PRISHTINA INTERNATIONAL AIRPORT "ADEM JASHARI" Independent Auditors' Report and Financial Statements for the year ended December 31, 2011

Transcription

1 PRISHTINA INTERNATIONAL AIRPORT "ADEM JASHARI" Independent Auditors' Report and Financial Statements for the year ended December 31, 2011

2 CONTENTS PAGE INDEPENDENT AUDITORS' REPORT STATEMENT OF FINANCIAL POSITION STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS

3 BDO Fa,,c, /2 E,D,11,r Kr,15.1],r,1 Pd. 1.1J4Ct Fiaratliitai H5, 7 Pr.,rr,htlfla INDEPENDENT AUDITORS' REPORT To the Board of Directors of Prishtina International Airport "Adem Jashari" J.S.C. We have audited the accompanying financial statements of Kosovo Prishtina International Airport J.S.0 (the "Company"), which comprise the statement of financial position as at December 31, 2011 and statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of 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 International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. Except for the matters discussed in paragraphs below, we conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. f!rms. 1.,f,,C) 1,,

4 BDO vrar,.. rasemeimaiermoma, Basis for Qualified Opinion As it is disclosed in note 5 to the accompanying financial statements, at 31 December 2011, the net carrying Value of Company's property, plant and equipment amounts to Euro 4,083 thousands. According to the accepted accounting policy disclosed further in notes to these financial statements, items of property, plant and equipment existing on 1 January 2005 the date of Company's incorporation and opening balance sheet date, were recognized in the Company's accounts at their revalued amounts determined by independent external valuers. The accepted revaluation model requires revaluations to be made with sufficient regularity to ensure that the carrying amounts of revalued assets do not differ materially from that which would be determined using fair value at the end of the reporting period. Owing to the nature of the Company's records, we were not able to satisfy ourselves with the management assessments of the fair values of Company's property, plant and equipment as of 31 December In addition, the accepted accounting policy regarding the impairment of non financial assets disclosed further in note 2.7 requires at each balance sheet date items of property, plant and equipment to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, We were not provided with any evidence that such impairment test has been performed as of the balance sheet date. Due to the matters disclosed above, we were not able to obtain reasonable assurance for the carrying amount of Company's property, plant and equipment as of 31 December Qualified Opinion In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves' as to the matters referred to in paragraph above, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2011, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. II BOO Kosova L.L.C. Prishtina, Kosova II April 20, 2012

5 1 1 Statement of financial position as at December 31, 2011 I! Notes As at December 31, 2011 As at December 31, 2010 ASSETS Non-current assets Property, plant and equipment 5 4,083 39,626 Intangible assets ,109 39,799 Current, assets Inventories Trade and other receivables 8 4,153 3,986 Cash 4 on hand and at banks 9 6,015 11,319 10,237 16,253 TOTAL ASSETS 14,346 56,052 EQUITY AND LIABILITIES Shareholders' equity Share capital 10 12,657 18,000 Share premium ,706 Accumulated profits ,046 13,232 _ 53,752 Non-current liabilities Deferred tax liabilities Current Liabilities Trade and other payables , ,139 Total liabilities 1,114 2,300 TOTAL EQUITY AND LIABILITIES 14,346 56,052 Authorized for issue by the management and signed on its behalf on April 20, Mr. Bahri Nuredini Mr. Valon Grabovci r Chief Executive Officer Chief FinanctafOfficer The accompanying notes from 1 to 20 form an integral part of these financial st einents. 3

6 Statement of comprehensive income for the year ended December 31, 2011 Year ended December 31, Notes 2011 Year ended December 31, 2010 Sales revenues 12 8,005 24,221 Other operating income ,453 8,722 27,674 Operating costs 14 (8,400) ) Operating profit 322 6,411 Financial income Financial costs 15 (5) (13) Profit before taxation 553 6,788 Taxation 16 (157) (610) Net profit for the year 396 6,178 Other comprehensive income Total comprehensive income 396 6,178 The accompanying notes from 1 to 20 form an integral part of these financial statements. 4

7 PRISHTINA INTERNATfONAL AIRPORT "ADEM JASHARI" J.S.C. Statement of changes in equity for the year ended December 31, 2011 _ Share Retained Total Share capital premium earnings Balance as at January 1, ,000 13,706 20,709 52,415 Dividends paid to shareholders (5,000) (5,000) Profit for the year 6,178 6,178 Other comprehensive income (r4 11), Balance as at December 31, 2010 _18,000 13,706 22,046 53,752 Balance as at January 1, ,000 13,706 22,046 53,752 Dividends paid to shareholders (5,000) (5,000) Effects on transfer of assets to Limak (5,343) (13,527) 117,046) (35,916) Profit for the year Other comprehensive income Balance as at December 31, , ,232 I The accompanying notes from 1 to 20 form an integral. part of these financial statements.

8 Statement of cash flows for the year ended December 31, 2011 Notes Year ended December 31, 2011 Year ended December 31, 2010 Cash flows from operating activities Net profit before taxation 553 6,788 Adjustments for non-cash items: Depreciation and amortization 5-6 1,688 4,220 Provision for doubtful debts 225 Gains recognized in equity 159 Reconciliation of property plant and equipment 128 Deferred tax expense Operating gain before changes in operating assets and liabilities 2,299 11,576 Changes in inventories 445 (482) Changes in trade and other receivables (167) 721 Changes e in trade and other payables (1,243) (400) Cash generated in operating activities 1,334 11,415 Income taxes paid (65) (610) Net cash generated in operations 1,269 10,805 Cash flows from investing activities Purchase of property, plant and equipment 5 (1,573) (3,357) Cash used in investing activities (1,573) (3,357) Cash flows from financing activities: Dividends paid (5,000) (5,000) Cash used in financing activities (5,000) (5,000) Net increase in cash and cash equivalents (5,304) 2,448 Cash and cash equivalents at the beginning of the year 11,319 8,871 Cash and cash equivalents at the end of the year 9 6,015 11,319 The accompanying notes from 1 to 20 form an integ al part of these financial statements 6

9 PRISHT1NA INTERNATIONAL AIRPORT "ADEM JASHARI" J.S.C. 1. GENERAL Prishtina Airport (Public Enterprise) was transformed into a joint Stock Company (J.S.C.) under United Nations Interim Administration Mission in Kosovo IUNMIK") regulation No. 2001/6 and its name was changed to Prishtina International Airport I holding J.S.C. (further referred as to "Holding"! on 23 June 2005 and with effect from 01 January A wholly owned subsidiary, Prishtina International Airport J.S.C. (the "Subsidiary") was established on the same date. On 13 June 2008, the Assembly of the Republic of Kosovo adopted the Law on Publicly Owned Enterprises (Law No.031L-087), and based on provision of section 3 of this Law, central publicly owned enterprises, including PIA Moldings J.S.C., are owned by the Republic of Kosovo. Government of the Republic of Kosovo, through the Ministry of Economy and Finance, has the exclusive authority to exercise the shareholder's rights over the publicly owned enterprises. The charter capital of the biding Company amounts to Euro 18 million divided into 18 million ordinary shares with face value of Euro 1 which was issued to Kosovo Trust Agency (KTA). as trustee for UNMIK in accordance with UNMIK regulation No 2002/12 as amended by UNMIK regulation No 2005/18 on the establishment of KTA. The initial charter capital of the Subsidiary amounts to Euro 25 thousand and is fully contributed in kind by the Holding Company through a resolution dated 28 June On the same date the capital was increased to Euro 18 million in exchange for the transfer of the trade, contracts, all assets and liabilities effective from 01 January 2003 through the declaration of subscription and agreement for Prishtina International Airport J.S.C. and the execution of a deed of transfer of real property dated 30 June On 30 September 2009, the 'Ministry of Economy decided all Holding Enterprises to be transformed in Public Company J.S.C. and further the Holding Companies to terminate. The Company changed its business registration file regarding to the ownership at 23 December As at 01 January 2005 the cur rent assets were valued at fair value and non-current assets at depreciated cost less impairment to form the opening net assets of the Group (the Holding Company and the Subsidiary). Since November 1999 UNMIK has overall financial and strategic management of Prishtina Airport. With the establishment of the KTA in the mid of 2002, it took over responsibility for the administration of the airport. All operation on the airfield arid airspace had been run by KFOR (Kosovo Force, a NATO - led international force responsible for establishing and maintaining security in Kosovo). A handover to civil UNMIK authority occurred on 01 April In addition, at that time it was determined that KFOR should be charged for landing and handling military flights. These services were not chargeable previously. In accordance with the agreement between UNMIK and Government of the Republic of Iceland acting through Civil Aviation Administration (ICAA), signed on 01 April 2004 the latter is responsible to ensure, in cooperation with Civil Aviation Regulatory Office for Kosovo CCARO") established by UNMIK, that Prishtina International Airport J.S.C. is in compliance with relevant IC AO (International Civil Aviation Organization) standards and recommended practices.

10 1. GENERAL (CONTINUED) On 12 August 2010, based on the Law no. 03/L-090 on Public Private Partnerships and concessions in infrastructure and the procedures for their award, the shareholder of the Company - Republic of Kosovo has signed an Agreement with consortium Limak Aerport de Lyon to donation a concession for operating Prishtina International Airport for a period of 20 years. According to the concession agreement, 'Limak Holding ' and "Aerport de Lyon' are required to modernize and expand the Company, investing over Euro 100 million in new infrastructure, including construction of new terminal building. The consortium have to pay to the Republic of Kosovo 39,42' /n from annual gross revenues of the Company for the next 20 years, as a yearly concession fee. On August 16, 2010 the International Airport was renamed in Prishtina International Airport "Adem Jashari". On April 2011 net fixed assets of Euro 35,575 thousand, inventories of 432 thousand and 609 employees were transferred to consortium Limak Aerport de Lyon. At the date of this report the Company has 159 employees. 8

11 2 ACCOUNTING POLICIES Following are the principal accounting policies adopted in the preparation of these financial statements: 2.1 Basis of preparation These financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below. These financial statements have been prepared on the assumption that the Company will continue as a going concern. The Company's operations are largely dependent and supported by various grant funds. Management considers that sufficient outside funds will be also available in the foreseeable future so as to enable the Company to pay its debts as they fall due. These financial statements do not reflect any adjustments, which might be required to be made on the carrying amounts of the Company's assets and liabilities if going concern assumption is no longer valid. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4: Critical accounting estimates and judgments. These financial statements are prepared as of and for the years ended 31 December 2011 and Current and comparative data are expressed in Euro thousands (000 EUR) unless otherwise stated Corresponding figures Comparative figures are not comparable due to the effect of the agreement Public Private Partnerships and concessions in infrastructure. 2.3 Changes in accounting policies and disclosures New and amended standards and interpretation of existing standards adopted by the Company During the current year, the Company has adopted the following new interpretations, revisions and amendments issued by the International Accounting Standards Board that are relevant for its business activities and that become effective for the annual reporting periods as of 01 January 2011 IFRS 7 'Financial instruments - Disclosures' (amendment) - effective 1 January The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements of assets and liabilities recorded at their fair value in the Statement of financial position, according to levels of fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on earnings per share. IFRS 8 'Operating segments' - effective 1 January This standard introduces the "managerial approach" in segment reporting, pursuant to this, segment information is disclosed on the same basis as the basis used for reporting purposes. The application of IFRS 8 does not have any material effect on the published Company's Statement of comprehensive income or the Statement of changes in equity. 9

12 2 ACCOUNTING POLICIES (CONTINUED) New and amended standards and interpretation of existing standards adopted by the Company (Continued IAS 1 (revised) 'Presentation of financial statements' - effective 1 January The revised standard prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity in a statement of comprehensive income. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Comparative information has been re-presented so that it also is in conformity with the revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share. IFRS 2 (amendment), 'Share-based payment' (effective 1 January 2010). The IASB has issued an amendment to IFRS 2 regarding vesting conditions and cancellations. Management does not consider the amendments to have an impact on the Companys accounting policies since the Company does not operate any share - based payment schemes. IAS 23 'Borrowing Costs' (Revised) - effective 1 January The principal change to the Standard was to eliminate the option to expense all borrowing costs when incurred and requires that the entity capitalize its borrowing cost as expenses referring to procurement, creation or production of the appropriate asset, as part of the asset's costs. This change has had no impact on the Company's financial statements for the year IFRIC 13, 'Customer loyalty programs'. IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement in using fair values. IFRIC 13 is not relevant to the Company's operations because the Company does not operate any loyalty programs Standards amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are riot yet effective, and have not been adopted early by the company. 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 1 January 2011). Amendments to IAS 32 Financial Instruments: Presentation - Accounting for rights issues (effective for annual periods beginning on or after 1 February 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 1 January 2011). 10

13 2 ACCOUNTING POLICIES (CONTINUED) Standards amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company (Continued) IFRS 9 'Financial Instruments' (effective from 1 January 2013). The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety by the end of 2011, with the replacement standard to be effective for annual periods beginning 1 January 2013.IFRS 9 is the first part of Phase 1 of this project. Management has yet to assess the impact that this amendment is likely to have on the financial statements of the Company. However, they do not expect to implement the amendments until all chapters of the IAS 39 replacement have been published and they can comprehensively assess the impact of all changes. Classification of rights issues (Amendment to IAS 32), issued in October For tights issues offered for a fixed amount of foreign currency, current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to all the entity's existing shareholders in the same class for a Fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment should be applied for annual periods beginning on or after 1 February Earlier application is permitted. "Prepayments of a minimum funding requirement" (Amendments to IFRIC 14), issued in November The amendments correct an unintended consequence of IFRIC 14, "1 AS 19 -The limit on a defined benefit asset, minimum funding requirements and their interaction". Without the amendments, entities are not permitted to recognize as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC. 14 was issued and the amendments correct the problem. The amendments are effective for annual periods beginning 1 January Earlier application is permitted. "The amendments should be applied retrospectively to the earliest comparative period presented. IFRIC 19, "Extinguishing financial liabilities with equity instruments". This clarifies the requirements of I FRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entitys shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after 1 July Earlier application is permitted. Improvements to International Financial Reporting Standards 2010 were issued in May The effective dates van' standard by standard but most are effective 1 July Foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year-end exchange rates are recognized in profit or loss. Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not retranslated). Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined. 11

14 !!!i 2 ACCOUNTING POLICIES (CONTINUED) 2.5 Property, plant and equipment Property, plant and equipment existing as at 1 January 2005 are stated at deemed cost less accumulated depreciation and impairment, if any, whereas items of property, plant and equipment purchased subsequent to 1 January are stated at cost less accumulated depreciation and impairment, if any. Deemed cost represents revalued cost of items of property, plant and equipment determined based on the valuation performed by independent authorized appraisers at 1 January 2005 the date of Company's incorporation as a joint stock company (CSC). Subsequent costs are included in the assets carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliable. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Land is carried at deemed cost and is not depreciated. Depreciation is charged on a straight-line basis at prescribed rates in order to allocate the revalued cost of property. plant and equipment over their useful lives. In determining the depreciated replacement cost as at 1 January 2005 each asset was assigned a remaining useful life and is being depreciated over the revised estimated life. The following are approximations of the annual depreciation rates applied to significant items of property, plant and equipment acquired after January 2005: Land improvements 5-25% Buildings 5% Machinery and equipment 15-25% Apartments 5% Leasehold improvements 5-25% Assets in construction were brought into the opening balance sheet at 01 January 2005 at cost less impairment and are to be depreciated from the time the assets are completed or ready to use. Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the assets fair value less costs to sell and value in use. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. On April 2011 net assets of Euro 35,575 thousand were transferred to consortium Limak Aerport de Lyon. 2.6 Leasehold improvements The Company does not hold legal title to certain major assets, such as the runways, taxiways and aprons. The Company has invested significant amounts in the maintenance of these facilities and plans to invest significant amounts in the future. The expenditure to date is classified as leasehold improvements and is stated at depreciated replacement cost remaining useful life assigned at 1 January The leasehold improvements subsequent to this date are being depreciated at 5-25%, on a straight line basis. 12

15 _ 2 ACCOUNTING POLICIES (CONTINUED) 2.7 Intangible assets Intangible assets, which comprise of software licenses, arc stated at depredated replacement cost less impairment. These costs are amortized on a straight-line basis over their estimated remaining useful lives. The annual amortization rates used for intangible acquired after 1 January 2005 are 11% to 20%. 2.8 Impairment of non - financial assets Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in income. The recoverable amount is the higher of an asset's net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm's length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful Life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit. 2.9 Financial assets The Company classifies its financial assets in the following categories: financial assets at fair value through profit and loss, loans and receivables and available for sale financial assets. Management determines the classification of its investments at initial recognition. Financial assets at fair value through profit or loss This category of financial assets consists of securities held for trading. A financial asset is classified as available for sale if it is acquired or incurred principally for the purpose of generating profit through short-term fluctuations in the price or if it is included in the portfolio for which a short term actual form of profit gain exists. The Company has no assets classified in this category. Available for sale Available for sale investments are those in tended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equip prices. The Company has no assets classified in this category. Loans and receivables Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money or services directly to a debtor with no intention of trading the receivable. Held to maturity financial assets Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company's management has the positive intention and ability to hold to maturity. Were the Company to sell other than an insignificant amount of held to maturity assets, the entire category would be tainted and reclassified as available for sale. The Company has no assets classified in this category. 13

16 . _ 2 ACCOUNTING POLICIES (CONTINUED) 2.9 Financial instruments (Continued) Initial recognition of the financial assets recognized Financial assets are on trade date the date on which the Company commits to purchase or sell the asset. All financial assets different from the financial assets carried at fair value through profit and loss are initially recognized at fair value plus transaction costs. Financial assets carried at fair value through profit and loss art initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when they are extinguished that is, when the obligation is discharged, cancelled or expired. Subsequent measurement of the financial assets Financial assets at fair value through profit or loss are subsequently carried at fair value based on their market price. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognized directly in equity, until the financial asset is derecognized or impaired at which time the cumulative gain or toss previously recognized in equity should be recognized in profit or loss. However, interest calculated using the effective interest method and foreign currency gains and losses on monetary assets classified as available for sale are recognized in the income statement. Dividends on available-for-sale equity instruments are recognized in the income statement when the entity's right to receive payment is established. The fair values of quoted investments in active markets are based on current bid prices. If the marker for a financial asset is not active (and for unlisted securitiesi, the Company establishes fair value by using valuation techniques commonly used by market participants. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been impacted. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade and other receivables where the carrying amount is reduced through the use of an allowance account. With the exception of available for sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect of available-for-sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity. 14

17 _ 2. ACCOUNTING POLICIES (CONTINUED) 2.10 Inventories Material, spare parts and consumables are stated at lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of the business, less applicable variable selling expenses. Cost of supplies and spare parts are determined using the weighted average method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. On April 2011 inventories of Euro 432 thousand were transferred to Limak Trade and other receivables Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group wilt not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Assets with a short maturity are not discounted. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the Income statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are recognized as current income in the income statement Cash and cash equivalents Cash and cash equivalents compromise cash on hand and deposits with banks. For cash flow statement, cash and cash equivalents comprise cash on hand and unrestricted deposits at banks with maturity period of three months or less Equity, reserves, retained earnings and dividend payments Shareholders capital Share capital represents the nominal value of shares that have been issued. Share issue costs Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds. Treasury shares Where the Company purchases equity share capital, the consideration paid is deducted from total shareholders' equity as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders' equity. Reserves Reserves, which comprise of revaluation, statutory and reserves for treasury shares are generated throughout the period, based on gains/losses from revaluing tangible assets and available for sale financial assets in the case of revaluated reserves, as well as distributing accumulated gains based on legal regulation and decisions by the Company's management and dividends distribution. Retained earnings Retained earnings comprise of non-distributed earnings from the current and past periods. 15

18 PRISHT1NA INTERNATIONAL AIRPORT "ADEM JASHAR1" J.S.C. I 2 ACCOUNTING POLICIES (CONTINUED) 2.14 Trade payables Trade payables are carried at their fair value and subsequently measured at their amortized cost by applying the effective interest rate method Employee benefits The Company, in the normal course of its business, makes payments on its overt behalf and on behalf of its employees to contribute to the mandatory pensions according to the local legislation. The costs incurred on behalf of the Company are charged to Income Statement. There is no additional liability regarding these plans and thus such schemes are considered as defined contribution plans. The Company has no post retirement benefits to its employees Current and deferred income tax Income tax expense represents the sun of the tax currently payable and deferred tax. The tax currently payable is calculated and paid in accordance with Income Corporate Law No 03/L-162 entered into force commencing on 1 January Final taxes on profit at a rate of 10% are payable based on the annual profit shown in the statutory statement of income as adjusted for items, which are non-assessable or disallowed. According to the, current tax legislation, tax tosses may be carried forward within a period seven years following the year in which the tax toss was incurred. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax base assets and liabilities and their carrying values of financial reporting purposes. Currently enacted tax rates are used in determination of deferred income tax. Deferred tax is charged or credited in the income statement except when, it relates to items charged or credited directly to equity, in which case the deferred tax is I also dealt with in equity. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can he utilized Provisions A provision is recognized when the Company has a present obligation as a result of past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions arc reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of provision is the present value of the expenditures expected to be required to settle the obligation Revenues and expenses recognition Revenue is recognized when it is probable that future economic benefits will flow to the Company and these benefits can be measured reliably. Sates of services are recognized in the accounting period in which the services are rendered. Operating expenses are recognized in the income statement upon utilization of the service or at the date of the origin. 16

19 PRISHTINA INTERNATIONAL AIRPORT "ADEM JASHARI J.S.C. 2. ACCOUNTING POLICIES (CONTINUED) 2.19 Transactions with related parties Related parties are defined as those parties which have control over each other or have an influence on the financial and operational decisions of each other Subsequent events Post year end events that provide additional information about a company's position at the balance sheet date (adjusting events) are reflected in the financial statements. Post year end events that are not adjusting events are disclosed in the notes when material. 3. FINANCIAL RISK MANAGEMENT 3.1 Financial risk factors The Company's activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company's risk management focuses on unpredictability of markets and seeks to minimize potential adverse effects over the Group's business performance. Risk management is carried out by the Board of Directors based on certain pre - approved written policies and procedures that cover overall risk management, as well as specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of appropriate securities and investing excess liquidity. 3.2 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments, The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. Currency risk In general, the Company is not exposed to currency risk since the majority of its sales, purchases and borrowings are denominated in Euro. Interest rate risk The Company is exposed to interest rate risk through its borrowings having variable interest rate (linked with EURIBOR). r Cash flow and fair value interest rate risk ; The Company takes on exposure to effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The Company's management is primarily responsible for daily monitoring of the net interest rate risk position and it sets limits to reduce the potential of interest rate mismatch. Fluctuations in market interest rates under which, the funds are borrowed could have adverse effect over the Company's financial performance there is no interest bearing funds borrowed from local and foreign financial institutions at the financial position date. At the same time, the Corripany has no significant placements of its assets in time deposits and highly liquid securities, bearing additional interest income. 17

20 PRISHTINA INTERNATIONAL AIRPORT "ADEM JASHARI" 3 FINANCIAL RISK MANAGEMENT (CONTINUED) 3.3 Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers and investment securities. Trade receivables The Company has no significant concentration of credit risk. The Company has policies in place to ensure that sales of goods and services are made to customers with an appropriate credit history. The Company has policies that limit the amount of credit exposure to any counter party. The Company's maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for Companies of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based upon the aged structure of the receivables balance and applying certain percentages over the pre - determined age categories. Investments The Company limits its exposure to credit risk by only investing in bank deposits with maturity less than three months. Credit risk analysis The Company's maximum exposure to credit risk is limited to the carrying amount of financial assets recognized at the reporting date, as summarized below (in I Euro thousand Trade and other receivables 4,153 2,818 Cash and cash equivalents 6,015 11,317 10,168 14,135 The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks. 3.4 Liquidity risk The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as forecast cash inflows and outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-today and week-to-week basis, as well as on the basis of a rolling 30-day projection. Longterm liquidity needs for a 180-day and a 360-day lookout period are identified monthly. Net cash requirement are compared to available borrowing facilities in order to determine headroom or any shortfalls. This analysis shows if available borrowing facilities are expected to be sufficient over the lookout period. The Company maintains cash to meet its liquidity requirements for 30-day periods at a minimum. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets 18

21 3 FINANCIAL RISK MANAGEMENT (CONTINUED) 3.5 Capital management policies and procedures The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt, 3.6 Fair value estimation The fair value of financial assets, such as available for sale securities that are traded in active markets is based on quoted market prices, which are current bid prices. The fair value of financial assets that are not traded in an active market is determined using assumptions based on market conditions existing at each balance sheet date. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. 3.7 Financial instruments by categories The carrying amounts of the Company's financial assets and liabilities as recognized at the balance sheet date of the reporting periods under review may also be categorized as follows: As at December 31, 2011 As at December 3 1, 2010 Financial assets - Trade and other receivables 4,153 2,818 - Cash and cash equivalents 6,01,5 11,317 Total 10,168 14,135 Financial liabilities - Trade and other liabilities 895 I 1 31 Total Trade and other receivables and payables ; Nominal value, less provision for impairment of trade and financial receivables, as well as, nominal value of trade liabilities are assumed to approximate their fain values due to their short-term nature. 19

22 PRISHTINA INTERNATIONAL AIRPORT "ADEM JASHARI" 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In the application of the Company's accounting policies, which are described in Note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 4.1 Estimation of uncertainty Impairment of non- financial assets Impairment losses are recognized in the amount for which the carrying value of the asset or the cash generating unit -exceeds the recoverable amount. When determining the recoverable amount, the Management evaluates expected prices and cash flows from each cash generating unit and determines an appropriate interest rate when calculating the present value of such cash flows. 4L2 Impairment of financial assets Impairment of trade and other receivables Company calculates impairment of trade and other receivables based on estimated losses resulting from the inability of customers to settle their obligations. The estimation is based on the aging of account receivables balance and historical write-off experience, customer credit-worthiness and changes in customer payment terms when evaluating the adequacy of the impairment loss for doubtful accounts. These involve assumptions about future customer behavior and the resulting future cash proceeds. If the financial condition of customers were to deteriorate, actual write-offs of currently existing receivables may be higher than expected and may exceed the level of the impairment losses recognized so far. Useful life of depreciated assets Management regularly reviews the useful lives of amortized assets as at 31 December Management estimates that the determined useful life of assets represents the expected usefulness (utility) of assets. The carrying values of such assets are analyzed in Note 5 and 6. However, the factual results may differ due to the technological obsoleteness, especially in the IT equipment and software segment. Inventories Inventories are measured at the lower of cost and net realizable value. In estimating net realizable values, management takes into account the most reliable evidence available at the times the estimates are made. 20

23 11J(0,13 L.,.! j J Land Machinery and Construction Leasehold Land improvements Buildings equipment Apartments in progress improvements Total COST (EUR 000) (EUR 000) (EUR 000) (EUR 000) (EUR 000) (EUR 000) (EUR 000) (EUR 000) As at January 1, ,296 5,768 21,498 1,162 1,611 1,693 53,253 Additions during the year , ,357 Reconciliation (4) (141) (145) Transfers (65) As at December 31, ,685 14,458 5,841 24,074 1,162 1,552 1,693 56,465 As at January 1, ,685 14,458 5,841 24, , Additions during the year ,573 Transfers to Limak (7,720) (14,438) (5,529) (17,544) (1,523) (1,693) (48,447) As at December 31, ,253 1, ,591 DEPRECIATION As at January 1, ,076 1,202 9, ,696 Reconciliation (70), 53 (17) Depreciation for the year , ,160 As at December 31, ,724 1,561 12, ,839 As at January 1, , , ,839 Elimination on transfer of assets (1,718) (1,559) (8,943) (788) (13,008) Depreciation for the year , ,677 As at December 31, , ,508 NET CARRYING VALUE As at December 31, , ,083 As at December 31, ,685 12,734 4,280 11, , ,626 On April 2011 net assets of Euro thousand were transferred to consortium Limak Aerport de Lyon. 21