accounting regulations of the Republic of Serbia, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and the Law on Accounting and Auditing of the Republic of Serbia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at, and the results of its financial performance and its cash flows for the year then ended, in accordance with the accounting regulations of the Republic of Serbia. (continued) This is a translation of the original Auditors Report issued in the Serbian language

4 INDEPENDENT AUDITORS REPORT To the Founders and Management of the Company Fertil d.o.o., Bačka Palanka (continued) Emphasis of matter We draw attention to Note 5 to the financial statements, disclosing that sales revenues in FY 2012 stated as totaling RSD 9,642,767 thousand include revenue in the amount of RSD 2,848,400 thousand, representing a transaction with a significant impact on the positive results of financial performance of the Company in FY Our opinion is not qualified in respect of this matter. Belgrade, May 30, 2013 Jovan Papić Certified Auditor This is a translation of the original Auditors Report issued in the Serbian language 2

5 INCOME STATEMENT Year Ended (thousands of RSD) Note 2012 OPERATING INCOME Sales 5 9,642,767 9,707,903 Own-work capitalized - 11,359 Increase/(decrease) in the value of inventories ,439 (16,753) 10,135,206 9,702,509 OPERATING EXPENSES Cost of commercial goods sold 6 (2,017,560) (4,463,782) Cost of materials 7 (4,047,371) (3,886,885) Staff costs 8 (122,561) (94,581) Depreciation,amortization and provisions 9 (116,987) (116,526) Other operating expenses 10 (290,715) (327,077) (6,595,194) (8,888,851) PROFIT FROM OPERATIONS 3,540, ,658 Finance income , ,063 Finance expenses 12 (672,237) (214,796) Other income 13 2,728 42,764 Other expenses 14 (92,520) (43,036) (365,213) (71,005) PROFIT BEFORE TAX 3,174, ,653 Effects of adjusting immaterial prior period errors, net (7,098) (2) PROFIT BEFORE TAX 3,167, ,651 INCOME TAXES 15 Current income tax expense (160,763) (37,413) Deferred income tax 2,930 9,690 (157,833) (27,723) PROFIT FOR THE YEAR 3,009, ,928 The accompanying notes on the following pages are an integral part of these financial statements These financial statements were approved by management of the Company and will be submitted to the Agency for Business Registers. Signed on behalf of the Company Fertil d.о.о., Bačka Palanka: Igor Radoš Legal representative Vesna Stojanov Person responsible for preparation of financial statements This is a translation of the original Auditors Report issued in the Serbian language 3

6 BALANCE SHEET As at (thousands of RSD) Note December 31, 2012 December 31, ASSETS Non-current assets Intangible assets 16 4,035 - Property, plant and equipment 16 2,058,326 1,576,179 2,062,361 1,576,179 Current assets Inventories 17 1,563,600 1,430,847 Accounts receivable , ,807 Receivables for prepaid income tax 100 1,348 Short-term financial placements 19 2,446, ,961 Cash and cash equivalents , ,730 Value added tax and prepayments 21 44,097 31,206 5,009,303 2,478,899 Total assets 7,071,664 4,055,078 EQUITY AND LIABILITIES Equity Founding capital , ,874 Revaluation reserves 411,023 10,624 Retained earnings 3,009, ,814 3,652,765 1,091,312 Long term provisions 23 4,845 4,072 Non-current liabilities Long-term borrowings , ,109 Current liabilities Short-term financial liabilities 25 2,088, ,792 Liabilities from operations ,122 1,616,180 Other current liabilities 27 16,474 3,467 Value added tax and other duties payable and accruals ,932 2,138 Income tax payables 126,468 18,686 3,030,337 2,528,263 Deferred tax liabilities 15 72,925 3,322 Total equity and liabilities 7,071,664 4,055,078 Off-balance-sheet items 29 20,827,587 19,293,176 The accompanying notes on the following pages are an integral part of these financial statements This is a translation of the original Auditors Report issued in the Serbian language 4

7 STATEMENT OF CHANGES IN EQUITY Year Ended (thousands of RSD) Founding Revaluation Retained capital Reserves Earnings Total Balance at January 1, 231,874 10,624 1,640,695 1,883,193 Adjustment of income tax in (1,271) (1,271) Adjustment of provision for retirement benefits - - (5,538) (5,538) Dividend payments - - (1,500,000) (1,500,000) Profit for the year , ,928 Balance at December 31, 231,874 10, ,814 1,091,312 Balance at January 1, ,874 10, ,814 1,091,312 Deferred tax liabilities - (72,533) - (72,533) Dividend payments - - (848,814) (848,814) Effect of valuation - 472, ,932 Profit for the year - - 3,009,868 3,009,868 Balance at 231, ,023 3,009,868 3,652,765 The accompanying notes on the following pages are an integral part of these financial statements This is a translation of the original Auditors Report issued in the Serbian language 5

8 CASH FLOW STATEMENT Year Ended (thousands of RSD) 2012 Cash flows from operating activities Cash receipts from customers 9,910,994 12,955,159 Interest received 2, Other cash received from operating activities 122, ,266 Cash paid to suppliers (7,699,286) (10,549,606) Cash paid to, and on behalf of employees (117,693) (94,075) Interest paid (103,432) (181,671) Income taxes paid (51,735) (18,728) Non-income taxes and other duties paid (86,900) (91,056) Net cash provided by operating activities 1,977,013 2,149,813 Cash flows from investing activities Sale of property, plant and equipment - 1,639 Other financial placements (net inflows) - 80,155 Interest received - 36 Purchases of property, plant and equipment (185,062) (148,855) Net cash used in investing activities (185,062) (67,025) Cash flows from financing activities Long-term and short-term borrowings (net inflows) 2,294, ,508 Other long-term and short-term liabilities 2,788,187 - Long-term and short-term borrowings and other liabilities (net outflows) (6,083,581) (506,916) Finance lease (120,000) - Dividends paid (848,814) (1,500,000) Net cash used in financing activities (1,969,223) (1,824,408) Net cash (decrease)/increase (177,272) 258,380 Cash and cash equivalents, beginning of year 279,730 10,575 Foreign exchange (losses)/ gains on translation of cash, net (221) 10,775 Cash and cash equivalents, end of year 102, ,730 The accompanying notes on the following pages are an integral part of these financial statements This is a translation of the original Auditors Report issued in the Serbian language 6

9 1. ESTABLISHMENT AND ACTIVITY The Company for production of fertilizers Fertil d.o.o., Bačka Palanka (the Company ) was founded by the Decision of foundation the company Fertil d.o.o., Bačka Palanka dated October 25, 2005 brought by the Director of the company Victoria group a.d., Novi Sad. Pursuant to Decision of the Serbian Business Register Agency no. BD 97932/2005 dated December 1, 2005 the Company was subscribed in the Business Register. The only founder of the Company is Victoria group a.d., Novi Sad with the subscribed and paid in capital of USD 5,000 in dinars counter value at the National Bank of Serbia exchange rate at the date of payment. The Company was registered for production and sale of fertilizers and azotes combines and for export business. As at the Company had 101 employees ( employees). Company s tax identification number is The Company s registration number is BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING CONVENTION Pursuant to the Law on Accounting and Auditing (Official Gazette of the Republic of Serbia no. 46 of June 2, 2006 and no. 111 of December 29, 2009), legal entities and entrepreneurs incorporated in Serbia are required to maintain their books of account, to recognize and value assets and liabilities, income and expenses, and to present, submit and disclose financial statements in conformity with the prevailing legislation and professional rules which include: the Framework for the Preparation and Presentation of Financial Statements (the Framework ), International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), as well as the related interpretations representing an integral part of these standards which were in effect as at December 31, The amendments to IAS, as well as the newly-issued IFRS and the related interpretations issued by the International Accounting Standards Board ( IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ), in the period between December 31, 2002 and January 1, 2009, were officially adopted pursuant to a Decision enacted by the Ministry of Finance of the Republic of Serbia ( Ministry ) and published in the Official Gazette of the Republic of Serbia number 77 of October 25, However, until the preparation date of the accompanying financial statements, not all amendments to IAS/IFRS and IFRIC in effect for annual periods beginning on or after January 1, 2009 had been translated. In addition, the accompanying financial statements are presented in the format prescribed under the Guidelines on the Prescribed Form and Content of the Financial Statements of Enterprises, Cooperatives and Entrepreneurial Ventures (Official Gazette of the Republic of Serbia, no. 114 as of December 22, 2006, no. 119 as of December 26, 2008, no. 9 as of February 6, 2009, no. 4 as of January 29, 2010 and no. 3 as of January 24, ). Such statements represent the complete set of financial statements as defined under the law, which differ from those defined under the provisions of IAS 1, Presentation of Financial Statements, and differ in some respects, from the presentation of certain amounts as required under the aforementioned standard. This is a translation of the original Auditors Report issued in the Serbian language 7

10 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING CONVENTION (continued) As of the financial statements issuance date the following amendments to standards (IFRS and IAS) were issued by the International Accounting Standards Board, but were not officially adopted and translated in the Republic of Serbia for the current annual accounting period. These amendments relate to the following standards: IFRS 1 First-time Adoption of IFRS (effective for annual periods beginning on or after January 1, 2010); IFRS 7 Financial Instruments: Disclosures (effective for annual periods beginning on or after January 1, 2009); IAS 38 Intangible Assets (effective for annual periods beginning on or after July 1, 2009); IFRS 2 Share-based Payment (the first revision, effective for annual periods beginning on or after July 1, 2009 and the second revision, effective for annual periods beginning on or after January 1, 2010); IAS 24 "Related Party Disclosures" (effective for annual periods beginning on or after July 1, 2010) IAS 32 "Financial Instruments: Presentation" (effective for annual periods beginning on or after February 1, 2010) and Amendments to various standards and interpretations resulting from the Annual quality improvements project of IFRS (IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39), effective for annual periods beginning on or after January 1, Amendments to IFRS 1 "First-time Adoption of International Financial Reporting Standards", which are effective for annual periods beginning on or after July 1, 2010 and July 1, ; Amendments to IAS 24 Related Party Disclosures Simplifying the disclosure requirements for government-related entities and clarifying the definition of a related party (effective for annual periods beginning on or after January 1, ); Amendments to IAS 32 Financial Instruments: Presentation Accounting for Rights Issues (effective for annual periods beginning on or after February 1, 2010); Amendments to IFRS 7 Financial Instruments: Disclosures Transfers of Financial Assets (effective for annual periods beginning on or after January 1, ); Amendments to IAS 12 Income Taxes Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after January 1, 2012). In accordance with the aforementioned and due to the potentially material effects of the departures of the accounting regulations of the Republic of Serbia from IFRS and IAS, the accompanying financial statements cannot be treated as a set of financial statements prepared in accordance with IAS and IFRS. The accompanying financial statements have been prepared under historical cost convention, unless otherwise stipulated in the accounting policies presented hereunder. In the preparation of the accompanying financial statements, the Company adhered to the accounting policies described in Note 3. The Company s financial statements are stated in thousands of dinars (RSD). The dinar is the official reporting currency in the Republic of Serbia. This is a translation of the original Auditors Report issued in the Serbian language 8

11 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.1. Income and Expense Recognition Income from sales is recognized when the risks and rewards associated with the right of ownership are transferred to the customer, which is considered to be upon the delivery of products to the customer. Income is measured at the fair value of the consideration received or receivable, net of any discounts and value added taxes. At the time when income is recognized, the related expenditure is also recognized (referred to as the matching principle ). Interest income and interest expense are recognized on an accrual basis. Maintenance and repair costs of the fixed assets are charged to the accounting period in which they were incurred Foreign Exchange Gains and Losses Transactions denominated in foreign currencies and transactions indexed to a currency clause are translated into dinars at the official exchange rates in effect at the date of each transaction. Assets and liabilities denominated in foreign currencies or indexed to a currency clause are translated into dinars by applying the official exchange rates determined on the Interbank Foreign Exchange Market prevailing at the balance sheet date. Foreign exchange gains or losses arising upon the translation of transactions, and assets and liabilities in foreign currencies are credited or charged to the income statement as foreign exchange gains and losses. Foreign exchange gains and losses arising upon the translation of business transactions and monetary assets and liabilities indexed to a currency clause as of the balance sheet date are credited or charged to the income statement as income or expenses arising from contractually agreed hedges against risk Income Tax Expense (а) Current Income Taxes Current Income Tax is the amount calculated in accordance with the Law on Corporate Income Tax applicable in the Republic of Serbia. Current income tax is payable at the legally prescribed rate of 10% on the tax base determined within the tax balance and reported in the annual corporate income tax return (from January 1, tax rate is 15%). The taxable base stated in the income tax return includes the profit shown in the statutory statement of income, as adjusted for differences that are specifically defined under statutory tax rules. The tax regulations in the Republic of Serbia do not envisage that any tax losses of the current period be used to recover taxes paid within a specific carry back period. However, starting from January 1, 2010 any current year losses may be used to reduce or eliminate taxes to be paid in future periods, but only for duration of no longer than five ensuing years. Tax losses incurred before January 1, 2010 are available for carry forward for duration of ten ensuing years. This is a translation of the original Auditors Report issued in the Serbian language 9

12 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.3. Income Tax Expense (continued) (b) Deferred Income Taxes Deferred income taxes are provided using the balance sheet liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying values in the financial statements. The currently-enacted tax rates or the substantively-enacted rates at the balance sheet date are used to determine the deferred income tax amount. Tax rate of 15% is used to determine the deferred income tax expense (up to December 31, - 10%). Deferred tax liabilities are recognized on all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, and the tax effects of income tax losses and credits are available for carryforward, to the extent that it is probable that taxable profit will be available, against which the deductible temporary differences and the tax loss/credits of the carryforwards can be utilized. Deferred income taxes are either charged or credited to the Income Statement, except in so far as they relate to items that are directly credited or charged to capital, and in that instance, the deferred taxes are then also recognized under equity. (c) Indirect Taxes and Contributions Indirect taxes and contributions include property taxes and other taxes and contributions paid pursuant to the republic and municipal regulations Property, Plant and Equipment Items of property, plant and equipment are initially stated at cost. Cost represents invoiced value, plus the associated costs of acquisition or construction and the costs of bringing the asset to working condition for its intended use, less any trade discounts and rebates. Property, Plant and Equipment are considered as such if their useful economic life is longer than a year and whose cost is higher than the average gross salary per employee based on the information issued by the Republican institute responsible for statistics. Subsequent investments which increase useful economic life of property, plant and equipment are stated as a part of these assets, while maintenance and repairs are accounted for as period costs. Gains on the disposal of property, plant and equipment are directly credited to other income, while the losses are charged to other expenses. Subsequent to initial recognition, property, plant and equipment are stated at the revalued amounts. The Company engaged an independent appraiser to perform valuation of property, plant and equipment as at. The valuation was performed using the fair values for properties and the amortized replacement costs for the equipment. The positive effect of valuation less deferred income tax is presented within the revaluation reserves in equity. The negative effect of valuation is charged to the income statement. This is a translation of the original Auditors Report issued in the Serbian language 10

13 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.5. Depreciation and Amortization Depreciation is calculated on the cost of property, plant and equipment by applying the depreciation rates determined upon the assessed useful life, so that the asset is totally depreciated in the assessed useful life. The calculation of the depreciation of property, plant and equipment begins when these assets are available for use, i.e. the following month in relation to the month in which the fixed asset was acquired. The principal, annual depreciation rates in use for major classes of property, plant and equipment are as listed below: Depreciation Rates Buildings 2.5% Cars 20% Computers 20% Forklift 20% Sampling probe 15% Machine 15% Production plant 8.30% Unloading facility 15% Loader 30% Bar transporter 15% Other equipment % The Company has booked only the net effects of valuation of property, plant and equipment. From January 1, 2013 depreciation rates were adjusted in accordance with the fair values determined by the valuation and the remaining useful life of assets Inventories Inventories of materials purchased from suppliers are measured at cost or net realizable value, if lower. Purchase price or cost of inventories comprises all costs of procurement, production costs and other costs incurred bringing the inventories to their present location and condition. The cost is determined using the weighted-average method. Work-in-progress and finished goods inventories are stated at the lower of cost or net realizable value, which includes direct costs and an appropriate proportion of the respective production overheads. Inventories of goods for wholesale are carried at the realizable value while the calculation of the cost variances is performed in a way that the value of inventories both sold and on stock is carried at the weighted average method. Provisions charged to Other expenses are made where appropriate in order to reduce the value of inventories to management s best estimate of net realizable value. Inventories that are found to be damaged or of inferior quality are written off in full. This is a translation of the original Auditors Report issued in the Serbian language 11

14 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7. Financial Instruments Financial assets and liabilities are recognized on the Company s balance sheet at the moment in which the Company has become a party to the contractual provisions of a particular financial instrument. Financial assets cease to be recognized when the Company loses control of the contractual rights governing such instruments, which occurs when the rights of use of such instruments have been realized, expired, abandoned, or ceded. Financial liabilities cease to be recognized when the Company fulfills the obligations, or when the contractual repayment obligation has either been cancelled or has expired. Accounts receivable and other short term receivables Accounts receivable are stated at their nominal value, increased for eventually calculated interest, in accordance with the contract. Any allowance for doubtful receivables, is performing and charging the Income Statement based on management s estimate as to the likelihood of their collectability. Uncollectable receivables are written off based on a court decision, settlement agreement or based on the decision of Company s Management Board. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, current and foreign currency accounts and other cash equivalents. Long-Term Liabilities Long-term liabilities (borrowings) are initially stated in the amounts of funds disbursed, i.e. at their nominal value. Subsequently, these assets are stated at their amortized value by applying the contractually agreed interest rates. Accounts Payable Accounts payable are stated at their nominal values Employee Benefits а) Taxes and Contributions Made to the Employee Social Security and Insurance Funds In accordance with regulatory requirements, the Company is obligated to pay contributions to tax authorities and to various state social security funds that guarantee social security insurance benefits to employees. These obligations involve the payment of taxes and contributions on behalf of the employee, by the employer, in an amount computed by applying the specific, legallyprescribed rates. The Company is also legally obligated to withhold contributions from gross salaries to employees, and on behalf of its employees, to transfer the withheld portions directly to the applicable government funds. These taxes and contributions payable on behalf of the employee and employer are charged to expenses in the period in which they arise. This is a translation of the original Auditors Report issued in the Serbian language 12

15 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.8. Employee Benefits (continued) b) Other employee benefits and severance pay Based on the article 72 of Collective Bargaining Agreement dated June 27, the Company is under obligation to pay retirement benefits to an employee in the amount of three (3) average wages earned in the Company or earned in the Republic of Serbia acording to the most recent data published by the Republic Statistical Office, in the month preceding the payment of retirement benefits. The Company is not obliged to pay jubilee awards in accordance with its regulations. Calculation and presentation of long-term liabilities for retirement benefits has been done for the number of employees who are employed for an indefinite period at the calculation date, excluding employees who will be employed in the future. The result of this calculation is actuarial present value of future liabilities. Actuarial gains and losses are credited or charged in the period when they inccured. Beside the aforementioned liabilities, the Company has no other liabilities toward employees Related parties disclosures For the purposes of these financial statements, entities are treated as associated if one entity is able to control another entity or have a substantial impact on the financial and business operations of the entity in compliance with the provisions of IAS 24 "Disclosures of related parties." Related parties within the meaning of the above mentioned standards the Company considers all companies that are part of the group Victoria Group. The Company provides services to related parties and at the same time user of their services. The relationship between the Company and related parties are regulated on a contractual basis. Cost of corporate services are services provided by the parent company of Victoria Group a.d., Belgrade. The fee for the services of a corporate services is determined in accordance with the Agreement on providing of corporate services. This is a translation of the original Auditors Report issued in the Serbian language 13

16 4. SUMMARY OF SIGNIFICANT ACCOUNTING ESTIMATES The presentation of the financial statements requires from the Company s management to make best estimates and reasonable assumptions that effect: the assets and liabilities amounts, the disclosure of contingent liabilities and receivables as of the date of preparation of the financial statements, as well as the income and expenses arising during the accounting period. These estimations and assumptions are based on information available to us, as of the date of preparation of the financial statements Estimates and Assumptions In the following part includes the key assumptions in respect of the future and other sources of estimations, uncertainties present as of the balance sheet date which represent significant risk of material adjustments to the amounts of balance sheet items in the following fiscal year Depreciation and Amortization Charge and Rates Applied The calculation of depreciation and amortization, as well as depreciation and amortization rates are based on the economic useful life of property, plant and equipment Allowance for Impairment of Receivables The allowance for impairment of matured receivables is performed based on the management s assessment charging the Income Statement in order to determine their realizable value Fair Value It is a policy of the Company to disclose the fair value information of those components of assets and liabilities for which published or quoted market prices are readily available, and of those for which the fair value may be materially different than their recorded amounts. In the Republic of Serbia, sufficient market experience, stability and liquidity do not exist for the purchase and sale of receivables and other financial assets or liabilities, for which published market prices are presently not readily available. As a result of this, fair value cannot readily or reliably be determined in the absence of an active market. The Company s management assesses its overall risk exposure, and in instances in which it estimates that the value of assets stated in its books may not have been realized, it recognizes a provision. In the opinion of management, the reported carrying amounts are the most valid and useful reporting values under the present market conditions. 5. SALES 2012 Sales of commercial goods on domestic market: - related parties (note 30) 1,417,465 2,695,260 - other legal entities 3,664,618 2,215,748 Sales of commercial goods on foreign market - 24,733 Sales of products and services: - related parties (note 30.) 2,759,473 3,415,814 - other legal entities on domestic market 354, ,289 - other legal entities on foreign market 1,446,665 1,223,059 9,642,767 9,707,903 This is a translation of the original Auditors Report issued in the Serbian language 14

17 5. SALES (continued) Revenue from the sale of the 2012 in the total amount of RSD 9,642,767 thousand include revenues from RSD 2,848,400 thousand from the sale of pyrite burns. The initial value of the purchase agreement established the in the amount of RSD 155,824 thousand. During the 2012 Agreement was concluded in relation to purchase of pyrite burns and Annex 1 of this Agreement, which defines the right of the Company to participate in the profits to be realized by further sales of pyrite burns to third parties and establishes a fixed fee of RSD 2,848,400 thousand. 6. COST OF COMMERCIAL GOODS SOLD 2012 KCL 72, ,862 Ammonium sulfate 1,540 31,499 Other goods - 156,058 Fuel oil - 30 Raw phosphate 28, ,690 NPK Fertilizer 15, NP Fertilizer - 132,557 Nitrogen fertilizer 1,785,426 3,855,963 Other 114,326 26,183 2,017,560 4,463,782 Cost of commercial goods sold for the year ended, in the amount of RSD 2,017,560 thousand ( RSD 4,463,782 thousand) include cost in the amount of RSD 49,895 thousand which refers to the related parties (- RSD 147,202 thousand) (note 30). 7. COST OF MATERIALS 2012 Cost of raw materials 3,982,548 3,827,150 Other materials 25,721 22,182 Electricity and fuel expenses 39,102 37,553 4,047,371 3,886,885 Cost of materials for the year ended, in the amount of RSD 4,047,371 thousand ( - RSD 3,886,885 thousand) include expenses which refers to the related parties amounting to RSD 24,929 thousand ( - RSD 570,891 thousand) (note 30). This is a translation of the original Auditors Report issued in the Serbian language 15

18 8. STAFF COSTS 2012 Gross and compensations salaries 96,539 76,220 Contributions on salaries and benefits paid by the employer 17,485 13,892 Subcontractor s fee 1,143 1,459 Other staff costs 7,394 3, DEPRECIATION, AMORTIZATION AND PROVISIONS 122,561 94, Depreciation and amortization (note 16) 115, ,526 Provisions for employee benefits (note 23) 1, OTHER OPERATING EXPENSES 116, , Transportation 115, ,023 Maintenance 33,129 31,822 Rent 3,712 12,171 Advertising 694 4,001 Research costs 12,193 2,190 Cost of services that are not capitalized - 4,787 Other production related services 7,918 18,875 Non-production-related services 97,589 79,146 Entertainment 2,325 1,952 Insurance premiums 5,529 11,496 Bank charges 1,878 2,104 Indirect taxes and contributions 8,820 8,005 Other operating expenses 1,566 2, , ,077 Other operating expenses for the year ended, in the amount of RSD 290,715 thousand ( RSD 327,077 thousand) include other operating expenses in the amount of RSD 94,209 thousand which refers to the related parties ( RSD 152,157 thousand) (note 30). Non-production-related services for the year ended, in the amount of RSD 97,589 thousand ( RSD 79,146 thousand) mainly relate to the corporate services in the amount of RSD 81,482 thousand based on the Agreement on providing corporate services, concluded with the Victoria Group a.d., Novi Sad, on January 15, and Annex of the Agreement signed on January 5, This is a translation of the original Auditors Report issued in the Serbian language 16

19 11. FINANCE INCOME 2012 Interest income 100,563 8,039 Foreign exchange gains 272, ,957 Positive effects of foreign currency clause 23,164 19,044 Other finance income , , FINANCE EXPENSES Finance expenses from the related party transactions (note 30) 9,843 10,982 Interest expenses 120,865 70,475 Foreign exchange losses 487, ,432 Negative effects of foreign currency clause 51,295 9,664 Other finance expenses 2,937 8, , , OTHER INCOME 2012 Gains on the sale of equity investments - 1,219 Gains on the sale of raw materials - 2,118 Surpluses Write-off of liabilities 4 8,212 Adjustment of value of receivables (note 18) 2,162 1,156 Reversal of long-term provisions - 1,307 Other ,628 2,728 42, OTHER EXPENSES 2012 Losses on sale of fixed assets Loss on sale of equity investments - 1,944 Shortages 2,113 2,034 Disposal of inventories of material and goods 23 - Write-off of receivables - 1,216 Impairment of domestic accounts receivable (note 18) 21,762 17,447 Impairment of advances paid to suppliers (note 18) 43,281 - Impairment of short term financial placements Impairment of property, plant and equipment based on the negative valuation effects 19,833 - Other expenses 5,364 19,245 92,520 43,036 This is a translation of the original Auditors Report issued in the Serbian language 17

20 15. INCOME TAXES а) Components of Income Tax December 31, December 31, 2012 Current income tax expense (160,763) (37,413) Deferred tax income 2,930 9,690 b) Reconciliation of the Tax Expense and the Product of Accounting Results as Multiplied by the Statutory Income Tax Rate (157,833) (27,723) 2012 Net profit before taxes 3,167, ,651 Income tax at the statutory tax rate (10%) 316,770 74,265 Tax effects of non-deductible expenses 3, Accrued and upaid severance and compensation (180) - Impairment of assets (1,983) - Effects of changes in tax rates 22,775 - Other (22,504) (9,700) Tax credits for capital expenditures (160,764) (37,414) c) Movements on Deferred Tax Liabilities 157,833 27,723 Movements on deferred tax liabilities are as follows: 2012 Balance, beginning of year (3,322) (13,013) Decrease in deferred tax liabilities 2,930 9,691 Increase in deferred tax liabilities based on revaluation reserves as a result of valuation of property, plant and equipment (72,533) - Balance, end of year (72,925) (3,322) This is a translation of the original Auditors Report issued in the Serbian language 18

21 16. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS a) Intangible assets Intangible assets of the Company as at, amounting to RSD 4,035 thousand, completely relate to intangible assets in progress that are stated on the basis of the completed phases of the SAP implementation. The implementations of the project is carried out in phases of June 26, 2012 to March 1, b) Property, plant and equipment Construction in Progress and Advances Investments in the third party assets Land Buildings Equipment Total Cost Balance January 1, , , , ,616 1,312 2,039,423 Additions 258 4,819 21, , ,978 Transfers 8,813 2,098 - (10,911) - - Sale - - (599) - - (599) Valuation effects, net 23, , , ,099 Adjustment to present value following valuation - (108,432) (469,443) - - (577,875) Balance 76,949 1,006, , ,996 1,312 2,059,026 Accumulated Amortization and/or Depreciation Balance January 1, , , ,244 Charge for the year - 23,649 92, ,785 Sale - - (454) - - (454) Adjustment to the present value following evaluation - (108,432) (469,443) - - (577,875) Balance Net book value: - 76,949 1,006, , , ,058,326 - January 1, , , , , ,576,179 As at the Company has mortgages assigned over its land (net book value of RSD 76,949 thousand), building properties (net book value of RSD 1,006,438 thousand), as well as a pledge over its equipment (net book value of RSD 752,331 thousand) in favor of Banca Intesa a.d., Beograd. This is a translation of the original Auditors Report issued in the Serbian language 19

22 17. INVENTORIES December 31, 2012 December 31, Materials 667, ,278 Spare parts 61,997 63,356 Fixtures and fittings 2,427 1,908 Work in progress 86,329 - Finished goods 506, ,672 Wholesale goods 11, ,275 Advances paid to suppliers: - related parties (note 30) - 34,180 - domestic 50, ,601 - foreign 225, ,485 1,612,771 1,432,755 Allowance for impairment: - advances paid to suppliers (46,744) - - fixtures and fittings (2,427) (1,908) (49,171) (1,908) 1,563,600 1,430,847 As at the Company has pledges assigned over its inventories in the amount of RSD 1,334,277 thousand in favor of banks. 18. ACCOUNTS RECEIVABLE December 31, 2012 December 31, Accounts receivable: - domestic 556, ,277 - foreign 222, , ,278 Interest recivable from related parties (note 30) 98,525 - Receivables from employees Receivables from Government institutions Other receivables , ,283 Allowance for impairment of accounts receivable (26,560) (17,476) 852, ,807 This is a translation of the original Auditors Report issued in the Serbian language 20

23 18. ACCOUNTS RECEIVABLE (continued) Movements on the allowance for impairment of domestic accounts receivable and short-term financial placements in 2012 are presented in the following table: Aadvances paid to suppliers (note 17) Domestic accounts receivables (note 18) Short-term financial placements (note 19 ) Total Balance at the beginning of year - 17, ,998 Impairment of receivables (note 14) 43,281 21,762-65,043 Collected receivables previously - provided for (note 13) (2,162) - (2,162) Write-off - (10,516) - (10,516) Related VAT 3, ,463 Balance at the end of year 46,744 26, , SHORT-TERM FINANCIAL PLACEMENTS December 31, December 31, 2012 Securities held for trading 6,500 6,500 Short-term financial placements: - domestic legal entities 11,066 11,066 - related perties 2,429, ,917 2,446, ,483 Allowance for impairment of short-term financial placements (note 18) (522) (522) 2,446, ,961 Short-term financial placements stated as at in the amount of RSD 2,446,470 thousand (December 31, RSD 523,961 thousand) mostly relate, in the amount of RSD 2,429,426 thousand, to the receivables from the related party Victoria Group a.d., Beograd, based on the loan for the maintenance of current liquidity. The loan was approved with a maturity up to one year and an annual interest rate at 11.5% (note 30). 20. CASH AND CASH EQUIVALENTS December 31, December 31, 2012 Current accounts 902 1,288 Cash on hand 39 3 Foreign currency account 101, , , ,730 This is a translation of the original Auditors Report issued in the Serbian language 21

24 21. VALUE ADDED TAX AND PREPAYMENTS December 31, December 31, 2012 Receivables for overpaid VAT 25,231 27,707 Prepaid insurance costs 3,203 3,198 Deferred VAT Other accruals 14, FOUNDING CAPITAL 44,097 31,206 The Company s foundingcapital as at and amount to RSD 231,874 thousand and is 100% owned by Victoria Group a.d., Beograd and is partly formed through cash contributions in the amount of RSD 43 thousand and partly comprised of shares issued by Sojaprotein a.d., Bečej in the amount of RSD 231,831 thousand. Paid in and subscribed capital represent a countervalue of cash contributions of EUR 500 as at November 7, During 2007, a founder - Victoria Group a.d., Beograd increased the Company s capital by a contribution of shares issued by the company Sojaprotein a.d., Bečej. The aforementioned increase was registered with the Serbian Business Register Agency pursuant to Decision number BD 16538/07 dated March 23, 2007 when the first ordinary shares with the voting rights were inscribed, as well as Decision number BD 72478/07 as of July 11, 2007 when the rest of ordinary voting shares were inscribed. The total increase in the value of stakes upon both of these Decisions, aggregated to EUR 2,896, оr RSD 231,831 thousand. Changes in equity are presented in detail in the statement of changes in equity which is an integral part of these financial statements. 23. LONG-TERM PROVISION The Company engaged a qualified actuary to carry out a detailed valuation of the provision for retirement benefits and employee jubilee awards as at December and, in accordance with IAS 19 requirements. Based on the qualified actuary s report the aforementioned provision as at amounts to RSD 4,845 thousand (December 31, RSD 4,072 thousand see Statement of Changes in Equity). Movements on the long-term provision during 2012 and are presented in the following table: 2012 Balance at the beginning of year 4,072 5,538 Charge for the year 1,202 - Reversal of provision during the year - (1,307) Other (429) (159) Balance at the end of year 4,845 4,072 This is a translation of the original Auditors Report issued in the Serbian language 22

25 24. LONG-TERM BORROWINGS December 31, December 31, 2012 Long-term borrowings: - domestic 1,836, ,683 - foreign 312, ,106 2,148, ,789 Less: Current portion of long-term borrowings (note 25) (1,838,161) (364,680) Long-term borrowings as at are listed below: 310, ,109 Creditor Agreement Date Maturity Amount in EUR Amount in thousand RSD Hypo Group Netherlands Corporate Finance B.V., Amsterdam ,747, ,403 Moskovska banka a.d., Beograd ,333, ,624 Banka Intesa a.d., Beograd ,916, ,678 Banka Intesa a.d., Beograd ,333, ,343 Banca Intesa a.d., Beograd ,916, ,678 Banca Intesa a.d., Beograd ,500, ,578 Unikredit Banka a.d., Beograd ,715, ,027 Unikredit Banka a.d., Beograd ,435, ,622 2,148,953 Less: current portion of longterm borrowings (1,838,161) 310,792 The liability arising from the foreign long-term borrowings as at amounted to RSD 312,403 thousand or EUR 2,747,163. The loan has been initially approved to Sojaprotein a.d., Bečej, and it amounted to EUR 8,500,000, but the Company assumed the liability since the purpose of the loan is the construction of the factory of fertilizers, the construction of which was undertaken by the Company subsequent to its establishment. The loan is to be repaid in monthly annuities until April 1, The collaterals for the regular repayment of the amount borrowed include the property and equipment of the factory producing fertilizers, joint and several liability assumed by Sojaprotein a.d., Bečej, as well as five blank bills of exchange provided by debtors and five blank bills of exchange provided by a party jointly and severally liable.. This is a translation of the original Auditors Report issued in the Serbian language 23

26 24. LONG-TERM BORROWINGS (continued) Domestic long-term borrowings were approved for financing of working capital with a grace period of seven months up to eighteen months. These borrowings are collateralized by mortgages assigned over the land in Bačka Palanka and buildings, pledges on the equipment, finished products and raw materials for their production, as well as own blank bills of exchange. Long-term borrowings were approved at three-month EURIBOR as increased by 2.15% up to 4.88% annually 25. SHORT-TERM FINANCIAL LIABILITIES December 31, December 31, 2012 Komercijalna banka a.d., Beograd - 300,000 Short-term financial liability - Luss Investment d.o.o., Beograd 250, ,112 Current portion of long-term borrowings (note 24) 1,838, ,680 2,088, ,792 Short-term financial liabilities as at are listed in the following table: Creditors Approval Date Annual interest rate Maturity Amount in EUR Amount in thousand RSD Luss Investment d.o.o., Beograd , , ACCOUNTS PAYABLE December 31, December 31, 2012 Advances, deposits and retainers received: - related parties (note 30) 48, ,577 - domestic 40, ,437 88, ,014 Accounts payable: - related parties (note 30) 56, ,720 - domestic 260, ,848 - foreign 1,386 2, , , ,122 1,616,180 This is a translation of the original Auditors Report issued in the Serbian language 24

27 27. OTHER CURRENT LIABILITIES December 31, December 31, 2012 Salaries and benefits 1,115 - Interest payables 15,210 3,467 Other payables to employees 73 - Other current liabilities 76-16,474 3,467 Other current liabilities as at in the amount of RSD 16,474 thousand ( RSD 3,467 thousand) include current liabilities in the amount of RSD 9,843 thousand which refers to the related parties (note 30). 28. VALUE ADDED TAX AND OTHER DUTIES PAYABLE AND ACCRUALS December 31, December 31, 2012 Value added tax 391,094 2 Accrued axpenses 648 1,826 Other duties payable ,932 2, OFF-BALANCE SHEET ITEMS December 31, December 31, 2012 Third-party goods 310, ,684 Issued guarantees 20,516,830 18,699,492 20,827,587 19,293,176 Issued guarantees as at in the amount of RSD 20,516,830 thousand in total relate to guarantees issued in favor of banks for liabilities of related parties within the Victoria Group. This is a translation of the original Auditors Report issued in the Serbian language 25

28 30. RELATED PARTY TRANSACTIONS a) Accounts receivable and liabilities, as well as income and expenses from related party transactions are listed below: Balance Sheet December 31, 2012 December 31, Assets Short-term financial placements (note 19): - Victoria Group a.d., Beograd 2,429, ,917 Advances paid to suppliers (note 17): - Victoria Logistic d.o.o., Novi Sad - 34,180 Accounts receivable (note 18): - Victoria Group a.d., Beograd 98,525 - Total Assets 2,527, ,097 Liabilities Advances received (note 26): - Victoria Logistic d.o.o., Novi Sad 48, ,577 Accounts payable (note 26): - Victoria - Zorka Mineralna đubriva d.o.o., Šabac - 163,497 - Sojaprotein a.d., Bečej - 1,070 - Victoria Group a.d., Beograd - 28,747 - SP Laboratorija a.d., Bečej Victoria Logistic d.o.o., Novi Sad 8,908 8,167 - Luka-Bačka Palanka a.d., Bačka Palanka 47,670 11,239 - Veterinarski zavod Subotica a.d., Subotica 99-56, ,720 Other current liabilities (note 27): - Viktoria Group a.d., Beograd 9,843 - Total liabilities 115, ,297 Assets/(Liabilities), net 2,412,778 (185,200) This is a translation of the original Auditors Report issued in the Serbian language 26

29 30. RELATED PARTY TRANSACTIONS (continued) Income Statement 2012 Income Sales (note 5): - Victoria - Zorka Mineralna đubriva d.o.o., Šabac - 198,079 - Sojaprotein a.d., Bečej Victoria Group a.d., Beograd Victoria Oil a.d., Šid Luka-Bačka Palanka a.d., Bačka Palanka Victoria Logistic d.o.o., Novi Sad 4,176,105 5,911,798 Total income 4,176,938 6,111,074 Expenses Costs of commercial goods sold (note 6): - Victoria - Zorka Mineralna đubriva d.o.o., Šabac - 14,396 - Victoria Oil a.d., Šid 17,984 6,786 - Victoria Logistic d.o.o., Novi Sad 22, ,113 - Sojaprotein a.d., Bečej 9, , ,202 Cost of materials (note 7): - SP Laboratorija a.d., Bečej Victoria - Zorka Mineralna đubriva d.o.o., Šabac 445,515 - Luka-Bačka Palanka a.d., Bačka Palanka 21, Victoria Oil a.d., Šid - 125,330 - Victoria Logistic d.o.o, Novi Sad 3,521-24, ,891 Other operating expenses (note 10): - Victoria - Zorka Mineralna đubriva d.o.o., Šabac SP Laboratorija a.d., Bečej Veterinarski zavod Subotica a.d., Subotica Victoria Logistic d.o.o., Novi Sad - 68,952 - Luka-Bačka Palanka a.d., Bačka Palanka 11,554 10,085 - Sojaprotein a.d., Bečej Victoria Group a.d., Beograd 82,351 72,642 94, ,157 Finance expenses (note 12): - Victoria Group a.d., Beograd 9,843 10,982 Total expenses 178, ,232 Income, net 3,998,062 5,229,842 b) Contingent liabilities As at, the Company has contingent liabilities to related parties based on issued guarantees in the amount of RSD 20,516,830 thousand (December 31, RSD 18,699,492 thousand). This is a translation of the original Auditors Report issued in the Serbian language 27