Agrokor Group
Consolidated Annual Report of Agrokor Group for 2016
Agrokor Group
MANAGEMENT REPORT
The Management report gives an overview of the business operations of the parent company Agrokor d.d. and its subsidiaries (jointly: “the Agrokor Group” or “the Group”) and together with the Consolidated Financial Statements forms the Consolidated Annual Report of Agrokor Group for 2016. The Group operates through its two business groups: Business Group Food and Business Group Retail. A detailed review of these activities and future developments is set out later in this report. As at 31 December 2016, the Group employed 58,317 employees, of which 28,365 were in Croatia. The Management Board of Agrokor d.d. during 2016 and until their release from duty on 10 April 2017, as a result of the appointment of the Extraordinary Commissioner, consisted of the following members: Ivica Todorić, President; Ante Todorić, Deputy President;Ivan Crnjac, Executive Vice President for Finance, Strategy and Capital Markets; Mislav Galić, Executive Vice President for the Food Business Group; Hrvoje Balent, Executive Vice President for Central Purchasing and Services; Darko Knez, Executive Vice President for the Retail Business Group (until 16 August 2016) and Ivica Sertić, Executive Vice President for Markets, Sales and Logistics. The Supervisory Board of Agrokor d.d. during 2016 and until their release from duty on 10 April 2017, as a result of the appointment of the Extraordinary Commissioner, consisted of the following members: Ivan Todorić, Chairman; Ljerka Puljić, Deputy Chairman; Damir Kuštrak, Member; Tomislav Lučić, Member and Tatjana Rukavina, Member. On 7 April 2017, the Management Board of Agrokor, led by the President of the Management Board, filed for the opening of the extraordinary administration procedure in accordance with the Law on extraordinary administration proceeding in companies of systemic importance for the Republic of Croatia (Official Gazette no 31/17, “Law”). On 10 April 2017, the Zagreb Commercial Court issued a Decision to initiate the Extraordinary Administration Procedure over Agrokor and its affiliated and controlled companies (together 77 companies in Croatia). The court appointed Mr. Ante Ramljak as Extraordinary Commissioner for Agrokor which took over the functions of Agrokor corporate bodies, including the management of Agrokor. The Extraordinary Administration effects, among other, are the prohibition of initiating litigation, enforcement and other proceedings during and until termination of the Extraordinary Administration. Creditors’ claims incurred before the Extraordinary Administration opening, are subject to filing and settlement. Following the appointment of the Extraordinary Commissioner it has been determined that Agrokor Management Board did not maintain adequate governance standards customary for a Company of this size, such as having regular and documented Management Board sessions. The Extraordinary Commisisioner found no records or minutes of MB meetings being held.
Agrokor Group Structure An overview of the subsidiaries is disclosed in Note 3 and an overview of the associates is disclosed in Note 14.
Overview of business operations in 2016 During 2016, the Group made significant efforts to meet its obligations to creditors. However, due to both a reduction in revenues which was compensated for by an equivalent reduction in operating costs and the Group's very substantial debt burden the Group's liquidity position was very much restricted. As a consequence of this, during 2016, the Group devoted much of its attention to providing sufficient liquidity to servicing outstanding liabilities, which resulted in a significant increase in financial expenses on its substantial accumulated debt structure.
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Agrokor Group
Furthermore, as a result of increased external competition which reduced retail market share and some negative trends in the market price in certain segments in which the Group competes, sales revenues reduced to HRK 42.5 billion from HRK 45.7 billion while pre-tax loss increased from HRK 3.2 billion (restated figure) to HRK 11.2 billion. The biggest drivers of the increased loss in 2016 were:- 1) a significant increase in operating expenses due to impairment charges on both property, plnat and equipment and intangible assets; 2) changes in the fair value of financial instruments and 3) recognition of previously unreported operating and financial expenses. These circumstances, as well as restatements described in Note 2, ultimately led to an unsustainable level of indebtedness, leading to cash flow insolvency in certain of the Group’s businesses which led to the opening of the Extraordinary administration process in accordance with the Law. Note that during the preparation of the annual financial statements a number of restatements of Group financial statements for previous years (as set out in Note 2) have been made.
Key events in 2017 On 10th April 2017, Agrokor d.d, together with its affiliated and controlled companies entered the Extraordinary Administration Procedure (“Extraordinary Administration”) in accordance with the Law. Per the Extraordinary Administration, the court appointed Extraordinary Administrator took over the functions of the Companies corporate bodies, including the management of the Group. The effect of the Extraordinary Administration, among other things, is a prohibition on initiating litigation, enforcement and other proceedings during and until termination of the Extraordinary Administration. Creditors’ claims arising before the commencement of the Extraordinary Administration, are subject to a legally prescribed filing and agreement process. The Extraordinary Administration rules regulate the payment of claims during the Extraordinary Administration. An interim Creditors Council was established, which receives reports on the state of the Company and its affiliated and controlled companies, and has the power to authorize certain proposed transactions of the Extraordinary Administrator as prescribed by the Law. After the publication and confirmation of claims incurred before the Extraordinary Administration commencement, a permanent Creditors Council will be established, which will participate in the preparation of a settlement proposal. Under the Extraordinary Administration, a single settlement proposal will ultimately be presented to creditors’ for voting, encompassing Agrokor d.d and its affiliated and controlled companies and their creditors, providing for the settlement of claims and the restructuring of the Group. The Extraordinary Administration will terminate upon final delivery of the matters set out in the settlement plan. This year the Group’s retail businesses have been severely hampered by an inability to purchase goods and services as a result of the significant problems detailed above in relation to available liquidity which the Group faced in the first half of the year. On 13 April 2017 Agrokor signed a loan agreement as a borrower with Zagrebačka banka d.d., Privredna banka Zagreb d.d., Erste&Staiermerkische bank d.d. and Raiffeisenbank Austria d.d. as loan providers. The total loan amount was EUR 80,000,000. The loan has since been repaid in full from the proceeds of the loan concluded on 8 June 2017. On 8 June 2017 the Company signed a loan agreement as a borrower with various investors as loan providers. The total loan amount is up to EUR 1,060,000,000. The loan has a super-priority status as provided for in the Law and allows for the refinancing of debt incurred prior to entering into the extraordinary administration applying a 1:1 ratio between new money and refinanced debt. After the drawdown of the new financing in June and beyond, the situation began to stabilize, and the trends and operating metrics of the key operating companies started to return to previous levels. Although inventory levels have also been stabilized, negotiations with certain suppliers continue to be challenging.
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Agrokor Group
Companies from the food business group have continued to realize solid operating results in 2017. After the new financing was successfully completed in June 2017, the key focus was on increasing inventories in order to prepare companies for the summer season – their most important sales period, as stock levels had dropped significantly below prior year levels. The improvement in the working capital position of all the companies in the food group over the summer period led to a better operating result compared to the comparative period in 2016. Revenues in the agricultural part of the Food group business are primarily dependent on crop yield and market prices, and these indicators differ from one company to another. Each of the companies recorded successful harvests with record yields, particularly wheat, and purchases from all subcontractors (with regular payment of due amounts) has continued successfully. The new financing has stabilized the business and improved relations with suppliers and customers and enabled stabilization of sales. All Group companies continue to develop and implement cost optimization and restructuring measures with the aim of further improving business performance in 2017 and beyond.
Expected future Group Development The greatest impact on the Group's future development will be the delivery of an appropriate Settlement plan within the framework of the Extraordinary Administration Proceedings. To the best of Management’s knowledge, based on currently available information, a successful conclusion and delivery of a Settlement Plan appears feasible and therefore the financial statements have been prepared on a going concern basis.
High level restructuring plan timetable Set out below is a restructuring plan timetable which provides an overview of the key milestones that are required over the course of the Extraordinary Administration.
Liquidity risk management In these challenging times for the Group, liquidity management of the Group has become and remains a key priority and the efforts of the company and the advisors are focused on maintaining stability in the business during the restructuring process. The Group continues to carefully manage liquidity and constantly monitor and improve the cash flow management process in order to preserve available funds. In this respect, the Group has been able to provide additional liquidity to its subsidiary companies which has served to finance the tourist season and also has implemented a number of working capital management measures.
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Agrokor Group
Restructuring (financial and operational) As a result of the business planning work being undertaken it is clear that operational restructuring of certain of the core businesses is needed. The detailed steps will be defined and appropriate strategies will be adopted for the Group companies in which such restructuring is needed. It is expected that this will be a process that will last throughout the entire Extraordinary Administration period. Identifying and defining a strategy to monetize the non-core property/assets of the Group is expected to continue for the remainder of 2017 and into 2018. All of the Group’s stakeholders recognize that the current structure of the Group's debt is unsustainable and that a concerted effort by all stakeholders will be required in order to achieve a consensual restructuring. Based on previous discussions with stakeholders in the settlement and restructuring process, the Extraordinary Administration expects that ongoing negotiations will focus on the Group's restructuring, which may include all or a combination of the following measures: the extension of agreed debt repayment deadlines, conversion of existing debt to equity and / or additional cash injection, monetizing of non-core property/assets, sale of some of the Group's companies to strategic investors. Based on these steps and an assessment of the commitment of various parties to successfully conclude the negotiations and implement the restructuring plan, Management is reasonably confident that all relevant stakeholders will ultimately reach agreement on the restructuring of the Group. However, there is no guarantee that negotiations will be completed in the available time (or at all) and there is no guarantee that this will be in the form or under conditions which are being described above. The Extraordinary Administration is aware that these circumstances represent significant uncertainty for stakeholders. This may cause significant doubt of the Group's ability to continue operating under the going concern assumption and that the Group is able to realize all of its assets and fulfill all its obligations in the normal course of business. However, Management considers it is more likely than not that a Settlement can be reached, with the support of creditor stakeholders, and accordingly the financial statements are prepared on a going concern basis and do not include the adjustments which would be needed if the Group was unable to continue operating as a going concern.
Financial risk management Exchange rate risk - The Group's assets are primarily denominated in kunas while a significant portion of the Group's borrowings are denominated in foreign currencies (primarily EUR). Consequently, the Group is exposed to the risk of exchange rate fluctuations. Given the long-term policy of the Republic of Croatia related to maintaining EUR exchange rate stability, the Group does not consider it to be significantly exposed to the risk of exchange rate fluctuations. Credit risk - The Group is exposed to credit risk that poses the risk that the borrower or customer will not be able to meet the obligations as they fall due. The Group manages this risk by establishing exposure limits to individual borrowers or groups of debtors. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. A more detailed review of credit risk exposure is provided in Note 23 of these financial statements. Liquidity risk - The responsibility for liquidity risk management, in regular business circumstances, is borne by management, which sets the appropriate framework for liquidity risk management with the aim of managing short, medium and long term financing and liquidity requirements. The Group manages its liquidity risk by monitoring the net short-term position and addressing the expected liquidity deficits. Given the launch of the Extraordinary Administration Process in April 2017, the Group's liquidity management process was significantly restricted by negotiations with various creditor groups and administrative and market restrictions related to liquidity management. A more detailed review of liquidity risk exposure is provided in Note 39 of these financial statements and in Notes 1.2 and 40 related to the going concern assumption and subsequent events.
4 Research and development activities Apart from market research for marketing purposes and the regular and continuous development of new products including production quality control processes through the adoption and implementation of relevant international standards (eg ISO, HACCP, IFS, BRC etc.), the Group has no significant research and development activities.
Overview of business operations in 2017 The ongoing demanding process of financial and operational restructuring of the Group companies in 2017 continues to improve the overall state of the Group, in particular with respect to the stabilization of the business operations of the retail group companies. The performance in the year to date of the retail sector has been suppressed by an inability to purchase goods and services as a result of the liquidity problems during the first half of the year. The situation has stabilized following the new financing and retail is now showing a number of positive trends, as well as an improvement in customer numbers and average basket value. Although stock levels are beginning to normalize, negotiations with suppliers continue to present challenge s in returning stock availability to prior year levels. The companies from the Food segment continue to deliver solid results in 2017. After the new financing, their primary focus was to increase stock levels in preparation for the summer season, as stock levels were significantly lower than last year. On the whole, the companies have managed to increase stock levels, however, the delay in doing this (due to liquidity constraints at the start of the Extraordinary Administration process) has impacted performance going into the summer season. Nevertheless, all of the companies in the food sector have delivered better operating earnings compared to the prior year. Revenue performance in the agriculturai businesses is primarily dependent on crop yields and market prices with these performance drivers have varied across the businesses. All companies had successful harvests with record high yields, especially wheat, and purchasing from cooperation partners continues as payments are being made regularly. The new financing has stabilized the business es and improved relations with suppliers and customers to allow trading to begin to return to more normalized levels. All group companies continue to develop and implement cost optimization and restructuring measures with the objective of further improving performance results for 2017 and beyond.
Signed on behalf of the Management Board:
Ante Ramljak Extraordinary Commissioner
Zagreb, 9 October 2017
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Agrokor Group
CONSOLIDATED FINANCIAL STATEMENTS for the year ending 31 December 2016
Consolidated financial statements of the Agrokor Group (Company and subsidiaries) represent consolidated financial statements for the year ending 31 December 2016. The list of subsidiaries included in consolidation is disclosed in Note 3.2. The financial statements are presented in the reporting currency of HRK, Croatian kunas. The consolidated financial statements of the Group include the following: - Consolidated Income Statement for the year ending 31 December 2016 - Consolidated Statement of Other Comprehensive Income for the year ending 31 December 2016 - Consolidated Statement of Financial Position for the year ending 31 December 2016 - Consolidated Statement of Cash Flows for the year ending 31 December 2016 - Consolidated Statement of Changes in Equity for the year ending 31 December 2016 Notes to consolidated financial statements, including significant accounting policies and other explanatory information.
6 Agrokor Group
STATEMENT OF RESPONSIBILITIES OF THE MANAGEMENT BOARD
Pursuant to the Croatian Accounting Law in force, the Management Board (the Board) is responsible for ensuring that consolidated financial statements are prepared for each financial year in accordance with the Accounting Law (Official Gazette of the Republic of Croatia 78115, 134/15, 120116), International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU) which give a true and fair view of the financiai position, operating resuits, changes in equity and cash flows of the Group for that period. The Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Board continues to adopt the going concem basis in preparing the consolidated financial statements. In preparing those consolidated financial statements, the responsibilities of the Board include ensuring that: • suitable accounting policies are selected and then applied consistentiy; • judgements and estimates are reasonable and prudent; • applicable accounting standards are followed, subject to any material departures disclosed and explained in the consolidated financiai statements; and • the consolidated financiai statements are prepared on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Board is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financiai position, operating resuits, changes in equity and cash flows of the Group and must, also ensure that the financial statements comply with the Croatian Accounting Law in force and International Financial Reporting Standards (IFRS). The Board is also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The accompanying consolidated financial statements were approved for issuance by the Management Board on 9 October 2017.
Signed on behalf of the Management Board:
Ante Ramljak Extraordinary Commissioner
Zagreb, 9 October 2017
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Independent Auditor’s Report To the Extraordinary Commissioner of Agrokor d.d.:
Our Qualified Opinion In our opinion, except for the effect of the matters described in points 7 and 8 and possible effects of the matters described in points 1, 2, 3, 4, 5 and 6 in the Basis for Qualified Opinion section of our report, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Agrokor d.d. (the “Company”) and its subsidiaries (together – the “Group”) as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS EU”). What we have audited The Group’s consolidated financial statements comprise: the consolidated income statement for the year ended 31 December 2016; the consolidated statement of other comprehensive income for the year ended 31 December 2016; the consolidated statement of financial position as at 31 December 2016; the consolidated statement of cash flows for the year ended 31 December 2016; the consolidated statement of changes in equity for the year ended 31 December 2016; and the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.
Basis for Qualified Opinion 1. We were appointed as auditors of the Company in May 2017 and thus did not observe the counting of the Group’s physical inventories as at 31 December 2016. We were unable to satisfy ourselves concerning inventory quantities held as at 31 December 2016 because a substantial time had passed between the end of the financial reporting period and the date when we were appointed as auditors and due to the quick turnover of the Group’s inventories. As a result, we were unable to determine whether adjustments might have been necessary in respect of the inventories presented in the consolidated statement of financial position as of 31 December 2016, as well as in respect of the loss for the year then ended in the consolidated statement of income and net cash flows from operating activities reported in the consolidated statement of cash flows.
2. As described in Note 2.1 to the consolidated financial statements, the financial statements of the previous period have been restated for the effect of misstatements identified by Management. As further indicated in Note 2.1, there are ongoing investigations by Management, its advisors and external bodies in this regard, and consequently, pending the completion of these various investigations, we are unable to satisfy ourselves that all prior errors have been identified and hence as to the completeness, timing of recognition and accuracy of the amounts presented in Note 2.1.
PricewaterhouseCoopers d.o.o., Ulica kneza Ljudevita Posavskog 31, 10000 Zagreb, Hrvatska T: +385 (1) 6328 888, F:+385 (1)6111 556, www.pwc.hr
Commercial Court in Zagreb, no. Tt-99/7257-2, Reg. No.: 080238978; Company ID No.: 81744835353; Founding capital: HRK 1,810,000.00, paid in full; Management Board: J. M. Gasparac, President; S. Dusic, Member; T. Macasovic, Member; Giro-Account: Raiffeisenbank Austria d.d., Petrinjska 59, Zagreb, IBAN: HR8124840081105514875.
3. As described in Note 3.2 to the consolidated financial statements, the Group entered into complex repurchase agreements and transactions related to shares of its subsidiaries and other investees. There are currently ongoing forensic investigations related to the beneficial direct and indirect ownership percentage of the Company, which might influence the measurement of the non-controlling interests recorded as at 31 December 2016 and prior periods. Consequently, we are unable to satisfy ourselves as to the accuracy of the non- controlling interests and accumulated deficit presented in the consolidated statement of financial position and in the consolidated income statement in the financial reporting periods presented.
4. As described in Note 30 to the consolidated financial statements, the Group had to comply with debt covenants related to its borrowings, the non-compliance of which could result in certain restrictions on the Group. Following the restatement of prior period financial statements, Management has not yet completed the related legal analysis in order to assess the potential impact on the classification of borrowings as at 31 December 2016 and prior periods. In the absence of information to assess the compliance of the Group with debt covenant restrictions, we are unable to satisfy ourselves as to the proper classification between current and non-current borrowings in the financial periods presented. In addition, we were unable to satisfy ourselves as to the accuracy and completeness of information about maturity of financial liabilities that is required to be disclosed under IFRS 7, Financial Instruments: Disclosures.
5. The consolidated statement of financial position includes non-current loan receivables of HRK 208,617 thousand as at 31 December 2016. Management has been unable to carry out an impairment review of these assets to assess their recoverability. We were unable to satisfy ourselves by other means as to the carrying amount of these non-current loan receivables in the financial periods presented and hence, that the impact, if any would not be significant if aggregated together with other unrecorded misstatements.
6. Goodwill impairment charge for 2015 in Note 10 to the consolidated financial statements includes HRK 1,405,644 thousand relating to an acquisition arising from conversion of a loan to acquiree’s equity. We are uncertain as to the amount of loan impairment that should have been recognised before the acquisition. In the absence of information to assess the fair value of the loan, we are unable to satisfy ourselves as to the classification of the loss in the 2015 consolidated income statement. Any resulting adjustment would be a reclassification between goodwill impairment and impairment of loan receivables.
7. The accompanying financial statements do not include comparative figures for the consolidated statement of cash flows and related disclosures as required by IAS 1, Presentation of financial statements. It was not practicable for us to quantify the financial effects of these omissions.
8. The financial statements do not comply with applicable disclosure requirements, primarily in relation to effective tax reconciliation, fair value and related information for each class of financial instruments, land, credit quality of each class of neither past due nor impaired, past due but not impaired and impaired financial assets and related reconciliation of changes in impairment provisions, disclosure of possible debt covenant breaches, nature and purpose of reserves in equity, disclosure of gross cash flows from borrowings and loan receivables and capital management. It was not practicable for us to quantify the financial effects of these omissions. We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Independence We are independent of the Company and the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.
Material Uncertainty Relating to Going Concern We draw attention to Note 1.2 to the consolidated financial statements, which explains that the Group incurred a net loss of HRK 11,047,023 thousand for the year ended 31 December 2016 and, as of that date, the Group’s current liabilities exceeded its current assets and total liabilities significantly exceeded total assets. As stated in notes 1.2 and 40, these conditions, indicate that a material uncertainty exists that may cast a significant doubt on the Group’s ability to continue as a going concern. Our opinion is not further modified in respect of this matter.
Our audit approach Overview
Overall materiality for the consolidated financial statements as a Materiality whole: Croatian kuna (“HRK “) 400 million, which represents approximately 0.8% of the Group’s revenue.
We performed audit work covering 27 legal entities in Croatia, 3 legal entities in Serbia, 3 legal entities in Bosnia & Hercegovina, Audit and 1 group of entities in Slovenia. scope Our audit scope addressed 99% of the Group’s revenues and 98% of the Group’s absolute value of net loss.
Key audit matters Valuation of land, Impairment of trade receivables, Impairment test of goodwill, and Classification of leases.
How we tailored our Group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the geographical and management structure of the Group, the accounting processes and controls, and the industries in which the Group operates. Considering our ultimate responsibility for the opinion on the Group’s consolidated financial statements we are responsible for the direction, supervision and performance of the group audit. In establishing the scope of our audit work, we have determined the nature and extent of the audit procedures to be performed at the various legal entities (components) of the Group to ensure sufficient evidence has been obtained to support our opinion on the consolidated financial statements as a whole.
In establishing our overall approach to audit the Group, we considered the significance of the components to the Group’s financial statements, our assessment of risk within each component, the overall coverage across the Group achieved by our procedures, as well as the risk associated with less significant components not brought into the full scope of our audit.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed directly by us, as the Group engagement team and by component auditors operating under our instruction. We, or component auditors under our instruction, conducted full scope audit work covering 96% of the Group’s revenue and limited scope audit work (specified procedures) covering 3% of the Group’s revenue. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those components to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion as a whole. In addition to issuing written instructions to the component teams, we reviewed audit work at selected components, including required reporting to the Group audit team, and regular discussions with component audit teams. By performing the procedures above at components, combined with additional procedures at Group level, we have obtained sufficient and appropriate audit evidence regarding the financial information of the Group as a whole to provide a basis for our qualified opinion on the consolidated financial statements. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements both individually and in aggregate on the consolidated financial statements as a whole.
Overall materiality for HRK 400 million consolidated financial statements as a whole
How we determined it Approximately 0.8% of the Group’s revenues
Rationale for the We chose revenue as the materiality benchmark because, it is materiality benchmark the most appropriate benchmark in our view taking into applied consideration the significant fluctuation of results in the current and recent periods.
Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matters described in the Basis for Qualified Opinion section above, we have determined the matters described below to be the key audit matters to be communicated in our report. How our audit addressed the key audit Key audit matter matter
Valuation of land Our procedures in relation to Management’s Refer to Note 1.10 Significant accounting valuation of land were performed on a sample policies – Property, plant and equipment and basis and included: Note 16 – Property, plant and equipment. - Our internal valuation experts assessing the methodologies used by the external valuator to We focused our attention to the valuation of estimate comparable market transactions and land because it involves significant judgement resale values; in respect of the assumptions used in the – Evaluating the external valuator’s determination of fair value. Fair value was independence, competence, and objectivity; determined by an external valuator appointed – Considering the appropriateness of the by Management, using the comparable market comparable market transactions used by the transactions approach. external valuator based on our internal valuation experts knowledge of the market and the comparable market transactions; and
Based on the results of our procedures, other than the restatement of prior period consolidated financial statements for such assets, as presented in Note 2, we did not find any material exceptions.
How our audit addressed the key audit Key audit matter matter
Impairment of trade receivables We tested the detailed listings of trade receivables substantively by examining a sample of contracts, Refer to note 1.29 Critical accounting bank statements in respect of subsequent payment estimates and note 23 Trade receivables. receipts and invoices. As a result, we determined Management performed an analysis of the that we could rely on these reports for the expected cash flows and collection of trade purposes of our audit. receivables and, as a result, part of the Group’s Where we identified objective evidence of trade receivables were determined to be impairment, we examined the supporting impaired as at 31 December 2016. documentation prepared by management to support the calculation of the impairment loss, We focused on this area because Management challenged the assumptions and compared made subjective judgements over both the estimates to external evidence, where available. timing of recognition of impairment based on estimated future cash flows and the size of We considered the potential for impairment to be such impairment. impacted by events, which were not captured by management’s estimation, and determined that no significant differences exist. Based on the results of our procedures, other than the restatement of prior period consolidated financial statements for these assets as presented in Note 2, we did not find any material exceptions.
How our audit addressed the Key audit Key audit matter matter
Impairment test of goodwill We have evaluated and challenged the Group’s Refer to notes 1.4 Business Combinations and future cash flow forecasts by considering historical Goodwill and 13 Intangible assets of the information and current economic conditions, the consolidated financial statements process by which they were prepared, and tested the The risk that we focused on in the audit is that mathematical accuracy of the underlying the carrying value of goodwill may be overstated calculations. and that an impairment charge may be required. We have discussed with management their Management performed an impairment reasoning for the long-term growth rates, and we assessment of goodwill by: compared them to historical growth results. 1. calculating the recoverable amount of groups In addition, we analysed and challenged the of cash generating units to which goodwill was discount rate by comparing it to market data and allocated using a discounted cash flows model; industry research. and We considered sensitivity analysis to ascertain the 2. comparing the resulting recoverable amounts extent of change in assumptions which would trigger to the respective carrying values. a further material impairment and to consider Key assumptions used in the test include whether there was evidence of management bias. estimated future cash flows, margins, terminal Based on the results of our procedures, other than growth rate and discount rate. Management also the restatement of prior period consolidated performed a sensitivity analysis to key financial statements for goodwill impairment, as assumptions. presented in Note 2, we did not find any material exceptions.
How our audit addressed the key audit Key audit matter matter
Classification of leases
Refer to Notes 1.13 (Leased assets) and 28 We considered the classification of lease (Finance lease liabilities) to the consolidated arrangements as finance or operating leases. financial statements On a sample basis, we evaluated and challenged The Group has a significant number of lease the key assumptions of Management’s analysis of agreements as a lessee. We focused our finance leases: the assessment of the useful lives attention on the appropriate classification of of the leased assets and calculations of the present these lease agreements as operating leases or value of minimum lease payments. We compared finance leases because the classification the useful lives of the leased assets to useful lives criteria require application of judgment. of similar assets owned by the Group. In respect of the present value calculations, we checked the Management of the Group has considered the mathematical accuracy, compared the lease risks and rewards of the leased asset for each payment amounts to the terms of the related lease agreement to determine whether the contracts on a sample basis, and compared the risks and rewards were transferred to the discount rate used by Management with market lessee and thus whether or not the lease should data and industry research. be recognised as a financial lease. Key assumptions used by Management in their In respect of operating leases, we tested a sample analysis include (a) comparison of the useful of lease agreements and considered whether life of the leased assets with the lease term, and substantially all the risks and rewards of the (b) calculation of the present value of leased assets were transferred. minimum lease payments as compared to fair value of the asset. Based on the results of our procedures, other than the restatement of prior period consolidated As a result, Management has restated certain financial statements for such leases, as presented leases and recognised them as finance lease in Note 2, we did not find any material exceptions. liabilities and related leased assets for comparative reporting periods presented as disclosed in Note 2.
Other information Management is responsible for the other information. The other information comprises the Consolidated Annual Report of the Group, which includes the Management Report, but does not include the consolidated financial statements and our independent auditor’s report thereon. Our qualified opinion on the consolidated financial statements does not cover the other information, including the Management Report. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. With respect to the Management Report, we also performed procedures required by the Accounting Act in Croatia. Those procedures include considering whether the Management Report includes the disclosures required by Article 21 and 24 of the Accounting Act.
Based on the work undertaken in the course of our audit, in our opinion: the information given in the Management Report for the financial year for which the consolidated financial statements are prepared is consistent, in all material respects, with the consolidated financial statements; the Management Report has been prepared in accordance with the requirements of Article 21 and 24 of the Accounting Act. In addition, in light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are also required to report if we have identified material misstatements in the Management Report. We have nothing to report in this respect.
Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, 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. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an independent auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Agrokor Group
CONSOLIDATED INCOME STATEMENT
Restated (in thousands of HRK) Note 2016 2015
Revenue from sale of goods and own products 5 42,556,332 45,702,223 Sale of services 5 3,471,895 1,848,540 Other income 6 144,650 196,274
46,172,877 47,747,037
Changes in inventories of finished goods and work in 260,867 (170,145) progress Cost of materials and goods sold 32,376,191 33,999,894 Cost of services 7 5,032,810 4,155,704 Staff costs 8 4,761,900 4,703,996 Depreciation, amortization and impairment 4,413,972 3,407,715 Other costs 9 6,866,773 2,321,126 Sale of properties, net 128,473 53,247
53,840,986 48,471,537
Finance income 11 740,260 772,272 Finance expenses 12 4,249,260 3,311,341
(3,509,000) (2,539,069) Share of net profit/(loss) of associates 14 7,975 (3,957)
Loss before tax (11,169,136) (3,267,525)
Taxation 35 (121,713) 335,646
Loss for the year (11,047,423) (3,603,171)
Loss is attributable to: Equity holders of the parent (10,107,192) (3,794,851) Non-controlling interests (940,231) 191,679
The accompanying notes form an integral part of these consolidated financial statements.
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Agrokor Group
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Restated (in thousands of HRK) Note 2016 2015
Loss for the year (11,047,423) (3,603,171)
Other comprehensive income
Items that may be reclassified to profit or loss in subsequent periods:
Exchange differences on translation of foreign operations (103,974) (23,555) Net movement of cash flow hedges - 26,516 Change in the fair value of available-for-sale financial assets 3,901 5,074
Income tax effect relating to these items (702) -
Net other comprehensive income to be reclassified to profit or loss in subsequent periods (100,776) 8,035
Items that will not be reclassified to profit or loss in subsequent periods:
Loss on the revaluation of land (267,500) (35,428) Income tax effect relating to these items 44,038 - Effect of income tax rate change 22,842 -
Net other comprehensive income not to be reclassified to profit or loss in subsequent periods (200,620) (35,428)
Other comprehensive income/(loss) for the year, net of tax (301,395) (27,393)
Total comprehensive income/(loss) for the year, net of tax (11,348,818) (3,630,564)
Comprehensive loss is attributable to: Equity holders of the parent (10,350,546) (3,816,946) Non-controlling interests (998,272) 186,382
The accompanying notes form an integral part of these consolidated financial statements.
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Agrokor Group CONSOLIDATED STATEMENT OF FINANCIAL POSITION Restated Restated (in thousands of HRK) Notes 31.12.2016 31.12.2015 1.1.2015
ASSETS NON-CURRENT ASSETS Property, plant and equipment 16 24,925,021 24,975,581 27,513,409 Investment property 17 240,557 222,952 135,436 Intangible assets 13 1,262,474 3,443,118 3,370,301 Biological assets 18 427,461 431,615 442,120 Investments in associates accounted for 14 275,680 174,821 55,863 using the equity method Other non-current financial assets 15 2,149,975 3,214,527 2,966,715 Deferred tax assets 35 199,237 161,623 198,427 TOTAL NON-CURRENT ASSETS 29,480,405 32,624,237 34,682,271
CURRENT ASSETS Inventories 22 5,271,079 6,331,021 5,518,412 Biological assets 18 328,238 360,573 355,146 Loans and deposits 20 842,834 1,643,845 2,126,022 Trade receivables 23 3,459,209 6,145,999 6,173,944 Recourse receivables 33 468,658 1,135,494 269,314 Other current assets 24 1,222,865 1,420,819 1,734,164 Cash and cash equivalents 25 556,986 597,040 583,963 12,149,869 17,634,791 16,760,965 Assets classified as held for sale 19 122,870 1,809,428 308,902
TOTAL CURRENT ASSETS 12,272,739 19,444,219 17,069,867
TOTAL ASSETS 41,753,144 52,068,456 51,752,138
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Share capital 26 180,123 180,123 180,123 Accumulated deficit 26 (18,084,429) (7,551,067) (3,192,059) (17,904,306) (7,370,944) (3,011,936)
NON-CONTROLLING INTERESTS 27 3,370,562 4,442,520 4,655,360
TOTAL EQUITY (14,533,744) (2,928,424) 1,643,424
LIABILITIES NON-CURRENT LIABILITIES Borrowings 30 27,096,437 24,611,689 23,674,543 Provisions 31 441,333 599,728 323,984 Deferred tax liabilities 35 593,194 1,036,905 1,091,566 Other non-current liabilities 283,629 381 - TOTAL NON-CURRENT LIABILITIES 28,414,593 26,248,703 25,090,093
CURRENT LIABILITIES Trade payables 32 10,599,437 10,109,865 14,257,679 Bills of exchange and recourse liabilities 33 1,718,379 1,918,139 - Income tax payable 35 93,518 129,531 121,760 Borrowings 30 12,984,856 14,360,935 8,567,172 Liabilities due to shareholders for dividends 37 - 3,336 7,388 Other current liabilities 34 2,476,105 2,226,371 2,064,622 TOTAL CURRENT LIABILITIES 27,872,295 28,748,177 25,018,621
TOTAL LIABILITIES 56,286,888 54,996,880 50,108,714 TOTAL EQUITY AND LIABILITIES 41,753,144 52,068,456 51,752,138
The accompanying notes form an integral part of these consolidated financial statements.
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Agrokor Group CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands of HRK) Note 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax (11,169,136)
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation, amortisation and impairment of property plant and equipment 2,275,929
Impairment and write off of goodwill and brands 10 2,138,043 Previously not recognized expenses 1,077,682
Financial income 11 (740,260) Impairment of financial assets 9 2,142,348 Loss on sale of properties 128,473
Impairment of receivables 14 1,904,624 Group share of profit of associates (7,975)
Change in provisions and other liabilities 95,255
Financial expenses 12 4,249,260 Net cash flows from operating activities before changes in working capital 2,094,243 Increase in receivables -328,242
Decrease in inventories 1,066,906
Increase in liabilities towards creditors 479,423
Decrease in other current assets 201,150
Decrease in other current liabilities (572,441) Net cash inflow from operating activities before interest and taxes 2,941,039 Income taxes paid (355,683)
Interest paid (2,180,828) Net cash provided from operating activities 404,528
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries, net of cash acquired 3.1 (40,057) Payment for property, plant and equipment and intangible assets (1,749,515)
Proceeds for non-current financial investments 41,696
Proceeds from sale of properties 324,966
Proceeds from sale of financial assets 272,369
Proceeds from loan receivables 151,288
Interest received 52,555
Dividends received 4,403
Net cash used in investing activities (942,295)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 3,344,454
Repayments of borrowings (2,782,716)
Dividends paid (40,025) Net cash from financing activities 521,713
NET INCREASE IN CASH AND CASH EQUIVALENTS (16,054)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 25 573,040
CASH AND CASH EQUIVALENTS, END OF THE YEAR 25 556,986
The accompanying notes form an integral part of these consolidated financial statements.
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Agrokor Group CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
in 000 HRK Attributable to owners of the parent Non - Total Provisions Share Share Treasury Revaluation Cash flow AFS Currency Total controlling equity for Accumulated hedge employees deficit capital premium shares surplus reserve translation interests reserve benefits Notes Balance at 01 January 2015 27 180,123 2,686,914 - 1,026,950 (26,516) (22,164) - - (1,830,355) 2,014,952 5,177,485 7,192,437 Restatement effect (Note 2) - (532,167) - - 9,012 (342,105) - (4,161,628) (5,026,888) (522,124) (5,549,012) Balance at 01 January 2015 (restated)* 180,123 2,154,747 - 1,026,950 (26,516) (13,152) (342,105) - (5,991,983) (3,011,936) 4,655,361 1,643,425 - - Net loss for 2015 (restated) ------(3,794,851) (3,794,851) 191,679 (3,603,171) Other comprehensive income (restated) - - (7,064) 26,516 5,074 (12,906) - - 11,620 (39,013) (27,393) Total comprehensive income/loss (restated)* - - (7,064) 26,516 5,074 (12,906) - (3,794,851) (3,783,231) 152,667 (3,630,564) Acquisition of subsidiaries ------(108,057) (108,057) (345,670) (453,726) Transactions with non-controlling interest - - 33,024 - - - - (339,722) (306,697) 35,380 (271,318) Transfer to reserves - - (42,311) - - - - 42,311 0 - - Provisions for employee benefits ------(15,196) - (15,196) (10,349) (25,545) Dividends distributed for the year ------(145,828) (145,828) (44,868) (190,696) Balance at 31 December 2015 (restated)* 180,123 2,154,747 - 1,010,599 - (8,079) (355,010) (15,196) (10,338,128) (7,370,945) 4,442,520 (2,928,424)
Net loss for 2016 ------(10,107,192) (10,107,192) (940,231) (11,047,423) Other comprehensive income - - (173,307) - 3,199 (73,246) - - (243,355) (58,041) (301,395) Total comprehensive income/loss - - - (173,307) - 3,199 (73,246) - (10,107,192) (10,350,546) (998,272) (11,348,818) - - Treasury shares - - (229,532) ------(229,532) - (229,532) Acquisition of subsidiaries ------(50,872) (50,872) (4,780) (55,652) Transactions with non-controlling interest ------116,480 116,480 43,520 160,000 Transfer to reserves - - (1,289) - - - - 1,289 - - - Provisions for employee benefits ------(2,177) - (2,177) (1,505) (3,682) Other equity movements - - - - - 1,536 - (18,250) (16,714) (16,714) Dividends distributed for the year ------(110,921) (110,921) Balance at 31 December 2016 27 180,123 2,154,747 (229,532) 836,003 - (4,880) (426,721) (17,373) (20,396,672) (17,904,305) 3,370,562 (14,533,744)
* Total restatement impact on net equity on 31st December 2015 amounts to HRK 10,477,522 thousands. Signed on behalf of the Management Board:
Ante Ramljak Extraordinary Commissioner Zagreb, 9 October 2017 The accompanying notes form an integral part of these consolidated financial statements. 15
Agrokor Group NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
General
Agrokor d.d. (the Company) is a joint stock company which is incorporated in the Republic of Croatia. Parent of the Company is Adria Group Holding B.V. Netherlands with a share of 95.52%; ultimate parent of the Company is Agrokor projekti d.o.o. Zagreb, Croatia, while ultimate controlling party is as at 31 December 2016 was Mr. Ivica Todorić. As of 10 April 2017 the ultimate controlling party of Agrokor d.d. is defined as described in the Law for the Extraordinary Administration for Companies with Systemic Importance for the Republic of Croatia ("the Law"). The Company’s registered main office is located at Trg Dražena Petrovića 3, Zagreb. At 31 December 2016 the Group employed 58,317 employees, while on 31 December 2015 Agrokor Group had 55,957 employees. The Group identifies operating segments on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker (which was identified as being the Management Board of the Group) in order to allocate resources to the segments and to assess their performance. Details on the operating segments are disclosed in Note 1.24 to the consolidated financial statements. Comparative information are presented using the comparability principle.
Principal activities, trading review
The principal activities of the Company and its subsidiaries (the Group) are consumer retailing, manufacturing and distribution of food products. The Group operates through its two business groups: Business Group Food and Business Group Retailing.
Supervisory Board 1 Todorić Ivan Chairman from 29.06.2016 until 10.04.2017 2 Puljić Ljerka Deputy Chairman from 18.02.2015 until 10.04.2017 3 Kuštrak Damir Member from 18.02.2015 until 10.04.2017 4 Lučić Tomislav Member from 18.02.2015 until 10.04.2017 5 Rukavina Tatjana Member from 18.02.2015 until 10.04.2017
Management Board 1 Todorić Ivica President from 26.05.2016 until 10.04.2017 2 Todorić Ante Deputy President from 15.05.2013 until 10.04.2017 3 Balent Hrvoje Member from 04.07.2012 until 10.04.2017 4 Canjuga Piruška Member from 17.06.2010 until 17.06.2015 5 Crnjac Ivan Member from 05.03.2013 until 10.04.2017 6 Galić Mislav Member from 15.05.2013 until 10.04.2017 7 Knez Darko Member from 01.01.2016 until 16.08.2016 8 Sertić Ivica Member from 01.03.2016 until 10.04.2017
Extraordinary Commissioner Ante Ramljak Extraordinary Commissioner since 10.04. 2017, acting as Management and Supervisory Board according to the Law.
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Agrokor Group NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
1.1. Basis of Preparation
The consolidated financial statements of the Company and its subsidiaries (together, the Group) have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The consolidated financial statements also comply with the Croatian Accounting Act on consolidated financial statements, which refers to IFRS as adopted by the EU. The consolidated financial statements have been prepared on a historical cost basis, except for certain property, plant and equipment, biological assets, part of financial assets and liabilities which are recognised at fair value, as described in the following accounting policy notes. The accounting policies have been consistently applied by the Group and are consistent with those of the previous year, except as described in note 1.32 Changes in accounting policies due to new and amended Standards. The Group’s consolidated financial statements are presented in Croatian Kuna (HRK) which is the functional currency of the Company and the presentation currency for the consolidated financial statements. The effective exchange rate of the Croatian currency (expressed in HRK) at 31 December 2016 was HRK 7.17 per United States Dollar (USD) (2015: HRK 6.99) and HRK 7.56 per Euro (2015: HRK 7.64). All amounts disclosed in the financial statements are rounded to the nearest thousand of HRK, except when otherwise indicated.
1.2. The Going Concern Basis
In the year ended 31 December 2016, the Group incurred a net loss of HRK 11,047,423 thousand (2015: 3,603,171 thousand). Furthermore, as at 31 December 2016, the Group’s current liabilities exceeded its current assets by HRK 15,599,556 thousand (2015: HRK 9,303,957 thousand). As at 31 December 2016 the Group’s non-current liabilities from borrowings amounts to HRK 27,096,437 thousand (2015: HRK 24,611,689 thousand). In addition to the liabilities recognized in the statement of financial position at the reporting date, the Group has significant contractual obligations arising from the operating lease arrangements as disclosed in Note 29. These circumstances represent significant uncertainty for stakeholders which may cause significant doubt of the Group's ability to continue operating under the going concern assumption and that the Group is able to realize all of its assets and fulfil all its obligations in the normal course of business. Pursuant to the Law for the Extraordinary Administration for Companies with Systemic Importance for the Republic of Croatia ("the Law"), on 7 April 2017, the Management Board of Agrokor d.d., Zagreb ("Agrokor") has submitted a proposal to initiate the procedure for extraordinary administration at the Zagreb Commercial Court. The purpose of this Law is to protect the sustainability of business operations of companies with a systemic importance for the Republic of Croatia while conducting business, financial and ownership restructuring with the aim of preventing negative consequences on the overall economic, social and financial stability in the Republic of Croatia that may arise from a sudden discontinuity in the operations of such companies. The Commercial Court in Zagreb on 10 April 2017 (supplemented on 21 April 2017) issued a Decision to initiate the procedure for extraordinary administration (St-1138/17) over Agrokor and some of its affiliated or subsidiary companies. On the basis of this Decision, on 10 April 2017, the extraordinary commissioner took over the management of Agrokor d.d. and control over the Agrokor companies included in the extraordinary administration. As defined in Article 7 of the Law, during the procedure of extraordinary administration it is not allowed to institute proceedings for the liquidation of the debtor. Also, as defined in Article 41 of the Law since the opening of the extraordinary administration procedure until its completion, it is not permitted to institute litigation, enforcement, administrative and insurance proceedings as well as non-judicial proceedings against Agrokor and its subsidiaries and affiliates included in the extraordinary administration. Within 12 months of the opening of the extraordinary administration procedure, with the possibility of
17
Agrokor Group extension for 3 months, the extraordinary commissioner may, with the consent of the creditor council, propose the settlement of liabilities. The Settlement process is defined by the Law while the outcome of the settlement cannot reasonably be estimated to the date of this report. In accordance with the Law, the measure of extraordinary administration is implemented only while there is a reasonable probability for the establishment of a balance and continuation of operations on a more permanent basis. Otherwise, at any time during the proceedings of the extraordinary administration, the court may, at the request of the extraordinary commissioner, with obtained consent of the creditor council, decide to end the extraordinary administration procedure and to open bankruptcy proceedings if it is established that circumstances have arisen because of which there is no longer a reasonable chance of establishing an economic equilibrium and continuation of business on a more permanent basis. According to our best knowledge, such circumstances have not materialized so far and according to the information available by the date of this report, the Company's Management expects a successful conclusion of the Settlement. However, Management considers it is more likely than not that a Settlement can be reached, with the support of creditor stakeholders, and accordingly the financial statements are prepared on a going concern basis and do not include the adjustments which would be needed if the Group was unable to continue operating as a going concern.
1.3. Principles of Consolidation
The consolidated financial statements comprise the accounts of the Company and its subsidiaries as at 31 December 2016. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has: Power over the investee (i.e., existing rights that give the current ability to direct the relevant activities of the investee); Exposure, or rights, to variable returns from its involvement with the investee; The ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: Contractual arrangement with one other owner of voting rights over the investee; Rights arising from other contractual arrangements; The Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. A listing of the Group’s subsidiaries and a summary of the financial effect of the acquisition of subsidiaries during the year is set out in Note 3. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
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Agrokor Group transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resulting gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
1.4. Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition related costs are expensed when incurred. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value as at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognised in the income statement. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the identifiable assets acquired and liabilities incurred. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities incurred and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash- generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated income statement. An impairment loss recognised for goodwill is not reversed in subsequent periods. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
1.5. Investments in Associates and Joint Ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. In practice, associates are entities in which the Company owns between 20% and 50% of voting rights, these are the entities that are significantly influenced but not controlled by the Group. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement
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Agrokor Group have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control is similar to those necessary to determine control over subsidiaries. The Group’s investments in associates are accounted for using the equity method. According to the equity method, Company’s share in profits and losses of associated companies and joint ventures are recognized through the Income statement, from the date the significant influence commences until the date that the significant influence ceases. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of the net assets of the associate or joint venture since the acquisition date. Profit and loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in other comprehensive income (“OCI”) of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of the Group’s share of profit or loss of an associate or joint venture is presented in the income statement and includes profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group determines the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss in the statement of profit or loss. Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value and reclassifies any retained investment accordingly. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and fair value of the retained investment as well as proceeds from disposal is recognised in profit or loss.
1.6. Current versus non-current classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is: Expected to be realised or intended to be sold or consumed in the normal operating cycle; Held primarily for the purpose of trading; Expected to be realised within twelve months after the reporting period, or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when:
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Agrokor Group It is expected to be settled in the normal operating cycle; It is held primarily for the purpose of trading; It is due to be settled within twelve months after the reporting period; or There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
1.7. Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset. Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented in income statement. Financial assets designated upon initial recognition at fair value through profit or loss are designated at their initial recognition date and only if the respective criteria are satisfied. The Group has not designated any financial assets at fair value through profit or loss. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (“EIR”) method, less impairment. Amortised cost is calculated
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Agrokor Group by taking into account any discount or premium on acquisition and fees or costs that are an integral part of EIR. The EIR amortisation is included in interest income in the income statement. The losses arising from impairment are recognised in the income statement. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortised costs using the EIR, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as interest income in the income statement. The losses arising from impairment are recognised in the income statement. Available-for-sale financial investments Available-for-sale financial investments include equity investments and debt securities. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income and accumulated in the available- for-sale reserve until the investment is derecognised, or impaired at which time, the cumulative gain or loss is recognised in proft or loss as a reclassification from OCI. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the EIR method. Available-for-sale financial investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified from OCI to the income statement. De-recognition A financial asset is derecognised when the rights to receive cash flows from the asset have expired, or when the Group has transferred its rights to receive cash flows from the asset or has assumed an qualifying obligation to pay the received cash flows without material delay to a third party, and either the Group has transferred substantially all the risks and rewards of the asset, or the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Impairment of financial assets The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. For financial assets carried at amortised cost: if there is objective evidence that impairment has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. The carrying value of the asset is reduced and loss is recognised in profit or loss.
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Agrokor Group For available for sale financial instruments: when there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost (or amortised cost for debt instruments) and the current fair value less any impairment loss on that investment previously recognised in income statement, is removed from other comprehensive income and recognised in income statement.
Financial liabilities Initial recognition and measurement Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial instruments at initial recognition. All financial liabilities are recognised initially at fair value and, and in the case of loans and borrowings, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments. Subsequent measurement The measurement of financial liabilities depends on their classification as described below: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments that are not designated as hedging instruments in hedge relationship. Separate embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains and losses on liabilities held for trading are recognised in income statement. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition and only if the respective criteria are satisfied. The Group has not designated any financial liability as at fair value through profit or loss. Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of EIR. The EIR amortisation is included as interest expense in the income statement. Contracts on financial guarantees/guarantees Contracts for financial guarantees/guarantees issued by the Group are those contracts that require the execution of a payment to compensate to the holder the loss arising out of the fact that a certain debtor has not performed its obligations in accordance with the terms of the debt instrument. Financial guarantees are initially recognized as a liability at fair value and subsequently at higher of: a) the best estimate of the expenditure required for settlement of the present obligation at the reporting date b) and the amount initially recognised less its cumulative amortization. De-recognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another form of liability from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability.
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Agrokor Group The difference in the respective carrying amounts is recognised in the income statement.
Derivative financial instruments and hedge accounting Initial recognition and subsequent measurement The Group uses derivative financial instruments such as forward currency contracts, cross currency swaps to hedge its foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income and later reclassified to profit or loss when the hedge item affects profit or loss.
1.8. Fair value measurement
The Group measures financial instruments such as derivatives and non-financial assets such as biological assets at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: in the principal market for the asset or liability or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as whole) at the end of each reporting period.
1.9. Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition,
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Agrokor Group intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite useful lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired, as described in the accounting policy 1.12 Impairment of assets. Intangible assets with finite useful lives are amortized on a straight-line basis over their expected useful lives. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. Useful life of the intangible assets, as follows: Concesions 2 to 13,5 years Other intangible assets 2 to 50 years Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite useful life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from de-recognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
Brands, distribution rights and trademarks Brands refer to acquired rights to use trademarks, marks and brand names that the Group allocates to segments of business in accordance with the internal categorization of the product to which a particular brand relates whereby the value is wholly or in part allocated to a particular segment or, where applicable, where a particular brand consists of products and categories that fall into several segments by category, in accordance with the ratio of brand's gross margins contribution in each of the segments. Brands acquired through business combinations are recognised at the initially determined fair value (on acquisition date) less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost of the item over its estimated useful life (15 years). Brands with an indefinite useful life are not amortized but tested annually for impairment at the level of cash generating unit. Brands have an indefinite useful life when, based on an analysis of all of the relevant factors at the reporting date, there is no foreseeable limit to the period of time over which the identified rights are expected to generate net cash inflows. Intangible assets with indefinite useful lives are tested annually for impairment and are stated at cost less accumulated impairment loss. Individually acquired distribution rights and trademarks are presented at historical cost. Distribution rights and trademarks acquired through business combinations are recognized at fair value on the acquisition date. Product distribution rights and trademarks have a limited useful life and are stated at cost less accumulated depreciation and impairment. Amortization is calculated using the straight-line method to allocate the cost of rights over their estimated useful life (from 1.5 to 5 years).
Research and development costs Research costs are expensed as incurred. An internally-generated intangible asset arising from development is recognised if, and only if, all of the following have been demonstrated: The technical feasibility of completing the intangible asset so that it will be available for use or sale;
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Agrokor Group The intention to complete and its ability and intention to use or sell the asset; How the intangible asset will generate future economic benefits; The availability of resources to complete the asset; and The ability to measure reliably the expenditure during development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, over the period of expected useful life not exceeding a maximum period of five years.
1.10. Property, Plant and Equipment
Property, plant and equipment, with the exception of land, are carried at cost less accumulated depreciation and/or impairment losses, if any. Revaluations relate to land and have been based upon valuations performed by independent expert valuer, for a period not exceeding three years. The basis used in valuations is comparable market prices. When an asset is revalued, any increase in the carrying value is credited to a revaluation surplus within equity (through other comprehensive income), net of deferred taxation, if applicable. The relevant portion of the revaluation surplus realised in respect of a previous valuation is released from the asset valuation surplus directly to retained earnings upon the disposal of the revalued asset. Items of property, plant and equipment that are retired or otherwise disposed of are eliminated from the statement of financial position, along with the corresponding accumulated depreciation. Any gain or loss arising from derecognising of assets (calculated as the difference between net sales receipts and the carrying value of the asset at the time of disposal) is taken to the income statement in the year of de-recognition. When significant parts of buildings, plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the building, plant or equipment as a replacement if the recognition criteria is satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. After initial recognition, such plant-based assets are valued at cost less accumulated depreciation and / or impairment if any. The estimated useful life of the assets is as follows: Buildings 5 to 55 years Property, Plant and Equipment 4 to 15 years Leasehold improvements 5 to 10 years Other fixed assets up to 5 years The useful life, depreciation method and residual values are reviewed at each financial year-end and if expectations differ from previous estimates, any changes are accounted for as a change in accounting estimate.
1.11. Investment properties
Investment properties mainly relate to commercial properties and warehouses that are held for the purpose of long-term lease income or increase in value and are not used by the Group. Investment properties are treated as long-term investments unless they are intended for a highly probable sale in the following year and the buyer is identified, in which case they are classified as short-term assets.
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Agrokor Group Investment properties are stated at historical cost less accumulated amortization. Depreciation of buildings is calculated using the straight-line method for the purpose of allocating the cost over their estimated useful life ranging from 5 to 75 years. Subsequent expenses are capitalized only when it is probable that the Group will have future economic benefits and when the cost can be measured reliably. All other repair and maintenance costs are charged to the income statement when incurred. If the Group begins to use the investment property, it is reclassified to properties, plant and equipment and its carrying amount on the date of reclassification becomes the deemed cost that will be subsequently depreciated.
1.12. Impairment of Assets
The Group assesses at each financial year-end whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. The recoverable amount is estimated as the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and value in use. Recoverable amounts are estimated for individual assets or, if this is not possible, for the cash-generating unit to which the asset belongs. Cash-generating units are primarily identified at entity level. When carrying values exceed this estimated recoverable amount, the assets are written down to their recoverable value. The following criteria are also applied in assessing impairment of specific assets: Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business, less accumulated impairment loss, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. Each unit or group of units to which goodwill is allocated represents the lowest level within the Group where goodwill is monitored for internal management purposes. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the net book value may be impaired. Goodwill impairment is determined by a recoverable amount estimate based on estimates of the value in use of the cash-generating unit (or group of units) to which goodwill relates. When the recoverable amount of the cash-generating unit (or group of units) exceeds the carrying value of the cash generating unit (or group of units) to which the goodwill is allocated, an impairment loss is recognized. Impairment losses relating to goodwill can not be reversed in the following periods. The recoverable amount of a cash-generating unit is determined as its value in use, using projected cash flows based on financial plans for a five-year period and terminal growth rate for cash flows after the projected five year period. The basis for determining the value of the gross margin is the average gross margin achieved in the year preceding the year for which a business plan is being drawn up.
Intangible assets Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level, as appropriate and when the circumstances indicate that the carrying value may be impaired.
Brands, distribution rights and trademarks The Group annually performs an impairment test in order to assess whether the recoverable amount of brands indicates potential impairment of its carrying amount. The recoverable amount of cash generating units is determined based on value-in-use calculations. These
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Agrokor Group calculations use cash flow projections from financial budgets approved by management and cover a period of five years.
1.13. Leased Assets
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
Group as a lessee The lease is originally classified as a financial or operating lease. Finance leases, which effectively transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the lower of the fair value of the leased property or present value of the minimum lease payments at the commencement date of the lease term and are disclosed as leased property, plant and equipment. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the income statement. Capitalised leased assets are depreciated over the shorter of leased term and its useful life. Leases where the lessor effectively retains substantially all the risks and rewards of ownership of the leased item are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The accounting treatment of a sale and leaseback transaction depends upon the type of lease involved. If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount is deferred and amortised over the lease term. If a sale and leaseback transaction results in an operating lease, and the transaction is established at fair value, any profit or loss is recognised immediately.
Group as a lessor Leases where the Group does not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
1.14. Non - current assets held for sale
Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell or to distribute. Costs to distribute are the incremental costs directly attributable to the sale or distribution, excluding the finance (holding) costs and income tax expense. Non- current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the sale will be withdrawn. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of income. Property, plant and equipment and intangible assets once classified held for sale is not depreciated or amortised.
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Agrokor Group Assets and liabilities classified as held for sale or distribution are presented separately as current items in the statement of financial position.
1.15. Inventories
Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition is accounted for as follows: Raw materials – lower of purchase costs or net realisable value. Cost formula is determined at weighted average basis. Finished goods and work-in-progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Merchandise – lower of purchase costs or net realisable value. Cost formula is determined at weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
1.16. Biological assets
The Group recognises a biological asset or agricultural produce, such as livestock, crops, when there is control over the asset as a result of past events; it is probable that future economic benefits associated with the asset will flow to the entity and the fair value or cost of the asset can be measured reliably. A biological asset is measured on initial recognition and at each balance sheet date at its fair value less costs to sell, except when the fair value cannot be measured reliably. Agricultural produce harvested from an entity’s biological assets is measured at its fair value less costs to sell at the point of harvest. Plants/plantations are transferred under IAS 16, but agricultural products that grow on crops are still presented and recognized within biological assets in the financial statements. Biological plant based assets are those assets used in the production or acquisition of agricultural products that are expected to produce in more than one period of time, which is unlikely to be sold as a plant or harvested as an agricultural product. The initial cost of such assets is expressed in the same way as the assets that a company merely constructs within property, plant and equipment, and before it is brought to the condition and position necessary for the work that the asset was intended by management. After initial recognition, such plant-based assets are valued at cost less accumulated depreciation and / or impairment if any. For biological assets valued at cost, depreciation is recorded by a charge to the income statement computed on a straight-line basis over the estimated useful life of the asset, as follows: Vineyards 10 to 20 years Orchards 10 years Olive groves 20 years
1.17. Trade and other receivables
Trade receivables, which generally have 90 days terms are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.
1.18. Cash and Cash Equivalents
Cash and cash equivalents in the statement of financial position are defined as cash on hand, balances with banks, demand deposits and deposits with original contractual maturity of less than 3 months.
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Agrokor Group Restricted cash Cash and cash equivalents owned by the Group, but which the Group cannot use or dispose of represent restricted cash. Restrictions on use or disposal are based on credit and loan agreements or regulatory requirements.
1.19. Trade payables and other current liabilities
Trade payables are the obligations of payment to the supplier for the goods purchased or services received during normal business. Trade payables are classified as current if they are due for payment within one year, or within the operating cycle if it is longer. Otherwise, the liabilities are classified as long-term. Trade payables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method. Other current liabilities are those that are classified as current and mature up to one year and include tax liabilities (other than income tax), other payables to employees, prepayments received, other short-term liabilities and accrued expenses and deferred income.
1.20. Taxation
Income tax for the period consists of current and deferred tax. Current tax is based on the accounting profit for the year adjusted for permanent and temporary differences between taxable and accounting income. Current tax is provided for in accordance with fiscal regulations in the countries where the Group entities are located. Companies’ income tax returns are subject to examination by the Tax Authorities. Since the application of tax laws and regulations to several types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by the Tax Authorities. Deferred income tax is calculated, using the balance sheet liability method, on all temporary differences at the reporting date due to differences in treatment of certain items for taxation and for accounting purposes within the consolidated financial statements. Deferred tax assets and liabilities are measured using the enacted or substantiavely enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognised when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilised. At each reporting date, the Group re-assesses unrecognised deferred tax assets and the appropriateness of carrying amount of the tax assets.
1.21. Foreign Currencies
The individual financial statements of each Group entity are prepared in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group entity are expressed in Croatian Kuna (HRK) which is the functional currency of the Company and the presentation currency for the consolidated financial statements.
Transactions and balances: Transactions in foreign currencies are initially recorded by the Group entities in their functional currency at the respective currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in a foreign currency are translated into the functional currency using the closing exchange rate at the end of the reporting period. Non-monetary items that are measured in
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Agrokor Group terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Exchange differences arising on foreign currency transactions and the translation of monetary assets and liabilities are recognised in the consolidated income statement in the period in which they arise.
Group companies: The assets and liabilities of foreign subsidiaries are translated into the presentation currency using the Croatian National Bank middle exchange rate at the end of the reporting period. Revenues and expenses are translated at the average exchange rate for the year. The effects of translating these items are included in other comprehensive income. Any goodwill and fair value adjustments arising on the acquisition of a foreign subsidiary are treated as assets and liabilities of that foreign subsidiary and are translated at the rate effective at the end of the respective reporting period.
1.22. Revenue Recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is presented, net of value-added tax, returns, rebates and discounts, expenses of listing the products and marketing services charged that are an integral part of contracts with customers. All other marketing services charges related to marketing campaigns that are not integral part of customer contract are presented within Marketing and promotion costs. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below.
Sales of products and trade goods – wholesale The Group manufactures and sells its own products and goods of third parties in the wholesale market. Sales of goods are recognised when the Group has delivered the products to the wholesaler, the wholesaler has full discretion over the price to sell and there is no unfulfilled obligation that could affect the wholesaler’s acceptance of the products. Delivery does not occur until the products have been shipped to the specified location, the risks of loss have been transferred to the wholesaler and either of the following has occurred: the wholesaler has accepted the products in accordance with the contract, the acceptance provisions have lapsed or the Group has objective evidence that all criteria for acceptance have been satisfied. Products are sold with volume discounts and customers have a right to return faulty products in the wholesale market. Sales are recorded based on the price specific in the sales contracts, net of estimated volume discounts and returns at the time of sale. Accumulated experience is used to estimate and provide for the discounts and returns. The volume discounts are assessed based on anticipated annual purchases. No element of financing is deemed present as the sales are made with a credit term of up to 90 days, which is consistent with the market practice.
Sales of goods - retail Sale of goods are recognised when a group entity sells a product to the customer. Retail sales are usually in cash or by credit card.The Group issues credit and debit cards Pika and Multiplus to its customers for collecting bonus points at purchases. Bonus periods last three to six months. The first annual bonus period lasts from February 1 to July 31, the second bonus period from August 1 to January 31 of the following year. During the bonus period, customers collect bonus points. Depending on the amount of purchases and consequently the number of collected points, they can earn a 2 to 6-percent discount. During the year, the Group allocates potential discounts on the basis of collected points, whereas revenue from unrealized bonus points is allocated based on experience from previous bonus periods. Despite the fact that the second bonus
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Agrokor Group period ends on January 31 of the following year, the Group in this way ensures that recorded revenues match expenditures that were necessary for their realization.
Sales of services Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
1.23. Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
1.24. Segment information
For management purposes, the Group is organised into business units based on their products and services and has four reportable operating segments as follows: Agrokor Holding – parent company for management of the Group Food, Manufacturing and Distribution – production of food (ice-cream and frozen food, edible oils and margarines, waters and drinks, meet and meet products, agriculture products) and distribution of the products to customers Retail and Wholesale – retail store chain and related businesses Other Businesses – commodities brokerage No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Group financing (including finance cost and finance income) are managed on a group basis and are not allocated to operating segments. Segment results include revenue and expenses directly attributable to a segment and the relevant portion of Group revenue and expenses that can be allocated on a reasonable basis to a segment, whether from external transactions or from transactions with other segments of the Group. Operating profit expressed in segment information section consists of sales revenues, cost of sales, other revenues (income from sales of financial assets, collected written-off receivables, inventory surpluses and other revenues) and other expenses (depreciation and amortisation, wages and salaries, taxes, social insurance and pension costs, write off of bad debts and other short-term assets, research and development costs and other expenses). Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment or can be allocated to the segment on a reasonable basis, as well as finance liabilities which are allocated to segments based on the segment allocation of the subsidiary being the original debtor. Segment assets are determined after deducting related allowances that are reported as direct offsets in the Group’s statement of financial position. Segment assets and liabilities do not include income tax items. Segment results are determined before any adjustments for non-controlling interest. Capital expenditure represents the total cost incurred during the period to acquire segment assets that are
32
Agrokor Group expected to be used during more than one period.
1.25. Pensions and employee benefits
The Group recognizes a provision for bonuses and accumulated unused annual vacation days when there is a contractual obligation or past practice on the basis of which the obligation has been incurred. The Group, in the normal course of business, makes fixed contributions into the State mandatory pension funds on behalf of its employees. The Group does not operate any other pension scheme or postretirement benefit plan, and consequently, has no legal or constructive obligation to make further contributions if the funds do not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. The Group makes payments to employees that include one-off retirement and jubilee benefits as well as scholarships for children of employees that died at work. The obligation and costs of these benefits are determined using a projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. Past service costs are recognised immediately when incurred. Gains or losses on the curtailment or settlement of pension benefits are recognised when the curtailment or settlement occurs. The pension obligation is measured at the present value of estimated future cash flows using a discount rate that is based on the interest rate on government bonds where the currency and terms of the government bonds are consistent with the currency and estimated terms of the defined benefit obligation.
1.26. Provisions
Provisions for redundancy and long-term employee benefits, restructuring costs, warranty costs, and legal disputes are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Where the effect of discounting is material, the amount of the provision is the present value of the expenditures expected to be required to settle the obligation, determined using the estimated risk free interest rate as the discount rate. Where discounting is used, the reversal of such discounting in each year is recognized as a financial expense and the carrying amount of the provision increases in each year to reflect the passage of time. Provisions for restructuring costs are recognized when the Group has a detailed formal plan for the restructuring that has been communicated to parties concerned. When the Group expects that part or all of the provision will be reimbursed, for example, under an insurance contract, such collection is recognized as a separate asset, but only when the payment is fully secure. Costs associated with the provision are shown in the income statement as a net amount less all collection charges.
1.27. Contingencies
Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent liabilities of the Group are presented in Note 36.
1.28. Subsequent Events
Post year-end events that provide additional information about a Group’s position at the reporting date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes (Note 40) when material.
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Agrokor Group 1.29. Critical Accounting Estimates
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Leasing – Group as a lessee The Group has concluded significant operating lease agreements as a lessee. The Group must assess wheter substantially all risks and rewards related to assets under lease were transferred to the lessee and to determine whether to recognize these lease arrangements as a financial lease or operating lease. Impairment of receivables The Group estimates provision for impairment when there is an uncertainty in collecting the entire or part of the receivables. The assessment of impairment is based on the ageing structure of the receivables and the analysis of individual significant amounts. Fair value of land The services of an independent appraiser are regularly used by the Company, and a reduction, or increase in value is recognised to ensure that the land is stated at its fair value. Impairment of goodwill A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that goodwill may be impaired. If the recoverable amount is less than carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods. Key estimates used in goodwill impairment testing and sensitivity to key estimates are disclosed within Note 13 Intangible assets.
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Agrokor Group Impairment of brands The Group annually performs impairment tests in order to assess whether the recoverable amount of brands indicates potential impairment of their carrying amount whereby the primary focus is on brands where the difference between the recoverable amount and the carrying amount indicates a significant sensitivity to changes in key variables used in impairment testing. The calculation of the recoverable amount of brands is based on five year plans for sales of product and categories which comprise a certain brand and which the Group developed bearing in mind its corporate and marketing strategy, trends on relevant markets where the brands are sold (such as estimated movements in gross domestic product, market share of relevant products and categories etc.) and the analysis of its competitors. Key estimates used in brand impairment testing and sensitivity to key estimates are disclosed within Note 13 Intangible assets.
1.30. Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis with the costs that it is intended to compensate. Where the grant relates to an asset, it is recognised as deferred income and is released to the income statement in equal amounts over the expected useful life of the relevant asset.
1.31. Treasury shares
Where the Company purchases its equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.
1.32. Changes in accounting policies due to new and updated Standards
(a) New standards and amendments – applicable 1 January 2016 The following standards and interpretations apply for the first time to financial reporting periods commencing on or after 1 January 2016: Agriculture: Bearer Plants – Amendments to IAS 16 and IAS 41 IAS 41 Agriculture now distinguishes between bearer plants and other biological asset. Bearer plants must be accounted for as property, plant and equipment and measured either at cost or revalued amounts, less accumulated depreciation and impairment losses. A bearer plant is defined as a living plant that:
is used in the production or supply of agricultural produce
is expected to bear produce for more than one period, and
has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales. Agricultural produce growing on bearer plants remains within the scope of IAS 41 and is measured at fair value less costs to sell with changes recognised in profit or loss as the produce grows. The other new standards or interpretations effective for 2016 did not have any material impact. (b) Forthcoming requirements The following standards and interpretations have been issued but are not mandatory for annual reporting periods ending 31 December 2016, and which the Group has not early adopted. IFRS 9 Financial Instruments and associated amendments to various other standards (effective for annual periods beginning on or after 1 January 2018)
35
Agrokor Group IFRS 9 replaces the multiple classification and measurement models in IAS 39 Financial instruments: Recognition and measurement with a single model that has initially only two classification categories: amortised cost and fair value. Classification of debt assets will be driven by the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. A debt instrument is measured at amortised cost if: a) the objective of the business model is to hold the financial asset for the collection of contractual cash flows, and b) contractual cash flows of the instrument solely represent payments of principal and interest. All other debt and equity instruments, including investments in complex debt instruments and equity investments, must be recognised at fair value. All fair value movements on financial assets are taken through the statement of profit or loss, except for debt or equity investments that are not held for trading, which may fall in the fair value through other comprehensive income category. For financial liabilities that are measured under the fair value option, entities will need to recognise the part of the fair value change that is due to changes in the their own credit risk in other comprehensive income rather than profit or loss. The new hedge accounting rules (released in December 2013) align hedge accounting more closely with common risk management practices. As a general rule, it will be easier to apply hedge accounting going forward. The new standard also introduces expanded disclosure requirements and changes in presentation. In July 2014, IASB made further changes to the classification and measurement rules and also introduced a new impairment model. With these amendments, IFRS 9 is now complete. The changes introduce:
a third measurement category (FVOCI) for certain financial assets that are debt instruments
a new expected credit loss (ECL) model which involves a three-stage approach whereby financial assets move through the three stages as their credit quality changes. The stage dictates how an entity measures impairment losses and applies the effective interest rate method. A simplified approach is permitted for financial assets that do not have a significant financing component (e.g. trade receivables). On initial recognition, entities will record a day-1 loss equal to the 12 month ECL (or lifetime ECL for trade receivables), unless the assets are considered credit impaired. For financial years commencing before 1 February 2015, entities could elect to apply IFRS 9 early for any of the following:
own credit risk requirements for financial liabilities
classification and measurement (C&M) requirements for financial assets
C&M requirements for financial assets and financial liabilities, or
C&M requirements for financial assets and liabilities and hedge accounting. After 1 February 2015, the new rules must be adopted in their entirety. The Group currently plans to apply IFRS 9 initially on 1 January 2018. It is not expected that this standard will have a significant effect on the consolidated financial statements of the Group since the carrying amount of financial assets and liabilities approximates their fair value.
IFRS 15 Revenue from Contracts with Customers and associated amendments to various other standards (effective for annual periods beginning on or after 1 January 2018) IASB issued a new standard for the recognition of revenue. This will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. A new five-step process must be applied before revenue can be recognised:
36
Agrokor Group
identify contracts with customers
identify the separate performance obligation
determine the transaction price of the contract
allocate the transaction price to each of the separate performance obligations, and
recognise the revenue as each performance obligation is satisfied. Key changes to current practice are:
Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements.
Revenue may be recognised earlier than under current standards if the consideration varies for any reasons (such as for incentives, rebates, performance fees, royalties, success of an outcome, etc.) – minimum amounts must be recognised if they are not at significant risk of reversal.
The point at which revenue is able to be recognised may shift: some revenue which is currently recognised at a point in time at the end of a contract may have to be recognised over the contract term and vice versa.
There are new specific rules on licenses, warranties, non-refundable upfront fees and, consignment arrangements, to name a few.
As with any new standard, there are also increased disclosures. These accounting changes may have flow-on effects on the entity’s business practices regarding systems, processes and controls, compensation and bonus plans, contracts, tax planning and investor communications. Entities will have a choice of full retrospective application, or prospective application with additional disclosures.
IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019, early adoption is permitted only if IFRS 15 is adopted at the same time) IFRS 16 will affect primarily lessee accounting and will result in the recognition of almost all leases on the balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts. An optional exemption exists for short-term and low-value leases. The income statement will also be affected because the total expense is typically higher in the earlier years of a lease and lower in later years. Additionally, operating expense will be replaced with interest and depreciation, so key metrics like EBITDA will change. Operating cash flows will be higher as cash payments for the principal portion of the lease liability are classified within financing activities. Only the part of the payments that reflects interest can continue to be presented as operating cash flows. Lessor accounting will not change significantly. Some differences may arise as a result of the new guidance on the definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Disclosure Initiative – Amendments to IAS 7 (effective for annual periods beginning on or after 1 January 2017) Going forward, entities will be required to explain changes in their liabilities arising from financing activities. This includes changes arising from cash flows (e.g. drawdowns and repayments of borrowings) and non-cash changes such as acquisitions, disposals, accretion of interest and unrealised exchange differences.
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Agrokor Group Changes in financial assets must be included in this disclosure if the cash flows were, or will be, included in cash flows from financing activities. This could be the case, for example, for assets that hedge liabilities arising from financing liabilities. Entities may include changes in other items as part of this disclosure, for example by providing a ‘net debt’ reconciliation. However, in this case the changes in the other items must be disclosed separately from the changes in liabilities arising from financing activities. The information may be disclosed in tabular format as a reconciliation from opening and closing balances, but a specific format is not mandated. The Group is currently preliminary assessing the impact of the new standards on its financial statements, which will be subject to changes arising from more detailed ongoing analysis. The Group plans to adopt the new standards on their effective date, and when adopted by EU.
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Agrokor Group NOTE 2. ADJUSTMENTS UNDER IAS 8 Restatement of comparative information The financial statements, including comparative information for the previous periods, are restated if a material prior period error has been identified. In addition, where necessary, comparative data were reclassified to achieve consistency in presenting data with current financial year information. Financial information as of January 1, 2015 and as of December 31, 2015 and for the period then ended have been restated for correction of the errors, which are identified as follows:
31 December 2015 – Balance sheet
Reclassification As previously Restatement effect Restated reported effect 2.17. Note 31.12.2015 31.12.2015 31.12.2015. 31.12.2015
ASSETS
NON CURRENT ASSETS
Property, plant and 2.2. 22.792.207 - 2.183.374 24.975.581 equipment Investment property 174.221 - 48.731 222.952
Intangible assets 2.3. 5.267.780 - (1.824.662) 3.443.118 Biological assets 434.384 - (2.769) 431.615
Investment in associates 174.821 8.759 (8.759) 174.821 using equity Other non-current assets 2.4. 3.601.342 (8.759) (216.433) 3.376.150
TOTAL NON CURRENT 32.444.755 - 179.482 32.624.237 ASSETS Asset held for sale 1.806.756 - 2.672 1.809.428
CURRENT ASSETS
Inventory 2.5. 7.617.059 - (1.286.037) 6.331.021 Biological assets 2.6. 693.246 - (332.672) 360.573 Loans and deposits 2.7. 188.141 - 1.455.704 1.643.845 Receivables 2.8. 5.129.473 - 1.016.526 6.145.999 Recourse right receivables 937.871 (46.769) 244.390 1.135.492
Other current assets 1.393.757 46.770 (19.708) 1.420.819
Cash and Cash equivalents 2.9. 2.608.618 - (2.011.578) 573.040
TOTAL CURRENT 20.374.921 - (930.703) 19.420.217 ASSETS
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Agrokor Group
1 January 2015 – Balance sheet As Reclassification Restatment previously effect effect due Restated
reported 2.17. to error Note 1.1.2015 1.1.2015 1.1.2015. 1.1.2015.
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 2.2. 25,600,020 -116,278 2,029,667 27,513,409 Investment property 9,579 116,278 9,579 135,436 Intangible assets 2.3. 1,854,136 - 1,516,165 3,370,301
Biological assets 444,427 - -2,307 442,120 Equity investments 55,863 41,123 -41,123 55,863 Other non-current assets 2.4. 3,184,832 -41,123 21,433 3,165,142
TOTAL NON CURRENT 31,148,857 - 3,533,414 34,682,271 ASSETS
Asset held for sale 308,902 - - 308,902
CURRENT ASSETS
Inventory 2.5. 7,087,766 27,953 -1,597,307 5,518,412 Biological assets 2.6. 642,239 - -287,093 355,146 Loans and deposits 2.7. 1,664,284 -1,200,850 1,662,588 2,126,022 2.8. Receivables 6,258,732 -760,044 675,256 6,173,944
Recourse right receivables - 109,323 159,991 269,314
Other current assets 611,521 1,823,618 -700,975 1,734,164 Cash and Cash equivalents 2.9. 2,681,314 - -2,097,351 583,963
TOTAL CURRENT ASSETS 19,254,758 - -2,184,891 17,069,867
TOTAL ASSETS 50,403,615 - 1,348,523 51,752,138
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Agrokor Group 31 December 2015 – Balance sheet
As Reclassification Restatement previously effect effect due to Restated
reported 2.17. error Note 31.12.2015 31.12.2015 31.12.2015. 31.12.2015 LIABILITIES
LONG TERM LIABILITIES
Borrowings 2.10. 19,681,646 - 4,930,043 24,611,689 Provisions 492,878 - 106,850 599,728
Deferred tax liability 2.11. 798,903 - 238,002 1,036,905 Other long term liabilities - - 381 381
TOTAL LONG TERM 20,973,427 5,275,276 26,248,703 LIABILITS
SHORT TERM LIABILITIES
Accounts payable 9,608,010 227,610 274,245 10,109,865
Bills of exchange and recourse 2.12. 6,333,527 -3,350,956 -1,064,432 1,918,139 liability Income tax 129,531 - - 129,531
Borrowings 2.13. 6,162,362 2,885,991 5,312,582 14,360,935
Liabilities for profit distribution 3,336 - - 3,336
Other short term liabilities 2,090,384 237,355 -101,368 2,226,371
TOTAL SHORT TERM 24,327,150 - 4,421,027 28,748,177 LIABILITIES
TOTAL LIABILITS 45,300,577 - 9,696,303 54,996,880
IMPACT ON EQUITY 10,447,522
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Agrokor Group
1 January 2015 – Balance sheet
in 000 HRK As Reclassification Restatment previously effect Restated effect reported 2.17. Note 1.1.2015. 1.1.2015. 1.1.2015. 1.1.2015. LIABILITIES
LONG TERM LIABILITIES
Borrowings 2.10. 20,827,709 - 2,846,834 23,674,543 Provisions 206,069 101,186 16,729 323,984
Deferred tax liability 2.11. 833,716 - 257,850 1,091,566 Other long term liabilities 101,186 -101,186 - -
TOTAL LONG TERM 21,968,680 - 3,121,413 25,090,093 LIABILITS
SHORT TERM LIABILITIES
Accounts payable 15,946,379 -1,619,923 -68,777 14,257,679
Bills of exchange and recourse 2.12. - 1,624,081 -1,624,081 - liability Income tax 121,760 - - 121,760
Borrowings 2.13. 2,860,451 - 5,706,721 8,567,172
Liabilities for profit distribution - 7,388 - 7,388
Other short term liabilities 2,313,909 -11,546 -237,741 2,064,622
TOTAL SHORT TERM 21,242,499 - 3,776,122 25,018,621 LIABILITIES
TOTAL LIABILITS 43,211,179 - 6,897,535 50,108,714
IMPACT ON EQUITY 5,549,012
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Agrokor Group 2.1 Transactions incorrectly presented in the previous period financial statements
During the period from 2010-2015 the Group recorded in the accounting records, but has not recognised in the financial statements the following transactions, which is not in accordance with IFRS and the substance of the transactions: a) period end journal entries as at 31 December 2015 to conceal borrowings amounting to HRK 2,952,506 thousand (1 January 2015: HRK 1,398,126 thousand), operating and interest expenses presented on 31 December 2015 as receivables from the owner amounting to HRK 1,039,223 thousand (1 January 2015: HRK 697,100 thousand), assets amounting to HRK 1,008,283 thousand HRK (2015: 701,026 thousand HRK) and reduction in equity totaling HRK 905,000 thousand.
The scheme affected the previously reported consolidated financial statements of the Group from 2010 to 2015.
The understatement of operating and interest expenses from 2010 to 2015 is summarized in the table below. In 2016, the HRK 2,264,965 thousand was recognized as operating and interest expense.
Year HRK’000 2010 57,500 2011 429,143 2012 472,593 2013 468,572 2014 494,193 2015 342,964 Total 2,264,965
(b) Improper classification of borrowings as equity in amount of HRK 991,481 thousand as at 31 December 2015 (1 January 2015: HRK 1,289,073 thousand), and c) Improper classification of loans receivable as cash equivalents of HRK 2,078,502 thousand at 31 December 2015 (1 January 2015: HRK 2,104,601 thousand).
Summary of the accounting errors presented under point 2.1 a)-c):
31 December Description of error 2015 1 January 2015 Understatement of borrowings (3,943,987) (1,398,126) Understatement of assets 2,047,506 697,100 Overstated equity 1,896,481 (701.026)
The Group has corrected these errors in these financial statements by restating amounts as of 31 December 2015 and 1 January 2015. Additionally, loans receivable for HRK 2,078,502 thousand have been reclassified from cash equivalents at 31 December 2015 (1 January 2015: HRK 2,104,601 thousand). In respect of the errors above, the Group has commenced several investigations into this matter. These investigations are currently ongoing and may result in potential future adjustments to the consolidated financial statements.
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Agrokor Group
2.2 Property, plant & equipment
Description of error 31 December 2015 1 January 2015 note Improper capitalization of expenses in respect land valuation - -211 Impairment of land and buildings -245,311 -193,391 2.2.1. Reclassification of buildings under finance lease previously classified as an operating lease 1,931,012 1,986,893 2.2.2.
Companies that have not previously been consolidated 572,848 462,966 2.2.3. Correction of error in depreciation calculation - -1,762 Impairment of equipment and other assets -17,466 -19,892 Correction of error in capitalization of costs -848 -204,936 Correction of leasehold improvements capitalization -109,198 - Reclassification from non-current financial instruments to buildings 52,337 - TOTAL 2,183,374 2,029,667
2.2.1. Land valuation
In earlier periods, in carrying out its impairment assessment of land, the Group did not take into consideration all relevant impairment indicators that were likely to have existed in previous periods. In 2016, the Management of the Group carried out a detailed analysis of the recoverability of carrying value of land and in accordance with the tests performed adjusted the amounts of long-term assets, revaluation reserves, deferred tax liabilities, as at 1 January 2015 and 31 December 2015 and loss for the year then ended.
2.2.2 Finance lease obligation
In accordance with IAS 17, the Company made a correction of lease recognition for contracts determined to comply with the definition of a finance lease and recognized the related asset as acquired property as well as the related finance lease liability. Specifically, for the aforementioned contracts, it was established that the present value of minimum lease payments covered almost the entire fair value of the leased assets at lease inception.
2.2.3. Non-consolidation of significant components
The Group acquired control over subsidiaries in previous years, which were not consolidated in the previous periods. The major subsidiary not consolidated is Adriatica.net group acquired at the end of 31 December 2015. The investment in the acquired group was incorrectly not consolidated, but was rather presented within other non-current financial assets in the previously reported financial statements for 2015. Management has restated the 2015 consolidated financial statements to include the effects of consolidating Adriatica.net group. Other subsidiaries relate to: a) company Napredprojekt 52 d.o.o. for which the Group concluded the control existed prior to 1 January 2015 . b) several real estate companies in Serbia from 1 January 2015
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Agrokor Group
2.3. Intangible assets
31 December 1 January Description of error/correction 2015 2015 note
Improper capitalization of costs -157,718 -46,689 2.3.1. Correction of error in recognition of Brand - 1,589,902 2.3.2. Impairment of intangible assets -1,696,354 -27,048 2.3.3. Effect of subsidiaries previously not consolidated 23,024 - 2.1.2. Recognition of licenses 6,386 - TOTAL -1,824,662 1,516,165
2.3.1. Capitalization of costs
The Group has corrected Intangible assets, as certain costs did not meet the requirements for recognition of assets in accordance with IAS 38 – Intangible Assets.
2.3.2 Brand recognition
The Group has acquired a significant subsidiary in 2014. Purchase price allocation (PPA) was completed in 2015 and the Group previously recorded the Brand in the period of PPA completion. In addition, deferred tax liability related to Brand fair value was not previously recorded as disclosed in point 2.12. According to IFRS the Brand and related deferred tax liability should have been recorded in the period of the acquisition.
2.3.3. Impairment of intangible assets
In 2015, the Group made the following impairments of intangible assets for which impairment indicators existed already in earlier periods: Impairment of Goodwill in Eko Biograd in the amount of HRK 27,048 thousand due to the fact that the value of assets exceeded the recoverable amount Impairment of improperly capitalized expenses in the amount of HRK 1,515,506 thousand Impairment of Brand Kozmo in the amount of HRK 153,800 thousand due to the fact that the value of assets exceeded the recoverable amount
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Agrokor Group 2.4. Other non-current assets
Description of error 31 December 2015 1 January 2015 note Impairment of investment in securities -3,398 -102,932 Capitalized loss from sale of subsidiary -41,047 -41,339
Reclassification of deposits from cash and cash equivalents 461,213 460,878 2.4.1. Reclassification from non-current investment to current financial assets - -55,385 Effect of Companies that have not previously been consolidated -236,057 -236,614
Impairment of long term assets - -3,175 Reclassification from non-current investments to investment in subsidiaries -1,229,972 - 2.2.3. Restatement for loans and borrowings not accounted in financial statements 832,828 - 2.1. TOTAL -216,433 21,433
2.4.1. Reclasiffication of Deposit
As at 31 December 2015 the Group classified short term and long term loans as “Cash and cash equivalents” although such amounts did not meet criteria of cash equivalents as defined in IAS 7, Cash flow statement.
2.5. Inventories
31 December 1 January Description of error 2015 2015 note Impairment of inventory to it's net realizable value -729,467 -1,597,307 Adjustments for goods returned -34,996 - Correction of improper inventory capitalization of expenses -326,739 -
Correction for rebates on unsold inventory -82,275 - Inventory write off -6,505 - Reclassification of property from inventory to investment property -15,189 -
Correction of error in unrealized profit -90,867 - TOTAL -1,286,038 -1,597,307
In 2016, the Management Board conducted a detailed inventory analysis and found that part of the inventories from the previous periods were stated at an amount exceeding their net realizable value. In addition, it was noted that expenses were capitalized in Inventory which in substance do not satisfy requirements of IAS 2 for capitalization to Inventory. In accordance with the conducted analysis, the Company's management has adjusted the amounts of inventories as of 1 January 2015 and 31 December 2015.
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Agrokor Group
2.6. Biological assets
1 January Description of error/correction 31 December 2015 2015 note Impairment of current biological assets -332,673 -287,093 TOTAL -332,673 -287,093
In 2016, the Company's management conducted a detailed analysis of biological assets and concluded that part of the short-term biological assets was stated at an amount exceeding their fair value. According to the conducted analysis, the Company's Management has adjusted the amounts of Biological Assets as at January 1, 2015 and December 31, 2015 and for the year then ended.
2.7. Loans and deposits
1 January Description of error 31 December 2015 2015 note
Reclassification from cash and other receivables to loan receivables 1,555,066 1,670,857 2.7.1.
Reclassification from non-current loans to current loans 33,393 - Impairment of loan receivables -132,755 -8,269 TOTAL 1,455,704 1,662,588
2.7.1. Reclassification to loan receivables from cash
As at 31 December 2015, the Company classified long term loans as “Cash and cash equivalents” although such loans did not meet criteria of cash equivalents as defined in IAS 7 Cash flow statement.
2.8 Receivables
1 January Description of error/correction 31 December 2015 2015 note
Restatement for loans and borrowings not accounted in financial statements 1,042,273 697,100 Impairment of receivables -234,010 -21,844
Effect of Companies that have not previously been consolidated 208,263 - TOTAL 1,016,526 675,256
In previous periods, the Company used impairment criteria for receivables from customers and other receivables that did not fully include all the indicators of impairment that are likely to have existed in previous periods. The management of the Company in 2016 made a detailed assessment and has adjusted the receivables accordingly.
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Agrokor Group
2.9. Cash & Cash equivalents
31 December 1 January Description of error 2015 2015 note
Reclassification from cash and cash equivalents to long term borrowings - -460,878
Reclassification from cash and cash equivalents to short term borrowings -2,078,502 -1,643,723
Companies that have not previously been consolidated 66,926 7,250 TOTAL -2,011,578 -2,097,351
As at 31 December 2015 the Group classified short term and long term loans as “Cash and cash equivalents” although such loans did not meet criteria of cash equivalents as defined in IAS 7 Cash flow statement.
2.10 Borrowings
31 December 1 January Description of error 2015 2015 note
Reclassification of buildings into finance lease previously classified as operating lease -2,252,497 -2,344,965
Restatement for loans and borrowings not accounted in financial statements -1,345,950 -191,537 2.1.
Effect of companies that have not previously been consolidated -303,770 -310,332 Reclassification from equity reserves to loans and borrowings -991,482 - 2.10.1. Other increase of loans and borrowings -36,344 - TOTAL -4,930,043 -2,846,834
2.10.1 Reclassification from equity to borrowings
As at 31 December 2015 the Company classified third party loan of HRK 991,481 thousand (1.1.2015: HRK 1,289,073 thousand) as part of equity. The Company has corrected classification at 1 January 2015 and as at 31 December 2015 by adjusting balances of borrowings and other reserves accordingly.
2.11 Deferred tax liability
31 December 1 January Description of error 2015 2015 note
Decrease in deferred tax liability due to impairment of land and buildings 41,527 12,432
Increase in deferred tax liability due to Brand recognition -270,282 -270,282 2.3.2. Effect of companies that have not previously been consolidated -9,247 - TOTAL -238,002 -257,850
48
Agrokor Group 2.12. Bills of exchange and recourse liability
31 December 1 January Description of error 2015 2015 note
Recourse liability - bills of exchange 981,255 -1,298,924
Reclassification to Borrowings - financing bills of exchange 90,677 2,923,005 Effect of companies that have not previously been consolidated -7,500 - TOTAL 1,064,432 1,624,081
The Company did not recognize in previous periods receivables/ liabilities relating to bills of exchange with recourse rights, due to incorrect application of de recognition criteria to receivables. The corrections resulted in an increase in receivables and liabilities as of 1 January 2015 and as of 31 December 2015.
2.13. Short-term Borrowings
31 December 1 January Description of error 2015 2015 note
Restatement for loans and borrowings not accounted in financial statements -1,606,556 -1,206,589
Reclassification from equity reserves to short term liabilities - -1,289,073
Reclassification from liabilities for prepayment, deposits and guarantees to short term borrowings -90,677 -147,694 Correction of previously not recognised loan obligations -60,515 -60,515 Increase in short term other short term loan liabilities -4,277 -65,000
Reclassification to Borrowings - financing bills of exchange -2,999,632 -2,923,005 2.14.1. Effect of companies that have not previously been consolidated -324,899 -14,845 Correction for previously unrecognised liabilities -148,297 - Reclassification from trade payables to short term borrowings -77,729 - TOTAL -5,312,582 -5,706,721
49
Agrokor Group
2.14.1 Bills of exchange with finance element
The Company classified liabilities for bills of exchange as Trade payables although part of these liabilities has characteristics of financing. The Company has corrected classification at 1 January 2015 and as at 31 December 2015 by adjusting balances of borrowings and trade payables accordingly.
STATEMENT OF OTHER COMPREHENSIVE INCOME As Reclassification Restatement previously errors due to other Restated
reported 2.17. errors Note 2015. 2015. 2015. 2015.
Revenue 47,163,595 -1,079,155 -382,217 45,702,223 Sales of service 1,850,052 0 -1,512 1,848,540
Other income 389,131 875,916 -1,068,773 196,274
2.15. 49,402,778 -203,239 -1,452,502 47,747,037
Changes in inventories of finished goods and work 256,955 -0 -86,810 170,145 in progress
-34,924,403 0 924,509 -33,999,894 Cost of materials and goods sold -4,098,365 -1 -57,338 -4,155,704 Cost of services -4,704,998 -0 1,002 -4,703,996 Staff costs Depreciation, amortization and impairment 2.16. -1,620,709 1,129,917 -2,916,923 -3,407,715
-1,736,436 188,697 -773,387 -2,321,126 Other costs Sale of properties, net -53,247 -53,247
Excess off fair value over net assets 2.16. 1,129,916 -1,129,916 -45,751,287 188,698 -2,908,948 -48,471,537
Finance income 753 ,694 18,578 772,272
Finance expense 2.16. -2,769,039 -122,410 -419,892 -3,311,341
-2,015,345 -103,832 -419,892 2,539,069
Share of profit/(loss) in associates -3,957 3,957
1,632,189 -118,373 -4,781,342 3,267,525 PROFIT / (LOSS) BEFORE TAX
Loss after tax for discontinued operations -118,373 118,373
Taxation -336 ,165 0 519 -335,646
PROFIT / (LOSS) FOR THE YEAR 1,177,651 0 -4,780,823 3,603,171
Attributable to:
939,867 -4,734,718 -3,794,851 Equity holders of the parent Non-controlling interest 237,784 -46,105 191,679
50
Agrokor Group
STATEMENT OF OTHER COMPREHENSIVE INCOME As Restatement due previously Restated to error reported Note 2015. 2015. 2015.
Profit / (Loss) for the year
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations - 23,555 -23,555
Net movement of cash flow hedges 26,516 26,516
Net gain/(loss) on available-for-sale financial assets 5,074 5,074
Income tax effect 0 0
Effect of income tax rate change Net other comprehensive income to be reclassified to profit or 8,035 8,035 loss in subsequent periods
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:
Revaluation of land, net of tax -189 ,059 -153,631 -342,690
Net other comprehensive income not to be reclassified to profit -189,059 -153,631 -342,690 or loss in subsequent periods
Other comprehensive income/(loss) for the year, net of tax -181,024 -153,631 -334,655
Total comprehensive income/(loss) for the year, net of tax 996,627 -4,934,454 3,268,516
Attributable to:
Equity holders of the parent 803 ,154 3,082,134
Non-controlling interest 193,474 186,382
2.15. Revenue
The corrections mostly relate to:
1) The Group revenue that is not directly related to the sale of goods and the provision of services has been reclassified from revenue to other income in the amount of HRK 108,281 thousand. 2) The Group sale promotion and marketing costs have been reclassified from operating expenses as a reduction in revenue in the amount of HRK 135,952 thousand in order to reflect economic substance of the transaction. 3) The Group's supplier rebates have been reclassified from revenue to cost of goods solds in the amount of 1,208,269 thousand.
Adjustment present under point 1), 2) and 3) did not have an impact on net profit for the period
51
Agrokor Group 2.16. Depreciation, amortization and impairment
The corrections mostly relate to: 1) The Goodwill impairment for the acquisition of Adriatica.net group in the amount of HRK 1,473,492 thousand 2) Additional depreciation and additional interest expense due to the effect of recognition of finance lease in the amount HRK of 152,435 thousand and interest expense in the amount of 214,755 3) The timing correction of recognition of excess fair value over purchase price for the acquisition of Mercator, which the Group previously recorded as 2015 income. The Group have corrected the error by transferring the amount to 1 January 2015 opening balance of retained earnings in the amount of HRK 1,283,872 thousand.
2.17. Reclasiffication effect
The Group has made reclassification in order to align the previous period presentation with the current year reporting .
52
Agrokor Group NOTE 3. GROUP STRUCTURE
3.1 Acquisition of subsidiaries in 2016
DB KANTUN VELEPRODAJA d.o.o. During 2016, the Group acquired management control of DB Kantun Veleprodaja d.o.o., through the purchase of 100.00% ownership for HRK 41,668 thousand. The main business activity of DB Kantun Veleprodaja d.o.o. remains wholesale trade. Assets and liabilities of DB Kantun Veleprodaja d.o.o. as of 30 September 2016 (acquisition date) are summarised below (thousands of HRK):
Recognised on acquisition
Property, plant and equipment and intangible assets 326 Inventories 6,964 Accounts receivable 8,672 Other current assets 2 Cash and cash equivalents 1,617 Total assets 17,581
Loans and borrowings 7,000 Accounts payable 9,457 Other current liabilities 416 Total liabilities 16,873
Fair value of net assets 708
Acquired 708
Goodwill 40,960
Consideration paid 41,668
Net cash acquired with the subsidiary 1,617
Net cash outflow on acquisition 40,051
The acquired business contributed net profit of HRK 244 thousand to the Group for the period from acqusition to 31 December 2016. If the acquisition had occurred on 1 January 2016, consolidated result for the year ended 31 December 2016 would have included profit of HRK 932 thousand. Fair value of identified net assets approximates its carrying value. The goodwill is attributable to the subsidiary’s strong position and profitability and synergies are expected to arise in subsequent periods.
53
Agrokor Group PET-PROM ULAGANJA d.o.o. During 2016, the Group acquired management control of PET-PROM ULAGANJA d.o.o., through the purchase of 100.00% ownership for HRK 6.2 million. The main business activity of PET-PROM ULAGANJA d.o.o. remains real estate construction. Assets and liabilities of PET-PROM ULAGANJA d.o.o. as of 31 March 2016 (acquisition date) are summarised below (thousands of HRK):
Recognised on acquisition
Property, plant and equioment and intangible assets 81,034 Accounts receivable 103 Total assets 81,137
Long-term liabilities 12,594 Loans and borrowings 88,032 Total liabilities 100,626
Fair value of net assets (19,489)
Acquired (19,489)
Goodwill 25,689
Consideration (non-cash transaction) 6,200
Net cash acquired with the subsidiary -
Net cash outflow on acquisition -
The acquired business contributed net loss of HRK 36,363 thousand to the Group for the period from acqusition to 31 December 2016. If the acquisition had occurred on 1 January 2016, consolidated result for the year ended 31 December 2016 would have included a loss of HRK 48.5 million. Fair value of identified net assets approximates its carrying value.
54
Agrokor Group Dalmarina d.o.o. During 2016, the Group acquired management control of Dalmarina d.o.o., through the purchase of 80.00% ownership for HRK 20,000 thousand. Dalmarina d.o.o. acts as a holding company. Assets and liabilities of Dalmarina d.o.o. as of 28 February 2016 (acquisition date) are summarised below (thousands of HRK):
Recognised on acquisition
Non-current financial assets 50,328 Total assets 50,328
Loans and borrowings 20,316 Accounts payable 692 Other current liabilities 30,862 Total liabilities 51,869
Fair value of net assets (1,541)
Acquired (1,233)
Goodwill 21,233
Consideration (non-cash transaction) 20,000
Net cash acquired with the subsidiary -
Net cash outflow on acquisition 0
The acquired business contributed net loss of HRK 1,006 thousand to the Group for the period from acqusition to 31 December 2016. If the acquisition had occurred on 1 January 2016 consolidated result for the year ended 31 December 2016 would have included a loss of HRK 1.3 million. Fair value of identified net assets approximates its carrying value.
55
Agrokor Group
3.2 Investments in Subsidiaries 31.12.2016 Country Principal Ownership Ownership Group Business Interest of Interest of Voting Group Activity Agrokor d.d. Subsidiary Rights Ownership Agkor d.o.o. Serbia Other - 100.00%6) 100.00% 54.60% Agrokor AG Switzerland Other 100.00% - 100.00% 100.00% Agrokor-Energija d.o.o. Croatia Other - 100.00%8) 100.00% 100.00% Agrokor kft. Hungary Other 100.00% - 100.00% 100.00% Agrokor-trgovina d.o.o. Croatia Trading 100.00% - 100.00% 100.00% Agrokor d.o.o. Grude Bosnia and Herzegovina Distribution - 100.00%10) 100.00% 80.44% Agrolaguna d.d. Croatia Agricultural 85.22% - 85.22% 85.22% Adriatica.net Croatia Tourism 92.35% - 92.35% 92.35% Ambalažni servis d.o.o. BIH Bosnia and Herzegovina Other - 100.00%11) 100.00% 100.00% Angropromet d.o.o. Serbia Other - 100.00%7) 100.00% 93.11% A007 d.o.o. Croatia Online retail 100.00% - 100.00% 100.00% Belje d.d. Croatia Agricultural 76.42% - 93.67% 93.67% DB Kantun veleprodaja d.o.o. Croatia Retail - 100.00% 100.00% 80.44% Dijamant a.d. Serbia Edible oils 96.15% - 96.15% 96.15% Euroviba d.o.o. Croatia Retail - 94.55%4) 94.55% 88.03% Frikom d.o.o. Serbia Ice cream and frozen food - 100.00%2) 100.00% 54.60% Frikom Beograd dooel Macedonia Distribution - 100.00%6) 100.00% 54.60% Fonyodi kft. Hungary Water and beverages - 100.00%1) 100.00% 80.44% Dalmarina d.o.o. Croatia Other - 80.00% 80.00% 80.00% Idea d.o.o. Serbia Retail - 100.00%4) 100.00% 93.11% INIT d.d. Bosnia and Herzegovina Other 67.00% - 67.00% 67.00% Irida d.o.o. Croatia Frozen food - 100.00%2) 100.00% 55.30% Jolly projekti jedan d.o.o. Croatia Other - 100.00%4) 100.00% 93.11 Jamnica d.d. Croatia Water and beverages 77.12% - 80.44% 80.44% Mg Mivela d.o.o. Beograd Serbia Distribution - 100.00%1) 100.00% 80.44% Jamnica d.o.o. Maribor Slovenia Distribution - 100.00%1) 100.00% 80.44%
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Agrokor Group
31.12.2016 Country Principal Ownership Ownership Group Business Interest of Interest of Voting Group Activity Agrokor d.d. Subsidiary Rights Ownership 72.28%5) Kikindski mlin a.d. Serbia Food production - 96.25% 82.74% 23.97%6) Kompas d.d. Ljubljana Slovenia Tourism - 95.64% 95.64% 88.32% Kompas Poland Sp Zoo Poland Tourism - 100.00% 100.00% 92.35% Kompas Touristik Espana s.a. Spain Tourism - 100.00% 100.00% 92.35% 71.13% Atlas d.d. Croatia Tourism - 88.19% 81.44% 17.06% Kompas d.o.o. Poreč Croatia Tourism - 100.00% 100.00% 92.35% Kompas USA USA Tourism - 100.00% 100.00% 92.35% Kompas Holidays B.V. The Netherlands Tourism - 100.00% 100.00% 92.35% Kompas Praha Czech Republic Tourism - 100.00% 100.00% 92.35% Konzum d.d. Croatia Retail 75.37% 11.10% 1) 93.11% 93.11% Konzum d.o.o. Sarajevo Bosnia and Herzegovina Retail 100.00% - 100.00% 100.00% Kor Broker d.o.o. Croatia Other 100.00% - 100.00% 100.00% Kron d.o.o. Serbia Other 100.00% - 100.00% 100.00% Krka d.o.o. Croatia Retail - 82.41%4) 82.41% 76.73% Latere Terram d.o.o. Croatia Other - 100.00%4) 100.00% 93.11% Ledo d.d. Croatia Ice cream and frozen food 50.01% - 54.60% 54.60% Ledo d.o.o. Čitluk Bosnia and Herzegovina Ice cream and frozen food - 100.00%2) 100.00% 54.60% Ledo d.o.o. Kosovo Distribution - 100.00%2) 100.00% 54.60% Ledo kft. Hungary Distribution - 100.00%2) 100.00% 54.60% Ledo d.o.o. Slovenia Distribution - 100.00%2) 100.00% 54.60% Ledo d.o.o. Podgorica Montenegro Distribution - 100.00%2) 100.00% 54.60% Lovno gospodarstvo Moslavina d.o.o. Croatia Other 100.00% - 100.00% 100.00% Poslovni sistem Mercator d.d. Slovenia Retail 59.47% - 59.47% 59.47% M-profil SPV d.o.o. Serbia Other 100.00% - 100.00% 100.00% Mladina d.d. Croatia Food production - 60.89%1) 60.89% 48.97% mStart d.o.o. Croatia IT 100.00% - 100.00% 100.00% Multiplus card d.o.o. Croatia Other - 75.00%4) 75.00% 96.83%
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Agrokor Group
31.12.2016. Country Principal Ownership Ownership Group Business Interest of Interest of Voting Group Activity Agrokor d.d. Subsidiary Rights Ownership Nova Sloga d.o.o. Serbia Water and beverages 100.00% - 100.00% 100.00% PIK BH d.o.o. Laktaši Bosnia and Herzegovina Retail - 100.00%9) 100.00% 96.93% PIK Vinkovci d.d. Croatia Agricultural 54.42% - 68.01% 68.01% PIK Vrbovec d.d. Croatia Meat processing - 100.00%4) 100.00% 96.93% Projektgradnja d.o.o. Croatia Construction 77.15% 7.37%4) 84.52% 84.52% Pet-prom ulaganja d.o.o. Croatia Other - 100.004) 100.00% 93.11% Rivijera d.d. Croatia Other 91.32% - 91.32% 91.32% Roto dinamic d.o.o. Croatia Distribution - 100.00%1) 100.00% 80.44% Roto ulaganja d.o.o. Croatia Other 100.00% - 100.00% 100.00% Sarajevski kiseljak d.d. Bosnia and Herzegovina Water and beverages - 99.86%1) 99.86% 80.34% Sojara d.o.o. Croatia Food production - 100.00%3) 100.00% 51.84% SK 735 d.o.o. Croatia Other - 100.00%4) 100.00% 100.00% Solana Pag d.d. Croatia Salt 96.93% - 96.93% 96.93% Super Kartica d.o.o Bosnia and Herzegovina Other - 100.00%11) 100.00% 100.00% Super Kartica d.o.o. Serbia Other - 67.00%7) 67.00% 64.95% Terra Argenta d.o.o. Croatia Other - 95.00% 95.00% 88.45% Tisak d.d. Croatia Retail 51.34% - 51.34% 51.34% TPDC Sarajevo d.d. Bosnia and Herzegovina Retail 51.00% - 51.00% 51.00% Velpro-centar d.o.o. Croatia Wholesale - 100.00%4) 100.00% 96.93% Velpro-centar d.o.o. Sarajevo Bosnia and Herzegovina Wholesale - 100.00% 100.00% 100.00% Vupik d.d. Croatia Agricultural 84.72% - 88.32% 88.32% Zvijezda d.d. Croatia Edible oils 51.84% - 51.84% 51.84% Zvijezda d.o.o. Ljubljana Slovenia Distribution - 100.00%3) 100.00% 51.84% Zvijezda d.o.o. Sarajevo Bosnia and Herzegovina Distribution - 100.00%3) 100.00% 51.84% Žitnjak d.d. Croatia Retail - 89.42%4) 89.42% 83.25% 360 Marketing d.o.o. Croatia Other 100.00% - 100.00% 100.00%
1) held by Jamnica d.d.; 2) held by Ledo d.d.; 3) held by Zvijezda d.d.; 4) held by Konzum d.d.; 5) held by Dijamant a.d.; 6) held by Frikom d.o.o.; 7) held by Idea d.o.o.; 8) held by Agrokor-trgovina d.d.; 9) held by PIK Vrbovec d.d; 10) held by Sarajevski kiseljak d.d.; 11) held by Konzum d.o.o. Sarajevo * Management control is excercised by the Group.
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Agrokor Group
The ownership of the Group represents the shares of the parent company in the capital stock of a subsidiary, while the voting rights of the Group represents the number of votes at the disposition of the parent company represented at the General Assembly of a subsidiary.
Under International Financial Reporting Standards, subsequent acquisitions of non-controlling interests in subsidiaries do not represent business combinations. Consequently, the assets and liabilities of the subsidiary are not remeasured to reflect their fair values at the date of the transaction. The Group accounts for subsequent acquisitions of non-controlling interest using the economic entity concept whereby any difference between acquisition cost of additional share and carrying value of the non-controlling interest acquired is recognised directly in equity.
During 2016, the following changes in ownership percentage occurred: 1) Agrokor d.d. sold 381.854 shares (16 %) of TISAK d.d. to TDR d.o.o.; and Agrokor d.d. acquired 3.43 % shares of PROJEKTGRADNJA d.o.o.
Agrokor d.d. has entered into over 1.200 repurchase agreements transactions related to shares of its controlled and affiliated companies in the period from December 2012 through April 2017 and currently a forensic review of the aforementioned transactions is undergoing. Therefore it is possible that certain information contained in this note is subject to corrections in respect of the number of shares held in subsidiary and/or affiliated companies based upon the results of the respective review.
59
Agrokor Group
31.12.2015 Country Principal Ownership Ownership Group Business Interest of Interest of Voting Group Activity Agrokor d.d. Subsidiary Rights Ownership A007 d.o.o. Croatia Online retail 100.00% - 100.00% 100.00% Adriatica.net d.o.o. Croatia Tourism 92.35% - 92.35% 92.35% Agkor d.o.o. Serbia Other - 100.00%6) 100.00% 55.30% Agrokor AG Switzerland Other 100.00% - 100.00% 100.00% Agrokor-Energija d.o.o. Croatia Other - 100.00%8) 100.00% 100.00% Agrokor kft. Hungary Other 100.00% - 100.00% 100.00% Agrokor-trgovina d.o.o. Croatia Trading 100.00% - 100.00% 100.00% Agrokor-Zagreb d.o.o. Bosnia and Herzegovina Distribution - 100.00%10) 100.00% 80.34% Agrolaguna d.d. Croatia Agricultural production 85.22% - 85.22% 85.22% Ambalažni servis d.o.o. HR Croatia Other - 100.00%4) 100.00% 96.93% Ambalažni servis d.o.o. BIH Bosnia and Herzegovina Other - 100.00%11) 100.00% 100.00% Ambalažni servis d.o.o. Serbia Serbia Other - 100.00%7) 100.00% 96.93% Angropromet d.o.o. Serbia Retail - 100.00%7) 100.00% 96.93% Belje d.d. Croatia Agricultural production 94.23% - 94.23% 94.23% Dijamant a.d. Serbia Edible oils 96.14% - 96.14% 96.14% Euroviba d.o.o. Croatia Retail - 94.47%4) 94.47% 91.57% Frikom d.o.o. Serbia Ice cream and frozen food - 100.00%2) 100.00% 55.30% Frikom Beograd dooel Makedonija Distribution - 100.00%6) 100.00% 55.30% Fonyodi kft. Hungary Water and beverages - 100.00%1) 100.00% 80.44% Idea d.o.o. Serbia Retail - 100.00%4) 100.00% 96.93% INIT d.d. Bosnia and Herzegovina Other 67.00% - 67.00% 67.00% Irida d.o.o. Croatia Frozen food - 100.00%2) 100.00% 55.30% Jamnica d.d. Croatia Water and beverages 80.44% - 80.44% 80.44% Jamnica d.o.o. Beograd Serbia Distribution - 100.00%1) 100.00% 80.44% Jamnica d.o.o. Maribor Slovenija Distribution - 100.00%1) 100.00% 80.44% Jolly projekt jedan d.o.o. Croatia Other - 100.00% 100.00% 96.93%
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Agrokor Group
31.12.2015 Country Principal Ownership Ownership Group Business Interest of Interest of Voting Group Activity Agrokor d.d. Subsidiary Rights Ownership 72.28%5) Kikindski mlin a.d. Serbia Food production - 96.25% 82.74% 23.97%6) Konzum d.d. Croatia Retail 88.01% 11.10% 1) 99.11% 96.93% Konzum d.o.o. Sarajevo Bosnia and Herzegovina Retail 100.00% - 100.00% 100.00% Kor Broker d.o.o. Croatia Other 100.00% - 100.00% 100.00% Kron d.o.o. Serbia Other 100.00% - 100.00% 100.00% Krka d.o.o. Croatia Retail - 82.41%4) 82.41% 79.88% Latere terram d.o.o. Croatia Other - 100.00% 100.00% 96.93% Ledo d.d. Croatia Ice cream and frozen food 55.30% - 55.30% 55.30% Ledo d.o.o. Čitluk Bosnia and Herzegovina Ice cream and frozen food - 100.00%2) 100.00% 55.30% Ledo d.o.o. Kosovo Distribution - 100.00%2) 100.00% 55.30% Ledo kft. Hungary Distribution - 100.00%2) 100.00% 55.30% Ledo d.o.o. Slovenia Distribution - 100.00%2) 100.00% 55.30% Ledo d.o.o. Podgorica Montenegro Distribution - 100.00%2) 100.00% 55.30% Lovno gospodarstvo Moslavina d.o.o. Croatia Other 100.00% - 100.00% 100.00% Poslovni sistem Mercator d.d. Slovenia Retail 59.47% - 59.88% 59.47% M-profil SPV d.o.o. Serbia Other 100.00% - 100.00% 100.00% Mladina d.d. Croatia Food production - 60.89%1) 60.89% 48.98% mStart d.o.o. Croatia IT 100.00% - 100.00% 100.00% Multiplus card d.o.o. Croatia Other - 75.00%4) 75.00% 72.70% Nova Sloga d.o.o. Serbia Water and beverages 100.00% - 100.00% 100.00% PIK BH d.o.o. Laktaši Bosnia and Herzegovina Distribution - 100.00%9) 100.00% 96.93% PIK Vinkovci d.d. Croatia Agricultural production 70.87% - 70.87% 70.87% PIK Vrbovec d.d. Croatia Meat processing - 100.00%4) 100.00% 96.93% Projektgradnja d.o.o. Croatia Construction 77.15% 7.37%4) 84.52% 84.52% Rivijera d.d. Croatia Other 91.32% - 91.32% 91.32 Roto dinamic d.o.o. Croatia Distribution - 100.00%1) 100.00% 80.44% Roto ulaganja d.o.o. Croatia Other 100.00% - 100.00% 100.00%
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Agrokor Group
31.12.2015. Country Principal Ownership Ownership Group Business Interest of Interest of Voting Group Activity Agrokor d.d. Subsidiary Rights Ownership Sarajevski kiseljak d.d. Bosnia and Herzegovina Water and beverages - 99.86%1) 99.86% 80.34% Shutnell Limited Cyprus Other - 100.00% 100.00% 96.93% SK 375 d.o.o. Croatia Other - 100.00% 100.00% 96.93% Sojara d.o.o. Croatia Food production - 100.00%3) 100.00% 51.84% Solana Pag d.d. Croatia Salt production 96,93% - 96.93% 96.93% Super Kartica d.o.o Bosnia and Herzegovina Other - 100.00%11) 100.00% 100.00% Super Kartica d.o.o. Serbia Other - 67.00%7) 67.00% 64.95% Terra Argenta d.o.o. Croatia Other - 95.00% 95.00% 92.08% Tisak d.d. Croatia Retail 51,34% - 51.34% 51.34% TPDC Sarajevo d.d. Bosnia and Herzegovina Retail 51,00% - 51.00% 51.00% Velpro-centar d.o.o. Croatia Wholesale - 100.00%4) 100.00% 96.93% Vupik d.d. Croatia Agricultural production 88,34% - 88.34% 88.34% Zvijezda d.d. Croatia Edible oils 51,84% - 51.84% 51.84% Zvijezda d.o.o. Ljubljana Slovenia Distribution - 100.00%3) 100.00% 51.84% Zvijezda d.o.o. Sarajevo Bosnia and Herzegovina Distribution - 100.00%3) 100.00% 51.84% Žitnjak d.d. Croatia Retail - 89.43%4) 89.43% 86.68%
1) held by Jamnica d.d.; 2) held by Ledo d.d.; 3) held by Zvijezda d.d.; 4) held by Konzum d.d.; 5) held by Dijamant a.d.; 6) held by Frikom d.o.o.; 7) held by Idea d.o.o.; 8) held by Agrokor-trgovina d.d.; 9) held by PIK Vrbovec d.d; 10) held by Sarajevski kiseljak d.d.; 11) held by Konzum d.o.o. Sarajevo * Management control is excercised by the Group
During 2015, the parent company merged the company Media d.o.o., which was in 2014 included in „Assets held for sale“ in the total amount of HRK 61,871 thousand.
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Agrokor Group
NOTE 4. SUBSIDIARIES WITH SIGNIFICANT NON CONTROLLING INTERESTS
Financial information of subsidiaries that have material non-controlling interests is provided below:
Proportion of equity interest held by non-controlling interest: 2015 Subsidiaries State 2016 (restated) Jamnica d.d. Croatia 19.57% 19.57% Ledo d.d. Croatia 45.40% 44.70% Poslovni sistem Mercator d.d. Slovenia 40.53% 40.53% Zvijezda d.d. Croatia 48.16% 48.16%
Accumulated balances of material non-controlling interest: (in thousands of HRK) 2015 2016 (restated) Jamnica d.d. 247,680 331,520 Ledo d.d. 651,235 863,951 Poslovni sistem Mercator d.d. (consolidated) 1,707,540 1,963,475 Zvijezda d.d. 349,805 407,228
Profit/ (loss) allocated to material non-controlling interest: (in thousands of HRK) 2015 2016 (restated) Jamnica d.d. (65,694) 45,275 Ledo d.d. (153,579) 72,791 Poslovni sistem Mercator d.d. (consolidated) (221,990) 62,166 Zvijezda d.d. (60,214) 16,090
The summarised financial information of these subsidiaries is provided below. This information is based on amounts before inter-company eliminations.
Summarised income statement for 2016 expressed in thousands of HRK: Poslovni sistem Mercator d.d. Jamnica d.d. Ledo d.d. (consolidated) Zvijezda d.d. Revenue 1.409.216 1.184.533 17.881.152 782.680 Other income 5.354 17.284 285.476 3.612 Operating expenses (1.772.460) (1.591.433) (18.472.964) (913.474) Financial income 86.056 103.126 14.910 20.653 Financial expenses (12.487) (19.033) (293.443) (7.481) Profit before tax (284.321) (305.523) (584.869) (114.010) Tax (51.603) (38.075) 37.155 (11.029) Net result (335.924) (343.598) (547.714) (125.039)
Total comprehensive income/loss (374.989) (342.483) (585.848) (119.241) Non - controlling interest (65.694) (153.579) (221.990) (60.214)
Dividends paid to NCI 9.506 59.635
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Summarised income statement for 2015 expressed in thousands of HRK:
Poslovni sistem Mercator d.d. Jamnica d.d. Ledo d.d. (consolidated) Zvijezda d.d. Revenue 1.408.351 1.200.860 20.530.219 803.704 Other income 6.045 14.021 41.697 902 Operating expenses (1.276.986) (1.086.869) (20.113.219) (770.510) Financial income 143.059 87.607 38.854 18.288 Financial expenses (14.204) (21.547) (293.637) (8.388) Profit before tax 266.265 194.072 203.914 43.995 Tax (34.755) (31.128) (50.551) (10.585) Net result 231.510 162.944 153.363 33.410
Total comprehensive income/loss 268.877 153.982 (62.224) 7.300 Non - controlling interest 45.275 72.791 62.166 16.090 Dividends paid to NCI 7.829 30.146
Summarised statement of financial position as at 31 December 2016 expressed in thousands of HRK: Poslovni sistem Mercator d.d. Jamnica d.d. Ledo d.d. (consolidated) Zvijezda d.d. Non-current assets 963,522 1,293,972 12,524,334 622,012 Curent assets 1,034,340 640,217 3,519,609 618,385 Non-current liablilities (168,325) (164,187) (6,361,472) (87,527) Curent liabilities (563,032) (313,015) (5,469,948) (426,473) Total equity 1,266,504 1,456,987 4,212,522 726,397 Attributable to: Equity holders of parent 1,018,824 805,752 2,504,982 376,592 NCI 247,680 651,235 1,707,540 349,805
Summarised statement of financial position as at 31 December 2015 expressed in thousands of HRK: Poslovni sistem Mercator d.d. (restated) Jamnica d.d. Ledo d.d. (consolidated) Zvijezda d.d. Non-current assets 1,048,628 1,431,068 11,021,038 599,044 Curent assets 1,331,185 963,549 5,972,458 711,936 Non-current liablilities (48,202) (167,233) (6,508,309) (66,624) Curent liabilities (636,394) (294,495) (5,641,263) (398,718) Total equity 1,695,216 1,932,889 4,843,924 845,638 Attributable to: Equity holders of parent 2,026,736 2,796,840 6,807,399 1,252,866 NCI 331,520 863,951 1,963,475 407,228
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Summarised cash flow information for year ending 31 December 2016 expressed in thousands of HRK: Poslovni sistem Mercator d.d. Jamnica d.d. Ledo d.d. (consolidated) Zvijezda d.d. Operating cash flow 183,079 (123,752) 735,152 118,453 Investing cash flow (182,967) 69,408 (347,911) (196,030) Financing cash flow (762) 53,077 (331,909) 76,833
Net increase/(decrease) in cash and cash equivalents (650) (1,267) 55,333 (744)
Summarised cash flow information for year ending 31 December 2015 expressed in thousands of HRK:
Poslovni sistem Mercator d.d. (restated) Jamnica d.d. Ledo d.d. (consolidated) Zvijezda d.d. Operating cash flow 191,293 (215,662) (153,288) 159,928 Investing cash flow (196,711) 90,376 (437,631) (154,174) Financing cash flow 2,048 123,078 537,594 (5,542)
Net increase/(decrease) in cash and cash equivalents (3,370) (2,208) (53,325) 212
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NOTE 5. SEGMENT INFORMATION (in thousands of HRK) Business segments Food, Agrokor d.d. Retail and Other Intersegment Consolidated Manufacturing 2016 Holding Wholesale Businesses eliminations 2016 and Distribution REVENUE Revenue to external customers 170,200 5,897,089 37,307,234 2,798,354 - 46,172,877 Inter-segment revenues 228,082 5,437,993 2,201,823 1,224,774 (9,092,673) - Total revenues 398,282 11,335,083 39,509,057 4,023,128 (9,092,673) 46,172,877
Depreciation and amortization (6,508) (421,930) (1,759,907) (37,772) (49,812) (2,275,929)
Operating expenses (2,361,941) (10,836,232) (39,181,951) (3,983,845) 9,649,267 (46,714,703)
OPERATING PROFIT (1,970,167) 76,920 (1,432,801) 1,511 506,781 (2,817,755) Impairment (2,138,043) Sale of properties, net (128,473) Financial expenses (4,249,260) Share if gain/loss of associates 7,975 Costs not associated to segments (note 9) (2,583,839) Financial income 740,260 Income before taxation (11,169,136) Taxation 121,713 Net loss for the year (11,047,423) Food Manufacturing Agrokor d.d. and Retail and Other Intersegment Consolidated 2015 Holding Distribution Wholesale Businesses elimination Restated 2015 Revenue to external customers 309.564 5.840.294 39.609.478 1.987.702 47.747.037 Inter segment revenues 311.102 5.214.452 1.972.326 1.065.111 (8.562.990) Total revenues 620.666 11.054.745 41.581.804 3.052.813 (8.562.990) 47.747.037
Depreciation and amortization (8.629) (426.435) (1.312.407) (25.960) (2.964) (1.776.396) Operating expenses (319.180) (9.797.502) (39.990.316) (2.618.779) 8.565.954 (44.159.823)
Operating profit 292.856 830.807 279.080 408.074 1.810.818 Impairment (1.631.320) sale of prop (53.247) financial exp (3.311.341) share if gain (3.957) Costs not associated (664.791) Financial income 586.312 Income before taxation (3.267.525) Taxation (335.646) Net loss for the year (3.603.171)
* Due to tehnicality of collection of the information, year 2015 operating expenses are represented as net of intersegment eliminations.
Retail and Wholesale
The Group’s Retail and Wholesale operations are present in Croatia, Slovenia, Serbia, Bosnia and Herzegovina and Montenegro through several brands including Konzum, Mercator, iDEA, Roda, Velpro and Tisak. As of December 31, 2016, the Group operated over 1,900 stores through four different retail formats: Small (which has up to 800 sqm of retail space), Maxi (800-1,300 sqm), Super (1,300-4,000 sqm) and Hyper (over 4,000 sqm). The Wholesale business, Velpro, operated 24 stores whilst Tisak, the Group’s kiosk chain, operated approximately 1,000 kiosks in Croatia. The Group is either the largest, or second largest, operator in all the countries where it is present.
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Food Manufacturing and Distribution
The Group’s Food Manufacturing and Distribution operations consists of the following business segments: Ice Cream and Frozen Food, Water and Beverages, Edible Oils and Margarines and Meat and Agriculture. In most of these business segments, the Group holds leading market shares in the countries where it is present.
Ice Cream and Frozen Food includes the production and processing of ice cream, frozen fruits and vegetables, frozen fish, frozen pastry, and other frozen foods, including ready-to-eat meals and frozen meat, all of which are sold under the Ledo and Frikom brands. Production facilities are located in Croatia, Serbia and Bosnia and Herzegovina.
Water and Beverages includes the production and processing of carbonated and non-carbonated water and still drinks all of which are sold under the Jamnica, Jana, Sarajevski kiseljak, Mivela, Akvia and Fonyodi brands. Production facilities are located in Croatia, Serbia, Bosnia and Herzegovina and Hungary.
Edible Oils and Margarines includes the production and processing of edible oils, margarines, mayonnaise, vegetable ghee, vinegar, dressings and ketchup. Most of the products are sold under the Zvijezda and Dijamant brands. Production facilities for edible oils and margarines are located in Croatia and Serbia.
Meat and Agriculture includes crop farming, animal feed production, cattle breeding, meat and processed meat production. This business is primarily located in Croatia.
Other Businesses
The Group’s Other Businesses include the commodity brokerage business, and other non-core businesses which span over various industries including health, tourism and real estate.
Segmental analysis by geographical area of realization
Revenues generated from sales to third parties (in thousands of HRK) Restated Revenue 2016 2015 Croatia 21,256,115 21,698,298 Slovenia 19,164,089 20,064,777 Bosnia and Herzegovinia 3,726,530 3,971,027 Serbia 1,472,197 1,787,442 Other countres 553,947 225,492 Total 46,172,877 47,747,037
None of the Group’s external customers exceed 10% of total Group revenue.
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NOTE 6. OTHER INCOME (in thousands of HRK) 2016 2015 Government grants and subsidies 8,086 10,382 Revenues from grants for agricultural and livestock production 136,563 185,893 Total 144,650 196,274
NOTE 7. COST OF SERVICES (in thousands of HRK) Restated 2016 2015 Rental costs 1,320,596 1,330,113 Advertising, marketing and business trade fairs services 561,130 707,835 Travel costs 369,972 420,477 Repairs and maintenance 432,704 360,719 Communal services 235,240 231,697 Intellectual, consultancy and other services 410,904 91,343 Postal and telecommunication costs 63,828 76,292 Tourist services 441,232 - Other Expenses 1,197,206 937,228 Total 5,032,810 4,155,704
Other expenses mainly relate to services in tourism in the amount of HRK 700,937 thousand.
NOTE 8. STAFF COSTS (in thousands of HRK) Restated 2016 2015 Wages and salaries 3,015,752 2,978,667 Taxes, social insurance and pension costs 1,746,148 1,725,329 Total 4,761,900 4,703,996
As at 31 December 2016, the Group employed 58,317 employees, of which 28,365 were in Croatia.
Management compensation
2016 2015 Wages and salaries 34,828 30,096 Taxes, social insurance and pension costs 37,231 32,842 Severance pay 4,135 273 Total 76,195 63,211
Information presented relates to the key management personnel of the entire Group.
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NOTE 9. OTHER COSTS (in thousands of HRK) Restated 2016 2015 Impairment of Trade receivables (i) 1,200,609 312,916 Collected receivables written off (24,341) (18,020) Impairment of other assets (ii) 2,846,363 414,484 Provisions 143,905 86,169 Reversal of provisions (94,388) (108,678) Other operating expenses 2,576,153 1,471,570 Inventory shortages 258,302 208,558 Inventory surpluses (39,830) (45,872) Total 6,866,773 2,321,126
(i) Impairment amounting HRK 636,454 relates to direct charge to P&L which has not been posted via provision for impairment of trade receivables. (ii) Value adjustment of other assets mostly relates to value adjustments of loans given to third parties and related interest.
Other operating expenses are presented in the following table: (in thousands of HRK) Restated Other operating expenses 2016 2015 Bank services and provisions 594.803 159.184 Other employee material costs 337.314 308.677 Contributions, fees and memberships 220.696 221.003 Audit and tax advice 162.016 29.828 Subsequently approved rebates 144.980 148.969 Other expenses 1.116.344 603.911 Total 2.576.153 1.471.570
NOTE 10. IMPAIRMENT OF GOODWILL AND BRAND (in thousands of HRK) Restated 2016 2015 Impairment of goodwill and brand 2,138,043 1,631,320 Total 2,138,043 1,631,320
Impairment of goodwill during 2016 relates to the fully impaired goodwill for Dijamant a.d., Euroviba d.o.o., Krka d.o.o., Angropromet d.o.o. and Nova Sloga d.o.o. and to the partial impairment of goodwill for Tisak and Projektgradnja d.o.o. Impairment of goodwill in 2015 relates to the partial impairment of goodwill for Konzum d.d., Ambalažni servis d.o.o. and Super Kartica d.o.o., Bosnia and Herzegovina. Goodwill was impaired due to future plans and expectations that remaining goodwill will not be recoverable in future periods.
Impairment of brand during 2016 relates entirely to Poslovni sistem Mercator.
Key estimates and judgments used in the impairment test are disclosed in note 13.
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NOTE 11. FINANCE INCOME
(in thousands of HRK) 2016 2015
Interest income 235,594 374,906 Foreign exchange gains 348,270 186,140 Dividends received 1,708 567 Other finance income 154,687 210,659 Total 740,260 772,272
NOTE 12. FINANCE EXPENSES (in thousands of HRK)
Restated 2016 2015
Interest expense 3,714,284 2,781,020 Foreign exchange losses 342,332 407,910 Other finance expenses 192,644 122,410 Total 4,249,260 3,311,341
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NOTE 13 INTANGIBLE ASSETS (in thousands of HRK) Restated Assets not yet Concession Software and Goodwill Brand names available for Total rights other rights At 1 January 2015 (restated) use Cost 1,158,962 20,626 1,483,963 1,589,901 28,653 4,282,105 Accumulated amortization and impairment - (18,139) (893,665) - - (911,804)
1,158,962 2,487 590,298 1,589,901 28,653 3,370,301 Net book amount
At 01 January 2015 (restated)
Opening net book amount 1,158,962 2,487 590,298 1,589,901 28,653 3,370,301 Acquisition (new subsidiaries) 1,679,659 - 20,932 - - 1,700,591 Additions - - - - 168,478 168,478 Transfer - - 170,945 - (170,945) - Mergers - - 3,071 - - 3,071 Impairment (1,631,320) - - - - (1,631,320) Transfer from other category - - (14,790) - (1,902) (16,692) Amortization - (212) (147,508) - - (147,720) Advance payments for intangible assets - - (583) - - (583) Foreign exchange difference (1,623) (9) (1,377) - - (3,009)
Net book amount 1,205,678 2,266 620,988 1,589,901 24,284 3,443,118
At 31 December 2015 (restated) Cost 1,205,678 20,611 1,766,337 1,589,901 24,284 4,606,811 Accumulated amortization and impairment - (18,345) (1,144,983) - - (1,163,328)
1,205,678 2,266 620,988 1,589,901 24,284 3,443,483 Net book amount
At 01 January 2016 Opening net book amount 1,205,678 2,266 620,988 1,589,901 24,284 3,443,483
Acquisition (new subsidiaries) 89,828 - - - - 89,828 Additions - - - - 237,511 237,511 Transfer - - 245,356 - (245,356) - Disposals - - (2,246) - (415) (2,661) Impairment (548,221) - - (1,589,822) - (2,138,043) Mergers - - (9) - - (9) Transfer from other category - - (4,748) - (442) (5,190) Amortization - (209) (352,331) - - (352,541) Advance payments for intangible assets - (24) (9) - - (33) Foreign exchange difference (1) - (8,960) (79) (466) (9,506)
747,285 2,032 498,041 0 15,116 1,262,474 Net book amount
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Goodwill (in thousands of HRK) Restated
Y of acquisition 31.12.2016 31.12.2015 Sarajevski kiseljak d.d. 2001. 12,002 12,002 Frikom d.o.o. 2003. 85,921 85,921 Dijamant a.d. 2005. - 140,366 Idea d.o.o. 2005. - 5,673 Euroviba d.o.o. 2007. - 31,827 Krka d.o.o. 2007. - 27,551 Tisak d.d. 2007. 232,557 246,871 PIK Vinkovci d.d. 2009./16. 5,975 4,029 Angropromet d.o.o. 2009. - 121,959 Konzum d.d. 2009. 37,822 37,822 Nova Sloga d.o.o. 2009. - 27,756 Roto dinamic d.o.o. 2012. 155,546 155,546 Roto ulaganja d.o.o. 2012. 79,662 79,662 M-profil SPV d.o.o. 2013. 24,610 24,610 Mercator Grupa 2014. - 12,704 Projektgradnja d.o.o. 2015. 25,309 191,380 DB Kantun Veleprodaja d.o.o. 2016. 40,960 - Petprom ulaganja d.o.o. 2016. 25,689 - Dalmarina d.o.o. 2016. 21,233 - 747,285 1,205,678
Goodwill impairment
The Group annually performs an impairment test in order to assess whether the recoverable amount of goodwill indicates potential impairment of its carrying amount. The calculation of the recoverable amount of goodwill is based on five year business plans of a subsidiary to which and is prepared by the Group company bearing in mind its corporate and market strategy, including relevant market trends. Five years plans presume sales volume compound annual growth of 1.7% for the Slovenian market, 6.8% on Serbian market and 0.1% for Croatian market. Budgeted gross margins for the respective cash generating units were 26.8% for Slovenian market, 48.7% for Serbian market and 22.9% for Croatian market.
The calculation of the recoverable amount implies a terminal growth rate for cash flows after the projected five year period amounting to 2%. Cash flows resulting from such business plans are discounted using the pre-tax discount rate which reflects the risk of the underlying asset, and which has been defined for the purposes of the impairment test for goodwill as the weighted average cost of capital for the particular market and/or the food industry and amounts to 10.4% for the Slovenian market, 14.7% - 15.6% for the Serbian market, and 12.5% - 12.8% for the Croatian market. The capital structure used in weighted average cost of capital calculation reflects debt to equity ratio of selected peer group companies. Levered beta used is based on the analysis of the betas of peer group companies, their capital structure, and applicable tax rate. Risk free rate reflects the yield on long term government bonds as at 31 December 2016. Equity risk premium is based on the average risk premium on the Central and Eastern European market. Size risk premium reflects Duff&Phelps analysis of size premia based on market capitalization.
The sensitivity analysis indicates that an impairment loss sensitivity to terminal growth rate change by 100 basis points and would amount to HRK 219,048 thousand. A change of weighted average cost of capital by 100 basis points would result in a change to recoverable amount of HRK 443,503 thousand.
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Brands impairment
The brand review was performed using the same cash flow projection used for the goodwill impairment test. All the assumptions used for Mercator goodwill impairment test are the same. Brand review was performed taking into consideration the Mercator Group's net debt, deficit resulting from goodwill impairment test and the fact that revenues from the Mercator Group's current business plan based on most recent results are approximately 25% lower, while EBITDA is 60% lower, compared to the ones used when estimating the value of Mercator brand in 2015.
The calculation implies a terminal growth rate for cash flows after the projected five year period of 2%. Cash flows created from such plans are discounted using the weighted average cost of capital (WACC). Accordingly, the discount rate used in the impairment test was 7.7.%.
Concession rights relate to the concession for extraction of the mineral water granted to Jamnica d.d. and Sarajevski kiseljak d.d. The concession is amortised according to the accounting policy (Note 1.8).
Other intangible assets relate to software and similar intangible assets, as well as investments in intangibles and advances for purchase of intangible assets, as well as brands and trade marks.
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NOTE 14. INVESTMENTS IN ASSOCIATES (in thousands of HRK) 2016 2015 Investments in associates Balance at 1 January 174,821 55,863 Sale/transfer of shares - (19,242) Acquisitions 100,118 142,157 Impairment (7,234) - Share of profit/(loss) of associates 7,975 (3,957) Balance at 31 December 275,680 174,821
2016 2015 Proportion of investment % % Jana North America, Inc. 50.00% 50.00% Gulliver travel d.o.o. 30.00% 30.00% A.N.P. Energija d.o.o. (konsolidirano) 34.96% 34.96% Karisma Hotels Adriatic d.o.o. 33.00% 33.00% KHA četiri d.o.o. 25.00% 25.00% Zagreb plakat d.o.o. 49.00% 49.00% Tisak Inpost d.o.o. 50.00% 50.00% Photo boutique d.o.o. 49.00% 49.00% Stega Tisak d.o.o. 49.00% - Iločki podrumi d.d. 20.00% -
Acquisitions in the amount of HRK 100,118 thousand relate mainly to the investment in Stega Tisak d.o.o. in the amount of HRK 31,162 thousand and investment in Iločki podrumi d.o.o. in the amount of HRK 30,598 thousand and additional investments by contributing to reserves of the associates, without changing ownership share, in the amount of HRK 38,538 thousand (of which HRK 35,010 thousand relates to KHA četiri d.o.o).
Acquisition in the amount of HRK 142,157 thousand during 2015 relates to the investment in Karisma Hotels Adriatic d.o.o. in the amount of HRK 7,650 thousand, investment in Zagreb plakat d.o.o. in the amount of HRK 112.115 thousand, investment in KHA četiri d.o.o. in the amount of HRK 15.000 thousand, investment in Tisak Inpost d.o.o. in the amount of HRK 3,642 and investment in Photo Boutique d.o.o. in the amount of HRK 3,750 thousand.
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Summarized financial information of associates Jana North America, Inc. (in thousands of HRK) Restated 2016 2015 Curent assets 1,744 1,971 Non-current assets 16 66 Curent liabilities (53,854) (51,663) Non-current liabilities - - Net assets (52,094) (49,627)
Revenue 6,840 9,950 Profit/(loss) (5,115) (16,949)
Gulliver travel d.o.o. (in thousands of HRK) 2016 2015 Curent assets 54,328 46,378 Non-current assets 4,620 5,058 Curent liabilities (48,353) (29,446) Non-current liabilities - - Net assets 10,596 21,989
Revenue 116,476 108,863 Profit/(loss) 3,500 2,823
A.N.P. Energija (consolidated) (in thousands of HRK) 2016 2015 Curent assets 25 144,890 Non-current assets 76,020 174,318 Curent liabilities (2) (49,218) Non-current liabilities (75) (244,475) Net assets 75,968 25,514
Revenue - 54,762 Profit/(loss) (15) (36,261)
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Karisma Hotels Adriatic d.o.o. (in thousands of HRK) 2016 2015 Curent assets 16,278 19,260 Non-current assets 164,430 136,881 Curent liabilities (70,864) (71,984) Non-current liabilities (131) (9) Net assets 109,713 84,149
Revenue 17,089 15,508 Profit/(loss) 385 293
KHA četiri d.o.o. (in thousands of HRK) 2016 2015 Curent assets 54,586 11,809 Non-current assets 142,139 118,000 Curent liabilities (311) (32) Non-current liabilities - - Net assets 196,413 129,777
Revenue 1,984 344 Profit/(loss) 1,629 (492)
Zagreb plakat d.o.o. (in thousands of HRK) 2016 2015 Curent assets 19,366 15,728 Non-current assets 1,037 1,108 Curent liabilities (3,365) (2,615) Non-current liabilities - (10) Net assets 17,037 14,212
Revenue 34,254 30,831 Profit/(loss) 10,641 7,634
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Tisak Inpost d.o.o. (in thousands of HRK) 2016 2015 Curent assets 40 3,422 Non-current assets 6,272 3,680 Curent liabilities (292) (59) Non-current liabilities - - Net assets 6,019 7,043
Revenue 347 129 Profit/(loss) (1,022) (242)
Photo boutique d.o.o. (in thousands of HRK) 2016 2015 Curent assets 552 138 Non-current assets 4,228 4,710 Curent liabilities (1,320) (1,632) Non-current liabilities - - Net assets 3,460 3,216
Revenue 2,661 1,798 Profit/(loss) 243 (75)
Konsolidator d.o.o. (in thousands of HRK) 2016 2015 Curent assets 346 357 Non-current assets 150,000 150,000 Curent liabilities (4) (7) Non-current liabilities - - Net assets 150,343 150,349
Revenue 8 4 Profit/(loss) (7) (41)
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Stega Tisak d.o.o. (in thousands of HRK) 2016 2015 Curent assets 15,199 16,442 Non-current assets 52,441 52,110 Curent liabilities (9,637) (11,836) Non-current liabilities (25,150) (54,191) Net assets 32,854 2,525
Revenue 39,974 36,704 Profit/(loss) 466 385
Iločki podrumi d.d. (in thousands of HRK) 2016 2015 Curent assets 56,479 50,523 Non-current assets 181,320 180,230 Curent liabilities (66,135) (45,069) Non-current liabilities (44,240) (65,974) Net assets 127,424 119,710
Revenue 64,834 63,330 Profit/(loss) 2,203 1,239
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NOTE 15. OTHER NON-CURRENT FINANCIAL ASSETS
(in thousands of HRK) Restated 2016 2015 Investment securities available for sale 413,842 387,530 Held-to maturity investments 85,232 87,220 Loans receivable 454,107 2,223,298 Long-term deposits 787,139 397,673 Other assets 409,655 118,806 Balance at 31 December 2,149,975 3,214,527
Long term deposits mainly relate to deposits in respect of lease arrangements which bear no interest and are due and which fall due upon repayment of contractual liabilities. Other long term deposits bear an interest of 2% to 6.5% and are due from 2 to 10 years.
Available for sale investments Available for sale investments (in thousands of HRK) 2016 2015 Unquoted equity investments measured at cost 285,539 250,146 Quoted equity investments at fair value 128,303 137,384 413,842 387,530
Investments in available for sale equity investments that are not quoted on an active market and otherwise cannot be reliably measured at fair value are measured at cost.
Held to maturity investments include investments in debt securities which the Group acquired in previous periods and intends to hold to maturity. Those investments are valued at amortised cost.
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NOTE 16. PROPERTY, PLANT AND EQUIPMENT
Plant, Machinery Items in Land Buildings and Leasehold Other course TOTAL Equipment improvements Assets of onstruction Net book amount 7.488.514 14.901.138 3.389.329 1.442.903 46.612 267.276 27.535.772 At 01 January 2015 (restated) Opening net book amount 7.488.514 14.901.138 3.389.329 1.442.903 46.612 267.276 27.535.772 Acquisition (new subsidiaries) 4.578 199.192 37.324 35 2.186 19.591 262.907 Additions (348) - - - - 1.199.957 1.199.609 Transfer 2.803 262.741 717.014 195.477 - (1.313.052) (135.016) Disposals (96.691) (144.847) (134.689) (2.008) - (11.360) (389.594) Transfer to other category 15.437 (84.577) (654) (589) 13.423 2.713 (54.247) Revaluation (231.752) (36.066) - - - - (267.818) Depreciation - (648.143) (647.365) (281.654) - - (1.577.162) Advance payments for tangible assets (4.453) - (8.309) (201.311) (4.222) 338.442 120.148 Transfer to assets held for sale (599.743) (1.077.212) (3.056) (374) - (120) (1.680.505) Foreign exchange differences (14.752) (34.730) (4.128) (3.002) (126) (1.267) (58.004) Other 138.502 (140.179) 7.859 17.325 (141) (3.874) 19.491 Net book amount at 31 December 2015. (restated) 6.702.096 13.197.319 3.353.325 1.166.803 57.732 498.307 24.975.581
At 01 January 2016 Opening net book amount 6.702.096 13.197.319 3.353.325 1.166.803 57.732 498.307 24.975.581 Acquisition (new subsidiaries) 28.377.069 47.058.797 326.205 - - 6.251.924 82.013.995 Additions - - - - - 1.278.650.784 1.278.650.784 Transfer 48.601.515 293.997.638 681.269.279 18.655.263 190.494.107 (1.233.017.802) (0) Disposals (190.728.242) (141.874.801) (98.171.684) (48.819.873) - (20.648.647) (500.243.247) Transfer to other category (33.157.958) (6.002.991) (7.562.034) 161.928.839 (183.305.356) 384.500 (67.715.000) Revaluation (267.500.000) - - - - - (267.500.000) Depreciation (114.777.829) (679.392.672) (892.299.619) (229.190.881) - - (1.915.661.000) Impairment of tangible assets - - (2.469.000) - - - (2.469.000) Advance payments for tangible assets - - - - (23.286.366) - (23.286.366) Transfer to assets held for sale 378.091.463 1.274.777.428 5.250.302 - 2.363.807 - 1.660.483.000 Foreign exchange differences (36.671.256) (84.835.657) (23.511.176) (9.519.699) (611.199) (4.609.986) (159.758.973) Other (766.824) (13.369.993) 8.425.231 (3.727.863) (9.809.597) (115.825.085) (135.074.132) Net book amount at 31 December 2016. 6.513.564 13.887.677 3.024.583 1.056.129 33.577 409.492 24.925.021
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Assets under finance lease included in property, plant and equipment are as follows:
(in thousands HRK) Cost Land Buildings Plants and equipment Balance as of 01.01.2016 810.636 4.338.087 51.872 Additions - 142.954 2.076 Disposals (18.519) (50.751) (1.426) Balance as of 31.12.2016 792.117 4.430.291 52.522
Accumulated depreciation Balance as of 01.01.2016 1.271.009 10.076 Depreciation for the year 2016 188.639 3.697 Disposals (9.598) (673) Balance as of 31.12.2016 1.450.051 13.100
Net book value as of 31.12.2016 792.117 2.980.240 39.422
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NOTE 17. INVESTMENT PROPERTY
(in thousands of HRK) Restated 31.12.2016 31.12.2015 Opening net book value 222,953 135,436 Acqusition (new subsidiaries) - 117,417 Additions 36,097 - Transfer from PP&E 67,715 - Disposals (122,272) (11,554) Tranfer - other category 10,888 - Depreciation (6,040) (3,253) Tranfer to assets held for sale (3,846) - Foreign exchange differences (542) (164) Other 35,603 (14,930) Net book value 240,556 222,953
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NOTE 18. BIOLOGICAL ASSETS
Agricultural production of Agrokor Group is divided into crop husbandry, pig farming, cattle fattening, dairy farming, vineyards, apple orchards and olive groves.
18.1. BIOLOGICAL ASSETS AT FAIR VALUE
a) CURRENT BIOLOGICAL ASSETS (in thousands of HRK) Restated 2016 2015 Livestock 197,421 226,171 197,421 226,171
(in thousands of HRK) b) NON-CURRENT BIOLOGICAL ASSETS Restated 2016 2015 Biological assets as at 1 January 253,971 254,753 Increase due to purchases 17,075 10,797 Gains arising from changes in fair value less setimated pointof sale costs 64,123 53,176 Decreases due to sales (81,037) (64,755) Biological assets as at 31 December 254,132 253,971
18.2. BIOLOGICAL ASSETS AT COST
Cost as an approximation of the fair value is used for crop husbandry, vineyards, apple orchards and olive groves valuation, due to the fact no active market for those biological assets in its present condition exists and no reliable estimate of future cash flows is available.
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(in thousands of HRK) a) CURRENT BIOLOGICAL ASSETS Restated 2016 2015 Crops 130,817 134,402 130,817 134,402
b) NON-CURRENT BIOLOGICAL ASSETS (in thousands of HRK) Restated Movement of biological assets during the year 2016 2015 Gross book value as at 1 January 270,572 271,513 Increase due to purchases 10,910 14,070 Decreases due to sales (3,553) (15,008) Foreign exchange differences (9) (3) Gross book value as at 31 December 277,920 270,572
Depreciation as at 1 January 92,928 84,146 Additions 13,358 13,588 Disposals (1,687) (4,803) Foreign exchange differences (9) (3) Depreciation as at 31 December 104,590 92,928
Net book value of biological assets as at 1 January 177,644 187,367 Net book value of biological assets as at 31 December 173,330 177,644 The fair value of livestock is determined based on market prices of livestock of similar age, breed, and genetic merit. The fair value of crops is determined based on market prices in the regional area. Revenues related to biological assets are included in Sales and costs are included in other expenses.
(in thousands of HRK) The biological assets Restated 2016 2015 Non current biological assets 427.461 431.615 Biological assets 328.238 360.573
18.3 GOVERNMENT GRANTS (in thousands of HRK) 2016 2015 Fattening of livestock 52,734 59,985 Agricultural production (sowing, orchards and vinyards ) 83,829 125,908 Total 136,563 185,893
Government grants are unconditional and relate to biological assets measured at its fair value less estimated point-of-sale costs. Income is recognised (Note 6) when the government grant becomes receivable.
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NOTE 19. ASSETS HELD FOR SALE
At 31 December 2016 assets held for sale in the total amount of HRK 122,870 thousand relate to land and buildings in the amount of HRK 65,614 and Vinarija Novigrad in the amount of HRK 57,256 thousand (31 December 2015: HRK 1,809,428 thousand related to buildings and land in the amount of HRK 1,691,881 thousand and securities in the amount of HRK 117,547 thousand). A disposal is due to be completed in the one year period. As at 31 December 2016 final negotiations for the sales were in progress for one asset while for the other the Group is actively working on finding the customer.During 2016 assets held for sale in the amount of HRK 1,660,483 thousand are reclassified to property plant and equipment.
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NOTE 20. LOANS AND DEPOSITS
(in thousands of HRK) Restated 2016 2015 Loans granted 678,868 1,542,626 Deposits 108,784 68,743 Advances 54,987 32,476 Loans, deposits etc to companies in associated undertakings 195 - Other loans and deposits - - 842,834 1,643,845
Loans granted and other short term placements in the normal course of business which bear interest at annual rate of 2-4%, with maturity from 3 to 12 months. (in thousands of HRK) Loans granted 2016 Maturity Interest Commercial loans to farmers 359.296 up to 12 months 4-8% Other loans 319.572 up to 12 months 4-10% 678.868
(in thousands of HRK) Loans granted 2015 Maturity Interest Commercial loans to farmers 115.398 up to 12 months 4-8% Other loans 1.427.227 up to 12 months 4-10% 1.542.626
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NOTE 21. CREDIT QUALITY
Overview of Assets by credit quality of counter party on 31 December 2016, in thousands of HRK: Counterparts Customers Customers Related Trade receivables New customer who pay at who pay with parties maturity delay Total 2016 323,180 79 1,806,460 1,329,490 3,459,209
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NOTE 22. INVENTORIES
Restated 2016 2015 Raw material and supplies 503,431 614,687 Work in progress 761,931 991,295 Finished goods and merchandise 3,973,315 4,690,304 Advance payments for inventories 32,401 34,736 5,271,079 6,331,021
NOTE 23.
23.1. TRADE RECEIVABLES (in thousands of HRK) Restated 2016 2015 Trade and other receivables 4,868,891 6,978,230 Provision for impairment of trade receivables (1,409,682) (956,801) Other receivables - 124,569 3,459,209 6,145,999
As at 31 December, the ageing analysis of trade receivables is as follows expressed in thousands of HRK:
Total Neither past due Past due nor impaired < 90 days 90 - 180 days 180 - 270 days > 270 days 2016 3,459,207 2,259,374 848,062 142,212 60,969 148,589
Provision for impairment is made for all outstanding domestic receivables older than 360 days and based on individual assessments.
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23.2. PROVISION FOR IMPAIRMENT OF TRADE RECEIVABLE
Movements in the provision for impairment of trade receivables were as follows: (in thousands of HRK) 2016 2015 At. 1 January 956,801 873,503 Acquisitions during the year - 3,204 Charge for the year 564,155 241,733 Amounts written off (111,268) (161,640) 1,409,688 956,801
NOTE 24. OTHER CURRENT ASSETS (in thousands of HRK) Restated 2016 2015 Receivables from employees and similar 31,254 37,391 Receivables from the State and other institutions 373,293 333,856 Other receivables 263,192 385,773 Other financial assets 776 160 Prepayments and accrued income 554,349 663,640 1,222,865 1,420,819
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NOTE 25. CASH AND CASH EQUIVALENTS (in thousands of HRK) 2016 2015 Cash in bank and cash on hand 556,986 597,040 556,986 597,040
An overview of the cash structure of at 31 December: (in thousands of HRK) 2016 Privredna banka Zagreb 54.734 Zagrebačka banka 22.516 SKB d.d. (Societe General Group) 20.789 Banka Intesa Beograd 17.072 Kreditna banka Zagreb 16.715 AIK Banka 14.845 NLb banka 14.783 Sberbank 9.396 Other 386.136 Total 556.986
Credit quality by ratings on 31 December: (in thousands of HRK) 2016 A (S&P) 30.495 BBB+ (S&P) 26.753 BBB (S&P) 5.604 BBB- (S&P) 124.083 BB+ (S&P) 203 BB (S&P) 30.740 Other 626 Without rating 338.484 Total 556.986
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NOTE 26. SHARE CAPITAL AND RESERVES
The Company’s share capital amounts to HRK 180,123,000 and is divided in 360,246 regular registered shares, designated AGKR-R-A, each in the nominal value of HRK 500. Share capital is paid in full.
Retained earnings include legal reserves. Legal reserves of HRK 221,713 thousand are not distributable. Ownership structure at 31 December 2016 and at 31 December 2015:
Nominal value of 1 share Total nominal value Particip. in share Number of shares In HRK 000 HRK capital (%) Adria Group Holding BV 344,120 500 172,060 95.52% Banks 7,468 500 5,216 2.08% Small shareholders 5,698 500 1,367 0.82% Treasury shares 2,960 500 1,480 0.82% Total number of shares 360,246 180,123 100.00%
During 2016 the Company acquired additional 2,960 own shares (0,82%) which are included in the Small shareholders line as the process of registering those shares to the Company is still ongoing.
NOTE 27. NON-CONTROLLING INTERESTS (in thousands of HRK) 2016 Balance at 1 January 4,442,520 Acquisitions (4,780) Dividends paid (110,921) Result for the year (940,231) Acqisitions (58,041) Provisions (1,505) Foreign exchange 43,520 Balance at 31 December 3,370,562
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NOTE 28. FINANCE LEASE LIABILITIES
Assets acquired under finance leases are real estate and transportation equipment. Future minimum lease payments are payable as follows: (in thousands of HRK) Restated 2016 2015 Payable over 5 years 2,709,068 3,079,157 Payable in 1 to 5 years 1,975,512 2,014,707 Payable within 1 year 459,903 663,674 Less future finance charges (1,727,810) (2,114,784) Included in borrowings (Note 31) 3,416,673 3,642,754 Less current portion of obligation (246,732) (371,400) Total lease 3,169,941 3,271,354
NOTE 29. OPERATING LEASE AND CAPITAL COMMITMENTS
Operating lease Future minimum lease payments under non-cancelable leases are due as follows: (in thousand of HRK) 2016 2015 Payable over 5 years 2,060,940 1,722,947 Payable in 2 to 5 years 1,102,736 1,677,273 Payable in 1 to 2 years 460,153 765,887 Payable within 1 year 586,175 952,847 Total 4,210,004 5,118,954 Operating lease commitments relate primarily to buildings (including leased retail shops), equipment and motor vehicles.
Average cancellation period in operating lease agreements is between 6 - 9 months.
Operating lease commitments are not recognised as liabilities in the statement of financial position in accordance with accounting conventions.
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NOTE 30. BORROWINGS (in thousands HRK) Restated Long -term borrowings 2016 2015 Bank loans 18,010,956 17,935,271 Bonds 6,828,570 6,808,484 Non-bank loans 441,565 957,243 Finance leases (Note 29.1) 3,416,607 3,642,754 Total long-term borrowings 28,697,698 29,343,752
Curent portion of long-term borrowings
Bank loans (1,248,380) (4,347,871) Non-bank loans (106,149) (12,792) Finance leases (Note 29.1) (246,732) (371,400) Total current portion of long-term borrowings (1,601,262) (4,732,063)
Long-term debt 27,096,437 24,611,689
Short-term borrowings
Curent portion of long-term borrowings 1,601,262 4.732.063 Bank loans 2,792,941 5,451,879 Financial bills of exchange 6,151,191 3.123.342 Non-bank loans 2,439,462 1,053,652 Total short-term borrowings 12,984,856 14,360,935
TOTAL BORROWINGS 40,081,293 38,972,624
Maturity of long term bank loans and bonds can be analysed as follows: (in thousands HRK) Maturity Total 2018. 2,334,883 2019. 7,388,847 2020. 6,271,834 2021. 6,036,325 2022. 1,434,395 2023. and after 124,863 23,591,146
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Currency structure of long term bank loans can be analysed as follows:
(in thousands of HRK) Maturity EUR USD CHF HRK Other currencies 2018 2,301,322 - 6,551 13,469 (9,737) 2019 7,347,712 - 6,551 13,469 (84,889) 2020 4,024,964 2,137,306 6,550 9,594 (28,119) 2021 6,152,918 - 6,550 9,594 118,122 2022 1,424,764 - - 9,594 - 2023 and later 109,355 - - 15,505 -
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The Agrokor Group finances itself via a combination of fixed income instruments and variable rate loans. Variable interest rates are predominantly linked to EURIBOR. The coupons/interest rates range between 3% and 10% p.a.
Agrokor Restricted Group debt consists primarily of two Senior Notes and other bilateral facilities with banks and financial and non-financial institutions. The 2019 Senior Notes were issued at par in an aggregate principal amount of €300 million. The 2019 Senior Notes are scheduled to mature on May 1, 2019 and accrue interest at a rate of 9.875% per annum. The euro-denominated 2020 Notes were issued at par in an aggregate principal amount of €325 million. The euro-denominated 2020 Notes are scheduled to mature on February 1, 2020 and accrue interest at a rate of 9.125% per annum. The dollar-denominated 2020 Notes were issued at par in an aggregate principal amount of $300 million. The dollar-denominated 2020 Notes are scheduled to mature on February 1, 2020 and accrue interest at a rate of 8.875% per annum. Agrokor completed a wider refinancing exercise in the second half of the year, extending c. €840 million of existing debt to approximately 2-3 year maturities. Refinanced bilateral facilities consist of two club facilities with BNP Paribas, Credit Suisse AG, London Branch, Goldman Sachs International Bank, J.P. Morgan Securities plc in the amount of €100 million each, one scheduled to mature on September 14, 2018 and the other on September 14, 2019. Both facilities accrue interest at a rate of EURIBOR plus a margin of 5.00%. €600 million with Sberbank of Russia and Sberbank Europe AG and €350 million with Sberbank of Russia, the former scheduled to mature on September 14, 2023 and accrues interest at a rate of EURIBOR plus a margin of 5.30% and the latter scheduled to mature on September 14, 2022 and accrues interest at a rate of 6.00% fixed. €50 million with Sberbank Europe AG scheduled to mature on September 14, 2018 and accrues interest at a rate of EURIBOR plus a margin of 5.00%. €360 million with VTB Bank Austria AG, of which €50 million is scheduled to mature on September 14, 2018 and accrues interest at a rate of EURIBOR plus a margin of 5.00%, €250 million scheduled to mature on September 14, 2019 and accrues interest at a rate of EURIBOR plus a margin of 5.00% and €60 million scheduled to mature on June 21, 2020 and accrues interest at a rate of EURIBOR plus a margin of 3.62%.
Agrokor Restricted Group has several other facilities with local and international institutions with fixed and variable rates of which the most material ones are €130 million from Adris Grupa d.d. scheduled to mature on December 31, 2017 and accrues interest at a rate of 4.00%, €50 million from Zagrebačka banka d.d. scheduled to mature on April 17, 2017 and accrues interest at a rate of EURIBOR plus a margin of 4.75%, €50 million from Aquarius scheduled to mature on August 8, 2017 and accrues interest at a rate of EURIBOR plus a margin of 5.50%, €50 million from Tvornica Duhana Rovinj d.d. scheduled to mature on November 30, 2021 and accrues interest at a rate of 2.50%. Other smaller facilities are scheduled to mature between 2017 and 2028 and accrue interest at a rate between 3% and 10% p.a..
The covenants of Agrokor Restricted Group debt facilities are aligned with the covenants of the 2019 and 2020 Senior Notes. The Senior Notes are generally guaranteed by the following companies: Agrokor- trgovina d.d., Jamnica d.d., Konzum d.d., Ledo d.d., Ledo d.o.o. Čitluk, PIK Vinkovci d.d., Sarajevski kiseljak d.d., Zvijezda d.d., Vupik d.d., Belje d.d. Darda and Konzum d.o.o. Sarajevo. Certain of the refinanced facilities also include undertakings by Agrokor that 90 days prior to their respective maturities, the PIK Facility and the 2019 bonds are refinanced or have their maturities extended to at least March 14, 2020 and Agrokor's consolidated leverage ratio of the Restricted Group shall be less than 5.0x for the four most recent full fiscal quarters immediately prior to September 14, 2018 for which internal financial statements are available. There are some facilities which are either unsecured and unguaranteed or secured with collateral in the form of shares, real estate and/or promissory notes.
Mercator’s debt consists of the “wider group” deal, the Serbian deal, finance lease agreements and other smaller bilateral debt facilities. The various tranches of wider group deal and Serbian deal have a range of maturities falling between 2017 and 2021. The blended yearly weighted average interest rate for the period from the signing of the facilities in June 2014 to the maturity of the final tranche in June 2021 is 3.5%. The wider group transaction comprises the restructured Mercator debt in the Federation of Bosnia and Herzegovina, Republic of Srpska, Croatia, Montenegro and Slovenia. Borrowers under the wider group
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transaction are Mercator and its subsidiaries including Poslovni sistem Mercator, Mercator - BH, d.o.o., Mercator - H, d.o.o., Mercator - CG, d.o.o., and Mercator - Emba, d.d. These entities are also guarantors for the wider group transaction together with Mercator subsidiaries Mercator IP, d.o.o. and M - Energija, d.o.o. The Borrower under the Serbian deal is Mercator S and the obligations under the Serbian Facility are secured over material assets of Mercator S.
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NOTE 31. PROVISIONS AND EMPLOYEE BENEFIT OBLIGATIONS
All employees are covered by the State pension fund. Provisions are established for other employee benefits payable in respect of retirement and jubilee (length of service) as well as scholarships for children of employees that died at work. Retirement benefits are dependent on the employees fulfilling the required conditions to enter retirement from the Group and jubilee benefits are dependent on the number of years of service. The amount of all benefit entitlements is determined by the respective employee’s monthly remuneration.
The movement in the liability for employee benefits is recognised in the balance sheet as follows: (in thousands of HRK) Restated 2016 2015 Net liability, beginning of year 251,137 206,069 Acquisitions - 2,248 Net change recognised in the income statement 36,011 65,081 Payments made during the year (23,853) (22,262) Net liability, end of year 263,294 251,137
Other provisions 178,039 348,592 Total provisions 441,333 599,728
The principal actuarial assumptions used to determine retirement benefit obligations as of 31 December were as follows: 2016 2015 Discount rates (annually) 4.00% 4,00% Wage and salary increases (annually) 0,50%-1,20% 0,50%-1,50%
Other long-term employee benefits are determined by using a projected unit credit method. Gains and losses which arise from changes in actuarial assumptions are recognized in profit or loss in the period in which they have occurred.
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NOTE 32. TRADE PAYABLES (in thousands HRK) Restated 2016 2015 Trade payables - domestic 8.135.634 7.753.917 Trade payables - foreign 1.266.514 1.155.564 Accruals for goods received and not invoiced 120.666 250.165 Commodity commercial loans 491.556 722.604 Other payables 42.278 - Bill of exchange 542.789 227.615 10.599.437 10.109.865
Bills of exchange relate to liabilities toward suppliers for goods delivered and services provided for which the bill of exchange was issued.
Structure of trade payables according to the maturity of obligations, per day, in HRK thousands:
Overdue TOTAL TRADE TRADE PAYABLES Undue 0-90 days 90-180 days 180-270 days > 270 days PAYABLES At 31st Dec 2016 6,380,102 2,942,368 428,908 155,103 150,167 10,056,648 At 31st Dec 2015 7,075,334 2,127,358 384,992 143,189 151,378 9,882,250
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NOTE 33. OBLIGATIONS FOR BILLS OF EXCHANGE AND RECOURSE LIABILITIES
Bills of exchange are issued by the Group as a means of paying liabilities to suppliers for received goods and products.
The Group also accepts bills of exchange as a means of payment from customers and thus settles claims towards buyers for the sale of goods and products. These bills of exchange are with recourse and the Group provides a guarantee in the event that the factoring companies fail to collect the amount from the buyer. In the case of recourse claim, the billing obligation is transferred to the Group, and then the Group exercises the right to claim for the uncollected bills of exchange from the original issuer bills of exchange.
(in thousands of HRK) Restated 2016 2015 Bills of exchange - discounted 1,459,688 1,071,993 Recourse liabilities 258,691 324,536 Other - 521,610 1,718,379 1,918,139
NOTE 34. OTHER CURRENT LIABILITIES
( in thousands of HRK ) Restated 2016 2015 Liabilities for security investments 628,936 16,914 Liabilities to employees 266,858 260,458 Liabilities for taxes, contributions and similar expenses 436,207 515,439 Other current liabilities 268,945 656,435 Accrued expenses and deferred income 875,159 777,125 2,476,105 2,226,371
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NOTE 35. TAXATION
(in thousands of HRK) Restated Tax charge for the year 2016 2015 Croatian corporate taxation 143,271 246,557 Foreign coporate taxation (264,983) 89,089 Total income tax obligation for year (121,712) 335,646
Income tax liability on 31st Dec 93,518 129,531 Deferred tax asset 199,237 161,623 Deferred tax liability 593,194 1,036,905 885,949 1,328,059
Income taxes paid in 2016 amounts to HRK 355,683 thousand.
In accordance with Croatian tax law, companies within the Group from the Republic of Croatia are independently liable for corporate tax at a rate of 18% (2015: 20%). Several subsidiaries have tax losses which are available to be carried forward against their future taxable income. Due to the uncertainty as to whether these assets could be utilised in the foreseeable future no deferred tax asset has been recognised. In accordance with the regulations of the Republic of Croatia, the Tax Authority may at any time inspect the Company's books and records within 3 years following the year in which the tax liability is reported, and may impose additional tax assessments and penalties. The same regulations apply to other subsidiaries of the Group in Croatia. Foreign subsidiaries abroad must comply with tax regulations of the country in which they operate.
The deferred tax liability consists of: The deferred tax liability (in thousands of HRK) Restated 2016 2015 Deferred tax liability related to land revaluation 565,454 981,330
Deferred tax liabilty related to accelerated depreciation for the tax purposes 27,740 55,575 Total 593,194 1,036,905
Movements of deferred tax liability are as follows: (in thousands of HRK) Restated Net movement recognised in proft 2016 or loss Recognised in OCI 2015 Deferred tax liability related to land revaluation 590,012 (69,239) 659,251
Impairment of brand - (270,282) 270,282 Other items 3,182 (104,190) 107,372 Total 593,194 (374,472) (69,239) 1,036,905
Deferred taxation obligations for revalued land occurred due to the fact that according to the present applicable regulations revaluation surplus is taxable in the year of realisation, and not in the year of
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conducting the revaluation. The remaining deferred taxation liabilities were created as a consequences of aligning depreciation rates of some subsidiaries with the group policies.
Tax losses carried forward Tax losses will expire 5 years after the year when they have been recognized, as it is stated below. Tax value of the tax losses was decreased for 10% on 31 December 2016 due to change in the tax rate (from 20% to 18%) effective 1 January 2017.Tax losses and their availability for future periods is as follows:
2016. 2015. Expires in 2016 439,767 Expires in 2017 293,715 293,715 Expires in 2018 1,228,083 1,228,083 Expires in 2019 1,030,828 1,030,828 Expires in 2020 2,227,956 2,227,956 Expires in 2021 3,650,065
Deferred tax assets originates from: Net movement recognised in proft or Deferred tax assets 2016 loss 2015 Financial instruments avaluable for sale 16,771 2,444 14,327 Depreciation 33,486 2,915 30,571 Long-term provisions for severance payments 11,279 834 10,444 Long-term provisions for jubilee awards 4,653 1,138 3,514 Long-term provisions for reorganization - (2) 2 Long-term provisions for resources and guarantees 156 156 - Impairment of inventories 64 (280) 344 Calculated public fees not paid in the current tax period 116 60 56 Impairment of receivables 29,717 9,322 20,395 Tax losses caried forward 102,996 21,206 81,791 Goodwill impairment - (179) 179 199,237 37,614 161,623
Tax losses not recognized as deferred tax asset In the financial statements, the Group did not recognize deferred tax assets for all the tax losses carried forward since it is not probable that all those tax losses will be utilized by the companies they relate to.
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NOTE 36. CONTINGENCIES The Group is involved in commercial litigation relating to the collection of outstanding amounts from debtors of HRK 637,522 thousand and disputes with creditors over amounts of HRK 122,277 thousand. In addition, proceedings are ongoing in relation to other short-term receivables of HRK 232,636 thousand and other short-term liabilities of HRK 252,988 thousand.
Pursuant to the Law on Extraordinary Administration of Companies in Systematic Importance for the Republic of Croatia, the alignment of claims with creditors in the procedure of the extraordinary administration is in progress and the determination of the claims of the creditor and the principal debtor will determine the final amount of claims per individual lender. The Company's liabilities are accredited and any relevant information depends on the information provided by the principal debtor and the creditor on the status of the claim.
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NOTE 37. RELATED PARTY TRANSACTIONS
The Group has transactions with the following related parties: significant shareholders and other companies owned or controlled by the ultimate owner of the Company ('other affiliated parties') and key management.
Related Party Transactions Related to Balance Sheet as at 31 December 2016 and 31 December 2015 and the Income Statement for the years then ended are reported as follows:
(in thousands of HRK) Restated
31.12.2016 31.12.2015
RECEIVABLES Ultimate parent 200,153 421,856 Ultimate controlling party 219,163 2,689,411 Associates 151,005 - Key management personnel - -
LIABILITIES Ultimate parent - - Ultimate controlling party - - Associates 54,036 - Key management personnel - -
Restated
2016 2015
INCOME Ultimate parent 10,738 229,754 Ultimate controlling party 203,006 72,325 Associates 31,754 - Key management personnel - -
COST Ultimate parent - - Ultimate controlling party - - Associates 3,777 - Key management personnel 76 63
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Agrokor Group
NOTE 38. FAIR VALUE MEASUREMENT
Based on the calculation of their fair value, financial instruments are divided into three levels: Level 1: quoted (stock) prices for assets or liabilities in active markets, Level 2: assets or liabilities not included in Level 1, the value of which is determined directly or indirectly based on observable market data Level 3: assets or liabilities, the value of which is not based on observable market data.
Recurring fair value measurements for assets as at 31 December 2016: (in thousands of HRK)
Level 1 Level 2 Level 3 Total Property, plant and equipment at fer value measurement 0 0 6,513,564 6,513,564 Biological assets at fer value measurement 0 0 197,421 197,421 Available-for-sale financial assets 128,303 0 0 128,303 Fair value measurement hierarchy for assets as at 31 December 2015:
(in thousands of HRK)
Level 1 Level 2 Level 3 Total Property, plant and equipment at fer value measurement 0 0 6,702,096 6,702,096 Biological assets at fer value measurement 0 0 226,171 226,171 Available-for-sale financial assets 137,384 0 0 137,384
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NOTE 39. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES a) FINANCIAL INSTRUMENTS
Existing derivative financial instruments or any financial instruments do not expose the Group to concentration of credit risk. It is the Group’s policy to enter into financial instruments with a diversity of creditworthy counterparties. Therefore, the Group does not expect to incur material credit losses on its risk management or other financial instruments.
Fair values of financial assets and liabilities Fair value represents the amount for which an asset could be exchanged or a liability settled on an arm’s length basis. As market prices are not available for a portion of the Group’s financial assets and liabilities, fair values have been based on management assumptions according to the profile of the respective assets and liabilities. The Management Board believes that the fair values of assets and liabilities (unless otherwise disclosed in this note) are not significantly different from book values.
Due to the the Extraordinary Administration Process the Company is currently not able to determine the fair value of liabilities.
Amounts Due from Banks For assets maturing within three months, the carrying amount approximates fair value due to the relatively short term maturity of these financial instruments. For longer term deposits, the interest rates applicable approximate market rates and, consequently, the fair value approximate the carrying amounts.
Loans granted As practically all loans are short term, the Management Board believes that their fair values are not significantly different from book values.
Investment securities Securities available for sale are included in the balance sheet at their fair values.Equity securities whose fair value cannot be reliably measured are included at acquisition cost. The Management believes that their fair values are not below their carrying amounts.
Loan liabilities For balances maturing within one year the carrying amount approximates fair value due to the relatively short term maturity of these financial instruments. Nominal value of our Senior Notes issued amounted to HRK 6,874.2 million, while their fair value as at December 31, 2016, based on closing prices on the Stock Exchange, amounted to HRK 7,117.3 million. The 2019 Senior Notes traded at 103.6% of nominal value. The EUR and USD tranche of the 2020 Senior Notes traded at 104.3% and 102.2%, respectively. As a portion of other longer term funds received is contracted with variable interest rates, their fair value approximates the carrying amounts. For longer term funds with fixed interest rates, the average interest rates applicable approximate market rates and, consequently, the fair value approximate the carrying amounts.
Biological assets The Group is exposed to financial risks arising from changes in livestock and crops prices. The Group does not anticipate that livestock or crops prices will decline significantly in the foreseeable future and, therefore, has not entered into derivative or other contracts to manage the risk of a decline in livestock or crops prices. The Group reviews its outlook for livestock and crops prices regularly in considering the need for active financial risk management.
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b) RISK MANAGEMENT OBJECTIVES AND POLICIES
The main risks arising from the Group’s financial instruments are credit risk, foreign currency risk and interest rate risk. The Management reviews and agrees policies for managing each of these risks and they are summarised below. The Group is exposed to international markets. As a result, it can be affected by changes in foreign exchange rates. The Group also extends credit terms to its customers and is exposed to a risk of default. The significant risks, together with the methods used to manage these risks, are described below. The Group does use derivative instruments to manage risk especially foreign exchange risk related to USD.
Credit risk The Group is exposed to credit risk representing risk that the debtor will not be able to repay its liabilities to the Group as they fall due. The Group manages this risk by setting limits of exposure towards one debtor or group of debtors. As there is no significant concentration of credit exposure, the Group does not consider to be excessively exposed to credit risk. The Group does not guarantee material obligations of other parties. The Group considers that its maximum exposure is reflected by the amount of debt financial assets net of provisions for impairment recognised at the balance sheet date.
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Liquidity risk
Liquidity risk, also referred to as financing risk, is the risk that an enterprise will encounter difficulty in raising funds to meet obligations associated with financial instruments. The Group has a strong focus on its cash flow with short-term inflows and outflows forecasts. Surplus of funds is placed in short term deposits and available for sale investments.
Maturity of long term bank loans is presented in Note 30.
The Group's objective is to maintain the flexibility of financing in a way that contractual credit lines are available.
The cash flow projection is at the level of operating companies and is aggregated at Group level. As part of its activities in 2017, the Group continually monitors liquidity to provide sufficient funds for its operations, while maintaining sufficient space for using unused credit lines when needed. Such projection considers the Group's plans to settle the debts, coordinate with the contractual relationship and internal default balance in the balance sheet.
The table below summarizes the maturity profile of the Group’s contractual bank loan and bond related liabilities at 31 December 2016 including the interest thereof: (in thousands HRK) Maturity Total 2018. 2,334,883 2019. 7,388,847 2020. 6,271,834 2021. 6,036,325 2022. 1,434,395 2023. and after 124,863 23,591,146
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Agrokor Group
Interest rate risk
As majority of long term debt bears variable interest, the Group considers itself to be exposed to risk of adverse change in interest rates at an acceptable level.
Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates relative to the interest rate which applies to the financial instrument. Interest rate risk related to cash flow is the risk that the interest cost of an instrument will fluctuate over time.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings): (in thousands HRK) Increase/Decrease Effect on profit
in base points before tax 2016
EUR +/- 50 496,501 RSD +/- 50 423 BAM +/- 50 302 CHF +/- 50 182 HRK +/- 50 727 2015
EUR +/- 50 63,856 RSD +/- 50 600 BAM +/- 50 109 CHF +/- 50 5 HRK +/- 50 309
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Agrokor Group
Foreign currency risk
Most of the assets of the Group are denominated in Croatian Kuna. A significant portion of loan liabilities is linked to foreign currency (predominantly EUR). Accordingly, the group is exposed to risk of changes in foreign exchange rates. Considering long term policy of the Republic of Croatia related to maintenance of exchange rate to EUR, the Group does not consider this risk to be significant.
The following table demonstrates the sensitivity to a reasonably possible change in the exchange rate, with all other variables held constant, of the Group’s profit before tax due to changes in the carrying value of monetary assets and liabilities: (in thousands HRK) Increase/Decrease in Effect on profit
rate before tax 2016
EUR +/- 5% 1,183,815 USD +/- 5% 103,916 CHF +/- 5% 1,821 GBP +/- 5% 460
Capital management
The Group is currently operating within the perimeter od the Extraordinary Administration and as of date of this financial statements has liabilities which significantly exceed the carrying value of the assets. For this reason the Group is focused on achieving a settlement with its creditors in the current settlement process through which, in case of a successful settlement, a new sustainable capital structure for the group is to be established.
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NOTE 40. EVENTS AFTER THE REPORTING PERIOD
Loan arrangements On 21 February 2017 the Company signed a loan agreement as a borrower with Sberbank of Russia as Lender. The total loan amount is EUR 100,000,000. The loan has a bullet repayment on 1 October 2017. The loan is guaranteed by the following subsidiary companies: Agrokor-trgovina d.o.o., Belje d.d. Darda, Jamnica d.d., Konzum d.d., Konzum d.o.o. Sarajevo, Ledo d.d., Ledo d.o.o. Čitluk, Pik-Vinkovci d.d., Sarajevski Kiseljak d.d., Vupik d.d. and Zvijezda d.d.
On 13 April 2017 the Company signed a loan agreement as a borrower with Zagrebačka banka d.d., Privredna banka Zagreb d.d., ERSTE Staiermerkische d.d. and Raiffeisenbank Austria d.d. as loan providers. The total loan amount was EUR 80,000,000. The loan has a bullet repayment at the expiration of 12 months from the date of the opening of the Extraordinary Administration proceeding or at the expiration of 15 months from the date of the opening of the Extraordinary Administration proceeding if the Extraordinary Administration proceeding is prolonged. The loan is signed as co-debtors by the following subsidiary companies: Belje d.d. Darda, Jamnica d.d., Konzum d.d., Ledo d.d., Pik Vrbovec – mesna industrija d.d., Pik-Vinkovci d.d., Vupik d.d. and Zvijezda d.d. The loan has since been repaid in full from the proceeds of the loan concluded on 8 June 2017.
On 8 June 2017 the Company signed a loan agreement as a borrower with various investors (such as Knighthead Capital Investments) as loan providers. The total loan amount is up to EUR 1,060,000,000. The loan has a bullet repayment on the earlier of 10 July 2018, the settlement date under the extraordinary administration proceeding and opening of insolvency proceedings. The loan is guaranteed by the subsidiary companies incorporated in Croatia and are subject to the extraordinary administration proceeding which include but are not limited to: Agrokor-trgovina d.o.o., Belje d.d. Darda, Jamnica d.d., Konzum d.d., Ledo d.d., Pik-Vinkovci d.d., Sarajevski Kiseljak d.d., Vupik d.d. and Zvijezda d.d. In addition to being guaranteed the loan is also secured by long-term material and immaterial assets of the obligors. The loan has a super-priority status as provided for in the Law on extraordinary administration proceeding in companies of systemic importance for the Republic of Croatia and allows for the refinancing of debt incurred prior to entering into the extraordinary administration applying a 1:1 ratio between new money and refinanced debt.
Business combinations Agrokor d.d. on 30 January 2017 transferred to Agram Invest d.o.o. a total of 51% of shares (29,830) of Agrolaguna d.d., based on the Securities Exchange Recipient Agreement dated 20 February 2012, for a total amount of HRK 35 million, thereby losing the control over the aforementioned company. In the procedure of the extraordinary administration, the basis and appropriateness of such transaction is examined, and on 9 June 2017 a litigation has been initiated on Commercial Court in Zagreb, no.: P-1375/2017, which is seeking to establish the nullity of the aforementioned legal transaction. On 10 March 2017 the Company concluded with Agrokor Investments B.V. agreement for the sale and purchase of the shares in Poslovni sistem Mercator d.d., whereby the Company acquired an additional 615,384 shares in Poslovni sistem Mercator d.d. for the total consideration of EUR 39,999,960, increasing its overall shareholding to 69,57%.
Extraordinary Administration Procedure On 10th April 2017, the Company with its affiliated and controlled companies entered the Extraordinary Administration Procedure (“Extraordinary Administration”) in accordance to the Law on extraordinary administration proceeding in companies of systemic importance for the Republic of Croatia (Official Gazette no 31/17, “Law”). Per the Extraordinary Administration, the court appointed Extraordinary Administrator took over the functions of the Companies corporate bodies, including the management of the Company. The Extraordinary Administration effects, among other, are the prohibition of initiating litigation, enforcement and other proceedings during and until termination of the Extraordinary Administration. Creditors’ claims incurred before the Extraordinary Administration opening, are subject to filing and settlement. Extraordinary
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Administration rules regulate payment of claims during the Extraordinary Administration. An interim Creditors Council was established, which receives reports on the state of the Company and its affiliated and controlled companies, and is asked for consent as prescribed by the Law. After claims’ publication, a permanent Creditors Council will be established, which will participate in the preparation of the settlement proposal. Under the Extraordinary Administration, one uniform collective settlement proposal will be presented for creditors’ voting, encompassing the Company and its affiliated and controlled companies and their creditors, providing for the settlement of claims and the restructuring of the Company and its affiliated and controlled companies under the Extraordinary Administration. Extraordinary Administration terminates upon successful agreement and execution of the settlement.
Significant court proceedings against the Group As stated above, the Law prescribes a prohibition or stay of all proceedings in Croatia against the Company and its affiliated and controlled companies subject to Extraordinary Administration. Therefore no proceedings have been initiated or continued during the Extraordinary Administration in Croatia. Requests for Extraordinary Administration recognition have been filed in England, Slovenia, Serbia, Montenegro and Bosnia and Herzegovina, for the prohibition or stay of proceedings to take effect in those jurisdictions. Pending the final decision in these recognition proceedings, several proceedings have been initiated in those jurisdictions. In England, Sberbank of Russia has initiated two arbitration proceedings for non-payment of EUR 100 million and EUR 350 million term loan facility agreements. Both arbitration proceedings are stayed pending the outcome of the recognition proceedings. In Slovenia, an enforcement proceeding and a petition for a temporary injunction have been filed. In Serbia, twelve enforcement or temporary injunction proceedings and one litigation have been initiated. One petition for a temporary injunction has been filed in Bosnia and Herzegovina and one enforcement action has been initiated in Montenegro. The Group has not recognised any provisions in this regard.
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