CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR 2012

Transcription

1 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR 2012 Gornji Milanovac,

2 Pursuant to the Art. 50 and 51 of the Law on the Capital Market (Official Gazette of the Republic of Serbia No. 31/2011) and to the Art. 3 and 9 of the Guidelines on the Prescribed Form, Content and Presentation of Annual, Six-Monthly and Qarterly Financial Statements of Public Companies (Official Gazette of the Republic of Serbia No. 13/2012), Metalac a.d. from Gornji Milanovac, company code number , presents CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR 2012 CONTENTS: 1. CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF METALAC A.D. FOR THE YEAR 2012 including: Balance Sheet, Income Statement, Cash Flow Statement, Statement of Chnges in Equity, Statistical Annex, Notes to the Consolidated Financial Statements, AND 2. AUDIT REPORT (Auditor s Report and Opinion) Note*: The Annual Statements include only the Auditor s Report and Opinion, as the Notes to the Financial Statements given in the point 1 of the Annual Statements are identical to the notes of the Auditor s Report. 3. ANNUAL REPORT OF THE COMPANY 4. DECLARATION OF THE PERSONS RESPONSABLE FOR THE PREPARATION OF THE STATEMENTS 5. APPROVAL OF THE STATEMENTS BY THE COMPANY'S BODY OF COMPETENCE

3 DETAILS OF CONSODLIDATION ENTITY Period of the Statement: from to Consolidated Annual Financial Statements for Companies (GFI FI-PD form) Company Name: Мetalac Share Company Company Code Number: Postal Code and City: Gornji Milanovac Address: Кneza Aleksandra web-site: Consolidated/Seaparate: Consolidated Approved (Yes/No): Yes Subsidiaries of the Consolidation Entity:* Address: Company Code Number: Metalac Posudje doo; Metalac Print doo Gornji Milanovac ; Metalac Inko doo; Metalac Bojler doo Gornji Milanovac ; Metalac Market doo; Metalac Trade doo; Stadion Metalac doo Gornji Milanovac ; ; Metpor doo; Matalac Metalurgija doo Belgrade, Novi Sad ; Metalac Proleter a.d.; Metrot doo; Promometal doo Gornji Milanovac; Moscow, Zagreb ; ; Metalac Podgorica doo, Metalac Ukraine doo, Metalac GROUP Podgorica, Kiev, Milwaukee /002; Contact Person: Biljana Cvetic (idicate only first and last name of the contact person) Phone: 032/ Fax: 032/ First and Last Name: Petrasin Jakovljevic (person representing the company)

4 1. CONSOLIDATED FINANCIAL STATEMENTS OF METALAC A.D. FOR THE YEAR 2012 including: Balance Sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement, Statistical Annex, Notes to the Financial Statements, AND

5 2. EXTERNAL AUDITOR'S REPORT METALAC A.D., GORNJI MILANOVAC Consolidated Financial Statements Year Ended December 31, 2012 and Independent Auditors Report

6 METALAC A.D., GORNJI MILANOVAC CONTENTS Page Independent Auditors Report 1 Consolidated Income Statement 2 Consolidated Balance Sheet 3 Consolidated Statement of Changes in Equity 4 Consolidated Cash Flow Statement 5 Notes to the Consolidated Financial Statements 6-40

7 Translation of the Independent Auditors Report issued in the Serbian language INDEPENDENT AUDITORS REPORT To the Shareholders and Management of Metalac a.d., Gornji Milanovac We have audited the accompanying consolidated financial statements (pages 2 to 40) of Metalac a.d., Gornji Milanovac (the Company ) and its subsidiaries, which comprise the consolidated balance sheet as at December 31, 2012, and the related consolidated income statement, consolidated statement of changes in equity and consolidated 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 Consolidated Financial Statement Management is responsible for the preparation of these consolidated 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 consolidated 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 consolidated 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 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 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 management, as well as evaluating the presentation of the consolidated 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 consolidated financial statements of Metalac a.d., Gornji Milanovac for the year ended December 31, 2012 have been prepared, in all material respects, in accordance with the accounting regulations of the Republic of Serbia. Other Matter The Company s consolidated financial statements for the year 2011 were audited by another auditor, whose report dated April 20, 2012 expressed an unqualified opinion thereof. Belgrade, April 18, 2013 Jovan Papić Certified Auditor

8 METALAC A.D., GORNJI MILANOVAC CONSOLIDATED INCOME STATEMENT Year Ended December 31, 2012 (Thousands of RSD) Audited by Another Auditor Note OPERATING INCOME Sales revenues 5 6,067,469 4,971,564 Own-work capitalized 24,775 14,042 Increase in inventories 72,975 58,948 Other operating income 7 160, ,423 6,326,002 5,166,977 OPERATING EXPENSES Cost of goods sold (1,724,761) (1,412,500) Materials, fuel and energy 8 (1,725,607) (1,464,217) Staff costs 9 (1,319,656) (1,074,801) Depreciation, amortization and provisions 10 (235,557) (200,318) Other operating expenses 11 (565,694) (434,242) (5,571,275) (4,586,078) PROFIT FROM OPERATIONS 754, ,899 Finance income , ,616 Finance expenses 13 (218,552) (174,234) Other income 14 43,917 67,805 Other expenses 15 (208,661) (132,547) (109,064) (57,360) PROFIT BEFORE TAXES 645, ,539 INCOME TAXES - current tax expense 17 (44,492) (26,719) - deferred tax (expenses)/benefits (15,708) 5,022 (60,200) (21,697) NET PROFIT 585, ,842 NET PROFIT ATTRIBUTABLE TO: Equity holders of the parent company 581, ,250 Non-controlling interests 3,758 (3,408) 585, ,842 Basic/diluted earnings per share (in RSD) The accompanying notes on the following pages form an integral part of these consolidated financial statements. These consolidated financial statements were approved by the management of Metalac a.d., Gornji Milanovac and submitted to the Serbian Business Registers Agency on April 18, Signed on behalf of Metalac A.D., Gornji Milanovac by: Petrašin Jakovljević Director General Radmila Todosijević Executive Director Milan ĐorĎević Head of Accounting. 2

9 METALAC A.D., GORNJI MILANOVAC CONSOLIDATED BALANCE SHEET As at December 31, 2012 (Thousands of RSD) Audited by Another Auditor Note ASSETS Non-current assets Intangible assets 18 22,718 13,509 Property, plant and equipment 18 1,880,635 1,926,820 Investment property ,793 95,864 Long-term financial investments 19 25,172 40,412 2,316,318 2,076,605 Current assets Inventories 20 1,826,117 1,501,237 Accounts receivable 21 1,336,473 1,220,177 Receivables for prepaid income tax 58,709 32,757 Short-term financial placements , ,539 Cash and cash equivalents , ,034 Value added tax and prepayments 54,495 47,123 4,297,136 3,797,867 Total assets 6,613,454 5,874,472 EQUITY AND LIABILITIES Capital and reserves Share capital , ,000 Other capital 25 33,899 33,899 Share premium 4,256 4,256 Reserves 25 90,623 90,623 Unrealized gains on securities - 1,370 Translation reserves 4,052 2,250 Retained earnings 3,379,148 3,057,220 Equity attributable to majority interest owners 3,919,978 3,597,618 Non-controlling interests 107, ,863 4,027,771 3,706,481 Non-current liabilities and provisions Long-term provisions , ,972 Long-term borrowings , ,875 Other long-term liabilities - 5, , ,959 Current liabilities Short-term financial liabilities , ,756 Accounts payable , ,026 Other current liabilities , ,457 Value added tax and other duties payable and accruals 89,272 83,095 Income tax payables 1,869 2,070 1,764,478 1,866,404 Deferred tax liabilities 17 53,322 37,628 Total equity and liabilities 6,613,454 5,874,472 Off-balance-sheet items , ,628 The accompanying notes on the following pages form an integral part of these consolidated financial statements.. 3

10 METALAC A.D., GORNJI MILANOVAC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year Ended December 31, 2012 (Thousands of RSD) Share Capital Other Capital Share Premium Reserves Unrealized Gains on Securities Translation Reserves Retained Earnings Majority Interests Minority Interests Total Audited by Another Auditor Balance at January 1, ,000 33,899 4,256 90,623 17,423 8,038 2,802,431 3,364, ,718 3,481,388 Opening balance adjustment (284) (284) 15 (269) Unrealized losses on securities (16,053) - - (16,053) - (16,053) Foreign exchange gains/(losses) (5,788) - (5,788) 280 (5,508) Employee profit sharing (137,977) (137,977) (3,189) (141,166) Dividend payments (112,200) (112,200) (1,613) (113,813) Net profit for the year , ,250 (3,408) 501,842 Change in the scope of consolidation Balance at December 31, ,000 33,899 4,256 90,623 1,370 2,250 3,057,220 3,597, ,863 3,706,481 Balance at January 1, ,000 33,899 4,256 90,623 1,370 2,250 3,057,220 3,597, ,863 3,706,481 Unrealized losses on securities (1,370) - - (1,370) - (1,370) Foreign exchange gains/losses ,802-1, ,631 Employee profit sharing (127,177) (127,177) (4,075) (131,252) Dividend payments (132,600) (132,600) (1,522) (134,122) Net profit for the year , ,705 3, ,463 Change in the scope of consolidation (60) (60) Balance at December 31, ,000 33,899 4,256 90,623-4,052 3,379,148 3,919, ,793 4,027,771 The accompanying notes on the following pages form an integral part of these consolidated financial statements. 4

11 CONSOLIDATED CASH FLOW STATEMENT Year Ended December 31, 2012 (Thousands of RSD) Audited by Another Auditor Cash flows from operating activities Cash receipts from customers 6,933,488 5,589,167 Other cash receipts from operations 227, ,812 Cash paid to suppliers (4,855,525) (3,895,816) Cash paid to and on behalf of employees (1,299,405) (1,066,390) Interest paid (50,464) (65,305) Income taxes paid (37,850) (41,443) Other public duties payable (387,005) (273,145) Net cash generated by operating activities 530, ,880 Cash flows from investing activities Sale of property, plant and equipment 3,210 1,141 Interest received 26,498 41,853 Purchase of intangible assets, property and equipment (475,978) (208,140) Other financial investments, net (outflows)/inflows (6,029) 432,997 Net cash (used in)/generated by investing activities (452,299) 267,851 Cash flows from financing activities Long-term and short-term borrowings, net inflows/(outflows) 170,077 (138,650) Finance lease - (290) Dividend payments and profit sharing (252,564) (189,919) Net cash used in financing activities (82,487) (328,859) Net cash (decrease)/increase (4,442) 366,872 Cash and cash equivalents at beginning of year 697, ,645 Foreign exchange gains/(losses) on translation of cash 1,523 (4,483) Cash and cash equivalents at end of year 694, ,034 The accompanying notes on the following pages form an integral part of these consolidated financial statements. 5

12 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 1. FOUNDATION AND ACTIVITY Until 2003, Metalac a.d., Gornji Milanovac (the Company ) was a mixed-ownership entity (with a portion of capital socially-owned and portion in the form of share capital), and ever since it has been 100% shareholding company. The Company was initially established in 1959 as a socially-owned enterprise. On December 8, 1990, based on the Labor Council s decision, the Company was transformed into a mixed-ownership shareholding company, and its capital was increased by means of a share offering to its employees. On July 27, 1998, the Company fulfilled all of the legal and statutory requirements of the Ownership Transformation Act that outlined and governed its privatization. During 2003, further ownership transformation was executed whereby the Company s entire socially-owned capital was fully privatized whereas during 2004 the Company performed a second issue of common shares. The Company is primarily involved in the production and sale of a wide range of enamel, Teflon-coated, aluminum and stainless-steel cookware; production and sale of accumulation water heaters of 30, 50, 80 and 120 liters with enameled or stainless steel tank, and small capacity water heaters of 5 and 10 liters; production and sale of all types of transport and luxurious cardboard packing materials; production and sale of stainless-steel sinks and products of cast polymers; and trading in goods from the product mix, as well as other segments. During December 2005, the Company underwent reorganization and established six business entities entirely in the Company s ownership and, ever since 2006, the Company has operated as a decentralized company, which in its scope of business retains holding activities management and finances, and it also temporarily retains the rights to render services in connection with the transport, restaurant, protection, safety and the factory area maintenance. Other activities, being the primary activities from the prior scope of business, have been transferred to the newly founded enterprises. As of December 31, 2012, the Company had 1,702 employees (2011: 1,515 employees). The increase in the headcount resulted from an increased labor engagement due to the higher production and sales volume. The head office of the Company is in Gornji Milanovac, at no. 212, Kneza Aleksandra Street. 2. BASIS OF PREPARATION AND PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTING METHOD 2.1. Basis of Consolidation The consolidated financial statements comprise the financial statements of Metalac a.d., Gornji Milanovac, as the parent company, and the following domestic and foreign subsidiaries: % of Equity Interest 1. Metalac PosuĎe d.o.o, Gornji Milanovac 100% 2. Metalac Market d.o.o, Gornji Milanovac 100% 3. Metalac Trade d.o.o, Gornji Milanovac 100% 4. Metalac Print d.o.o, Gornji Milanovac 100% 5. Metalac Inko d.o.o, Gornji Milanovac 100% 6. Metalac Bojler d.o.o, Gornji Milanovac 100% 7. Metalac Proleter a.d., Gornji Milanovac % 8. Metalac Metalurgija a.d., Novi Sad % 9. Metpor d.o.o, Beograd 100% 10. Promo Metal d.o.o, Republic of Croatia 100% 11. Metalac Market d.o.o., Montenegro 100% 12. Metrot o.o.o. Moscow, Russia 100% 13. Metalac-Ukrajina, Kiev, Ukraine 100% 14. Metalac Group, USA 50% 6

13 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 2. BASIS OF PREPARATION AND PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTING METHOD (Continued) 2.1. Basis of Consolidation (Continued) All materially significant intercompany balances and transactions among and between the aforelisted subsidiaries have been eliminated upon consolidation. The unrealized gains included within the inventories as of December 31, 2012 and 2011 were not eliminated in the accompanying consolidated financial statements, since, in the opinion of management, they do not have material effects on the consolidated financial statements. Assets and liabilities of foreign subsidiaries have been translated to dinars by applying the official exchange rate as of the balance sheet. The income statement and cash flows have been translated at the median exchange rate. The effects arising from the recalculation of amounts in the consolidated financial statements denominated in a foreign currency into a reporting currency are presented within equity Consolidated Financial Statements The Company s consolidated financial statements include its consolidated balance sheet prepared as of December 31, 2012, and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year ended that day, and a summary of the significant accounting policies and other explanatory notes. The consolidated financial statements were prepared at historical cost principle, unless otherwise stipulated in the accounting policies presented hereunder. In the preparation of the accompanying consolidated financial statements, the Company adhered to the accounting policies described in Note 3. These accounting policies have been consistently applied to all presented reporting periods. The Company s consolidated financial statements are stated in thousands of dinars (RSD). The dinar is the official reporting currency in the Republic of Serbia Basis of Preparation and Presentation of Consolidated Financial Statements Pursuant to the Law on Accounting and Auditing (Official Gazette of the Republic of Serbia no. 46 of June 2, 2006 and no. 111 as 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. 114/2006 3/2011). 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 afore-mentioned standard. Standards and interpretations in issue, but not yet officially translated and adopted and standards and interpretations in issue but not yet in effect are disclosed in Notes 2.4 and

14 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 2. BASIS OF PREPARATION AND PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTING METHOD (Continued) 2.3. Basis of Preparation and Presentation of Consolidated Financial Statements (Continued) The accounting regulations of the Republic of Serbia depart from IAS and IFRS in the provisions of IAS 19, Employee Benefits given that, pursuant to the relevant Ministry interpretation, the employee share in profit distribution is recorded as decrease in retained earnings rather than charged to the net profit. In accordance with the aforedescribed, and given the potentially material effects which the departures of accounting regulations of the Republic of Serbia from IAS and IFRS may have on the fairness presentations made in the financial statements, the accompanying financial statements cannot be treated as a set of financial statements prepared in accordance with IAS and IFRS. The consolidated financial statements were prepared at historical cost principle, unless otherwise stipulated in the accounting policies presented hereunder. In the preparation of the accompanying consolidated financial statements, the Company adhered to the accounting policies described in Note 3. The Company s consolidated financial statements are stated in thousands of dinars (RSD). The dinar is the official reporting currency in the Republic of Serbia Standards and Interpretations in Issue but not yet Translated and Adopted As of the financial statements issuance date, the following standards, amendments were issued by the International Accounting Standards Board and Interpretations issued by the International Financial Reporting Interpretations Committee but were not officially adopted and translated in the Republic of Serbia: Amendments to IFRS 7 Financial Instruments: Disclosures Amendments improving fair value and liquidity risk disclosures (revised in March 2009, effective for annual periods beginning on or after January 1, 2009); Amendments to IFRS 1 First-Time Adoption of IFRS Additional Exemptions for First-Time Adopters. The amendments relate to assets in oil and gas industry and determining whether an arrangement contains a lease (revised in July 2009, effective for annual periods beginning on or after January 1, 2010); Amendments to various standards and interpretations resulting from the Annual Quality Improvement Project of IFRS published on April 16, 2009 (IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36, IAS 39, IFRIC 16) primarily with a view to removing inconsistencies and clarifying wording, (amendments are to be applied for annual periods beginning on or after 1 January 2010, while the amendment to IFRIC is to become effective as of July 1, 2009); Amendments to IAS 38 Intangible Assets (revised in July 2009, effective for annual periods beginning on or after July 1, 2009); Amendments to IFRS 2 Share-Based Payment : Amendments resulting from the Annual Quality Improvement Project of IFRS (revised in April 2009, effective for annual periods beginning on or after July 1, 2009) and amendments relating to group cash-settled share-based payment transactions (revised in June 2009, effective for annual periods beginning on or after January 1, 2010); Amendments IFRIC 9 Reassessment of Embedded Derivatives effective for annual periods beginning on or after July 1, 2009 and IAS 39 Financial Instruments: Recognition and Measurement Embedded Derivatives (effective for annual periods beginning on or after June 30, 2009); IFRIC 18 Transfers of Assets from Customers (effective for annual periods beginning on or after July 1, 2009); Conceptual Framework for Financial Reporting 2010 being an amendments to Framework for the Preparation and Presentation of Financial Statements (effective for transfer of assets from customers received on or after September 2010); 8

15 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING CONVENTION (Continued) 2.4. Standards and Interpretations in Issue, but not yet Translated and Adopted (Continued) Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (effective for annual periods beginning on or after July 1, 2010); 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, 2011); Amendments to IAS 32 Financial Instruments: Presentation Accounting for Rights Issues (effective for annual periods beginning on or after February 1, 2010); Amendments to various standards and interpretations Improvements to IFRSs(2010) resulting from the Annual quality improvement project of IFRS published on May 6, 2010 (IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13) primarily with a view to removing inconsistencies and clarifying wording, (most amendments are to be applied for annual periods beginning on or after January 1, 2011); Amendments to IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction Prepayments of a Minimum Funding Requirement (effective for annual periods beginning on or after January 1, 2011); IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after July 1, 2010). Amendments to IFRS 1 First-Time Adoption of IFRS Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (effective for annual periods beginning on or after July 1, 2011); Amendments to IFRS 7 Financial Instruments: Disclosures Transfers of Financial Assets (effective for annual periods beginning on or after January 1, 2011); Amendments to IAS 12 Income Taxes Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after January 1, 2012) Standards and Interpretations in Issue not yet in Effect At the date of issuance of these financial statements the following standards, revisions and interpretations were in issue but not yet effective: IFRS 9 Financial Instruments (effective for annual periods beginning on or after January 1, 2015); Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures Mandatory Effective Date and Transition Disclosures (effective for annual periods beginning on or after January 1, 2015); IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after January 1, 2013); IFRS 11 Joint Arrangements (effective for annual periods beginning on or after January 1, 2013); IFRS 12 Disclosures of Involvement with Other Entities (effective for annual periods beginning on or after January 1, 2013); Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements and Disclosures of Involvement with Other Entities: Transition Guidance (effective for annual periods beginning on or after January 1, 2013); 9

16 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING CONVENTION (Continued) 2.5. Standards and Interpretations in Issue not yet in Effect (Continued) IAS 27 (revised in 2011) Separate Financial Statements (effective for annual periods beginning on or after January 1, 2013); IAS 28 (revised in 2011) Investments in Associates and Joint Ventures (effective for annual periods beginning on or after January 1, 2013); IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after January 1, 2013); Amendments to IAS 19 Employee Benefits Improvements to the Accounting for Post-Employment Benefits (effective for annual periods beginning on or after January 1, 2013); Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards Government Loans with a Below-Market Rate of Interest (effective for annual periods beginning on or after January 1, 2013); Amendments to IFRS 7 Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2013); Amendments to IAS 1 Presentation of Financial Statements Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after July 1, 2012); Amendments to IAS 32 Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2014); Annual improvements cycle issued in May 2012 (effective for annual periods beginning on or after January 1, 2013); IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective for annual periods beginning on or after January 1, 2013). Amendments to IFRS 10, IFRS 12 and IAS 27 - Exemption from Consolidation of Subsidiaries under IFRS 10 'Consolidated Financial Statements' (effective for annual periods beginning on or after January 1, 2014) Comparative Information Comparative information is comprised of the Company s financial statements as of and for the year ended December 31, 2011, which were audited by an independent auditor. 10

17 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Income and Expense Recognition Sales revenues are recognized when the risk and rewards associated with the rights of ownership are transferred to the customer, which is considered to be upon the delivery of goods to the customer. Income is measured at the fair value of the consideration received or receivable, net of discounts and value added tax. At the moment in which income is recognized, the related expenditure is also recognized (as per the matching principle). Maintenance and repairs of fixed assets are expensed as incurred against the income of the current period Borrowing Costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are recognized as a part of the cost of that asset starting from the period when all activities necessary to prepare the asset for its intended use or sale are substantially completed. A qualifying asset is an asset that takes a substantial period of time to be prepared for its intended use or sale. Investment income realized from the temporary placement of funds borrowed is netted against borrowing costs intended to finance qualifying assets. All other borrowing costs are recognized on the profit and loss account in the period to which these relate Foreign Exchange Translation Transactions denominated in foreign currencies are translated into dinars at the official exchange rates determined at the Interbank Foreign Exchange Market and effective at the date of each transaction. Assets and liabilities denominated in foreign currencies are translated into dinars by applying the official exchange rates determined in the Interbank Foreign Exchange Market and effective at the balance sheet date. Positive or negative foreign exchange effects arising upon the translation of transactions, and assets and liabilities denominated in foreign currencies are credited or charged to the income statement as foreign exchange gains or losses. For the purpose of preparing the consolidated financial statements, assets and liabilities of foreign subsidiaries have been recalculated into dinars at the rate effective as of the balance sheet date. The income statement and cash flow statement have been recalculated into dinars applying the median exchange rate of the period unless movements in exchange rates were significant. The foreign exchange gains and losses are recognized as a separate equity component Employee Benefits a) Employee Taxes and Contributions for Social Security In accordance with local regulations, the Company is obligated to pay contributions to the State Social Security and Pension Funds. This obligation involves the payment of contributions on behalf of the employee, by the employer in the amounts calculated by applying the specific percentages defined under the effective tax regulations. The Company is also obligated to withhold contributions from gross payments to employees, on behalf of employees, to the same funds. These contributions, payable on behalf of both the employee and the employer are charged to expenses in the period to which they relate. 11

18 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.4. Employee Benefits (Continued) b) Retirement Benefits and Jubilee Awards Pursuant to the provisions of the Labor Law, the Company is under obligation to pay retirement benefits to an employee in the amount of three average wages earned in the Republic of Serbia according to the most recent data published by the Republic Statistical Office. To employees determined to be redundant with no other entitlements defined by the Law, the employer will pay severance pays in the amount of one third of an employee salary for each of the first ten years of service with the Company as increased by a quarter of a salary for each year of service following the first 10 years. The salary within the meaning of the previous paragraph is considered to be the average salary of the employee paid in the three months preceding the payment of retirement benefits. Also, based on the Collective Bargaining Agreement, the Company is under obligation to pay jubilee awards based on the consecutive years of service with the Company in the amount of an average salary earned in the Company in the month preceding the disbursement of a jubilee award for 20 years of continued service with the Company, and two such salaries for 30 years of continued service with the Company Taxes and Contributions Income Taxes Current Income Tax 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. The taxable base stated in the income tax return includes the profit before taxation shown in the statutory statement of income, as adjusted for differences that are specifically defined under statutory tax rules of the Republic of Serbia, less any prescribed tax credits. The income tax rate of 15% is to be applied after January 1, The tax regulations of 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, current period tax losses may be used to reduce or eliminate taxes to be paid in future periods 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. 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. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences and tax credits and losses available for carry forward, 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 carry forwards can be utilized. Deferred tax assets and liabilities are determined at the tax rate expected to be applied in the period of the relevant asset realization/liability settlement, As at December 31, 2012, deferred tax assets and liabilities were provided at the rate of 15% (December 31, 2011: 10%). Deferred income tax 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. 12

19 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.5. Taxes and Contributions (Continued) Indirect Taxes and Contributions Indirect taxes and contributions include property taxes and other taxes and contributions paid pursuant to the republic and municipal regulations Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation Property, Plant and Equipment The initial measurement of plant, property and equipment fulfilling the asset recognition criteria, is stated at cost. Cost represents the prices billed by suppliers together with all acquisition-related costs and any costs incurred in bringing new assets into use, net of any trade discounts and rebates. Subsequent expenditure such as modification to property, plant and equipment, or adaptation is recognized as an increase in the cost of respective assets, when it is probable that future economic benefits, in excess of the originally assessed standard of performance, will flow to the Company. All other subsequent expenditures are charged to profit and loss account in the period they incurred. After initial recognition an item of property, plant and equipment is carried at cost less accumulated depreciation and accumulated impairment losses, if any. Gains or losses arising as a result of disposals or write-offs are either credited to income, or charged to expenses within the income statement Investment Property Investment property is property held by the Company to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business. An investment property is measured initially at cost. After its recognition, investment property is carried at cost less accumulated depreciation and aggregate impairment losses, if any. Investment property under construction activated at the year-end was recognized at cost in accordance with the requirements of IAS 16. Given the specificity of investment property, fair value thereof cannot be reliably determined since comparable market transactions are not common and alternative reliable fair value estimates are not available. 13

20 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.9. Depreciation The depreciation of property, plant and equipment is computed using the straight-line method, during the estimated useful life of these assets. The useful lives and depreciation rates for the main classes of fixed assets were as follows: Useful Life in Years Depreciation Rate Buildings - Administrative and apartment buildings 50 2% - Production plants % - Other buildings 10 10% Equipment - Production and transfer equipment and plant % - 10% - Transport vehicles % - Office and retails tore furniture and fittings % % - Production plant fixtures, tools, devices, and telecommunication equipment 5 20% - Office and computers equipment 4 25% - Other assets, elsewhere not mentioned % Intangible Assets Intangible assets are comprised of purchased software stated at cost less accumulated amortization charged over a period of five years Impairment of Tangible Assets Leases At each balance sheet date, the Company s management reviews the carrying amounts of the Company s property, plant, equipment and intangible assets in order to determine the indications of impairment loss. If there is any indication that such assets have been impaired, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss. In cases where it is impossible to assess the recoverable amount of an individual asset, the Company assesses the recoverable value of the cash generating unit to which the asset belongs. Recoverable amount is based on the higher of net selling price and value in use. The estimate of the value in use comprises the assessment of future cash inflows and outflows discounted to their present value by applying the pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the estimated recoverable amount of assets (or cash generating unit) is below their carrying value, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognized as an expense of the current period under operating expenses. At December 31, 2012, according to the Company s management, there were no indications of impairment in intangible assets, property, plant and equipment. Leases are classified as finance leases whenever the terms of the lease transfer substantially all risks and rewards of ownership to the Company. All other leases are classified as operating leases. The Company as a Lessor Lease income from operating leases (rentals) is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred by lessors in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. 14

21 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Leases (Continued) The Company as a Lessee Assets held under finance leases are initially recognized as the assets of the Company at the present value of the minimum lease payments, which is determined at the inception of the particular lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease liability. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company s general policy on borrowing costs (Note 3.2). Lease payments under an operating lease are recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user s benefit. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized 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 Inventories Inventories are primarily stated at the lower of cost and net realizable value. The net realizable value is the price at which inventories can be realized throughout the normal course of business, after allowing for the costs of realization. The cost of materials is determined using the standard costing method. At the end of the accounting period, the carrying value is adjusted to cost by an apportionment of the related price variances, which are calculated on an average basis, between the cost of sales and the inventories held at the year end. Work in progress and finished goods include all production-related costs and an attributable portion of production overhead. Merchandise held in warehouses is stated at cost, and merchandise in retail outlet is stated at their sales price. At the end of the accounting period, their value is adjusted to cost by an apportionment of the related selling margin, calculated on an average basis, between the cost of merchandise sold and the inventories held at the year end. Provisions that are charged to other expenses are made where appropriate (including the slow-moving, excessive and obsolete inventories) in order to reduce the value of inventories to management s best estimate of net realizable value. Inventories found to be damaged or of a substandard quality are written off in full 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. Purchase or sale of financial assets is recognized by applying the settlement date accounting, i.e. based on the date when the relevant asset is delivered to the counterparty. 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, and/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. 15

22 METALAC A.D., GORNJI MILANOVAC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 All amounts are expressed in thousands of RSD, unless otherwise stated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Instruments (Continued) Long-Term Financial Investments Long-term financial investments comprise equity investments in commercial banks and other legal entities which are not listed in the stock exchange. Such investments are stated at cost less impairment estimated by the management for the purpose of remeasuring these assets to their market value. Accounts Receivable, Short-Term Financial Investments and Other Current Receivables Accounts receivable, short-term financial investments and other current receivables are stated at nominal value as decreased by the allowance for impairment made based on their recoverability assessed by management. Cash and Cash Equivalents Cash and cash equivalents in the Company s consolidated financial statements include cash on hand and balances on current and foreign exchange bank accounts, short-term deposits with up to three months maturities and cheques of retail customers for sale with payments deferred up to three months. Financial Liabilities Classification as Debt or Equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the relevant contractual arrangements. Financial Liabilities Financial liabilities are classified either as financial liabilities at fair value through profit and loss or other financial liabilities. Financial Liabilities at Fair Value through Profit and Loss ( at FVTPL ) Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if: it has been acquired principally for the purpose of repurchasing it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Company manages and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL. 16