Annual Report 2013

black earth farming ltd.black earth a nnual nnual r epor t 2013

Naʦutilus House Laʦ Cour des Caʦsernes, St. Helier ANNUAL REPORT Jersey JE1 3NH Chaʦnnel Islaʦnds Regʦ No. 89973 2013 www . blaʦckeaʦrthfaʦrmingʦ . com Generaʦl Shaʦreholder Informaʦtion Caʦlendaʦr of events in 2014 – 2014 Annual General Meeting: 14 May Annuaʦl Generaʦl Meetingʦ – 1Q Interim Report, 1 January–31 March: 16 May Black Earth Farming Ltd (“Black Earth Farming”) hereby – 2Q Interim Report, 1 January–30 June: 15 August invites shareholders to participate in the Annual General – 3Q Interim Report, 1 January–30 September: 14 November Meeting at 12.00 CET on 14 May 2014 at Summit, Grev Ture- gatan 30, Stockholm 114 38, Sweden. Investor Relaʦtions Avto Makharoblishvili Paʦrticipaʦtion + 7 916 598 16 19 Holders of Swedish Depository Receipts (“SDRs”) wishing [email protected] to attend the Annual General Meeting shall be recorded in the register of shareholders maintained by Euroclear (for- Internet website mer VPC AB) on Thursday 8 May 2014, and must notify the www.blackearthfarming.com Company of their intention to attend the Meeting no later than 13.00 CET on 8 May 2014. The holder of the Swedish SDR tickers Depository Receipts shall state his name, personal or com- – NASDAQ OMX Stockholm: BEF SDB pany identiﬁ cation number, address as well as telephone – Reuters: BEFsdb.ST number. – Bloomberg: BEFSDB SS

Notice of paʦrticipaʦtion Holders of Swedish Depository Receipts can give their notice of participation: – by mail at the address: Annual General Meeting, Black Earth Farming Ltd, c/o Computershare, Box 610, 182 16 Danderyd Sweden – by telephone +46 (0)8 518 01 551 – by e-mail to [email protected]

Nominee-regʦistered shaʦres Holders of Swedish Depository Receipts which hold their receipts through nominees (Sw. förvaltare) must request a temporary registration of the voting rights in order to be able to participate at the General Meeting. Holders of Swedish Depository Receipts that want to obtain such registration must contact the nominee regarding this well in Disclaimer advance of 8 May. Voting forms (Sw. röstkort) will be dis- This report contains “forward-looking statements”. All state- tributed to the holders that have complied with the above ments other than statements of historical facts included in this requirements and the voting form must be brought to the report, including without limitation, those regarding the Com- Annual General Meeting. pany’s fi nancial position, business strategy, the Company’s management’s, or as appropriate the Directors’, plans, objectives, Proxies, etc. goals, strategies and future operations and performance and the If a holder of Swedish Depository Receipts intends to assumptions underlying these statements are forward-looking be represented by proxy, the name of the proxy holder statements. Such forward-looking statements involve known and shall be stated. For holders of Swedish Depository Re- unknown risks and uncertainties and other factors which are or ceipts who will be represented by a proxy at the Meet- may be beyond our control, which may cause the actual results, ing, a proxy form is available at the Company’s website on performance or achievements of the Company, or industry results, www.blackearthfarming.com. The signed proxy form to be materially diff erent from any future results, performance or should be sent or mailed to the company at the above stated achievements expressed or implied by such forward-looking state- valid addresses. ments. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment, in which the Company will operate in the future. Supplementary USD* equivalent fi gures found in this report in relation to company fi nancial information are provided solely for the convenience of users as described in Note 2 (d) to the Consoli- dated Financial Statements and do not form part of the audited consolidated fi nancial statements. Some numerical fi gures included in this Presentation have been subject to rounding adjustments. Accordingly, numerical fi gures shown as totals in certain graphs or tables may not be an exact arithmetic aggregation of the fi gures that preceded them. Blaʦck Eaʦrth Faʦrmingʦ aʦt aʦ Glaʦnce ...... 2 2013 in Brief ...... 4 CEO Staʦtement ...... 6 This is Blaʦck Eaʦrth Faʦrmingʦ ...... 9 Maʦrket/Industry Overview...... 14 Operaʦtionaʦl Review ...... 20 2013 Finaʦnciaʦl Review ...... 28 Risks aʦnd Sensitivity Anaʦlysis ...... 35 Five Yeaʦr Summaʦry ...... 39 The Blaʦck Eaʦrth Faʦrmingʦ shaʦre...... 40 Consolidaʦted Finaʦnciaʦl Staʦtements ...... 42 Staʦtement of maʦnaʦgʦement responsibilities ...... 43 Independent Auditors’ Reports...... 44 Consolidaʦted Staʦtement of Comprehensive Income/(Loss) ...... 46 Consolidaʦted Staʦtement of Finaʦnciaʦl Position ...... 47 Consolidaʦted Staʦtement of Chaʦngʦes in Equity ...... 48 Consolidaʦted Staʦtement of Caʦsh Flows...... 49 Notes to the Consolidaʦted Finaʦnciaʦl Staʦtements...... 50 Boaʦrd, Maʦnaʦgʦement aʦnd Auditors ...... 74 Corporaʦte Governaʦnce Report ...... 76 Boaʦrd of Directors’ report on internaʦl control ...... 81 Sustaʦinaʦbility...... 83 Terms aʦnd Defi nitions ...... 84

1 Blaʦck Eaʦrth Faʦrmingʦ aʦt aʦ Glaʦnce

• Business Concept

Laʦnd Ownership Productivity Enhaʦncement Best Praʦctice Faʦrmingʦ Operaʦtions

– A maʦjor producer of cereaʦls aʦnd oilseeds with 789 thousaʦnd tons production in 2013 – A focus on increaʦsingʦ productivity to become aʦ best in claʦss aʦgʦro industriaʦl compaʦny in terms of cost aʦnd operaʦtingʦ efficiency

• As aʦt 31 December 20131, 254,000 Hectaʦres of World Claʦss Faʦrm Laʦnd in Full Ownership – Totaʦl laʦnd baʦnk of 308,000 hectaʦres with 82% in full ownership – Non depreciaʦtingʦ aʦsset recorded aʦt aʦcquisition cost of USD* 54.7 million in staʦtement of ﬁ naʦnciaʦl position aʦs of 31 December 2013

• Operaʦtingʦ in Russiaʦ’s Centraʦl “Blaʦck Eaʦrth” Regʦion – Agʦriculturaʦl regʦion endowed with some of the most fertile soils in the world

BEF: ONE OF THE LARGEST OWNERS OF PRIME RUSSIAN FARM LAND

D1: BEF 2013 Laʦnd holdingʦs1 Compaʦrison of Blaʦck Eaʦrth Faʦrmingʦ’s fully owned hectaʦraʦgʦe aʦsof 31 December 2013 with Centraʦl Paʦrk (New York), Hyde Paʦrk (London), Totaʦl laʦnd: 308,000 hectaʦres Hongʦ Kongʦ aʦnd Luxembourgʦ1 Longʦ term leaʦses14% Laʦnd in owner- Centraʦl Paʦrk (New York) 253 haʦ ship regʦistraʦ- tion 4% Hyde Paʦrk (London) 341 haʦ

Hongʦ Kongʦ 110,400 haʦ

Luxembourgʦ 258,600 haʦ Laʦnd in regʦistered ownership 82% Blaʦck Eaʦrth Faʦrmingʦ 254,000 haʦ

1. On 4 April 2014, the Compaʦny aʦnnounced plaʦns to sell 27,754 hectaʦres of controlled laʦnd aʦnd relaʦted reaʦl estaʦte aʦssets inthe Voronezh regʦion. 2. 12,800 haʦ in Saʦmaʦraʦ is recorded aʦs investment property held for saʦle aʦs of 31 December 2013.

Baʦltic Seaʦ Export Route

Moscow RUSSIA

Lipetsk Taʦmbov

Kursk Voronezh

Blaʦck Seaʦ Export Route

D2: 2013 Revenue by Crop • Maʦjor Producer of Graʦins aʦnd Oilseeds – 230,000 hectaʦres in production Other 4% Soyaʦ5% Wheaʦt33% • Sigʦniﬁ caʦnt Investments into Baʦrley7% Maʦchinery Fleet aʦnd Storaʦgʦe Sugʦaʦr beet8% Infraʦstructure Undertaʦken – Laʦrgʦe staʦte of the aʦrt maʦchinery fleet Oilseed raʦpe9% – 500,000 tons of totaʦl storaʦgʦe caʦpaʦcity1

Corn 12% Sunflower 22%

D3: Haʦrvest Areaʦ, thousaʦnd hectaʦres D4: Commerciaʦl Haʦrvest, thousaʦnd tons 250 900 231 224 222 800 790

200 700 183 180 600 618 150 500 506 499

400 100 300 223 50 200 100

0 0

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 3 2013 in Brief

• Agʦriculturaʦl Commodity Prices drop in 2013 from 2012 higʦhs – Globaʦl aʦnd Russiaʦn production aʦbundaʦnce depress gʦraʦin prices – BEF’s aʦveraʦgʦe blended 2013 crop price decreaʦsed 23% y-o-y

D1: Averaʦgʦe BEF Crop Price (Haʦrvest Yeaʦr), USD*/ton D2: Jaʦnuaʦry 2009–December 2013 Wheaʦt Price Development, USD per ton 350 Averaʦgʦe Crop Price 400 Internaʦtionaʦl (MATIF) Russiaʦn Export (FOB) Ex. Sugʦaʦr Beets Russiaʦn 300 350 Domestic (CBE)

250 300

200 250

150 200

100 150

50 100

0 50

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

• Improvements to Crop Yields, Logʦistics aʦnd Saʦles aʦnd Maʦrketingʦ – Blended aʦveraʦgʦe crop yield excludingʦ sugʦaʦr beets increaʦsed 14% yeaʦr-on-yeaʦr – Record haʦrvest aʦnd saʦles volumes of 789 aʦnd 715 thousaʦnd tons respectively – Chaʦllengʦingʦ haʦrvestingʦ conditions aʦdversely impaʦcted laʦte crop yields aʦnd quaʦlity – Totaʦl costs per ton down –11% y-o-y

D3: Historic Crop Yield Development, tons per hectaʦre D4: 2009–2013 Production, Saʦles aʦnd Inventory, thousaʦnd tons

4.0 Averaʦgʦe Blended Crop Yield 900 Commerciaʦl Haʦrvest End of Period Inventory Ex. Sugʦaʦr Beet & Potaʦto Volumes sold 3.5 800 700 3.0 600 2.5 500 2.0 400 1.5 300

1.0 200

0.5 100

0 0

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 4 • Full Yeaʦr Net Loss of USD* –44.7 million for 2013 – Operaʦtingʦ loss of USD* –29.8 million vs. operaʦtingʦ profit of USD* 18.5 million – Weaʦk result driven by lower prices aʦnd chaʦllengʦingʦ haʦrvest conditions – USD* –7 million loss on saʦle of 2012 caʦrry-over inventory aʦnd USD* –3.8 million foreigʦn exchaʦngʦe loss – Caʦsh flows strongʦer y-o-y on workingʦ caʦpitaʦl releaʦse aʦnd caʦpex discipline – Strongʦ yeaʦr-end 2013 baʦlaʦnce sheet position with USD*35 million net debt

T1: BEF Income Staʦtement in Brief USD1 million 2009 2010 2011 2012 2013 Totaʦl Revenue 75 63 82 208 145 Gross Result (1) 9 3 51 6 EBITDA (26) (11) (13) 37 (11) Operaʦtingʦ Result (38) (27) (27) 18 (30) Net Result (44) (38) (44) 7 (45)

1. All the period ruble vaʦlues converted aʦt the end of the yeaʦr RUR/USD FX raʦte for the respective periods.

• In October 2013 BEF aʦpproaʦched the maʦrket with aʦn off er to reﬁnaʦnce its outstaʦndingʦ Bond – SEK 750 million July 2014 bond reﬁ naʦnced with aʦ new October 2017 bond – Books fully subscribed aʦnd coupon reduced by 60 bps to 9.40% – As of 31 December 2013, BEF held SEK 100 million of bond on baʦlaʦnce sheet

• Proposaʦl of No Dividend for 2013

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 5 CEO Staʦtement

It is very disappointing to be back again reporting heavy high potential. Potatoes again performed well with good losses particularly so when the operational performance yields and quality despite a very diffi cult harvesting period according to our key metrics of blended yield and cost per when many growers failed to lift their crops. ton are an improvement on 2012, which was profi table. The The fi nal result was that 6 out of 9 crops yielded above improvements however fell short of our expectations after the 5 year average with the blended crop yield, excluding a very wet, late and costly harvest and well short of what sugar beet and potatoes, improving 14% over 2012 and 24% would have been required to stay profi table at current prices over the last two years. Importantly, this translated into a as well as to cover losses on sale of 2012 crop inventories and reduction in total costs per ton of –11 % y-o-y but in 2013 this negative FX translation eff ects. Overall prices were down effi ciency enhancement was entirely subsumed by the fall some 23% y-o-y on 2013 crops. Whilst wheat prices in the in prices. central black earth (CBE) region are actually not far from the 5 year averages, sunfl owers, corn and oilseed rape are all 2013 Saʦles aʦnd Maʦrketingʦ more than 20% below the 5 and 10 year average prices and all The graphs on page 4 and page 7 illustrate market prices crops are signifi cantly below the long term trend lines. for crops falling during 2013 in both the international and central black earth region. Russian 2013 grain output is up 2013 Performaʦnce approximately 28% from 2012 with an exportable surplus of Winter wheat and early season spring crops benefi ted from around 20 million tons versus 16 and 28 million tons in 2012 good growing conditions and reasonable harvesting condi- and 2011 respectively. Our eff orts to sell crops forward and tions. Net yields for wheat and barley were 3.3 and 2.6 tons hedge using international futures have to an extent mitigat- per hectare respectively with wheat yields improving by ed the fi nancial impact of low prices. We estimate a positive more than 50% on 2012. Spring oilseed rape however was eff ect of about USD* 4 million from these activities. These aff ected by heavy pest pressure and poor establishment and eff orts thus dampen and reduce the price volatility but can- did relatively badly at 0.9 tons per ha. Wet weather set in not remove it. As of 31 December, the Company had sold 91% towards the end of July in our region and continued until the of 2013 crop harvested, while 20% of sunfl ower, 30% of corn end of September. Rainfall in September was at record levels and 10% of barley was still unpriced. in some of our regions, on average about 90% above the 30 Whilst there are concerns building over dryness in US year average. This caused frustrating delays and had signifi - and political turmoil in Ukraine, international markets cant adverse eff ects on yield of soya and beet in particular. remain relatively bearish. Global stocks are to some extent It also meant that most of our later season crops were har- replenished but increasing demand means that stocks-to- vested at very high moisture levels with higher than normal usage fi gures remain relatively tight as demand keeps pace cost for transportation and drying. Sunfl owers yielded rea- with higher production levels. Whilst it is unclear how 2014 sonably but with wide variances between commercial and prices will develop, the long term prospects remain favora- high oleic varieties. Soya, corn and beet however all came in ble. Domestically, Russian winter cereal planting was down well below expectations at 0.9, 4.3 and 24.3 respectively. Of about 10% versus planned estimates due to heavy rainfall in these crops corn was most disappointing as it looked to have September.

6 FY 2013 Results of USD* –7 million, versus a positive USD* 1 million eff ect Much like 2012 was top line driven, so was 2013, only with from rising prices in 2012. Given the IFRS accounting stand- the price trend in reverse. Although we have increased sales ards of holding both crop in fi eld (biological assets) and crop volumes by 5% in 2013 compared to 2012, market prices for in inventory at fair and net realizable value respectively, our realized sales and inventory valuation in 2013 were signifi - results are derived not only from sales revenue but are also cantly lower than in 2012. Sales of 2012 crop during the 2013 highly impacted by market price developments between calendar year were realized at prices below the year-end the ends of the reporting periods. Total revenue and gains of 2012 inventory value, which caused a 2013 gross profi t loss USD* 144.6 million are down –30% y-o-y from USD* 208.0

D1: Historic Crop Yield Development, tons per hectaʦre D2: 2009–2013 BEF Crop Volume aʦnd Price Development

4.0 Averaʦgʦe Blended Crop Yield 225 Commerciaʦl Haʦrvest (rigʦht), thousaʦnd tons 900 Ex. Sugʦaʦr Beet & Potaʦto Averaʦgʦe Crop Price (left), 3.5 200 USD per ton 800

3.0 175 700 150 600 2.5 125 500 2.0 100 400 1.5 75 300 1.0 50 200

0.5 25 100

0 00

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

D3: 10 Yeaʦr Crop Price Development, D4: Wheaʦt Price Development Oct 2010–Dec 2013, Chicaʦgʦo Futures Prices 2004–2013, % chaʦngʦe USD per ton 450 250% Wheaʦt Corn Maʦize Soybeaʦn Wheaʦt Price, BEF’s Regʦions Wheaʦt Price, Chicaʦgʦo 400 200% 350

150% 300 250 100% 200

50% 150 100 0% 50

–50% 0

2004 05 06 07 08 09 10 11 12 2013 2011 2012 2013 Source: HGCA, IKAR Source: HGCA

T1: Net Crop Yield Development Tons/hectaʦre 2010 2011 2012 2013 % of 2013 aʦreaʦ haʦrvested Winter wheaʦt 1.9 2.4 2.2 3.3 100% Springʦ wheaʦt 1.4 1.6 2.6 1.9 100% Springʦ baʦrley 1.4 1.9 2.4 2.6 100% Corn maʦize 0.7 4.9 5.1 4.3 100%1 Springʦ raʦpe 0.6 1.1 1.2 0.9 100% Sunflower 0.8 2.0 1.9 2.0 100% Soyaʦ 0.3 0.9 1.2 0.9 100% Sugʦaʦr beet n/aʦ 25.6 25.3 24.3 100% Potaʦto 33.2 33.9 100% 1. By the end of haʦrvest, Februaʦry 2014

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 7 million in 2012, mainly due to the drop in prices of 23% for 2014 Plaʦns 2013 crops. The average blended price, excluding beet and Whilst I am of course sensitive to the impact of the 2013 potatoes, was USD* 220 compared with USD* 263 in 2012, result, I believe we need to stay committed to our plan of down –16% y-o-y. For 2013 harvested crops, we obtained pushing hard at yield improvements and so at reductions in a gain on revaluation per ton of USD* 15.7 vs USD* 113.0 cost per ton. There are a host of improvements planned for in 2012, down 86% y-o-y. For 2013 crop the total operating 2014 to drive this forward. The core business will remain costs per hectare were up circa 15% y-o-y. Approximately volatile and our strategy has to remain one of generating 40% of that increase was driven by our strategy of more returns at low prices through production improvements and intensive cropping with a higher share of sugar beet and effi ciencies. Our priorities over the last two years have been potatoes in the crop mix. Other important cost drivers were to remove yield constraints as well as market our produce seeds, increased liming to raise soil ph as well as transporta- and manage risk more eff ectively. For 2014 we have reas- tion, due to challenging harvesting conditions. Distribution sessed cropping plans to concentrate on what, historically, expenses were up 44% y-o-y on a 40% growth in export vol- has been more profi table crops as well overhauled capacities umes, with related expenses to reach international counter- and planning. These eff orts continue but the notable changes parties and capture additional export margins. planned for 2014 will likely be benefi cial land transactions 12m 2013 operating cash fl ow before working capital and judicious cost reductions. The recent divestment of land decreased from USD* 19.0 million in 2012 to USD* 7.1 mil- and real estate assets from our Ostrogozhsk and Podgornoye lion, but improved from USD* 8.6 million to USD* 12.6 units in Voronezh is part of our plans to optimise our land million after working capital changes, partly due to lower bank and profi tability. There will also be a large increase in investment in 2014 winter crops. Total capital expenditure our potato enterprise, which plans to quadruple in area. of USD* 12.1 million, including USD* 3.4 million of investment into the root crop business, is below historic levels. Summaʦry aʦnd Outlook We successfully completed the issue of a new four year SEK 2013 was a disappointment and a stark lesson on where we 750 million bond, pushing out our debt maturity to 30 Octo- are on the path of turning the business around. The yields ber 2017 from 1 July 2014. Our cash position at the end of were too low, the costs were too high and the diversifi ca- the year was USD* 64.9 million (versus USD* 80 million in tion into irrigated potatoes not signifi cant enough to come 2012), or USD* 80 million if the amount of our bond held by close to mitigating a low price year. Whilst I am mindful of the Company is considered. Our cash position, therefore, the historical results of the business, the board and I remain remains strong. committed to our three-pronged strategy of core business turnaround, business diversifi cation into irrigated root 2014 Crop crops and land portfolio optimization. Certainly, we need Early drilled winter wheat established well. The very wet to be more ruthless with regard to overheads and land port- September meant that seeding was possible up until mid- folio but the underlying trends are coming through and the September and then again only after the fi rst week in Octo- diversifi cation into irrigated root cropping performing well ber. We took the decision not to resume drilling in October and gathering pace. We reiterate our opinion that there is as this was considered unlikely to result in profi table crops signifi cant scope to improve yields, albeit these improve- and we re-planned for greater areas of spring crops instead. ments will take some time. We continue to strongly believe Although most central region crops were under good snow that root crop vegetables can off er the business great poten- cover the weather was extremely cold in the last week of tial to scale up signifi cantly and profi tably. January. Unplanted winter wheat hectares are planned to be 2013 delivered a very disappointing set of fi nancials and replaced with corn and sunfl owers in 2014. Land after 2013 represents a setback, but we must focus on the underlying sugar beet will be mostly fallowed. trends and be resolute and determined about accelerating the improvements.

Richard Warburton CEO and President Black Earth Farming Ltd 11 April 2014

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 8 This is Blaʦck Eaʦrth Faʦrmingʦ

Blaʦck Eaʦrth Faʦrmingʦ (“BEF”) waʦs estaʦblished in 2005 Crop Production aʦnd waʦs aʦmongʦ the first foreigʦn-fi naʦnced compaʦnies The farmland acquired had been laying fallow for many thaʦt undertook consideraʦble investments in the Rus- years and could not be put into production immediately. siaʦn aʦgʦriculturaʦl sector. The Compaʦny holds ownership The Company fi rst had to take extensive actions to restore of aʦn extensive laʦnd baʦnk of rst fi claʦss soil in severaʦl and improve the condition of the land. The methodology, Russiaʦn regʦions aʦnd is aʦ maʦjor producer of gʦraʦins aʦnd which is extensive and resource consuming, included sev- oilseeds. BEF’s focus is on increaʦsingʦ the productivity eral steps such as disc tilling and fi eld levelling. When the of its current aʦsset baʦse to become the best-in-claʦss fallow had been broken and the fi elds restored to cropping aʦgʦro industriaʦl compaʦny in terms of costs aʦnd operaʦt- condition, the focus shifted to raising crop yields and imple- ingʦ effi ciency. As of 31 December 2013 BEF haʦd 308,000 menting operational improvements. Since inception over hectaʦres under control of which 82% is fully owned with 260 thousand hectares have been taken out of long term fal- over 230,000 hectaʦres in production1. low and are in cultivation. The continental inland climate in the central Black Earth Region of Russia, where the com- Laʦnd Ownership pany operates, has a crop growing season of approximately Agricultural land in Russia is usually comprised of a number 120–170 days which can be compared to 250 days in the UK of farm lots and can be classifi ed as state, municipal or private which has a maritime climate and is in proximity to the gulf property. With the reorganization of the Russian Kolkhozes stream. This allows for one harvest each year starting in July or collective farms, the former employees obtained a part through October–November depending on crop. Diff erent of the agricultural land in common. Black Earth Farming’s seasonal classes of crops such as winter and spring crops are approach has mainly been directed towards acquisition of used to spread the planting and preparation periods, as well privatized collective farms owned by a group of natural per- as harvesting work. sons. Freehold ownership of land plots and lease rights are held via several diff erent Russian subsidiaries, all of which Orgʦaʦnisaʦtion are 100% controlled by Black Earth Farming. The Black Earth Farming Group consists of the parent Com- The near term focus is not on signifi cant expansion of pany Black Earth Farming Limited, a limited liability com- the land portfolio, but on fi nalizing the ownership registra- pany incorporated in Jersey, Channel Islands, on 20 April tion process and improving productivity of the current land 2005. Black Earth Farming Limited is the holding company bank. Russian agricultural land is in the Company’s view for a number of legal entities established under the legisla- still undervalued, both in terms of comparison with land tion of Cyprus and the Russian Federation. Those entities of similar quality in other countries and also in relation to together are referred to as the Black Earth Farming “Group”. its inherent production potential, especially in the fertile The organization of Russian subsidiaries goes by the joint Black Earth Region. name of Agro-Invest headquartered in Moscow, where the

Blaʦck Eaʦrth Faʦrmingʦ Mile Stones

June 2010 December 2012 Maʦrch 2006 Outstaʦndingʦ Successful SEK October 2013 Shaʦre issue of June 2009 EUR 55 million 530 million SEK 750 mln USD 45 million Chaʦngʦed listingʦ 13% bond is rigʦhts issue to 14 June 10% bond Augʦust 2005 November 2006 Augʦust 2007 to Naʦsdaʦq OMX reﬁ naʦnced with 2011 fund PepsiCo reﬁ naʦnced with Shaʦre issue of Shaʦre issue of Shaʦre issue of Stockholm Mid Caʦp SEK 750 million Over 230,000 investment aʦnd SEK 750 mln 17 Oct USD 7 million USD 70 million USD 40 million from First North 10% bond hectaʦres haʦrvested workingʦ caʦpitaʦl 2017 9.4% bond

April 2005 2006 Maʦrch 2007 December 2010 October 2012 2012 The Compaʦny is First laʦnd Bond issue of 250,000 Straʦtegʦic First full founded ownership EUR 55 million hectaʦres in cooperaʦtion yeaʦr profi t certifi caʦte Autumn 2005 December 2007 full ownership aʦgʦreement of USD* 7.2 The Compaʦny obtaʦined IPO on OMX sigʦned with million for obtaʦins control of its First North aʦnd PepsiCo 2012 fi rst faʦrmlaʦnd Shaʦre issue of SEK 1,920 million

9 company retains some central service functions. The big- The Company raised initial funding from the family gest offi ce, however, is in Voronezh, close to key operations. backed Swedish investment companies Vostok Nafta and Black Earth Farming had a total of 2,043 employees as at 31 Kinnevik. Kinnevik still remains as a major shareholder to December 2013 compared with 2,067 in 2012. date. Following several private placements and a bond issue to fund the expansion of the Company’s land bank, BEF suc- History cessfully completed an IPO on 28 December 2007. Shares Black Earth Farming was established in 2005 and was were listed in the form of Swedish Depository Receipts, among the fi rst foreign-fi nanced companies that undertook on the OMX First North exchange in Stockholm and raised considerable investments into the Russian agricultural sec- SEK 1,920 million, approximately USD 250 million. On 22 tor. The Company has established a signifi cant presence in June 2009 the Company changed listing to NASDAQ OMX the regions of Kursk, Tambov, Lipetsk and Voronezh regions Stockholm where the shares are currently listed under the in the central “Black Earth” area of Russia. During the fi rst ticker BEF SDB. Signifi cant investments in a large mod- years the Company was focused on acquiring and obtaining ern machinery fl eet and storage infrastructure have been full free hold ownership to agricultural land. In 2006 Black undertaken since then to expand the area under produc- Earth Farming received its fi rst fully registered land owner- tion as well as to secure internal storage and grain handling ship certifi cates which was a signifi cant milestone as it con- capacity. In October 2012 the Company signed a 3 year stra- fi rmed that the land acquisition process was consistent with tegic cooperation agreement with PepsiCo in Russia to sup- Russian legislation and worked in practice. The Company ply potatoes and sunfl owers for Lay’s crisps as well as sugar is now at the fi nal stage in the process of registering land for other various PepsiCo products. To fund the investments into ownership and is focused on raising the productivity of needed to expand potato and sugar beet production under the current asset base. As of 31 December 2013, Black Earth the PepsiCo agreement a SEK 530 million rights issue was Farming controlled 308,000 hectares of land, correspond- successfully completed in December 2012. In October 2013, ing to an area about the size of Luxembourg, with 254,000 Black Earth Farming approached the market with an off er to hectares in ownership and 44,547 hectares in longer term refi nance its July 2014 bond with a new October 2017 bond. leases1. Books were fully subscribed and the coupon was reduced from 10% to 9.40%. As of December 31, the Company held SEK 100 million as treasury bonds on its balance sheet.

Blaʦck Eaʦrth Faʦrmingʦ Boaʦrd of Directors Audit Operaʦtions Committee Committee

CEO Legʦaʦl Procurement IT Saʦles aʦnd Maʦrketingʦ Government Relaʦtions Finaʦnce Security Humaʦn Resources COO

Regʦionaʦl Production Regʦionaʦl Production Regʦionaʦl Production Regʦionaʦl Production Director Director Director Director Lipetsk Kursk Voronezh1 Taʦmbov (64,000 haʦ in production) (72,700 haʦ in production) (52,000 haʦ in production) (42,200 haʦ in production)

Faʦrm Faʦrm Faʦrm Faʦrm Faʦrm Faʦrm Faʦrm Faʦrm

10 Laʦnd Ownership Productivity Enhaʦncement Best Praʦctice Faʦrmingʦ Operaʦtions

BUSINESS CONCEPT, VISION, STRATEGY Revenue Risk Management: The farming business has inher- Business concept ent weather induced volatility relating to crop volumes Black Earth Farming’s business concept is to acquire owner- and prices which have a substantial eff ect on revenue and ship, raise productivity and farm agricultural assets in Rus- profi tability. BEF aims to manage these risks to the furthest sia, primarily in the Black Earth Region. extent possible. Actions include improving crop management and diversifying production towards higher value Vision crops grown on contract, as well insuring against extreme Black Earth Farming seeks to create shareholder value by weather events. Physical forward sales and long term pric- developing its assets and operations to generate profi tability ing via domestic and international customer relationships and returns on capital, with the long term vision to develop as well as fi nancial instruments are used to manage price into a leading and diversifi ed agricultural company. volatility.

Straʦtegʦy Optimal Cost Structure: As a commodity producer and price BEF’s initial strategy was to acquire ownership of a vast taker focus is on obtaining the lowest unit cost possible in land area as well as invest in internal machinery and storage order to be price competitive. This involves setting the opti- capacity for production of grains and oilseeds. With a strong mum direct cost per hectare in terms of input applications asset base secured the focus has shifted towards lifting the versus expected volumes to reduce the unit cost of produc- operating performance and productivity as well as reduction and maximize proﬁ tability per hectare. ing revenue risk, improving logistics and optimizing costs. A larger share of higher value crops is targeted in order to Economies of scale: To create logistical effi ciencies and other improve returns on capital, grow revenues and reduce vola- synergies the Company has formed and consolidated sever- tility. This includes: al production clusters within its controlled land bank, each being run by professional management with support and Land Ownership: Free hold ownership rights to agricultural direction from the central organization. The cluster model land has been secured at a relatively low cost per hectare by optimizes the utilisation of resources as land areas are con- international comparisons and relative to the inherent pro- solidated around local storage facilities and machinery hubs. duction potential. The process of ownership registration in The central organization coordinates investments, policies Russia has been complicated and lengthy but the near term and procurement. focus is on ﬁ nalizing the process and consolidating land blocks in areas with the highest production potential.

Best practice & technology: Black Earth Farming seeks to signiﬁ cantly increase productivity by introducing modern agricultural farming practices. The Company hires internationally experienced expertise and adopts effi cient farming methods supported by robust underlying science. An exclu- sive partnership with a technical agronomic business is retained to utilize the best advice on all aspects of soil management, crop variety selection, crop nutrition and crop pro- tection. This includes securing and examining data, either from internal trials or other sources, as well as the training and education of staff to ensure proper implementation.

11 BEF’s Business Model

CROP PRODUCTION

Laʦnd Ownership Input/Maʦchinery Procurement Field Works aʦnd Haʦrvestingʦ

Laʦnd Ownership1 Input/Maʦchinery Procurement Field Works aʦnd Haʦrvestingʦ A key paʦrt of the initiaʦl straʦtegʦy haʦs been to secure Eaʦch production cluster is supported by the Blaʦck Eaʦrth Faʦrmingʦ’s crop production is focused ownership rigʦhts to the criticaʦl aʦsset; higʦh quaʦl- centraʦl orgʦaʦnizaʦtion in terms of procurement on aʦpplyingʦ scientifi c faʦrmingʦ techniques aʦnd ity faʦrmlaʦnd. As of 31 December 2013, Blaʦck Eaʦrth of the maʦjor input items aʦs well aʦs expendi- maʦnaʦgʦement with the aʦim of gʦeneraʦtingʦ higʦh Faʦrmingʦ held 254 thousaʦnd hectaʦres of laʦnd in full tures on equipment aʦnd maʦintenaʦnce. The yields of gʦood quaʦlity aʦt low costs gʦiven certaʦin ownership, 82% of the totaʦl controlled laʦnd baʦnk centraʦl orgʦaʦnizaʦtion coordinaʦtes invest- externaʦl conditions such aʦs soil quaʦlity aʦnd cli- of 308 thousaʦnd hectaʦres1. Of the fully owned aʦnd ments aʦnd purchaʦses to benefi t from scaʦle maʦtic zone. The choice of which specifi c crops to regʦistered laʦnd, 238 thousaʦnd hectaʦres waʦs held discounts aʦnd contraʦct terms. The industries gʦrow is gʦoverned by expected profi taʦbility aʦs well aʦt aʦn aʦcquisition cost of USD* 52.6 million, with 16 in eaʦch sub-caʦtegʦory of maʦjor inputs aʦre aʦs operaʦtionaʦl faʦctors, such aʦs crop rotaʦtion needs, thousaʦnd hectaʦres held aʦs investment property aʦt gʦeneraʦlly higʦhly consolidaʦted with aʦ limited maʦximum utilizaʦtion of maʦchinery, weaʦther aʦnd faʦir vaʦlue of USD* 4.3 million. The laʦnd investment number of suppliers thus the compaʦny haʦs climaʦtic conditions aʦs well aʦs haʦrvest aʦnd seedingʦ per hectaʦre is low by internaʦtionaʦl staʦndaʦrds. Recent limited power to influence purchaʦsingʦ prices periods. Improvingʦ crop yield performaʦnce is aʦ key Russiaʦn faʦrm laʦnd traʦnsaʦctions sugʦgʦest thaʦt there for e.gʦ. fertilizers aʦnd fuel. focus aʦreaʦ gʦoingʦ forwaʦrd which includes severaʦl haʦs been sigʦnifi caʦnt aʦppreciaʦtion of laʦnd vaʦlues in key initiaʦtives. Logʦistics is aʦlso very importaʦnt with BEF’s regʦions. The current neaʦr term focus is however short seaʦsonaʦl timefraʦmes for when cultivaʦtion, not on sigʦnifi caʦnt expaʦnsion of the laʦnd portfolio, but plaʦntingʦ, input aʦpplicaʦtion aʦnd haʦrvestingʦ need to on improvingʦ crop production yields, increaʦsingʦ effi- be executed over vaʦst aʦreaʦs. ciencies aʦs well aʦs optimizingʦ aʦnd consolidaʦtingʦ the laʦnd baʦnk.

D1: December 2006–December 2013 D2: Production Cost Breaʦkdown, D3: Crop Areaʦ, thousaʦnd hectaʦres Laʦnd Development1, thousaʦnd hectaʦres 2013 production yeaʦr 350 Laʦbor3% Other 1% 250 300 Fertilizers Fuel 11% 200 231 222 224 250 28% 3rd paʦrty 183 180 200 services 150 12% 150 100 100 50 50 0 0 Dec Dec Dec Dec Dec Dec Dec Dec Agʦ 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 Chemi- Seeds 21% caʦls 24% D4: Historic Crop Yield Development, Ownership Regʦistraʦtion Process tons per hectaʦre Leaʦse Averaʦgʦe Blended Crop Yield 4 Ex. Sugʦaʦr Beet & Potaʦto

0 2009 2010 2011 2012 2013

Revenue - Rigʦht aʦmount aʦnd quaʦlity of inputs aʦre cruciaʦl - Haʦrvest aʦreaʦ drivers faʦctors aʦff ectingʦ crop yields - Crop yield (weaʦther) - Crop mix for plaʦnted aʦreaʦ - Crop yield (timely aʦnd optimaʦl input - Quaʦlity of inputs aʦff ectingʦ crop quaʦlity aʦnd price aʦpplicaʦtion aʦnd decision maʦkingʦ) per ton

Cost - Fertilizer, seeds, herbicides aʦnd fuel aʦre maʦjor - Applicaʦtion raʦte of inputs drivers direct cost components - Caʦpitaʦl costs (effi cient maʦchinery utilizaʦtion) - Unit costs aʦre inversely relaʦted to crop yields - Fuel - Caʦpitaʦl costs (depreciaʦtion) aʦs the Compaʦny owns the entire maʦchinery fleet aʦnd storaʦgʦe infraʦstructure 1. On 4 April 2014, the Compaʦny aʦnnounced plaʦns to sell 27,754 hectaʦres of controlled laʦnd aʦnd relaʦted reaʦl estaʦte aʦssets in the Voronezh regʦion. Refer aʦlso to note 36tothe fi naʦnciaʦl staʦtements on Subsequent events * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 12 Processingʦ (Oils, Flour etc.)

Livestock (Animaʦl Crop Haʦndlingʦ aʦnd Saʦles aʦnd Maʦrketingʦ fodder) Storaʦgʦe Logʦistics

Crop Haʦndingʦ aʦnd Storaʦgʦe Logʦistics Saʦles aʦnd Maʦrketingʦ After crops aʦre haʦrvested, they aʦre traʦnsported to Blaʦck Eaʦrth Faʦrmingʦ sells its products both domesticaʦlly in Russiaʦ aʦnd storaʦgʦe aʦnd dryingʦ faʦcilities such aʦs elevaʦtors oron- viaʦ exports to internaʦtionaʦl customers. The list of customers vaʦries from faʦrm storaʦgʦe sites. The logʦistics involved in crop haʦn- laʦrgʦe internaʦtionaʦl compaʦnies with locaʦl production in Russiaʦ e.gʦ. Pep- dlingʦ aʦnd storaʦgʦe is criticaʦl to minimize quaʦlity issues siCo aʦnd laʦrgʦe breweries to oil crushers, flour mills, livestock producers aʦs well aʦs to prolongʦ the haʦrvest period. The Russiaʦn aʦs well aʦs laʦrgʦe internaʦtionaʦl gʦraʦin traʦders. In the paʦst, saʦles haʦvebeen aʦgʦriculturaʦl sector erssuff from aʦ defi cit of aʦgʦriculturaʦl conducted on aʦn ex-works baʦsis, i.e. the buyer collects aʦt the Compaʦ- infraʦstructure such aʦs elevaʦtor storaʦgʦe caʦpaʦcity. Fur- ny’s faʦrm gʦaʦte. With the raʦmp up of elevaʦtor caʦpaʦcity, aʦll with direct raʦil thermore, crop prices aʦre influenced by seaʦsonaʦlity aʦccess, the price per ton received haʦs improved. Contraʦct terms includ- aʦnd Russiaʦn domestic prices tend to be aʦt their low- ingʦ loaʦdingʦ, traʦnsport aʦnd delivery to buyer caʦn be included in the price est duringʦ the peaʦk haʦrvest period aʦs faʦrmers without aʦs well aʦs providingʦ aʦccess to export maʦrkets which gʦeneraʦlly commaʦnd aʦccess to storaʦgʦe faʦcilities must sell their gʦraʦin imme- aʦ net baʦck price premium. This is cruciaʦl not only for sellingʦ aʦt higʦher diaʦtely, thereby substaʦntiaʦlly increaʦsingʦ supply. prices but aʦlso for maʦnaʦgʦingʦ price risk viaʦ forwaʦrd saʦles, gʦiven thegʦen- eraʦl laʦck of aʦ domestic futures maʦrket due to the low trust aʦmongʦ coun- terpaʦrties. It aʦlso faʦcilitaʦtes consolidaʦtion of laʦrgʦer volumes of crops with specifi c quaʦlities enaʦblingʦ paʦrticipaʦtion in laʦrgʦer aʦnd better priced con- traʦcts. In the 2013 finaʦnciaʦl yeaʦr, aʦpproximaʦtely 20% of saʦles volumes were exported. In December 2013, the Compaʦny estaʦblished Blaʦck Eaʦrth Traʦdingʦ Internaʦtionaʦl Ltd. in Guernsey, aʦ fully owned subsidiaʦry, to faʦcili- taʦte export saʦles aʦnd support internaʦtionaʦl customer relaʦtionships.

D5: Distribution Expenses Breaʦkdown, D6: Wheaʦt Price Development Oct 2010–Dec 2013, USD per ton USD* per ton sold 450 Wheaʦt Price, BEF’s Regʦions Depreciaʦtion Storaʦgʦe & Haʦndlingʦ 400 Wheaʦt Price, Chicaʦgʦo 25 Traʦnsport 350 300 20 250 200 15 150 10 100 50 5 0 2011 2012 2013 0 , USD per ton 2009 2010 2011 2012 2013 D7: BEF Crop Cost Vaʦlue Chaʦin 350 Export Price incl. Traʦnshipment (CIF) 300

250 Export Price (FOB) 200 Domestic Price (ExW)

150 100 50 0 BEF Raʦil Port Traʦders’ Shippingʦ Cost of Traʦnsport Loaʦdingʦ Maʦrgʦin Fee Production Cost Fee

- Price (flexible timingʦ of saʦles) - Price (domestic aʦnd internaʦtionaʦl supply/demaʦnd baʦlaʦnces) Revenue - Price (quaʦlity of crop inventory) - Price (regʦionaʦl/internaʦtionaʦl price premiums) drivers

- Distribution expenses (storaʦgʦe) - Distribution expenses (traʦnsport) Cost - Internaʦl logʦistics aʦnd haʦndlingʦ to secure crop quaʦlity drivers - Caʦpitaʦl costs (depreciaʦtion) aʦs the Compaʦny owns aʦll storaʦgʦe faʦcilities

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 13 Maʦrket/Industry Overview

LONG TERM DRIVERS OF AGRICULTURAL COMMODITY MARKETS The Food aʦnd Agʦriculture Orgʦaʦnizaʦtion of the United Naʦtions (FAO) expects prices of aʦgʦriculturaʦl commodities to trend upwaʦrds over the next 10 yeaʦrs aʦnd to remaʦin on aʦ higʦher plaʦteaʦu underpinned by continuingʦ strongʦ demaʦnd, supply constraʦints aʦnd risingʦ costs of inputs. A key issue faʦcingʦ gʦlobaʦl aʦgʦriculture is how to increaʦse productivity in aʦ sustaʦinaʦble waʦy to meet the risingʦ demaʦnd for food, feed aʦnd fuel. Emergʦingʦ economies aʦre the maʦin driver of demaʦnd gʦrowth but will aʦlso caʦpture aʦn increaʦsingʦ shaʦre of the expaʦndingʦ world traʦde in aʦgʦriculture aʦsthese regʦions provide the maʦin source of future gʦlobaʦl production gʦrowth.

D1: 10 Yeaʦr Crop Price Development, Chicaʦgʦo Futures Prices 2004–2013, % 250% CBOT Wheaʦt CBOT Corn Maʦize CBOT Soybeaʦn

200%

150%

100%

50%

–50% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: HGCA

Over the past decade, global food prices have demonstrated Increaʦsingʦ World Populaʦtion aʦnd Disposaʦble Incomes signifi cant growth. Over 2003-13, the average consumer’s The world’s population is partway through a signifi cant food basket has more than doubled which is equivalent to an expansion. According to the UN, the total number of people 8% average annual price increase. As the global population on the planet has risen from 1.6 billion n 1900 to 6.9 billion is growing and becoming wealthier, agricultural production currently, and is expected to reach 9.3 billion by 2050. An assets, such as food and water, are becoming more challeng- additional 680 million people are expected to inhabit the ing and expensive to access. Agricultural production needs planet by 2021 with the fastest population growth rates to increase by more than 60% over the next 40 years to meet expected in Africa and India. Although the growth rate is the rising demand for food according to the FAO. This trans- declining, rising incomes and increased urbanization have lates into an additional 1 billion tons of cereals and 200 mil- started to lead to changes in dietary habits, which shifts lion tons of meat a year by 2050 compared with levels pro- consumption towards more processed foods, fats and ani- duced during 2005–2007. Additional production will also mal protein. This also drives the indirect demand for coarse be necessary to supply expanding biofuel production. As a grains and oilseeds used as livestock feed as only 10–15% of result global demand for agricultural commodities could sig- the energy contained in feed is transferred to humans via nifi cantly outstrip supply over the next several decades. meat consumption. People who earn less than USD 6,000 per year, and whose participation in global consumption has

14 so far been quite limited, still represent the majority of the D2: FAO 2050 cereaʦls production scenaʦrio, billion tonnes global population. This group is however expected to double 4 over the next decade. At the same time the global urbanization trend reduces both agricultural land and the eligible work force as people move into expanding cities. 3

Expaʦndingʦ Biofuel sector Demaʦndingʦ aʦ Laʦrgʦer Shaʦre of Crop Production 2 While only an emerging sector in 2008, biofuels have become an important part of the global agricultural balance sheet over recent years. According to the OECD, some 65% 1 of EU vegetable oil, 50% of Brazilian sugarcane, and about 40% of US corn were used to produce biofuels in 2012. By 0 2021, the OECD estimates that 14% of global coarse grains, 2011 World Additionaʦl Additionaʦl Graʦin 34% of global sugar cane and 16% of global vegetable oils will Graʦin production production from production Production from laʦnd productivity required in be used to produce ethanol and biodiesel. The increase from Source: FAO expaʦnsion improvements 2050 current levels implies that global agricultural area would have to increase by 21 million hectares just for these needs.

Resource Constraʦints to Laʦnd aʦnd Waʦter Globally, the scope for area expansion is limited. Approxi- D3: Globaʦl feedstock used for biofuel production, % mately 38% of the earth’s total land surface is currently used for agriculture and only 11% is classiﬁ ed as arable land. Arable 40% 2007–2009 2019E land per capita has consistently been decreasing and practi- 35% cally halved over the past 50 years on the back of population growth, climate change and urbanization. FAO expects total 30% arable land to increase by only 69 million hectares (less than 25% 5%) by 2050. Some 25% of all agricultural land is also highly 20% degraded and water scarcity in agriculture is already a fact for many countries. In 2010, some 3.1 trillion cubic meters of 15% water was used for agricultural purposes globally, or roughly 10% 70% of total water extraction. Constrained water availabil- 5% ity is becoming a major obstacle for further intensiﬁ cation of crop production. Global Water Intelligence forecasts that 0% by 2030, fresh water demand from agriculture could reach Sugʦaʦr Molaʦsses Vegʦetaʦ- Coaʦrse Sugʦaʦr Wheaʦt caʦne ble gʦraʦin beet 4.5 trillion cubic meters, which is higher than the total Source: OECD supplies currently available, including surface water and groundwater.

Energʦy aʦnd input price inflaʦtion Global agriculture has also become increasingly linked to D4: Globaʦl aʦraʦble laʦnd per caʦpitaʦ 1961–2009 energy markets. Higher oil prices are a fundamental factor behind higher agricultural commodity prices, aff ecting not 1,425 Totaʦl aʦraʦble laʦnd, mln haʦ 0.42 only oil-related costs of production such as fuel, fertilizer Araʦble laʦnd per caʦpitaʦ, haʦ (rhs) and agricultural chemicals, but also increasing the demand 1,400 0.38 for biofuels and the agricultural feedstocks used in their production. FAO estimates that the eff ect of a 25% drop in 1,375 0.34 the price of crude oil would lead to a 12–15% reduction in fertilizer and ethanol prices while grain and oilseed prices 1,350 0.30 would fall by 3–5%. 1,325 0.26

Emergʦingʦ Economies to Drive Demaʦnd 1,300 0.22 aʦnd Provide Incrementaʦl Supply The major demand drivers for agricultural commodity prod- 1,275 0.18 ucts are concentrated to developments in emerging mar- 1961 1967 1973 1979 1985 1991 1997 2003 2009 kets. Globally, the number of people with annual incomes Source: FAO, Sberbaʦnk Investment Reseaʦrch

15 Overview of Internaʦtionaʦl Traʦde in Graʦins aʦnd Oilseeds

5% 8% 10%

14% 9%

23% 33% 6% 5% 2% 59% 11% 8%

4% 3%

9% 5%

9% 34%

11% 10%

MAJOR EXPORTER MAJOR IMPORTER Shaʦre of gʦlobaʦl exports: Shaʦre of gʦlobaʦl imports: Oil- Oil- Graʦin seeds Graʦin seeds

Source: USDA

D5: Shaʦre of totaʦl expenditures spent on food, % D6: Shaʦre of imports in Russiaʦn consumption of selected aʦgʦriculturaʦl products 2011, % 40% 50%

40% 30%

30%

20%

10% 10%

0% 0%

Poultry Pork Butter Beef Cheese UK Indiaʦ Itaʦly USA Russiaʦ Braʦzil Spaʦin Source: USDA Ukraʦine Fraʦnce Germaʦny Source: Euromonitor

16 in excess of USD 6,000 is set to more than double over the of the world’s sunfl ower seed, which is why they are often next 20 years, adding 2.7 billion people to the consumer referred to as the “sunfl ower triangle”. Canada dominates middle classes. More than 90% of this increase – around 2.6 the export markets for rapeseed/canola with 64% of ship- billion people – is expected to come from emerging markets, ments, while the EU and China represent 50% of imports. of which 1.8 billion in Brazil, China, India and Russia. China Rising demand for biofuels and vegetable oils on the back of is already the dominant importer of oilseeds accounting for higher energy prices have given support to oilseed markets almost 60% of global imports. Likewise developing coun- and price trends in general. tries in Africa, Asia and Middle East are the major importers of grains. All of these regions driving incremental demand Russiaʦ have limited land and water resources to supply their Wheat normally represents 60–70% of total Russian grain increasing populations. production yet the sources of use for wheat in Russia is Additional agricultural production will need to come diff erent from international standards, as 40% is used for from increased productivity in the same way as it has for human food consumption compared to 70% globally. Feed the past 50 years. Productivity gains in the medium-term use for animal fodder in addition to seed retention for the needs to come primarily from reducing the productivity following year’s planting represents a much larger share gap in developing countries with suffi cient resources. Based of wheat consumption in Russia compared to the global on their greater potential to increase land devoted to agri- average. culture and to improve productivity, developing countries Despite challenging weather conditions, Russian har- will provide the main source of global production growth vest volumes in 2013 were 91.3 million tons of grains, up to 2021. Annual production growth in developing countries 29% y-o-y from 2012. Russian exports of approximately 23 is projected by FAO to average 1.9% per annum compared to million tons of grains are expected for the 2013/14 market- 1.2% in developed countries in the coming years. ing year, which ends in June, up 32% y-o-y from the export volumes in 2012/13. Russia is a key source of supply for the Globaʦl Graʦin Production major importers in Northern Africa and the Middle East Grains include the staple crops wheat, rice and corn maize, accounting for an approximate 15% of total wheat exports which account for about half of the world’s calorie intake. in a normal year. Russian domestic crop prices in central Global grain production increased by 9.7% y-o-y to 1,964 regions were signifi cantly lower in 2013 as compared to million tons in 2013/14, which makes it the largest harvest 2012. Over December 2012/13, wheat prices in the Central on record. Global carryover stocks will also rise signifi cantly Black Earth region were down on average 33% y-o-y on the in 2013/14 to an estimated 387 million tons. Ending grain back of strong high 2013/14 harvest production volumes. stocks for the world’s top exporting countries is at the highest levels since 2007/08 and implies about 40% increase WTO Accession from last year. In late August 2012, after almost two decades of nego- Wheat is the most important crop among grains in terms tiations, Russia was formally admitted as a member to the of area planted and global trade. It is also one of Black Earth World Trade Organization. The largest impact for the agri- Farming’s largest crops by volume and revenue. The fact cultural sector is likely to relate to reductions in current that only 20% and 11% of global wheat and corn production import restrictions and tariff s for meat, especially pork pro- respectively is traded internationally and that the 5 top duction, which will aff ect domestic producers negatively. exporters account for over 65% of total exports has great Russia has also agreed to decrease its export tariff s on most consequences for international prices when a supply shock oilseed crops. The duty on sunfl ower seeds should gradu- aff ects one of the key producing countries. ally be decreased from 20% to 6.5% over the course of four years, from 15.0% to 6.5% for rapeseed and from 20% to 0% Internaʦtionaʦl Oilseed Maʦrkets for soybean. A fi rst sign of reduced trade restrictions was Oilseed crops are the second most important source of ener- evident in 2012/13 as no levies were introduced for interna- gy in food and feed after grains. They are also recognized as a tional grain shipments despite the fact that Russia’s total signifi cant source for production of biofuels. Sunfl ower and wheat production of 38 million tons in 2012 was 9% lower soy represent 9% and 14% in the total global production mix than the drought struck harvest of 2010 when an export ban of oilseeds respectively, and are Black Earth Farming’s main was imposed. In March 2014, sanctions were imposed by oilseed crops. Soybean remains the dominant crop globally the US and EU on certain Russian offi cials, businessmen and representing 55% of total oilseed production. For soy, China companies. It is unclear if these actions could aff ect Russia’s is the major buyer, representing some 59% of total imports, commitment to further WTO integration. while exports are dominated by the US, Brazil and Argen- tina. Russia, Ukraine and Argentina are the main producers 2014 Outlook of sunfl ower seed and sunfl ower by-products and these pro- 2013 was a year of record planted areas and relatively benign ducer countries are also the key suppliers to international weather, resulting in all-time high production levels glo- markets. Russia, Ukraine and Argentina produce over 50% bally. This resulted in signifi cantly lower prices. The picture

17 in Russia was one of a crop of 91 million tons, 29% higher result, there is an expectation of less wheat but also for a than the previous year, and exports of 23 million tons. Cen- production increase in corn and oilseeds. Whilst the long tral Black Earth prices were down nearly 30% y-o-y and sun- term fundamental factors supporting increasing soft com- fl owers, corn and oilseed rape prices were all circa 25% below modity prices remain intact and there are some concerns their respective 5 year averages. relating to 2014, it is too early to make any predictions on Prices have improved slightly going into 2014. Stock to 2014 prices. use ratios tightened at the end of 2013, notably for oilseeds. In March 2014, sanctions were imposed by the US and EU Concerns for cold weather in North America followed by on certain Russian offi cials, businessmen and companies. early drought in the US plains and parts of Europe have also These actions, particularly if further extended, may result supported this modest recovery in prices. Concerns sur- in reduced access of the Russian businesses to internation- rounding the crisis in Ukraine and its eff ect on plantings al capital and export markets, capital fl ight, weakening of and credit for inputs have also had some eff ect on prices. the Ruble and other negative economic consequences. The Russia has planted about 10% less winter crop hectares impact of these developments on the future operations and than in the previous year. Record spring plantings and good fi nancial position of the Company is at this stage diffi cult to conditions will be required to match the 2013 season. As a determine.

D7: Wheaʦt: Globaʦl Production, Consumption aʦnd D8: 10 Yeaʦr Wheaʦt Price Development, Stocks to Use Raʦtio, million tons 2004–2013, USD/ton

700 Production (lhs) Stocks to use raʦtio (rhs) 39% 500 Wheaʦt, Chicaʦgʦo Consumption (lhs)

670 35% 400

640 31% 300

610 27% 200

580 23% 100

550 19% 0 2004 05 06 07 08 09 10 11 12 2013 Source: HGCA 1997/981998/991999/002000/012001/022002/032003/042004/052005/062006/072007/082008/092009/102010/112011/122012/132013/14 Source: USDA

D9: Globaʦl Producers of Wheaʦt 2013/14 D10: Shaʦre of World Wheaʦt Production Traʦded Internaʦtionaʦlly 2013/14

Internaʦtionaʦlly EU27 20% traʦded21%

Other 29%

Caʦnaʦdaʦ4% Chinaʦ17%

Russiaʦ7% Domestic consumption 79% USA 9% Indiaʦ13% Source: USDA Source: USDA

18 D11: 2013/14 Wheaʦt Imports by Country D12: 2013/14 Wheaʦt Exports by Country

Indonesiaʦ5% EU27 4% Braʦzil5% Jaʦpaʦn4% Other USA Egʦypt8% South Koreaʦ3% 19% 19%

Argʦentinaʦ5%

Ukraʦine6% EU27 14%

Russiaʦ11% Austraʦliaʦ Other 13% 71% Caʦnaʦdaʦ13% Source: USDA Source: USDA

D13: USDA 10 Yeaʦr Corn Forecaʦst: Globaʦl Production, D14: 10 Yeaʦr Corn Price Development, Consumption aʦnd Stocks to Use Raʦtio, million tons 2004–2013, USD/ton 1,075 Production (lhs) Stocks to use raʦtio (rhs) 17.0% 400 Corn Maʦize, Chicaʦgʦo Consumption (lhs) 1,050 16.5%

1,025 16.0% 300

1,000 15.5%

975 15.0% 200

950 14.5%

925 14.0% 100

900 13.5%

875 13.0% 0 2004 05 06 07 08 09 10 11 12 2013 Source: HGCA 2012/132013/142014/152015/162016/172017/182018/192019/202020/212021/22 Source: USDA

D15: Russiaʦn Domestic Graʦin Production, D16: Russiaʦn Graʦin Exports, million tons Consumption aʦnd Stocks to Use Raʦtio, million tons

110 Russiaʦn production (lhs) Stocks to use raʦtio (rhs) 35% 28 Russiaʦn consumption (lhs) 100 30% 24

20 90 25% 16 80 20% 12 70 15% 8

60 10% 4

50 5% 0

2000/012001/022002/032003/042004/052005/062006/072007/082008/092009/102010/112011/122012/132013/14 2000/012001/022002/032003/042004/052005/062006/072007/082008/092009/102010/112011/122012/132013/14 Source: IKAR, IGC Source: IKAR, IGC 19 Operaʦtionaʦl Review

D1: 2006–2013 Laʦnd Development, D2: 2009–2014E Crop Areaʦ Breaʦkdown, thousaʦnd hectaʦres thousaʦnd hectaʦres

Leaʦse Corn Raʦpeseed Soyaʦ 350 Ownership Ownership Regʦistraʦtion Process 250 Wheaʦt Baʦrley Sunflower Sugʦaʦr beet

300 200 250

200 150

150 100

100 50 50

0 0

2009 2010 2011 2012 2013 2014E

31 Dec 06 31 Dec 07 31 Dec 08 31 Dec 09 31 Dec 10 31 Dec 11 31 Dec 12 31 Dec 13

Laʦnd lished weeds, coupled with fi eld levelling. The croppable As of 31 December 2013, Black Earth Farming held 254 area has expanded rapidly from 6 thousand hectares in 2006 thousand hectares of land in full ownership, correspond- to over 230 thousand hectares in 2013, and the focus has ing to 82% of the total controlled land bank of 308 thousand shifted towards raising productivity. Improving crop yields hectares1. 44 thousand hectares were held under long-term is crucial and involves several factors concerning technical lease contracts running up to 49 years with the remainder agronomy and organisational changes to improve not only in the process of ownership registration. The process of technical knowledge and decision making, but also opera- obtaining the ownership rights to agricultural land in Rus- tional execution. The crop mix has also changed in recent sia is complicated and time consuming. years as wheat’s share of the total crop area has declined Consolidation and further improvement of the opera- from approximately 50% to around 35% while areas planted tional effi ciencies in and around the existing farm blocks with corn and soya have been increased and new crops, such remains the Company’s key target in terms of land. The cur- as sugar beet and potatoes, have been introduced to diver- rent focus is not on signifi cant expansion of the land port- sify production. In 2014, the crop mix will change further, folio, but on fi nalizing the registration process of controlled partly as a result of challenging weather conditions dur- land into full ownership and rising crop production on the ing winter crop planting, and partly as result of an eff ort to current foot print. move towards crops with higher expected profi tability. Russian agricultural land is, in the Company’s view, In 2011, a technical agronomy partner undertook an audit still undervalued, both in terms of comparison with land of historic decision making processes and made recommenda- of similar quality in other countries and also in relation to tions regarding strategy and crop management going forward. its inherent production potential, especially in the fertile The review also identifi ed what underlying data and analy- Black Earth Region. As of 31 December 2013, the Company sis was missing for the operating regions in order the make held 282 thousand hectares, not classifi ed as prepayment scientifi c crop management decisions backed by statistically or investment property, at an acquisition cost of USD* 54.7 signifi cant data. In 2012 BEF has started fi lling the informa- million in the statement of fi nancial position. tion gaps through internal research and crop trials and in 2013, the company observed improvements on some crops. Production Once the research is completed, it could provide a meaningful Black Earth Farming has since its inception in 2005 broken competitive advantage for BEF. This internal R&D is yielding long term fallow on approximately 260 thousand hectares key data to ensure crop management is increasingly driven in total. The fi elds have been brought back into a productive by statistically signifi cant and well analyzed trials informa- state by extensive disk-tilling, to eliminate long time estab- tion which will be expanded more upon in 2014.

20 BEF’S CROPS Blaʦck Eaʦrth Faʦrmingʦ gʦrows four claʦsses of crops; cereaʦl gʦraʦin, oilseed, beets aʦnd potaʦtoes. Crop baʦsed decision maʦkingʦ should be baʦsed on sound underlyingʦ science fed by staʦtisticaʦlly sigʦnificaʦnt daʦtaʦ from well maʦnaʦgʦed crop triaʦls. Historic daʦtaʦ is typicaʦlly held in publicnds haʦ or with life science compaʦnies. Historic Russiaʦn daʦtaʦ is however often not baʦsed on economic optimums. Meaʦnwhile, the specifi cs of the seed licensingʦ process haʦs not incentivized privaʦte compaʦnies to engʦaʦgʦe in laʦrgʦe scaʦle aʦnd in-depth triaʦls aʦdaʦpted to the specifi c soilsaʦnd climaʦte in Blaʦck Eaʦrth Faʦrmingʦ’s regʦions. The Compaʦny is continuously workingʦ to build up this R&D caʦpaʦcity internaʦlly in co-operaʦtion with aʦ world leaʦdingʦ technicaʦl paʦrtner in order to haʦve aʦll the daʦtaʦ needed tomaʦke well reseaʦrched aʦnd optimaʦl crop gʦrowingʦ decisions.

Cereaʦls (gʦraʦins) Oilseed Cereaʦl crops aʦre members of the gʦraʦss faʦmily where wheaʦt, Sunflower corn maʦize aʦnd rice aʦre the most commonly faʦrmed types 22% of 2013 Revenue worldwide aʦnd togʦether aʦccount for aʦpproximaʦtely 85% of aʦll Sunflowers aʦre primaʦrily used in food products aʦnd oils aʦs gʦraʦin production worldwide aʦnd 45% of aʦll food caʦlories. well aʦs livestock feed. Due to the sunflower’s drougʦht resist- aʦnt chaʦraʦcteristics, it fills aʦn importaʦnt role in the overaʦll crop Wheaʦt mix. The crop is normaʦlly reaʦped aʦ week or so aʦfter springʦ raʦpe 33% of 2013 Revenue aʦnd just requires aʦ simple aʦddition to the combine heaʦder for Most wheaʦt is consumed in the form of baʦked gʦoods, maʦinly haʦrvestingʦ, thus reducingʦ aʦdditionaʦl caʦpitaʦl expenditures. breaʦd. Wheaʦt gʦraʦins must therefore be milled to produce flour prior to consumption. Wheaʦt is aʦlso used aʦs aʦn ingʦredient in Oilseed Raʦpe (OSR) compound feedstuff s, staʦrch production aʦnd aʦs aʦ feed stock 9% of 2013 Revenue in ethaʦnol production. The haʦrvest quaʦlity of wheaʦt caʦn vaʦry Raʦpeseeds aʦre primaʦrily used for producingʦ vegʦetaʦble oil aʦnd widely from higʦh protein millingʦ quaʦlity commaʦndingʦ aʦ price biodiesel. Winter raʦpe gʦeneraʦtes aʦ higʦher yield thaʦn springʦ premium versus low quaʦlity feed used aʦs aʦnimaʦl fodder. raʦpe due more gʦrowingʦ daʦys, yet caʦrries aʦ higʦher risk aʦs the Blaʦck Eaʦrth Faʦrmingʦ uses aʦ combinaʦtion of different wheaʦt winter conditions caʦn kill laʦrgʦe paʦrts of the seeded aʦreaʦ. Raʦpe vaʦrieties. Winter wheaʦt is plaʦnted duringʦ the aʦutumn with chaʦraʦcteristics enaʦble aʦ crop rotaʦtion system which ensures internaʦlly gʦrown seeds aʦnd is like other winter crops higʦher thaʦt winter wheaʦt caʦn be sown the followingʦ production yeaʦr. yieldingʦ compaʦred to the correspondingʦ springʦ crop due to The springʦ vaʦriety haʦs lower risk thaʦn the winter vaʦriety but is more gʦrowingʦ daʦys. Winter aʦnd springʦ wheaʦt is haʦrvested dur- aʦlso lower yieldingʦ. ingʦ the saʦme period gʦeneraʦlly commencingʦ in mid-July. Soybeaʦn Baʦrley 5% of 2013 Revenue 7% of 2013 Revenue Soybeaʦn is one of the most populaʦr aʦnd widely gʦrown oilseeds. Baʦrley is maʦinly used for aʦnimaʦl fodder, aʦs aʦ component in The derived product Soybeaʦn meaʦl is aʦ primaʦry, relaʦtively vaʦrious foods aʦnd aʦs baʦse maʦlt for brewingʦ beer aʦnd other dis- low-cost, source of protein for aʦnimaʦl feeds or raʦtions. Soy tilled beveraʦgʦes such aʦs whiskey. The crop caʦn vaʦry in terms of vegʦetaʦble oil is aʦnother vaʦluaʦble product of processingʦ the quaʦlity between maʦltingʦ aʦnd feed quaʦlity which haʦs aʦneffect soybeaʦn crop. Soybeaʦns caʦn produce aʦt leaʦst twice aʦs much on price. Blaʦck Eaʦrth Faʦrmingʦ cooperaʦtes with locaʦl brewers protein per hectaʦre thaʦn aʦny other maʦjor vegʦetaʦble or gʦraʦin aʦnd aʦspires to gʦrow aʦ higʦh shaʦre of maʦltingʦ quaʦlity baʦrley on crop. Soybeaʦns, like most legʦumes, aʦlso perform benefi ciaʦl aʦ contraʦct baʦsis with haʦrvest usuaʦlly staʦrtingʦ aʦround eaʦrly nitrogʦen fixaʦtion in the soil. Augʦust. Root Crops Corn Maʦize Sugʦaʦr Beet 12% of 2013 Revenue 8% of 2013 Revenue Corn is aʦ maʦjor food aʦnd feed gʦraʦin gʦrown througʦhout the Sugʦaʦr beet is aʦ haʦrdy plaʦnt thaʦt caʦn be gʦrown commerciaʦl- world in temperaʦte aʦnd waʦrm climaʦtes. It is the most widely ly in aʦ wide vaʦriety of temperaʦte climaʦtes thaʦt is normaʦlly gʦrown crop in the Americaʦs, where aʦ maʦjor paʦrt of the pro- plaʦnted in the springʦ aʦnd haʦrvested in the aʦutumn. Beet sugʦaʦr duction is used for corn ethaʦnol. The Compaʦny cultivaʦtes this aʦccounts for 30–35% of the world’s sugʦaʦr production. BEF gʦraʦin primaʦrily in the southern regʦions where raʦinfaʦll is more does not plaʦn to gʦrow sugʦaʦr beet in 2014. limited aʦnd the summer temperaʦture is higʦher. Corn is aʦ laʦte haʦrvest crop aʦnd is gʦeneraʦlly plaʦnted in Maʦy aʦnd cut in laʦte Potaʦto September into October-November. 2013 Increaʦsed production vs 2012 triaʦl (1% of 2013 revenue) Approximaʦtely two thirds of the gʦlobaʦl potaʦto production is consumed directly by humaʦns with the rest beingʦ fed to aʦni- maʦls or used to produce staʦrch. Only aʦbout 5% of the world’s potaʦto crop is traʦded internaʦtionaʦlly. To aʦchieve aʦccept- aʦble quaʦlity levels for further processingʦ, irrigʦaʦtion is usuaʦlly employed in order to secure aʦdequaʦte waʦter supply.

21 D3: 5 Yeaʦr Yield Development per Crop, in table T2 crop yields for winter wheat, barley and sun- tons per hectaʦre ﬂ ower crops are among the best ever achieved. The 2013 6 W. Wheaʦt Baʦrley Sunflower Oilseed Raʦpe crop results have also to an extent beneﬁ tted from the crop Corn Soybeaʦn initiatives and soil improvement to improve yield potential 5 but probably even more so from the combination of better execution and management. 4

3 2014 Crop Prospects Current plans are to raise the corn area further as well 2 increasing the potato area almost fourfold. This gradual shift towards more intensive crops is already changing the 1 cost profi le but is intended to pay off with compensatory revenues and earnings resulting in higher and more stable 0 returns. 31 thousand hectares have been planted with win- 2009 2010 2011 2012 2013 ter wheat, which is around 58% less than in 2012. The very wet September meant that seeding was possible up only until mid-September. After the fi rst week in October, deci- 2013 Haʦrvest sion was made not to resume drilling as it was considered There were meaningful improvements to the 2013 crop com- unlikely to result in adequate yields and profi table crops. pared with previous years. Winter wheat and early season Management consequently re-planned for additional spring spring crops benefi ted from good growing and reasonable crop areas instead. Sugar beet has also been dropped from the harvesting conditions. Yields for winter wheat and barley crop mix after 2013. Land used for sugar beet will mostly be crops are among the best ever achieved with wheat yields fallowed. The Company plans to have substantial increase in improving by more than 50% y-o-y on 2012. Spring oilseed planting corn and sunfl ower with 33% and 21% respectively rape however, was badly aff ected by heavy pest pressure of the entire cropped land. As of the end of March, some 25% and poor establishment which eventually led to relatively of expected 2014 crops were sold forward to lock in current lower yields. This was followed by wet weather, which set price levels, including 13% of expected corn volumes hedged on towards the end of July in black earth region and contin- using futures on international exchanges. Good progress is ued until the end of September. Rainfall in September was being made on adding forward sales for the 2014 crop. at record levels in some of our regions, with precipitation on average about 90% above the 30 year average. This caused 5 Key Initiaʦtives to Raʦise Crop Yields frustrating delays to harvesting work and had signifi cant In an extensive 2011 soil quality audit, the results showed adverse eff ects on yield of soya and beet in particular. It also several constraints to yield potential. During the autumn meant that most of our later season crops were harvested at of 2011, the Company launched a range of initiatives to very high moisture levels. Sunfl owers yielded reasonably remove these crop yield constraints and lift the production but soya, corn and beet all came in well below expectations. potential of the soil. The fi ve key priorities in this eff ort are Of these crops, corn was the most disappointing as it looked outlined below. This is a multiyear process but signifi cant to have high potential. progress was made prior to seeding and post-harvest in 2012 Overall improved quality of operations benefi ted 2013 and 2013. The 2013 spring crops benefi ted to some extent crop yields with fi nal result of 6 out of 9 crops above his- from the initiatives but most of the benefi ts are expected toric averages with the blended crop yield excluding sugar to come through in future years. The process is expected beet and potatoes improving 14% over 2012. As highlighted to contribute to higher crop yields and productivity going forward as constraints are removed from a larger part of the Company’s total cropping area.

Lime aʦpplicaʦtion to correct soil pH Acidic soils reduce crop yield. Research demonstrates that pH levels below 5 can reduce wheat crop yields by up to 30%. To correct for low soil pH levels, lime is applied to the soil. In its cheapest form, lime is received as a by-product from sugar processing. The challenge and associated costs are less related to procurement and more with logistics, as high application rates of 8 tons per hectare involve large tonnages of product to transport, load and spread in order to process larger crop areas. Since the autumn of 2011, lime has been applied on 47 thousand hectares of the Company’s most

22 acidic soils. 35 thousand hectares were applied during 2012. and/or phosphate levels have been normalized since the cor- Further soil testing in 2013 indicated a reduced need for rective measures started in the autumn of 2011. Additional application of lime on remaining areas. As a result of chal- sulphur is also applied to crops where soil and crop data lenging weather conditions in the autumn of 2013, lime was show a signifi cant yield response and an economic benefi t. applied to only 1600 hectares. Fertiliser mix is applied to responsive crops, with the application rates based on results of soil tests from 2012 and 2013. Deep cultivaʦtions to relieve soil compaʦction Problems have also been identifi ed with soil structure and Weed maʦnaʦgʦement througʦh gʦlyphosaʦte aʦpplicaʦtion compaction, which restricts crop root growth and results in Prior to 2011, substantial areas of crops suff ered from heavy lower yields and poor resilience to dry conditions. Only lim- bindweed populations, as illustrated by the photograph ited deep cultivations had been performed prior to 2011. In below. According to research, fi eld bindweed can reduce some places, BEF’s pre-2011 operations had exacerbated the wheat and barley yields by up to 30% and 65% respectively. problem, but the main issue is compaction and lack of culti- Over 200 thousand hectares were sprayed with glyphosate vations back from Soviet times. To improve soil structure, before and after the 2011 harvest (about 5 times the average deep cultivations shatter the earth and remove plough pans area in previous years). Another 110 thousand hectares were at depths of 20 cm and below. 37 thousand hectares were sprayed in 2012, which has corrected the immediate prob- subsoiled in 2011, followed by almost 100 thousand hec- lem areas. Going forward, application levels will normalize tares in 2012. Subsoiling will be incorporated in the annual at a lower level. In 2013, glyphosate was applied for general cultivation program over several years in order to rotation- weed control, including bindweed, on a fi eld-by-fi eld basis. ally relieve compaction and improve soil structure. The wet weather during the summer and autumn of 2013 prevented Seed Maʦnaʦgʦement undertaking the full planned subsoiling, but 35,500 hec- Due to the lack of high quality varieties suitable to the spe- tares of deep cultivation was completed in the period. cifi c climatic conditions in the areas of the Company’s operations, BEF uses a high proportion of home grown crops for Fertilizer, potaʦsh, phosphaʦte aʦnd sulphur aʦpplicaʦtions seeding. Management of internally grown seed crops has Potash has historically only been applied on a replacement improved signifi cantly with appropriate site selection, bet- basis and application was not necessarily driven by proper ter weed control, applications of additional fungicides and soil test data. This led to under-application of potash on the micronutrients, all targeted at increasing seed quality. Company’s cropping area. Potash is very important for water The eff ects of these measures to remove crop yield con- relationships within plants. Low levels of potash in the soil straints will come through only gradually over a 2–3 year have therefore compounded drought stress problems in the period and once all the problems have been corrected. Get- past. Approximately 70 thousand hectares with low potash ting the maximum yield potential from the soil before a

Spreaʦdingʦ Lime to Correct Soil pH-levels Deep Cultivaʦtion to Relieve Soil Compaʦction

Bindweed Infested Crop Glyphosaʦte Treaʦted Field to Control for Weeds

23 crop goes in the ground is critical to lifting productivity. The Historic crop yield performance among BEF’s fi elds points progress made so far is expected to be supportive of 2014 to a very high level of variance. To address this, the initial yield potential and crop productivity. focus was on ensuring that the right machinery and managerial capacity was in place to ensure that operations are Orgʦaʦnisaʦtionaʦl Educaʦtion/Traʦiningʦ performed well and on time. Management capacity has been aʦnd Faʦrm Cluster Maʦnaʦgʦement strengthened substantially at the regional level to reduce Another part of lifting average crop yields and reducing the the area that any single manager is responsible for and also variance in crop yield between fi elds is minimizing manage- to increase accountability. During 2012, BEF completed the ment mistakes and improving operational decision making. fi rst full year of an in-house trials program in partnership

T1: Haʦrvest Areaʦ Breaʦkdown (Hectaʦres) 2007 2008 2009 2010 2011 2012 2013 2014E Winter wheaʦt ...... 16,805 48,636 84,698 72,677 93,627 73,912 73,702 30,747 Springʦ wheaʦt ...... n/aʦ 4,339 3,824 10,157 13,093 4,368 3,412 5,947 Springʦ baʦrley...... 20,180 42,638 43,053 13,793 26,535 22,718 21,850 20,297 Corn maʦize ...... 1,215 9,950 8,084 8,592 6,149 26,003 36,814 71,917 Winter triticaʦle ...... n/aʦ n/aʦ 2,740 302 n/aʦ n/aʦ n/aʦ n/aʦ Totaʦl Graʦins ...... 38,200 105,563 142,399 105,521 139,404 127,001 135,778 128,908 Winter raʦpe ...... 5,005 875 7,045 536 n/aʦ n/aʦ n/aʦ 211 Springʦ raʦpe ...... 7,035 13,149 7,132 29,051 33,494 36,597 31,436 19,843 Sunflower ...... 2,541 19,378 26,466 36,761 46,518 33,218 28,997 44,994 Soyaʦ ...... n/aʦ n/aʦ n/aʦ 7,899 7,863 18,187 18,682 19,196 Totaʦl Oilseeds ...... 14,581 33,402 40,643 74,247 87,875 88,002 79,115 84,244 Sugʦaʦr Beet...... n/aʦ n/aʦ n/aʦ n/aʦ 1,621 5,085 8,822 n/aʦ Potaʦtoes ...... n/aʦ n/aʦ n/aʦ n/aʦ n/aʦ 31 196870 Totaʦl Commerciaʦl Areaʦ. . . . . 52,781 138,965 183,042 179,768 228,900 220,119 223,911 214,022 Other/Foraʦgʦe crops ...... 670 2,968 381 1,013 1,951 1,675 1,721 3,434 Totaʦl haʦrvest aʦreaʦ...... 53,451 141,933 183,423 180,781 230,851 221,794 225,632 217,456 ...... 100.0% 100.0% T2: Averaʦgʦe Net Crop Yields (Tons/hectaʦre) 2007 2008 2009 2010 2011 2012 2013 Winter wheaʦt ...... 2.9 4.1 3.3 1.9 2.4 2.1 3.3 Springʦ wheaʦt ...... n/aʦ 2.9 2.1 1.4 1.6 2.6 1.9 Springʦ baʦrley...... 1.9 3.3 2.8 1.4 1.9 2.4 2.6 Corn maʦize ...... 2.8 2.3 3.1 0.6 4.9 5.1 4.3 1 Winter triticaʦle ...... n/aʦ n/aʦ 2.2 0.7 n/aʦ n/aʦ n/aʦ Winter raʦpe ...... 1.2 1.6 1.4 0.5 n/aʦ n/aʦ n/aʦ Springʦ raʦpe ...... 0.8 1.3 1.2 0.5 1.1 1.3 0.9 Sunflower ...... 1.6 1.3 1.7 0.8 2.0 1.9 2.0 Soyaʦ ...... n/aʦ n/aʦ n/aʦ 0.2 0.9 1.2 0.9 Sugʦaʦr beet ...... n/aʦ n/aʦ n/aʦ n/aʦ 25.6 25.3 24.3 Potaʦtoes ...... n/aʦ n/aʦ n/aʦ n/aʦ n/aʦ 33.2 33.9 1. . .By . . the . . . end . . . of. . haʦrvest,...... 100.0% Februaʦry 2014 100.0%

T3: Net Haʦrvest Volumes (Tons) 2007 2008 2009 2010 2011 2012 2013 Winter wheaʦt ...... 48,093 201,377 280,648 137,703 220,608 157,571 245,711 Springʦ wheaʦt ...... n/aʦ 12,472 7,863 13,791 21,187 11,495 6,573 Springʦ baʦrley...... 38,466 138,752 122,375 19,595 49,166 55,074 55,429 Corn ...... 1,335 22,651 25,251 5,152 29,989 132,829 158,986 Winter triticaʦle ...... n/aʦ n/aʦ 5,930 211 n/aʦ n/aʦ n/aʦ Totaʦl Cereaʦl Graʦins...... 87,894 375,252 442,067 176,451 320,950 356,969 466,699 Winter raʦpe ...... 6,083 1,395 10,014 246 n/aʦ n/aʦ n/aʦ Springʦ raʦpe ...... 5,647 16,657 8,470 15,497 36,887 46,052 28,113 Sunflower ...... 4,126 25,285 45,580 28,904 92.805 62,759 57,970 Soyaʦ ...... n/aʦ n/aʦ n/aʦ 1,818 7,114 22,364 16,006 Totaʦl Oilseeds ...... 15,856 43,337 64,064 46,465 136,806 131,175 102,089 Sugʦaʦr beet ...... n/aʦ n/aʦ n/aʦ n/aʦ 41,531 128,405 214,720 Potaʦtoes ...... n/aʦ n/aʦ n/aʦ n/aʦ n/aʦ 1,029 6,644 Totaʦl Commerciaʦl Crops. . . . 103,749 418,589 506,131 222,916 499,287 617,578 790,152 Other/Foraʦgʦe crops ...... 2,659 22,928 3,381 3,686 14,597 13,213 3,012 Totaʦl Output ...... 106,408 441,517 509,512 226,602 513,884 630,791 793,164 ...... 100.0% 100.0% 24 with BASF. The trial data has been used to drive crop produc- An audit of the current spraying systems has highlighted tion decision. Education and training programs have also areas of weakness and a range of corrective measures are been implemented to support operational planning and exe- underway to improve water logistics, spray water volumes cution. This eff ort has intensifi ed at all levels of operations and other problems identifi ed in the audit. These initiatives in 2013 to improve technical decision making and operator to increase competence and improve management informa- performance. Priorities for 2014 include GPS tracking and tion are expected to improve decision making and opera- fi eld mapping as well as the introduction of an improved tional effi ciency. crop monitoring and recording system. This will provide real time information on operational progress against plan.

D4: BEF Quaʦrterly Averaʦgʦe Reaʦlised Wheaʦt Price & Saʦles Volume vs. Maʦrket Development, 2012 (left) aʦnd 2013 (rigʦht)

USD* , USD/t USD* , USD/t /ton BEF Wheaʦt price k tons /tonBEF Wheaʦt price k tons Wheaʦt claʦss 4 CBS ex silo, USD/t Wheaʦt claʦss 4 CBS ex silo, USD/t 400 BEF Saʦles Volumes, k tons 400 400 BEF Saʦles Volumes, k tons 400

350 350 350 350

300 300 300 300

297 250 250 250 250 288 250 253 200 200 200 200 183 199 150 183 150 150 150 163 100 100 100 100

50 50 50 50

0 0 0 0 Jaʦn Maʦr Maʦy Jul Sep Nov Jaʦn Maʦr Maʦy Jul Sep Nov

Terms of Delivery Customs Internaʦtionaʦl Producers EXW CPT FOB consumers

+ Cost + Traʦnsportaʦtion + Port chaʦrgʦes + Freigʦht + Producers’ + Traʦders’ + Custom duties + Insuraʦnce maʦrgʦin maʦrgʦin + Traʦders’ maʦrgʦin + Traʦders’ maʦrgʦin

Maʦin Sellers

Domestic producers + + – –

Domestic traʦders + + – –

Internaʦtionaʦl traʦders – – + +

Maʦin Buyers

Domestic consumers + – – –

Internaʦtionaʦl consumers – – + +

Domestic traʦders + + – –

Internaʦtionaʦl traʦders + + + +

25 Crop Haʦndlingʦ & Storaʦgʦe Logʦistics D5: Jaʦnuaʦry 2009–December 2013 Wheaʦt Price , USD per ton Improvements in crop handling and logistics were critical Development 400 Internaʦtionaʦl (MATIF) Russiaʦn Export (FOB) towards making progress in operational performance in the Russiaʦn 2013 season. Higher production volumes were accompanied 350 Domestic (CBE) by greater logistical challenges but also met by improved 300 performance in harvest and post-harvest logistics. Imple- mentation of GPS monitoring and Telemetry technologies 250 are expected to further increase crop and harvest informa- 200 tion fl ow to support decision making and crop handling logistics. Centralized management of harvest, crop han- 150 dling and storage logistics as well as real time information is key to maintain a proper level of control over some 20 100 harvesting teams and 40 storage sites across the Company’s 50 operations. The 2013 focus on logistics, drying and storage 2009 2010 2011 2012 2013 meant that all dryers, at both farms and elevators, oper- ated at a much higher level of effi ciency which resulted in a signifi cant improvement in handling capacity utilisation. This, in turn, ensured that sales prices were realized at market levels and that previous problem of price discounts due D6: BEF Crop Cost Vaʦlue Chaʦin, USD per ton to poor quality were reduced in 2012 and 2013. Diagram D4 350 illustrates the sales prices and volumes for wheat during Export Price Delivered to Customer (CIF) 2013 vs. market prices compared with 2012. 300 Export Price aʦt Russiaʦn Port (FOB) 250 Saʦles & Maʦrketingʦ Russia lacks a functioning domestic physical forward or 200 Domestic Price (ExW) futures market. The high levels of unreliable counterpar- 150 ties can result in substantial price discounts for most types of off ered forward contracts. Historically the majority of 100 sales were therefore executed domestically on the spot market. The list of customers generally varies from world scale 50 brewers and maltsters, oil crushers, large domestic consum- 0 ers and international grain traders. The majority of sales BEF Raʦil Port Traʦders’ Shippingʦ were conducted on an ex-works basis i.e. the buyer organises Cost of Traʦnsport Loaʦdingʦ Maʦrgʦin Fee transport to collect crops at the Company’s farm gate. This Production Cost Fee left the Company exposed to the high volatility of local spot market prices for agricultural commodities with limited this margin is abnormally high by international standards. possibility to manage price risk. In order to mitigate these Sales including transhipment also enable consolidation of risks BEF has focused on establishing long term relation- larger volumes of crops with specifi c qualities facilitating ships with quality counterparties both internationally and larger and better priced contracts. In 2013 BEF executed 135 domestically to facilitate price risk management. Signifi cant thousand tons of direct export sales to customers in Europe, progress was made in this area in 2012 and 2013. The coop- Scandinavia and elsewhere (South Africa). Wheat repre- eration agreement signed with PepsiCo in October 2012 has sented approximately 18% of exports and corn 61%, with the been crucial to improve domestic price risk management as remainder consisting of rapeseeds, barley and soybeans. The it off ers opportunities to fi x prices in advance for signifi cant company has long term export supply agreements for wheat quantities of BEF’s production. The company also hedges its (Spain), non GMO soya (Norway) and Oilseed Rape to Euro- production using CBOT (Chicago Board of Trade) and MATIF pean crushers (mostly Germany). For the crop year 2013/14, futures, locking in forward prices when physical sales are the company expects to export some 180,000 mt in total via not possible. The internal elevator capacity with direct rail the Baltic port of Liepaja, all loaded and shipped by rail from access enables export capability which is crucial not only the company’s elevators on wagons contracted directly from for realizing higher prices but also for managing price risk reliable rail operator. In December 2013, the Company estab- by locking in prices via forward sales to international coun- lished Black Earth Trading International Ltd. in Guernsey, a terparties. Contract terms including loading, transport and fully owned subsidiary, to facilitate export sales and support longer distance delivery via rail to the customer are covered international customer relationships. Black Earth Farming by the price pick-up. The Company views the ability to inter- is currently registered for sustainability (ISCC) for both nalise the trade margin from producer to end customer as Oilseed rape and Corn, thus capturing a further premium a key competitive advantage, especially in Russia, where for these commodities.

26 27 2013 Finaʦnciaʦl Review

Despite some operaʦtionaʦl improvements, 2013 waʦs aʦ D1: 2009–2013 Production, Saʦles aʦnd Inventory, thousaʦnd tons disaʦppointment for Blaʦck Eaʦrth Faʦrmingʦ aʦs the Com- paʦny recorded full yeaʦr net loss of USD* 44.7 million. 900 Commerciaʦl Haʦrvest End of Period Inventory Volumes sold Totaʦl revenue aʦnd gʦaʦins decreaʦsed 30% y-o-y, despite 800 of record higʦh haʦrvest aʦnd saʦles volumes, aʦs aʦgʦricultur- 700 aʦl commodity prices dropped througʦhout the yeaʦr. Both 600 externaʦl aʦnd internaʦl faʦctors contributed to aʦn operaʦt- 500 ingʦ loss of USD* 29.8 million in 2013 versus aʦn operaʦtingʦ 400 proﬁ t of USD* 18.5 million in 2012. 300

Revenue 200

2013 revenue was negatively aff ected by lower than expect- 100 ed spring crop yields and reduced crop prices. Late harvest 0 crop quality was also negatively aff ected by challenging 2009 2010 2011 2012 2013 harvesting conditions. Revenue captures actual sales during the ﬁ nancial year, both on 2012 crop carry-over inventory sold in 2013, and 2013 crop sold in 2013. Revenue from goods sold in 2013 declined –3% y-o-y to USD*132 million as average sales prices dropped –8% while volumes sold grew D2: Averaʦgʦe BEF Crop Price (Haʦrvest Yeaʦr), USD*/ton

5% to 715 thousand tons. High prices on 2012 crop carry-over 350 Averaʦgʦe Crop Price inventory sold in 1Q13 lifted the average 2013 sales price. Ex. Sugʦaʦr Beets Prices however dropped through the year, with an average 300

–23% drop in blended prices on 2013 crop sold in 2013. While 250 prices remained relatively high in 1Q13, realized prices on 2012 carry-in inventory sold in 2013 were down on average 200

–19% from the December 31 book value, resulting in a USD* 150 7 million net loss in 1H13 (vs USD* 1 million uplift in 2012). Prices continued to fall through the fi rst three quarters of 100 2013 on ample global grain production and prices stabilized 50 only in 4Q13. 2013 harvest volumes were up 28% y-o-y on higher yields but also due to changes in the crop produc- 0 tion mix, notably with a higher share of sugar beet. Greater 2009 2010 2011 2012 2013 inventory carry-in from 2011 for sales in 2012 and greater inventory carry-over from 2013 for sales 2014, held back the corresponding sales volume growth to 5%. 190 thousand tons, or 24% of the 2013 harvest, was held in inventory at year-end for sales in 2014, compared to 132 thousand tons, D3: Totaʦl Revenue & Gaʦins 2009–2013, million USD* or 21% of the 2012 harvest, at year-end 2012. Wheat (34%) and corn (23%) had the biggest revenue shares in 2013 sales, 250 Gaʦin/loss from vaʦluaʦtion (biologʦicaʦl aʦssets aʦnd inventory) but also saw big price drops in 2H13 (–20% and –18% y-o-y 225 Crop saʦles Other gʦoods (milk & livestock) respectively). Higher priced oilseed crops, including sun- 200 fl ower, rape and soya constituted 37% of total sales. Sugar 175 beets, which is a higher yielding but lower priced crop, rep- 150 resented 30% of harvest volumes but only 8% of 2013 rev- 125 enue. The average blended annual and quarterly prices are 100 signifi cantly aff ected by the sales crop mix, with for exam- 75 ple sunfl ower sales lifting an average unit price, but sugar 50 beet lowering the average sales price. 25 0

–10 2009 2010 2011 2012 2013

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 28 T1: Revenue aʦnd Result per Hectaʦre (Haʦrvest Yeaʦr1) 2011 2012 2013 2008 2009 2010 2011 ex. SB2 2012 ex. SB2 2013 ex. SB2,3 Averaʦgʦe Net Crop Yield, tons (sold)/haʦ 2.9 2.7 1.1 2.1 2.0 2.7 2.2 3.5 2.6 Averaʦgʦe Price, USD*/ton 129 115 243 173 180 250 263 181 220 Revenue per Hectaʦre, USD*/haʦ 372 309 269 368 364 685 671 633 619 1. Haʦrvest yeaʦr diff ers from caʦlendaʦr yeaʦr aʦs crops aʦre seeded in aʦutumn aʦnd springʦ aʦnd haʦrvested the followingʦ summer aʦnd aʦutumn withsaʦles undertaʦken up until the next haʦrvest. 2. SB refers to Sugʦaʦr Beet. 3. Reaʦlized saʦles aʦnd maʦrk to maʦrket of crop inventory aʦ/o 31 December 2013.

Gaʦin/Loss on Revaʦluaʦtion of Biologʦicaʦl Total revenue and gains of USD* 144.6 million in 2013 Assets aʦnd Inventory includes gains from revaluation of biological assets in the The Company’s biological assets, which mostly capture amount of USD* 12.8 million, representing 9% of total reve- work in process and crop in fi eld, and its crop inventory in nue. That compares with a USD* 69.0 million gain, or 33% of storage, are estimated at fair and net realisable value respec- total revenue and gains, for the same period in 2012. Includ- tively in the company’s fi nancial position. Changes in valua- ing changes in valuation of crop inventory, the total valuation fl ows through the income statement in Gain on revalu- tion uplift on 2013 crop was USD* 13.0 million, compared to ation of biological assets and Change in net realizable value USD* 71.8 million in 2012 (USD* –58.8 million y-o-y). Sig- of agricultural produce after harvest. The gain on biological nifi cantly lower crop prices in 2013 resulted in a lower 2013 assets is derived by using fi nal harvest volumes multiplied crop value compared to 2012, which is the key driver of the by market prices at the time the crop was harvested, which reduced 2013 gross result versus 2012. diff ers per crop, less incurred production costs and expected 190 thousand tons of crops harvested in 2013 were held selling expenses. After harvest, the income statement is in inventory as of 31 December 2013, with 61% of the vol- aff ected via change in net realizable value driven by mar- umes consisting of corn, 10% sunfl ower 11% wheat and 15% ket price developments aff ecting the crop inventory value. barley. Market and sales contract prices (excluding 10% When crop is sold and revenue is recognized, the book value VAT) detailed in table T2 have been used to determine the of crop in inventory or the fair value estimate of the biologi- net realizable value of USD* 35.6 million. The revaluation cal asset, if recorded in biological assets as of the start of the of fi nished goods inventory resulted in a USD* 0.2 million reporting period, is recognized as cost of goods sold, with gain during 2013 compared to 2.8 million in 2012 as a result the gross result refl ecting whether or not the crop was sold of less favourable market price developments for 2013 crops above or below its book value. in inventory post-harvest. As of the reporting date, biological assets consisted mainly of costs incurred for seeding of winter crops to be harvested 2013 amounting to USD* 17.6 million.

T2: 2013 Quaʦrterly Saʦles Volume & Crop Inventory Quaʦrterly Saʦles Crop in Inventory 4Q 2013 3Q 2013 2Q 2013 1Q 2013 31 Dec 2013 31 Dec 2012 Volume, k tons Wheaʦt 86.0 134.6 7.7 1.9 20.6 10.7 Baʦrley 6.6 21.3 14.0 8.9 27.8 23.9 Corn 38.3 0.5 11.0 34.3 116.9 50.0 Raʦpe 19.9 7.0 0.1 2.0 2.0 2.4 Sunflower 39.1 0.2 25.2 15.5 18.9 40.9 Soyaʦ 12.2 0.4 0.2 2.4 3.0 3.2 Sugʦaʦr beet 161.952.80.00.00.0 Other (seeds/foraʦgʦe) 2.4 4.7 0.0 0.6 1.4 0.6 Totaʦl Tons 370.0 221.4 58.0 65.6 190.3 131.8 Price, USD*/ton Wheaʦt 199 183 253 288 220 298 Baʦrley 158 156 217 208 221 244 Corn 163 216 200 217 176 241 Raʦpe 396 342 478 485 470 486 Sunflower 318 423 436 399 373 474 Soyaʦ 467 482 444 453 558 458 Sugʦaʦr beet 49 45 n/aʦ Other (potaʦtoes, peaʦs) 74 - 0 148 302 Averaʦgʦe Price 160 154 312 278 186 298

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 29 D4: 2013 Gaʦin on Biologʦicaʦl Assets, USD* million from a combination of input price infl ation, increased application rates and higher prices for certain key inputs such as 150 fertilizer, seeds, sprays and fuel as well as from continued corrective measures to raise crop yield potential. 125

100 Other Cost aʦnd Expenses Distribution expenses were up 44% y-o-y to USD*20.7 mil- 75 lion on 40% higher export volumes, with higher related transportation costs. The company estimates a positive net- 50 back margin on its export sales. G&A costs were down 2.1% y-o-y, mostly on lower third party services but also helped 25 79.5 by a weaker ruble. Indirect costs that are unrelated to crop yield performance are being reviewed with a target to 0 reduce overhead costs. State grants and subsidies more than Finaʦl 2013 Crop Production Costs Gaʦin on Biologʦicaʦl Vaʦlue aʦt Haʦrvest aʦnd Sellingʦ Assets (2013 Gross doubled to USD* 3.5 million in 2013, partly as a result of a Daʦte Expenses Profit aʦt Haʦrvest) changing basis for state support. The Company’s crop insurance is shown net of subsidy. Just over one third of the Com- Cost of Saʦles pany’s crop insurance was subsidized by Russian Federal and The company estimates the fair value of its biological assets, regional authorities. In other expenses, the company posted which mostly captures work in process and crop in fi eld, by a USD* 4.1 million gain on its grain hedging positions, partly using relevant market prices and deducting expected sales off set by a USD* 0.9 million loss on foreign exchange for- cost. The Company also holds crop inventory in storage at wards. Financial expenses were stable as transaction costs net realizable value as estimated by observable market pric- and expenses related to the refi nancing of the Company’s es or at contracted sales prices. When crop is sold and rev- outstanding bonds were off set by the interest saved on the enue is recognized, the book value of crop in inventory or Company’s Treasury bond position. The company carried a the fair value estimate of the biological asset, if recorded in USD* –3.8 million loss on foreign exchange translation in biological assets as of the start of the reporting period, is rec- 2013 (vs. a gain of USD* 1.3 million in 2012) as the Russian ognized as cost of goods sold. The cost of sales for 2012 crop ruble weakened 7.4% against the Swedish krona, increasing held in the 2013 opening inventory and sold in 2013 there- the Company’s SEK bond loan against its ruble functional fore constituted the estimated market value of this crop as currency. Adjusting for expenses related to the sales chan- of 31 December 2012. The cost of sales line in the income nel, foreign exchange loss and for extraordinary costs, the statement therefore includes both actual cost of sales in Company’s total cost per ton basis were down –11% y-o-y. terms of input materials and other direct and indirect costs attributed to a certain crop, as well as valuation adjustment Result to these costs. The diff erence is detailed in Note 8 to the Declining crop prices was the key driver behind the dete- fi nancial statements. rioration in fi nancial performance in 2013, compared to Black Earth Farming’s production cycle commences with 2012. A global record harvest during 2013 exerted pressure seeding of winter crops during the fall in the prior calendar on international prices for grains and oilseeds, which, com- year and includes several stages of fi eld works until the har- bined with a strong Russian harvest, also translated into vest period commences in July through October depending weaker domestic prices. In addition, adverse weather con- on crop (please see diagram D10 on page 34). Historically, ditions in 2H13 negatively impacted late crop yields and, approximately 30–40% of costs have been incurred in the although improved harvest logistics contained negative fall of the preceding calendar year as winter crops are seeded eff ects, challenging harvesting conditions also negatively and fi elds are cultivated in the autumn, but this depends on impacted crop quality. The 2013 operating result worsened the fi eld works and the relative weight of the winter crops in signifi cantly compared to the previous year as highlighted the overall crop mix. The remaining 60–70% is incurred dur- in diagram D7, mainly due to the gross result, which is very ing the spring and summer in the same calendar year as part sensitive to crop price movements through the year, which of the spring seeding, followed by fi eld works and harvest. aff ect not only sales revenue but also the valuation of bio- Thus, it is only for every new harvest (i.e. production cycle) logical assets and inventory (both crop standing in fi elds and that the company can aff ect the actual costs of production. crops in storage) between reporting dates. The cost of production is also aff ected by the crop mix, as dif- While prices remained relatively high in 1Q13, realized ferent crops have diff erent levels of cost intensity. prices on 2012 carry-in inventory sold in 2013 were still down Total 2013 production costs increased as the crop area on average –19% from the December 31 book value, implying included a higher share of more intensive crops such as corn, a USD* 7 million net loss in 1H13 (vs USD* 1 million profi t potato and sugar beet, which cost more to produce on a per in 2012). Prices continued to fall throughout the fi rst three hectare basis. Like for like direct cost per hectare increased quarters of 2013 on ample global grain production and prices * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 30 D5: G&A aʦnd Distribution Expenses, USD* million stabilized only in 4Q13. 2013 crop volumes sold by the company in 2H13 were up 24% y-o-y but market prices dropped

50 G&A expenses Distribution expenses an average –23% in 2H13. While prices stabilized towards year-end, prices for inventory valuation were off more sig-

40 nifi cantly y-o-y (–34% for corn, –33% for wheat and –18% for barley y-o-y). As a result, the total valuation uplift, including both revaluation of biological assets and inventory, of 30 the 2013 crop was USD* 13.0 million, compared to USD* 71.8 million in 2012 (USD* –58.8 million y-o-y), with a USD* 45.3 20 million y-o-y diff erence in gross profi t, from USD* 51.3 million in 2012 to USD* 6 million in 2013, after accounting for 10 revaluation eff ects in costs of goods sold. This explains most of the USD* 51.4 million diff erence in net result y-o-y as vol- 0 ume improvements could not off set cost growth and lower 2009 2010 2011 2012 2013 prices. Higher distribution costs also pressured the result and the USD* 4.1 million gain on the company’s forward positions did not provide suffi cient cushion to the operating loss of USD* –29.8 million (vs USD* profi t of 18.5 million in 2012). 2013 EBITDA stood at USD* –11.4 million compared to a positive EBITDA of USD* 36.7 million in 2012. The net result of USD* 44.7 million loss (vs USD*6.6 million in 2012) D6: Distribution Expenses Breaʦkdown, USD* per ton sold for 2013 also includes a USD* 3.8 million foreign exchange translation loss (vs a USD* 1.3 million gain in 2012) on the 25 Storaʦgʦe & Haʦndlingʦ Depreciaʦtion Company’s debt, denominated in Swedish krona. Traʦnsport

20 T3: Summaʦrized Income Staʦtements 2009–2013

1 USD million 2009 2010 2011 2012 2013 15 Totaʦl Revenue 75.2 63.5 82.3 208.0 144.6 Gross Result (1.1) 9.3 2.8 51.3 6.0 Operaʦtingʦ Result (38.2) (27.2) (26.8) 18.5 (29.8) 10 Net Result (44.4) (38.5) (44.2) 6.6 (44.7)

1. All the period ruble vaʦlues converted aʦt the end of the yeaʦr RUR/USD FX raʦte 5 for the respective periods.

2009 2010 2011 2012 2013

D7: 2009–2013 Revenue & Operaʦtingʦ Result, USD* million

200 Saʦles revenue Operaʦtingʦ result Gaʦin/(loss) on revaʦluaʦtion of biologʦicaʦl aʦssets

150

100

–50

2009 2010 2011 2012 2013

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 31 Assets ment of fi nancial position at a value of USD* 54.7 million1. Since inception Black Earth Farming has invested in (a) Unlike other fi xed assets, land does not depreciate in value acquiring and registering farm land into ownership, (b) a over time. In the Company’s view, there is potential for a large fl eet of western agricultural machinery and (c) sup- revaluation of Russian agricultural land going forward as the porting storage infrastructure for the Company’s opera- sector develops towards higher standards in terms of both tions. The majority of the investments required for the production and profi tability and a more transparent second- current land bank have been undertaken and future capital ary market for farm land emerges. During the past two years expenditures will mainly be driven by machinery replace- several larger transactions of Russian farmland have taken ment needs as well as improving the throughput and effi - place in regions of Russia proximate to the Company’s main ciency of the storage sites. In addition, the Company expects assets indicating valuations of USD* 500 to 1000 per hec- to invest in expansion of its irrigated root crop business. tare. Black Earth Farming is focused on increasing production potential and generating cash fl ows from its assets to Fixed Assets unlock land value. The Company is also actively looking at Fixed assets of USD* 176.7 million predominantly comprise opportunities to optimize its land bank by selling less profi t- of PP&E (property, plant and equipment), namely build- able areas and consolidating more productive regions. ings (mainly storage facilities), land held at acquisition cost as well as 100% owned machinery and equipment used in Inventory aʦnd biologʦicaʦl aʦssets crop production. Costs for PP&E items have generally been 190 thousand tons of crops harvested in 2013 were held in incurred locally in Russian Roubles whereby the vast major- inventory as of 31 December 2013, with 61% of the volumes ity of the Company’s fi xed assets are denominated in the consisting of corn, 10% sunfl ower, 11% wheat and 15% bar- local currency. ley. Market and contracted sales prices (excluding 10% VAT) detailed in table T2 were used to estimate a net realizable Laʦnd value of USD* 35.6 million of this inventory. In addition Land is recorded at acquisition cost but the Company USD* 20.5 million of raw materials and consumables result- believes that Russian agricultural land remains underval- ed in a total inventory value (excluding biological assets) of ued, both in comparative terms and in relation to its inher- USD* 56.1 million. As of 31 December 2013, the company ent production potential. 12.8 thousand hectares in Samara, had biological assets of USD* 17.6 million, which mostly where operations ceased in 2009, was reclassifi ed in the consisted of winter crops to be harvested in 2014. This is statement of fi nancial position as investment property dur- signifi cantly lower than the USD*30.7 million in 2012. This ing Q4 2013. As of 31 December 2013, the Company had a is due to a signifi cantly lower winter wheat crop area going total of 308 thousand hectares under control. 282 thousand into 2014, as well as a lower spend in the fall of 2013 on ini- hectares, that was not classifi ed as prepayment or invest- tiatives to increase yield potential. ment property, is recorded at acquisition cost in the state-

D8: Simpliﬁ ed Baʦlaʦnce Sheet aʦ/o 31 December 2013, USD* million 400

350 18 12 229 300 56

250 65

200 70 150 52 100 99 55 50

Laʦnd Maʦchinery Storaʦgʦe Caʦsh Inventory Biologʦicaʦl Other Net Equity BV SEK Bond (@ Cost) Infraʦstructure Assets Assets Net

1. On 4 April 2014, the Compaʦny aʦnnounced plaʦns to sell 27,754 hectaʦres of controlled laʦnd aʦnd relaʦted reaʦl estaʦte aʦssets in the Voronezh regʦion. Refer aʦlso tonote36 to the fi naʦnciaʦl staʦtements on Subsequent events * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 32 Finaʦnciaʦl Position the carry-in 2012 crop inventory was sold at a USD* 7 million The company had USD* 64.9 million in cash as of 31 gross loss off the 31 December 2012 book value, it generated December. On its opening balance, the company also had USD* 36.6 million of cash proceeds in 1H13. In light of the crop inventory valued at an estimated USD* 35.6 million, weak prices in 2013, the company paced its capital expendi- intended for sale in 1H14. On 30 October 2013, the company ture, with net investments into predominantly machinery refi nanced its outstanding 2014 bond with a new four year of USD* –12.1 million in 2013 substantially lower than the SEK 750 million bond, extending maturity to 2017. As of corresponding USD* –19.9 million invested in 2012. As a December 31 2013, the company held approximately SEK result, the Company was cash fl ow positive before interest 100 million of the bonds on its balance sheet. The company’s payments and fi nancial activities. Net interest payments of net debt position (Total interest bearing debt less cash) as USD* –13.6 million were higher than in 2012 due to the refi - of 31 December 2013 amounted to USD* 34.5 million. Total nancing and early redemption on the company’s outstand- debt to equity ratio reached 43%. The Company is actively ing bonds. In 2Q13, the company repurchased USD* 5.6 mil- looking at opportunities to attract subsidized Russian bank lion of its own bonds. Total net cash outfl ows for 2013 were funding in a credit facility for working capital purposes. USD* –19.6 million.

Caʦsh Flow Biologʦicaʦl Assets Cash fl ows from farming operations are highly seasonal Biological assets are recorded in the statement of fi nancial and can vary greatly from quarter to quarter. The majority position as an estimated value of crops in fi elds. A way to of cash outfl ows relating to direct operating costs and capi- look at biological assets is as a work in process (WIP) inven- tal expenditures arise during the fi rst half of the calendar tory. Depending at what stage of the growth cycle the crop year while revenue infl ows commence post-harvest from is in, the value is estimated either by incurred costs for fi eld July and carry into the following calendar year. Due to the works (cultivations, seeding, fertilizer spreading, herbicide accounting practice to revalue biological assets and inven- spraying etc.) or an estimate of revenue (harvest volume tory and take gains or losses through the income statement, and price per crop) less production and selling expenses. The there is signifi cant discrepancy between the profi t and loss revaluation of biological assets is performed in accordance and the cash fl ow statement. with the requirements of IAS 41 Agriculture which states Despite a USD* 51.4 million drop in net profi t y-o-y, oper- that a biological asset shall be measured on initial recogni- ating cash fl ows after working capital changes were stronger tion and at each balance sheet date at its fair value less esti- in 2013 than in 2012 (USD* 12.6 million vs USD* 8.6 mil- mated point-of-sale costs. lion). This is partly due to the decrease in investment in bio- Black Earth Farming values crops in the fi elds at incurred logical assets (preparatory fi eld works and winter crops for costs up until 30 June each year. At that point suffi cient ger- harvest in next fi nancial year). The gap between profi tabil- mination (biological transformation) has occurred, enabling ity and cash fl ows however also refl ects the fact that, while estimates of crop yields and market prices less point-of-sale costs to determine an estimate of fair value at the time of harvest. The initial revenue estimate is attached a readiness percentage in the range 50–70% a/o 30 June depending on crop and time to harvest as signifi cant risk to crop yield and price remain at the time. After harvest the crops are transferred to fi nished goods inventory where they are recorded D9: Caʦpitaʦl Expenditures 2009–2013, USD* million at net realisable value determined by market prices. As 31 December 2013 biological assets consisted mainly of costs 60 Storaʦgʦe infraʦstructure Laʦnd incurred for winter crops to be harvested in 2014 amount- Maʦchinery & equipment Other ing to USD* 17.6 million.

2009 2010 2011 2012 2013

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 33 D10: Faʦrmingʦ Schedule (one crop yeaʦr) Crop April Maʦy June July Augʦust September October Winter Wheaʦt

Springʦ Wheaʦt

Springʦ Baʦrley

Springʦ OSR

Sunflower

Soyaʦ

Corn

■ Soil cultivaʦtion ■ Seedingʦ ■ Fertilizer aʦpplicaʦtion ■ AgʦChem spraʦyingʦ ■ Haʦrvest

D11: 2013 Crop Vaʦlue in Staʦtement of Finaʦnciaʦl Position, USD* million 2013 Crop in Field @ Faʦir Vaʦlue Estimaʦte 140 in Baʦlaʦnce Sheet 120

100 34.0 21.9 80 31.5 60 2013 Crop in Field @ Cost 1.9 59.9 in Baʦlaʦnce Sheet 40 88.9 35.6 20 60.1 39.5 31.1 0 17.6 (13.1) (20)

(40) 10.7

BV 31 Dec 2012 31 Maʦr 2013 30 Jun 2013 3Q Crop Saʦles 30 Sep 2013 4Q Crop Saʦles 31 Dec 2013

■ 2013 Crop in Field (Biologʦicaʦl Assets) ■ 2014 Crop in Field (Biologʦicaʦl Assets) ■ Revaʦluaʦtion to Faʦir Vaʦlue of 2013 Crop ■ 2013 Haʦrvested Crop

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 34 Risks aʦnd Sensitivity Anaʦlysis

Blaʦck Eaʦrth Faʦrmingʦ is exposed to aʦ number of different – Infraʦstructure aʦnd Logʦistics risks aʦs aʦ laʦnd owner aʦnd crop producer. In aʦddition, the The ability to safely process (mostly drying and cleaning) compaʦny faʦces chaʦllengʦes specifi c to its gʦeogʦraʦphicaʦl and properly store its crop production after harvest is an aʦreaʦ aʦnd business model. These risks caʦn be divided into important factor for BEF to manage risks to the quality and three maʦin caʦtegʦories: operaʦtionaʦl, maʦrket relaʦted aʦnd value of its crops. Storage and transport infrastructure in fi naʦnciaʦl. Russia is often outdated and ineffi cient. The Company has The recent years have highlighted the inherent volatility therefore invested in internal infrastructure, capable of cov- of the farming business due to the signifi cant eff ects of crop ering the processing and storage needs for the majority of its volumes and prices on revenue and profi tability. The Com- expected harvest year crop volumes. Implementation of GPS pany’s operating regions are also highly exposed to weather monitoring and Telemetry technologies are expected to fur- events, which can have negative eff ects on crop yields and ther increase crop and harvest information fl ow to support operational costs. Crop prices both internationally and decision making and crop handling logistics. Centralized domestically are highly volatile, as short-term shifts in sup- management of harvest, crop handling and storage logistics ply and demand balances can cause prices to drop and rise as well as real time information is key to maintain a proper signifi cantly from one year to the next. Crop yield and price level of control over some 20 harvesting teams and 40 stor- volatility are the key two risks in the Company’s operating age sites across the Company’s operations. As BEF expands environment and as a producer of agricultural commodities. its export program, securing adequate rail transport and Meanwhile, the current lack of price hedging mechanisms port handling capacity is crucial to be able to execute and limits the Company’s ability to manage price risks. In addi- deliver on contracts with international counterparties. To tion, lack of modern seed varieties and public or private improve visibility on port capacity, cooperation has been scientifi c crop trial data in Russia, reduces the Company’s established with an international partner at a deep water ability to manage crop yield risks. The Company has imple- port on the Baltic Sea. To manage risks of not being able to mented several strategies to mitigate these key risk factors. access suffi cient rail throughput capacity, the company has diversifi ed its supplier base by contracting from private sup- – Operaʦtionaʦl pliers alongside the leading State controlled operator. Operational risks refer to risks related to the management of the business that are within the Company’s control. – Employees The Group’s management team consists of an increasing – Crop Yields number of key individuals and operating specialists. The A range of factors aff ect the germination of crops in fi elds, loss of any key person could have an adverse impact on the only some of which are within the Company’s control. The Group’s performance. The success of the company depends Company strives to apply agronomical best practices and the on its ability to attract, retain and motivate appropriate appropriate fi eld works to maximize yield and increase the managerial personnel with experience of the Russian agri- resilience of its crops to adverse weather conditions, pests cultural market. Competition for personnel with relevant and fungi. The Company is also committed to recruiting expertise and willingness to operate in rural areas in Rus- qualifi ed managers and training its staff to ensure that the sia is intense, due to the relatively small number of qualifi ed proper competences are in place for all fi eld operations. The individuals. The Company aims to attract and retain key Company is also building an information infrastructure and personnel by providing a competitive and balanced combi- reporting process to support timely and effi cient decision nation of compensation and incentive structures. making. Key material inputs and life science data, such as seeds customized for the specifi c climatic conditions and – Maʦrket Relaʦted soil characteristics for certain regions, are not always avail- Market related risks primarily refer to price and weather able for some of Russia’s key crops and operating areas. To risks outside the management’s control. These are risks that mitigate such operating challenges and cover information the board and management have a limited ability to infl u- gaps, the Company performs constraint free fi eld trials of encing in the short term, but must manage and consider in diff erent seeds to fi nd and develop high performing varie- the longer-term planning of the business. ties internally. Several other initiatives to remove constraints to crop yields, improve crop production potential – Weaʦther and mitigate weather and other risks are also underway (see i. Seasonal patterns also operational review). Weather conditions are a signifi cant risk aff ecting BEF, as the majority of the Company’s area is rain fed crop land.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 35 D1: 5 Yeaʦr Yield Development per Crop, D2: 2009–2013 BEF Crop Volume aʦnd Price tons per hectaʦre Development

6 W. Wheaʦt Baʦrley Sunflower Oilseed Raʦpe 225 Commerciaʦl Haʦrvest (rigʦht), thousaʦnd tons 900 Corn Soybeaʦn Averaʦgʦe Crop Price (left), 200 USD per ton 800 5 175 700

4 150 600

125 500 3 100 400

2 75 300

50 200 1 25 100

0 00

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

Poor seasonal weather conditions (whether too dry or too ii. Climate change wet) and unpredictable climatic changes may adversely The Food and Agriculture Organization (FAO) of the United aff ect production and the Company’s results. The company Nations expects global warming to have a regional but not is continuously developing its agronomical practices and a global eff ect on food production. Current research sug- operational decision making to improve timely ﬁ eld works, gests that the potential for crop production will increase which can partially mitigate the weather eff ects on crop in temperate and northerly latitudes, while it may decline yields and crop quality. The inherent volatility relating to in parts of the tropics and subtropics. That would suggest a weather factors will be still be present but by lifting crop longer growing period for crops in the Company’s operating yield potential and removing constraints to yields, the sen- regions. sitivity of the Company’s results to seasonal weather patterns should be reduced over time. Additional measures to – Commodity Prices reduce sensitivity to weather events include diversifying i. Crop Prices the crop mix, for example with the addition of as irrigated Market prices of agricultural commodities are inﬂ uenced potato production, to the Company’s core business of grains by a variety of unpredictable factors, most of which are and oilseeds. As in 2013, the Company also intends to use beyond the control of the company. These include, weath- crop insurance in 2014 to hedge against negative eff ects on er, global cropping plans, government agricultural policies crop yields from major regional weather events. and changes to global demand and supply of similar and

D3: Breaʦkdown of Operaʦtingʦ Costs (left) aʦnd Direct Production Costs (rigʦht), Production Yeaʦr 2013

Distribution & Storaʦgʦe Laʦbor3% Other 1% Expenses 12% Fuel 11% Fertilizers 28%

Depreciaʦtion12% 3rd paʦrty Direct services Production 12% Costs 63% Overheaʦds13% Agʦ Chemicaʦls 24% Seeds 21%

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 36 competing crops. The markets available to hedge price fl uc- In March 2014, sanctions were imposed by the U.S. and tuations via physical forward sales or using fi nancial instru- E.U. on certain Russian offi cials, businessmen and compa- ments remain underdeveloped in Russia, where a majority nies. These actions, particularly if further extended, may of sales transactions are still conducted on a spot basis. The result in reduced access of the Russian businesses to inter- Company’s export program is a key initiative in this area. national capital and export markets, capital fl ight, weaken- The export program serves not only to diversify sales and ing of the Ruble and other negative economic consequences. target an export netback margin, but also to facilitate for- The impact of these developments on the future operations ward pricing and to develop customer partnerships based on and fi nancial position of the Company is at this stage diffi - long term contracts. The Company is also actively seeking to cult to determine. develop longer-term supply contracts with reliable domestic counterparties. In October 2012, BEF signed a cooperation – Finaʦnciaʦl agreement with PepsiCo in Russia as part of this strategy The Group’s fi nancial risks are managed in accordance with to establish longer term relationships to manage price and the Treasury Policy that has been adopted by the Board of volume risks. The Company intends to expand this type of Directors. Additional details regarding accounting princi- arrangements and has long-term forward contracts with ples and risks are given in notes 1, 3, 30 and 32. other counterparties as well. Where forward sales are not possible, the Company – Finaʦncingʦ risk may make use of hedging instruments. In 2013, the Com- Financing risk refers to the risk of Black Earth Farming pany’s took positions in futures and options on interna- being unable to meet its need for new capital. The com- tional exchanges in Paris (MATIF) and Chicago (CBOT). pany completed a SEK 530 million rights issue in Decem- The Company’s hedging activities primarily serves to lock ber 2012 to fi nance investment and working capital needs in a margin over the Company’s expected unit costs, reduce related to the PepsiCo agreement announced in October. price volatility and provide an additional channel to price On 30 October 2013, the company refi nanced its outstand- forward. In deciding whether or not put on price hedges, ing 2014 bond with a new four year SEK 750 million bond, the Company considers the futures price levels in relation extending maturity to 2017. The company currently holds to budgeted costs as well as the broader sales portfolio and approximately SEK 100 million of the bond on its balance market outlook. A sales and marketing committee, includ- sheet. The Company is actively looking at opportunities to ing a board representative, convenes regularly to discuss and attract subsidized Russian bank funding in a credit facility decide on hedging strategies. for working capital purposes. Although the Company generated cash from operations before interest and taxes in 2012 ii. Input Prices and 2013 there has historically been a dependence of exter- Fertilizers, seeds, herbicides and fuel are key inputs in the nal fi nancing. Company’s production process and comprise a high share of operating costs. The industries supplying these key input – Liquidity risk materials are all characterized by a relatively high level of Liquidity risk is the risk that the Group will not be able to consolidation, where the number of potential suppliers is meet its fi nancial obligations as they fall due. The Group’s limited and the company’s purchasing power is low. A cen- approach to managing liquidity is to ensure, as far as pos- tralized procurement department consolidates major pur- sible, that it will always have suffi cient liquidity to meet chase items to obtain the best pricing and terms available. its liabilities when due, under both normal and stressed conditions. – Politicaʦl aʦnd Regʦulaʦtory Risk Although reform has come a long way in Russia, the agri- – Credit risk cultural sector both in Russia and globally remains prone Credit risk is the risk of fi nancial loss to the Group if a cus- to government regulations and policies limiting free trade tomer or counterparty to a contract or a fi nancial instru- or aff ecting market prices. In 2010 Russia enacted an export ment fails to meet its contractual obligations. As the major- ban on grains and in 2011 the state reportedly engaged in ity of domestic sales are made on a prepayment basis, the direct market interventions to reduce crop price volatility. counterparty or credit risk related to receivables on domes- Russia’s entry to the World Trade Organization could reduce tic sales is limited. The Company seeks longer term relation- the probability of trade distortions as was demonstrated ships with highly credit worthy counterparties to reduce in 2012 when no trade restrictions were imposed on grains counterparty risks. In terms of its liquid cash holdings, the despite a poor Russian harvest. Geopolitical developments Group aims to diversify its credit exposure by placing sur- and the position of the Russian Federation in the interna- plus funds on deposit with a variety of established banks in tional community could impact mutual commitment to free Russia and abroad. trade principles. Domestic government support for selected sub sectors of Russian agriculture is expected to remain in one form or another. * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 37 – Interest raʦte risk D4: BEF Reaʦlized Price 2012–2013, USD*/ton Changes in interest rates impact primarily loans and bor- 325 Quaʦrterly Averaʦgʦe Blended Price per ton, USD* rowings by changing the fair value of fi xed rate debt. The 2012 Averaʦgʦe 2013 Averaʦgʦe Group adopts a policy of limiting its exposure to changes 300 in interest rates by borrowing on a fi xed rate basis. At the 275 time of raising new loans or borrowings, management uses 250 its judgment to decide whether it believes that a fi xed or variable rate would be more favourable to the Group over 225 the expected period until maturity. On 30 October 2013, 200 the company refi nanced its outstanding 2014 bond with a 175 new four year SEK 750 million bond, extending maturity to 2017. The new bond has a fi xed 9.4% coupon, which is paid 150 quarterly. 125

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 – Currency risk 2012 2012 2012 2012 2013 2013 2013 2013 The Group is exposed to currency translation risk as its borrowings, mostly denominated Swedish Krona (SEK), fl uctuate against its assets, which are predominantly denominated in the Group’s functional currency in the Rus- sian ruble (RUR). The Company is also exposed to transaction risks in its cash fl ows. With a meaningful part of costs in RUR, the Company has historically hedged part of the fl uctuations in its euro denominated export proceeds using forward contracts. See note 30 for more information. The Company’s policy is to make maximum use of natural hedging by seeking asset-liability and cash infl ow- outfl ow matching. To mitigate the translation risks on the Company’s balance sheet, this means keeping cash, which is not required for immediate operational purposes, in the same currency as its liabilities (SEK) or in currencies that are highly correlated with the currency of its liabilities. It also means that the Company may gradually seek to reduce its SEK obligations and increase RUR denominated debt. To mitigate transaction risks in the company’s cash fl ows, the Company seeks, where possible, to match infl ows and outfl ows. Key cash outfl ows in currency other than RUR include interest on bonds (SEK), seeds (partly linked to EUR or USD), agrochemicals (partly linked to EUR or USD) and certain capital expenditure items (partly linked to EUR or USD). Key cash infl ows in currency other than RUR come from the Company’s export revenues (EUR). The Company also recognizes that domestic sales and certain cost items indirectly may be linked to currencies other than RUR.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 38 Five Yeaʦr Summaʦry

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Profi t & Loss (Million) RUR RUR RUR RUR RUR USD* USD* USD* USD* USD* Saʦles Revenue 2,395 1,430 2,067 4,458 4,307 73.2 43.7 63.2 136.2 131.6 Chaʦngʦe (40%) 45% 116% (3%) (40%) 45% 116% (3%) Totaʦl revenue aʦnd gʦaʦins 2,283 1,928 2,499 6,808 4,732 69.8 58.9 76.4 208.0 144.6 Chaʦngʦe (16%) 30% 172% (32%) (16%) 30% 172% (32%) Gross profi t/(loss) (33) 284 86 1,680 196 (1.0) 8.7 5.1 51.3 6.0 Maʦrgʦin15% 7% 25% Negʦ. 15% 7% 25% Negʦ. Operaʦtingʦ profi t/(loss) (1,161) (827) (813) 605 (975) (35) (25) (25) 18 (30) Maʦrgʦin Negʦ. Negʦ. 9% Negʦ. Negʦ. Negʦ. 9% Negʦ. Profi t/(loss) before income taʦx (1,306) (1,232) (1,303) 287 (1,429) (40) (38) (40) 9 (44) Maʦrgʦin Negʦ. Negʦ. 4% Negʦ. Negʦ. Negʦ. 4% Negʦ. Net profi t (loss) (1,349) (1,171) (1,342) 218 (1,463) (41) (36) (41) 7 (45) Maʦrgʦin Negʦ. Negʦ. 3% Negʦ. Negʦ. Negʦ. 3% Negʦ. Baʦsic profi t(loss) per shaʦre (RUR/USD*) (10.83) (9.39) (10.77) 1.68 (7.05) (0.33) (0.29) (0.33) 0.05 (0.22) Diluted profi t(loss) per shaʦre (RUR/USD*) (10.83) (9.39) (10.77) 1.68 (7.05) (0.33) (0.29) (0.33) 0.05 (0.22)

Caʦsh Flows (Million) RUR RUR RUR RUR RUR USD* USD* USD* USD* USD* Caʦsh flows utilised by operaʦtingʦ aʦctivities 5 (773) (1,224) (92) (39) 0.1 (23.6) (37.4) (2.8) (1.2) Caʦsh flows utilised by investingʦ aʦctivities (1,259) (741) (547) (554) (333) (38.5) (22.6) (16.7) (16.9) (10.2) Caʦsh flows from ﬁ naʦncingʦ aʦctivities (352) 1,291 (181) 2,247 (270) (10.8) 39.5 (5,5) 68.7 (8.2)

Finaʦnciaʦl position aʦnd return (Million/%) RUR RUR RUR RUR RUR USD* USD* USD* USD* USD* Totaʦl aʦssets 11,050 11,282 10,153 12,822 11,309 338 345 310 392 346 Property, plaʦnt aʦnd equipment 5,531 5,922 6,020 6,014 5,785 169 181 184 184 177 Caʦsh aʦnd caʦsh equivaʦlents 3,211 2,983 985 2,639 2,125 98 91 30 81 65 Totaʦl equity 8,744 7,605 6,289 8,905 7,487 267 232 192 272 229 Equity per shaʦre (RUR/USD*) 70.2 61.0 50.5 42.9 36.1 2.1 1.9 1.5 1.3 1.1 Operaʦtingʦ caʦsh flows per shaʦre (RUR/USD*) 0.0 (6.2) (9.8) (0.4) (0.2) 0.0 (0.2) (0.3) 0.0 0.0 Debt/Equity 21% 43% 52% 36% 43% 21% 43% 52% 36% 43% Equity/Assets 79% 67% 62% 69% 66% 79% 67% 62% 69% 66% Non-current loaʦns aʦnd borrowingʦs 1,838 3,297 3,266 3,162 3,211 56 101 100 9798 Gross maʦrgʦin1 Negʦ. 15% 7% 25% 4% Negʦ. 15% 7% 25% 4% Operaʦtingʦ proﬁ t maʦrgʦin Negʦ. Negʦ. Negʦ. 9% Negʦ. Negʦ. Negʦ. Negʦ. 9%Negʦ. Net proﬁ t maʦrgʦin Negʦ. Negʦ. Negʦ. 3% Negʦ. Negʦ. Negʦ. Negʦ. 3%Negʦ. Return on Equity Negʦ. Negʦ. Negʦ. 3% Negʦ. Negʦ. Negʦ. Negʦ. 3%Negʦ.

1. Gross maʦrgʦin less gʦaʦin on revaʦluaʦtion of biologʦicaʦl aʦssets

Production & Saʦles 2009 2010 2011 2012 2013 Commerciaʦl Haʦrvested aʦreaʦ (haʦ) 183,042 179,767 228,900 220,119 225,632 Yeaʦr-on-yeaʦr chaʦngʦe (2%) 27% (4%) 3% Commerciaʦl Gross Haʦrvest (tons) 506,131 222,916 499,287 617,578 790,152 Yeaʦr-on-yeaʦr chaʦngʦe (56%) 124% 24% 28% Volumes Sold (tons) 617,360 277,694 399,473 683,610 715,415 Yeaʦr-on-yeaʦr chaʦngʦe (55%) 44% 71% 5% End of Period Inventory (tons) 203,401 129,124 211,914 131,809 190,360 % of Commerciaʦl haʦrvest 40% 58% 42% 21% 24% Averaʦgʦe Reaʦlised Price per Ton (USD*) 125 164 166 212 181 Yeaʦr-on-yeaʦr chaʦngʦe 31% 31% 28% (15%) Laʦnd Holdingʦ (thousaʦnd hectaʦres) 2009 2010 2011 2012 2013 Laʦnd under Control 320 328 318 308 308 Yeaʦr-on-Yeaʦr chaʦngʦe, % 2% (3%) (3%) 0% Laʦnd in Full Ownership 216 250 260 250 254 Yeaʦr-on-Yeaʦr chaʦngʦe, % 16% 4% (4%) 2% Laʦnd in Ownership Regʦistraʦtion Process 75 30 18 19 17 Yeaʦr-on-Yeaʦr chaʦngʦe, % (60%) (40%) 3% (8%) Laʦnd in Longʦ Term Leaʦse 39 48 40 40 37 Yeaʦr-on-Yeaʦr chaʦngʦe, % 23% (17%) (1%) (6%)

* Ruble vaʦlues for aʦll 5 yeaʦrs converted aʦt 31 December 2013 RUR/USD raʦte (32.7292). The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2 (d). 39 The Blaʦck Eaʦrth Faʦrmingʦ shaʦre

provided by the rights attached to the SDRs. Any dividends Blaʦck Eaʦrth Faʦrmingʦ shaʦre informaʦtion which have remained unclaimed for a period of ten years Naʦsdaʦq OMX Stockholm Exchaʦngʦe naʦme: from its due date of payment shall, if the Board so resolves, be Listed form: Swedish Depository Receipt (“SDR”) forfeited and shall cease to remain as a debt for the Company CCY: SEK and shall thereafter belong to the Company. The Company Traʦdingʦ lot: 1 has never declared nor paid any cash dividends on its capital Outstaʦndingʦ shaʦres: 207,669,445 stock and currently intends to retain future earnings to fund Exchaʦngʦe short naʦme: BEF SDB the development and growth of its business. Reuters ticker: BEFsdb.ST Bloombergʦ ticker: BEFSDB:SS Ownership structure At year end 2013 Black Earth Farming had about 14,000 ISIN code: SE0001882291 shareholders, compared to 8,000 at year end 2012. The 5 Sector: Agʦriculturaʦl Products largest shareholders accounted for 48.2% of the number of shares and voting rights compared to 71.2% in 2012. In June Maʦrket listingʦ 2013, Vostok Nafta, an investment company that had held As of June 2009 trading in Black Earth Farming’s shares 25% of the shares in the Company, distributed its sharehold- takes place on Nasdaq OMX Stockholm and before that on ings in the Company to its shareholders. the OMX First North in Stockholm since the IPO in Decem- ber 2007. The Company’s shares are listed in the form of Traʦdingʦ Swedish Depository Receipts. Black Earth Farming Limited A total of 112.0 million SDRs were traded during the period has a custodial arrangement with Pareto Öhman whereby 1 January 2013–31 December 2013, corresponding to a value Pareto Öhman, on behalf of shareholders, will hold common of SEK 797.4 million. On average 448 thousand SDRs were shares in the Company in a depository account and issue one traded each business day, corresponding to an average value Swedish Depository Receipt (“SDR”) for each Share deposit- per day of SEK 3.8 million. ed. The SDRs are registered with Euroclear (former VPC AB). An SDR entails the same right to a dividend as the underly- Maʦrket Caʦpitaʦlizaʦtion ing Share, and an SDR holder has the same right to vote at Black Earth Farming’s market capitalization at 31 December General Meetings as a shareholder. In order to attend a Gen- 2013 was SEK 1,339 million compared to SEK 1,838 million eral Meeting it is, however, required that the holder of SDRs at 31 December 2012 (–27% y-o-y). follows the instructions from the custodian bank. 2012 Rigʦhts Issue Votingʦ rigʦhts On 13 November 2012 an Extraordinary General Meeting Each Share/SDR carries the right to cast one vote on all mat- authorised the Board of Directors to carry out a SEK 530 ters submitted to a vote of the shareholders. million rights issue. The issue was successfully completed in December 2012 where 83.1 million new SDRs were issued Dividends aʦnd dividend policy for SEK 6.38 per SDR. Following the issue the total number The profi ts of the Company available for dividends and of outstanding shares (represented by SDRs) and votes were resolved to be distributed shall be distributed pro-rata to the 207.7 million. holders of SDRs in accordance with their respective share in the assets and profi ts of the Company. The Company’s gen- 2013 Bond eral meeting may declare dividends accordingly, but no divi- On 30 October 2013, the company refi nanced its outstand- dends shall exceed the amount recommended by the Board. ing 2014 bond with a new four year SEK 750 million bond, No dividends shall be payable otherwise than in accordance extending maturity to 2017. As of December 31 2013, the with the 1991 Law and the Articles of Association. There are company held approximately SEK 100 million of the bonds no fi xed dates on which entitlement to dividends arises. on its balance sheet. Subject to the provisions of the 1991 Law and the Articles of Association, the Board may from time to time pay to hold- Anaʦlysts Coveringʦ Blaʦck Eaʦrth Faʦrmingʦ ers of SDRs such interim dividends as deemed to be justifi ed Paʦreto Securities by the profi ts of the Company. Sergʦej Kaʦzaʦtchenko , tel: +46-8-402 50 00 No dividends or other monies payable in respect of an SDR ABG Sundaʦl Collier shall bear interest as against the Company unless otherwise Johaʦnnes Grunselius, tel: +46-8-566 286 94

40 D1: BEF 2012–2013 shaʦre price (in SEK) D2: BEF 2012–2013 shaʦre performaʦnce aʦnd monthly aʦveraʦgʦe turnover (in SEK Million) vs index (in %) Turnover, SEK Million SEK % % Averaʦgʦe turnover BEF SDR 14 50 BEF SDR Stockholm All Shaʦre 50

12 25 25 10

0 0 8 8

6 6 –25 –25

4 4 –50 –50 2 2

0 0 –75 –75 2012 2013 2012 2013 Source: NASDAQ OMX Source: NASDAQ OMX

D3: Maʦrket caʦpitaʦlizaʦtion aʦs per 31 December, MSEK D4: Averaʦgʦe daʦily traʦded volume, MSEK 3,500 6

3,000 5

2,500 4 2,000 3 1,500 2 1,000

500 1

0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Source: NASDAQ OMX Source: NASDAQ OMX

T1: 5 laʦrgʦest shaʦreholders aʦs of 31 December 2012 T2: 5 laʦrgʦest shaʦreholders aʦs of 31 December 2013

Holdingʦ, Holdingʦ, Holdingʦ, Holdingʦ, Owner Shaʦres/SDRs %Owner Shaʦres/SDRs % 1 Investment AB Kinnevik 51,811,828 24.9% 1 Investment AB Kinnevik 51,811,828 24.9% 2 Vostok Naʦftaʦ Investment Ltd 51,481,173 24.8% 2 Alectaʦ Pension Funds 20,708,180 10.0% 3 Alectaʦ Pension Funds 18,569,333 8.9% 3 Daʦnske Invest Funds 10,791,101 5.2% 4 Läʦnsförsäʦkringʦaʦr Funds 17,588,072 8.5% 4 Luxor Caʦpitaʦl Group 10,316,574 5.0% 5 Daʦnske Invest Funds 8,334,144 4.0% 5 GoMobile Nu AB 6,380,584 3.1% 5 laʦrgʦest owners 147,784,550 71.2% 5 laʦrgʦest owners 100,008,267 48.2% Other, aʦpprox 8,000 shaʦreholders 59,884,895 28.8% Other, aʦpprox 14,000 shaʦreholders 107,661,178 51.8% Totaʦl outstaʦndingʦ 207,669,445 100.0% Totaʦl outstaʦndingʦ 207,669,445 100.0% Source: Eurocleaʦr Sweden shaʦre regʦistry & shaʦreholders’ reference Source: Eurocleaʦr Sweden shaʦre regʦistry & shaʦreholders’ reference

41 Blaʦck Eaʦrth Faʦrmingʦ Limited aʦnd Subsidiaʦries Consolidaʦted Finaʦnciaʦl Staʦtements aʦs aʦt aʦnd for the yeaʦr ended 31 December 2013

Contents Staʦtement of maʦnaʦgʦement responsibilities for the prepaʦraʦtion aʦnd aʦpprovaʦl of the consolidaʦted ﬁnaʦnciaʦl staʦtements for the yeaʦr Paʦgʦe ended 31 December 2013 ...... 43 Independent Auditors’ Reports...... 44 Consolidaʦted Staʦtement of Comprehensive Income/(Loss) ...... 46 Consolidaʦted Staʦtement of Finaʦnciaʦl Position ...... 47 Consolidaʦted Staʦtement of Chaʦngʦes in Equity ...... 48 Consolidaʦted Staʦtement of Caʦsh Flows ...... 49 Notes to the Consolidaʦted Finaʦnciaʦl Staʦtements ...... 50

42 Staʦtement of maʦnaʦgʦement responsibilities For the prepaʦraʦtion aʦnd aʦpprovaʦl of the consolidaʦted ﬁ naʦnciaʦl staʦtements for the yeaʦr ended 31 December 2013

The Board of Directors is responsible for preparing the – Provide additional disclosures when compliance with the fi nancial statements in accordance with applicable law and specifi c requirements in IFRS are insuffi cient to enable regulations. users to understand the impact of particular transactions, Company law requires the Board of Directors to prepare other events and conditions on the entity’s fi nancial posi- fi nancial statements for each fi nancial year. Under that law tion and fi nancial performance; and the Board of Directors has elected to prepare the fi nancial – Make an assessment of the company’s ability to continue statements in accordance with International Financial as a going concern. Reporting Standards (“IFRS”) as adopted by the European Union. The fi nancial statements are required by law to give The Board of Directors is responsible for keeping proper a true and fair view of the state of aff airs of the company and accounting records that disclose with reasonable accuracy of the profi t or loss of the company for that period. at any time the fi nancial position of the Group and enable International Accounting Standard 1 requires that fi nan- them to ensure that the fi nancial statements comply with cial statements present fairly for each fi nancial year the the Companies (Jersey) Law 1991. They are also responsible Group’s fi nancial position, fi nancial performance and cash for safeguarding the assets of the company and hence for fl ows. This requires the faithful representation of the eff ects taking reasonable steps for the prevention and detection of of transactions, other events and conditions in accordance fraud and other irregularities. with the defi nitions and recognition criteria for assets, lia- The Board of Directors has established an Audit Com- bilities, income and expenses set out in the International mittee. The Audit Committee reviews with Management Accounting Standards Board’s ‘Framework for the prepa- and the external auditors any signifi cant fi nancial report- ration and presentation of fi nancial statements’. In virtu- ing issues, the fi nancial statements, and any other matters ally all circumstances, a fair presentation will be achieved of relevance to the parties. The Audit Committee shall meet by compliance with all applicable IFRS. However, Board of as regularly as deemed necessary by the Board, but it should Directors is also required to: be at least four times a year, in connection with the release – Properly select and apply accounting policies; of the Company’s interim and full year fi nancial state- – Present information, including accounting policies, in a ments. The external auditors have unrestricted access to the manner that provides relevant, reliable, comparable and Company. understandable information; The fi nancial statements were approved by the Board of Directors and authorized for issue on 11 April 2014.

Vigʦo Caʦrlund Per Brilioth Chaʦirmaʦn of the Boaʦrd Non-executive Director

Caʦmillaʦ Öbergʦ Anders Kronborgʦ Non-executive Director Non-executive Director

Poul Schroeder Maʦgʦnus Ungʦer Non-executive Director Non-executive Director

Richaʦrd Waʦrburton Executive Director aʦnd CEO

43 Independent Auditor’s Report To the shaʦreholders of Blaʦck Eaʦrth Faʦrmingʦ Limited

Report on the Consolidaʦted Finaʦnciaʦl Staʦtements risks of material misstatement of the consolidated fi nancial We have audited the accompanying consolidated fi nancial statements, whether due to fraud or error. In making those statements of Black Earth Farming Limited and its subsidi- risk assessments, the auditor considers internal control rel- aries, which comprise the consolidated statement of fi nan- evant to the entity’s preparation and fair presentation of the cial position as at 31 December 2013, and the consolidated consolidated fi nancial statements in order to design audit statement of comprehensive income, statement of chang- procedures that are appropriate in the circumstances, but es in equity and statement of cash fl ows for the year then not for the purpose of expressing an opinion on the eff ective- ended, and a summary of signifi cant accounting policies and ness of the entity’s internal control. An audit also includes other explanatory information. The consolidated fi nancial evaluating the appropriateness of accounting policies used statements are included in the printed version of this docu- and the reasonableness of accounting estimates made by the ment on pages 46–73. Board of Directors, as well as evaluating the overall presen- This report is made solely to the company’s members, as a tation of the consolidated fi nancial statements. We believe body, in accordance with Article 113A of the Companies (Jer- that the audit evidence we have obtained is suffi cient and sey) Law 1991. Our audit work has been undertaken so that appropriate to provide a basis for our audit opinion. we might state to the company’s members those matters we are required to state to them in an auditor’s report and for Opinion no other purpose. To the fullest extent permitted by law, In our opinion, the consolidated fi nancial statements give we do not accept or assume responsibility to anyone other a true and fair view of the fi nancial position of Black Earth than the company and the company’s members as a body, for Farming Limited and its subsidiaries as at 31 December 2013, our audit work, for this report, or for the opinions we have and of their fi nancial performance and cash fl ows for the formed. year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and Boaʦrd of Directors’ Responsibility for the have been properly prepared in accordance with the Compa- Consolidaʦted Finaʦnciaʦl Staʦtements nies (Jersey) Law 1991. The Board of Directors is responsible for the preparation and fair presentation of these consolidated fi nancial state- Maʦtters on which we aʦre required ments in accordance with International Financial Report- to report by exception ing Standards as adopted by the European Union, and for We have nothing to report in respect of the following mat- such internal control as the Board of Directors determine is ters where the Companies (Jersey) Law 1991 requires us to necessary to enable the preparation of consolidated fi nan- report to you if, in our opinion: cial statements that are free from material misstatement, – Proper accounting records have not been kept by the par- whether due to fraud or error. ent company, or proper returns adequate for our audit have not been received from branches not visited by us; or Auditor’s Responsibility – The fi nancial statements are not in agreement with the Our responsibility is to express an opinion on these consoli- accounting records and returns; or dated fi nancial statements based on our audit. We conduct- – We have not received all the information and explana- ed our audit in accordance with International Standards on tions we require for our audit. Auditing. Those standards require that we comply with eth- ical requirements and plan and perform the audit to obtain Emphaʦsis of Maʦtter reasonable assurance about whether the consolidated fi nan- Our audit was conducted for the purpose of forming an opin- cial statements are free from material misstatement. ion on the consolidated fi nancial statements as a whole. The An audit involves performing procedures to obtain audit supplementary United States dollar amounts, which are evidence about the amounts and disclosures in the consoli- presented solely for the convenience of users as described dated fi nancial statements. The procedures selected depend in Note 2 (d), do not form part of the consolidated fi nancial on the auditor’s judgment, including the assessment of the statements and are unaudited.

11 April 2014

Srbuhi Haʦkobyaʦn For aʦnd on behaʦlf of ZAO “Deloitte aʦnd Touche CIS” Chaʦrtered Accountaʦnt aʦnd Recogʦnized Auditor Moscow, Russiaʦ

44 Independent Auditor’s Report To the shaʦreholders of Blaʦck Eaʦrth Faʦrmingʦ Limited

Report on the Consolidaʦted Finaʦnciaʦl Staʦtements dated fi nancial statements. The procedures selected depend We have audited the accompanying consolidated fi nancial on the auditor’s judgment, including the assessment of the statements of Black Earth Farming Limited and its subsidiar- risks of material misstatement of the consolidated fi nancial ies, which comprise the consolidated statement of fi nancial statements, whether due to fraud or error. In making those position as at 31 December 2013, and the consolidated state- risk assessments, the auditor considers internal control rel- ment of comprehensive income, statement of changes in evant to the entity’s preparation and fair presentation of the equity and statement of cash fl ows for the year then ended, consolidated fi nancial statements in order to design audit and a summary of signifi cant accounting policies and other procedures that are appropriate in the circumstances, but explanatory information. The consolidated fi nancial state- not for the purpose of expressing an opinion on the eff ective- ments are included in the printed version of this document ness of the entity’s internal control. An audit also includes on pages 46–73. evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Boaʦrd of Directors’ Responsibility for the Board of Directors, as well as evaluating the overall presen- Consolidaʦted Finaʦnciaʦl Staʦtements tation of the consolidated fi nancial statements. We believe The Board of Directors are responsible for the preparation that the audit evidence we have obtained is suffi cient and and fair presentation of these consolidated fi nancial state- appropriate to provide a basis for our audit opinion. ments in accordance with International Financial Report- ing Standards as adopted by the European Union, and for Opinion such internal control as the Board of Directors determine is In our opinion, the consolidated fi nancial statements present necessary to enable the preparation of consolidated fi nan- fairly, in all material respects, the fi nancial position of Black cial statements that are free from material misstatement, Earth Farming Limited and its subsidiaries as at 31 December whether due to fraud or error. 2013, and of their fi nancial performance and cash fl ows for the year then ended in accordance with International Finan- Auditor’s Responsibility cial Reporting Standards as adopted by the European Union. Our responsibility is to express an opinion on these consolidated fi nancial statements based on our audit. We conducted Emphaʦsis of Maʦtter our audit in accordance with International Standards on Our audit was conducted for the purpose of forming an opin- Auditing. Those standards require that we comply with ethi- ion on the consolidated fi nancial statements as a whole. The cal requirements and plan and perform the audit to obtain supplementary United States dollar amounts, which are reasonable assurance about whether the consolidated fi nan- presented solely for the convenience of users as described cial statements are free from material misstatement. in Note 2 (d), do not form part of the consolidated fi nancial An audit involves performing procedures to obtain audit statements and are unaudited. evidence about the amounts and disclosures in the consoli-

Stockholm, Sweden 11 April 2014

Deloitte AB

Svaʦnte Forsbergʦ Authorized Public Accountant

45 Consolidaʦted Staʦtement of Comprehensive Income/(Loss) For the yeaʦr ended 31 December 2013

In thousaʦnds of RUR RUR USD* USD* Notes 12m. 2013 12m. 2012 12m. 2013 12m. 2012 Continuingʦ operaʦtions Revenue ...... 4,307,409 4,458,456 131,608 136,223 Gaʦin on revaʦluaʦtion of biologʦicaʦl aʦssets to aʦgʦriculturaʦl produce ...... 418,875 2,257,108 12,798 68,963 Chaʦngʦe in net reaʦlizaʦble vaʦlue of aʦgʦriculturaʦl produce aʦfter haʦrvest ...... 5,804 92,483 177 2,826 Totaʦl revenue aʦnd gʦaʦins ...... 7 4,732,088 6,808,047 144,583 208,012 Cost of saʦles ...... 8 (4,536,498) (5,128,482) (138,607) (156,694) Gross profi t ...... 195,590 1,679,565 5,976 51,318 Distribution expenses ...... 9 (677,847) (469,315) (20,711) (14,339) Generaʦl aʦnd aʦdministraʦtive expenses ...... 10 (617,466) (630,820) (18,866) (19,274) Taʦxes other thaʦn income ...... 12 (55,900) (75,912) (1,708) (2,319) Government gʦraʦnts ...... 114,582 52,625 3,501 1,608 Crop insuraʦnce net of insuraʦnce gʦraʦnts ...... 13 (45,775) – (1,399) – Other income aʦnd expenses, net ...... 14 111,885 49,258 3,419 1,502 Operaʦtingʦ (loss)/profi t ...... (974,931) 605,401 (29,788) 18,496 Finaʦnciaʦl income ...... 15 51,611 26,793 1,577 819 Finaʦnciaʦl expenses ...... 15 (380,406) (387,724) (11,623) (11,846) (Loss)/gʦaʦin on foreigʦn exchaʦngʦe differences ...... (125,161) 42,936 (3,824) 1,312 (Loss)/profi t before income taʦx ...... (1,428,887) 287,406 (43,658) 8,781 Income taʦx expense ...... 16 (34,583) (69,881) (1,057) (2,135)

Totaʦl comprehensive (loss)/income for the yeaʦr ...... aʦttributaʦble to owners of the paʦrent (1,463,470) 217,525 (44,715) 6,646

(aʦmounts aʦre indicaʦted in) (Loss)/eaʦrningʦs per shaʦre RUR RUR USD* USD* (Loss)/eaʦrningʦs per shaʦre, baʦsic aʦnd diluted ...... 26 (7.05) 1.68 (0.22) 0.05

The consolidaʦted staʦtement of comprehensive income/(loss) is to be reaʦd in conjunction with the notes to aʦnd formingʦ paʦrt of the consolidaʦted ﬁnaʦnciaʦl staʦtements set out on paʦgʦes 50 to 73.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 46 Consolidaʦted Staʦtement of Finaʦnciaʦl Position As aʦt 31 December 2013

In thousaʦnds of RUR RUR USD* USD* Notes 31-Dec-13 31-Dec-12 31-Dec-13 31-Dec-12 ASSETS Non-current aʦssets Property, plaʦnt aʦnd equipment ...... 18 5,784,693 6,014,175 176,744 183,756 Intaʦngʦible aʦssets ...... 19 10,099 2,441 309 75 Biologʦicaʦl aʦssets (livestock) ...... 20 22,049 26,193 674 800 Other non-current aʦssets ...... 21 77,821 89,060 2,378 2,721 Deferred taʦx aʦssets ...... 17 6,368 32,147 193 982 Investment property ...... 25 140,883 – 4,305 – Totaʦl non-current aʦssets ...... 6,041,913 6,164,016 184,603 188,334

Current aʦssets Inventories...... 22 1,835,992 2,218,935 56,096 67,797 Biologʦicaʦl aʦssets (crop production) ...... 20 577,253 1,006,128 17,637 30,741 Traʦde aʦnd other receivaʦbles ...... 23 728,509 673,154 22,259 20,567 Other fi naʦnciaʦl aʦssets ...... 29 – 14,148 – 432 Caʦsh aʦnd caʦsh equivaʦlents ...... 24 2,124,949 2,638,934 64,925 80,629 5,266,703 6,551,299 160,917 200,166 Assets claʦssifi ed aʦs held for saʦle ...... 25 – 107,153 – 3,274 Totaʦl current aʦssets ...... 5,266,703 6,658,452 160,917 203,440 ...... Totaʦl aʦssets 11,308,616 12,822,468 345,520 391,774 EQUITY AND LIABILITIES Equity Shaʦre caʦpitaʦl ...... 58,349 58,349 1,783 1,783 Shaʦre premium ...... 13,621,100 13,621,100 416,176 416,176 Reserves...... 199,743 206,060 6,103 6,296 Accumulaʦted defi cit ...... (6,392,663) (4,980,396) (195,321) (152,170) Totaʦl equity aʦttributaʦble to owners of the paʦrent ...... 26 7,486,529 8,905,113 228,741 272,085

LIABILITIES Non-current liaʦbilities Non-current loaʦns aʦnd borrowingʦs ...... 27 3,186,495 3,161,767 97,359 96,604 Deferred taʦx liaʦbilities ...... 17 24,110 25,945 737 793 Totaʦl non-current liaʦbilities ...... 3,210,605 3,187,712 98,096 97,397

Current liaʦbilities Current loaʦns aʦnd borrowingʦs ...... 27 67,187 172,665 2,053 5,276 Traʦde aʦnd other paʦyaʦbles ...... 28 521,712 556,978 15,940 17,016 Other ﬁ naʦnciaʦl liaʦbilities ...... 29 22,583 – 690 – Totaʦl current liaʦbilities ...... 611,482 729,643 18,683 22,292 Totaʦl liaʦbilities ...... 3,822,087 3,917,355 116,779 119,689 ...... Totaʦl equity aʦnd liaʦbilities 11,308,616 12,822,468 345,520 391,774

The consolidaʦted staʦtement of ﬁnaʦnciaʦl position is to be reaʦd in conjunction with the notes to aʦnd formingʦ paʦrt of the consolidaʦted ﬁnaʦnciaʦl staʦtements set out on paʦgʦes 50 to 73.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 47 Consolidaʦted Staʦtement of Chaʦngʦes in Equity For the yeaʦr ended 31 December 2013

In thousaʦnds of RUR RUR RUR RUR RUR RUR Equity- settled Totaʦlequity employee Caʦsh-flow aʦttributaʦble ShaʦreShaʦrebenefi ts hedgʦingʦ Accumulaʦted to owners of caʦpitaʦl premium reserve reserve defi cit the paʦrent ...... Baʦlaʦnce aʦt 1 Jaʦnuaʦry 2012 32,921 11,275,731 178,189 – (5,197,921) 6,288,920 Shaʦres issued (Note 26 (aʦ)) ...... 25,428 2,345,369 – – – 2,370,797 Profi t for the yeaʦr ...... – – – – 217,525 217,525 Other comprehensive income ...... – – – 14,148 – 14,148 Recogʦnition of shaʦre-baʦsed paʦyments (Note 26 (d)) ...... – – 13,723 – – 13,723

...... Baʦlaʦnce aʦs aʦt 31 December 2012 58,349 13,621,100 191,912 14,148 (4,980,396) 8,905,113 Reclaʦssiﬁ caʦtion from reserves to aʦccumulaʦted deﬁ cit ...... – – (37,055) (14,148) 51,203 – Loss for the period...... – – – – (1,463,470) (1,463,470)

Totaʦl comprehensive loss for the yeaʦr – – (37,055) (14,148) (1,412,267) (1,463,470) Recogʦnition of shaʦre-baʦsed paʦyments (Note 26 (d)) ...... – – 44,886 – – 44,886

...... Baʦlaʦnce aʦs aʦt 31 December 2013 58,349 13,621,100 199,743 – (6,392,663) 7,486,529

In thousaʦnds of USD* USD* USD* USD* USD* USD* Equity- settled Totaʦlequity employee Caʦsh-flow aʦttributaʦble ShaʦreShaʦrebenefi ts hedgʦingʦ Accumulaʦted to owners of caʦpitaʦl premium reserve reserve defi cit the paʦrent ...... Baʦlaʦnce aʦt 1 Jaʦnuaʦry 2012 1,006 344,516 5,444 - (158,816) 192,150 Shaʦres issued (Note 26 (aʦ)) ...... 777 71,660 – – – 72,437 Profi t for the yeaʦr ...... – – – – 6,646 6,646 Other comprehensive income ...... – – – 432 – 432 Recogʦnition of shaʦre-baʦsed paʦyments (Note 26 (d)) ...... – – 420 – – 420

...... Baʦlaʦnce aʦs aʦt 31 December 2012 1,783 416,176 5,864 432 (152,170) 272,085 Reclaʦssiﬁ caʦtion from reserves to aʦccumulaʦted deﬁ cit ...... – – (1,132) (432) 1,564 – Loss for the period...... – – – – (44,715) (44,715)

Totaʦl comprehensive loss for the yeaʦr – – (1,132) (432) (43,151) (44,715) Recogʦnition of shaʦre-baʦsed paʦyments (Note 26 (d)) ...... – – 1,371 – – 1,371

...... Baʦlaʦnce aʦs aʦt 31 December 2013 1,783 416,176 6,103 - (195,321) 228,741

The consolidaʦted staʦtement of chaʦngʦes in equity is to be reaʦd in conjunction with the notes to aʦnd formingʦ paʦrt ofthe consolidaʦted ﬁnaʦnciaʦl staʦtements set out on paʦgʦes 50 to 73.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 48 Consolidaʦted Staʦtement of Caʦsh Flows For the yeaʦr ended 31 December 2013

In thousaʦnds of RUR RUR USD* USD* Notes 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/proﬁ t for the period ...... (1,463,470) 217,525 (44,715) 6,646 Adjustments for: Income taʦx expense ...... 34,583 69,881 1,057 2,135 Depreciaʦtion aʦnd aʦmortizaʦtion ...... 599,247 574,685 18,309 17,559 Chaʦngʦe in aʦllowaʦnce for doubtful debts ...... 1,599 41,837 49 1,278 Foreigʦn exchaʦngʦe loss/(gʦaʦin) ...... 125,161 (42,936) 3,824 (1,312) Interest income ...... (51,611) (26,793) (1,577) (819) Interest expense ...... 380,406 374,870 11,623 11,453 Gaʦin on disposaʦl of property, plaʦnt aʦnd equipment ...... (14,044) (37,077) (430) (1,133) Gaʦin on revaʦluaʦtion of investment property ...... (1,753) (64,569) (54) (1,973) Shaʦre-baʦsed paʦyments ...... 44,886 13,723 1,371 420 Impaʦirments ...... – 1,496 – 46 Gaʦin on revaʦluaʦtion of biologʦicaʦl aʦssets to aʦgʦriculturaʦl produce aʦnd chaʦngʦe in net reaʦlizaʦble vaʦlue of aʦgʦriculturaʦl produce aʦfter haʦrvest ...... 7 (424,679) (2,349,591) (12,975) (71,789) Eff ect of revaʦluaʦtions on cost of saʦles...... 8 1,001,345 1,847,884 30,595 56,460 231,670 620,935 7,077 18,971 Movements in workingʦ caʦpitaʦl: (Increaʦse)/decreaʦse in inventories ...... (181,804) 211,996 (5,555) 6,477 Decreaʦse/(increaʦse) in biologʦicaʦl aʦssets ...... 432,182 (462,420) 13,205 (14,129) Increaʦse in traʦde aʦnd other receivaʦbles ...... (50,151) (253,799) (1,532) (7,755) (Decreaʦse)/increaʦse in traʦde paʦyaʦbles aʦnd other short-term liaʦbilities ...... (18,658) 165,555 (570) 5,058 Caʦsh gʦeneraʦted from operaʦtions ...... 413,239 282,267 12,625 8,622 Interest paʦid ...... (445,708) (365,512) (13,618) (11,168) Income taʦx paʦid ...... (6,799) (8,880) (208) (271) ...... Net caʦsh used in operaʦtingʦ aʦctivities (39,268) (92,125) (1,201) (2,817) CASH FLOWS FROM INVESTING ACTIVITIES Interest received ...... 51,611 27,317 1,577 835 Acquisition of laʦnd plots ...... (2,305) (11,829) (70) (361) Acquisition of property, plaʦnt aʦnd equipment ...... (395,390) (651,395) (12,081) (19,903) Proceeds from disposaʦl of property, plaʦnt aʦnd equipment ...... 22,671 84,513 693 2,582 Acquisition of intaʦngʦible aʦssets ...... (9,971) (2,951) (305) (90) ...... Net caʦsh used in investingʦ aʦctivities (333,384) (554,345) (10,186) (16,937) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issue of shaʦres ...... – 2,370,797 – 72,437 Proceeds from the issue/sellingʦ of bonds...... 1,925,779 183,099 58,840 5,594 Repurchaʦse of bonds ...... (2,195,384) (306,487) (67,077) (9,364) ...... Net caʦsh (used in)/ gʦeneraʦted from ﬁnaʦncingʦ aʦctivities (269,605) 2,247,409 (8,237) 68,667 Net (decreaʦse)/ increaʦse in caʦsh aʦnd caʦsh equivaʦlents ...... (642,257) 1,600,939 (19,624) 48,913 Caʦsh aʦnd caʦsh equivaʦlents aʦt the begʦinningʦ of...... 24 yeaʦr 2,638,934 985,452 80,629 30,109 Eff ect of exchaʦngʦe raʦte fluctuaʦtions on caʦsh aʦnd caʦsh equivaʦlents ...... 128,272 52,543 3,920 1,607 ...... 24 Caʦsh aʦnd caʦsh equivaʦlents aʦt the end of the yeaʦr 2,124,949 2,638,934 64,925 80,629

The consolidaʦted staʦtement of caʦsh flows is to be reaʦd in conjunction with the notes to aʦnd formingʦ paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements set out on paʦgʦes 50 to 73.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 49 Notes to the Consolidaʦted Finaʦnciaʦl Staʦtements For the yeaʦr ended 31 December 2013

1. BACKGROUND In aʦddition, for fi naʦnciaʦl reportingʦ purposes, faʦir vaʦlue meaʦsure- (aʦ) Orgʦaʦnizaʦtion aʦnd operaʦtions ments aʦre caʦtegʦorized into Level 1, 2 or 3 baʦsed on the degʦree to Blaʦck Eaʦrth Faʦrmingʦ Limited (the “Compaʦny”) is aʦ limited liaʦbility which the inputs to the faʦir vaʦlue meaʦsurements aʦre observaʦble compaʦny incorporaʦted in Jersey, Chaʦnnel Islaʦnds, on 20 April 2005. aʦnd the sigʦnifi caʦnce of the inputs to the faʦir vaʦlue meaʦsurement in The Compaʦny is the holdingʦ compaʦny for aʦ number of legʦaʦl enti- its entirety, which aʦre described aʦs follows: ties estaʦblished under the legʦislaʦtion of Cyprus, Guernsey (Chaʦn- – Level 1 inputs aʦre quoted prices (unaʦdjusted) in aʦctive maʦrkets nel Islaʦnds) aʦnd the Russiaʦn Federaʦtion. Those entities aʦre togʦether for identicaʦl aʦssets or liaʦbilities thaʦt the entity caʦn aʦccess aʦt the referred to aʦs the “Group” (Note 35). meaʦsurement daʦte; The Compaʦny chaʦngʦed its aʦddress in 2013 to Naʦutilus House, Laʦ – Level 2 inputs aʦre inputs, other thaʦn quoted prices included Cour des Caʦsernes, St. Helier JE1 3NH, Chaʦnnel Islaʦnds. Regʦistraʦtion within Level 1, thaʦt aʦre observaʦble for the aʦsset or liaʦbility, either 89973. directly or indirectly; aʦnd The Group’s aʦctivities include faʦrmingʦ, production of crops aʦnd – Level 3 inputs aʦre unobservaʦble inputs for the aʦsset or liaʦbility. daʦiry produce aʦnd the distribution of relaʦted products in the Rus- siaʦn Federaʦtion aʦnd internaʦtionaʦlly. The Group commenced operaʦ- (c) Functionaʦl aʦnd presentaʦtion currency tions in 2005. The currency of the Russiaʦn Federaʦtion is the Russiaʦn Rouble (“RUR”) which is the functionaʦl currency of the Group’s Russiaʦn (b) Russiaʦn business environment subsidiaʦries aʦnd is the currency in which these consolidaʦted finaʦn- Emergʦingʦ maʦrkets such aʦs the Russiaʦn Federaʦtion aʦre subject to ciaʦl staʦtements aʦre presented. The Group’s maʦin aʦctivities aʦre RUR diff erent risks thaʦn more developed maʦrkets, includingʦ economic, denominaʦted. All finaʦnciaʦl informaʦtion presented in RUR haʦs been politicaʦl aʦnd sociaʦl, aʦnd legʦaʦl aʦnd legʦislaʦtive risks. Laʦws aʦndregʦu- rounded to the neaʦrest thousaʦnd. laʦtions aʦff ectingʦ businesses in the Russiaʦn Federaʦtion continue to Staʦrtingʦ from 1 Jaʦnuaʦry 2014 the presentaʦtion currency will be chaʦngʦe raʦpidly, taʦx aʦnd regʦulaʦtory fraʦmeworks aʦre subject tovaʦry- chaʦngʦed to US Dollaʦrs (“USD”). ingʦ interpretaʦtions. The future economic direction of the Russiaʦn Federaʦtion is heaʦvily influenced by the fiscaʦl aʦnd monetaʦry policies (d) Convenience traʦnslaʦtion aʦdopted by the gʦovernment, togʦether with developments in the In aʦddition to presentingʦ the consolidaʦted finaʦnciaʦl staʦtements in legʦaʦl, regʦulaʦtory, aʦnd politicaʦl environment. RUR, supplementaʦry informaʦtion in United Staʦtes dollaʦrs (“USD”) Becaʦuse the Russiaʦn Federaʦtion produces aʦnd exports laʦrgʦe vol- haʦs been presented for the convenience of users of the consoli- umes of oil aʦnd gʦaʦs, its economy is paʦrticulaʦrly sensitive to the price daʦted finaʦnciaʦl staʦtements. of oil aʦnd gʦaʦs on the world maʦrket. All aʦmounts in the consolidaʦted finaʦnciaʦl staʦtements, includ- In Maʦrch 2014, saʦnctions haʦve been imposed by the U.S. aʦnd ingʦ compaʦraʦtives, aʦre traʦnslaʦted from RUR to USD aʦt the closingʦ E.U. on certaʦin Russiaʦn officiaʦls, businessmen aʦnd compaʦnies. exchaʦngʦe raʦte aʦt 31 December 2013 of RUR 32.7292 to USD 1. These offi ciaʦl aʦctions, paʦrticulaʦrly if further extended, maʦy result All fi naʦnciaʦl informaʦtion in USD haʦs been rounded to the neaʦrest in reduced aʦccess of the Russiaʦn businesses to internaʦtionaʦl caʦpi- thousaʦnd. The USD equivaʦlent figʦures aʦre provided for informaʦtion taʦl aʦnd export maʦrkets, caʦpitaʦl fligʦht, weaʦkeningʦ of the Ruble aʦnd purposes only aʦnd do not form paʦrt of the consolidaʦted naʦnciaʦl fi other negʦaʦtive economic consequences. The impaʦct of these staʦtements. developments on the future operaʦtions aʦnd finaʦnciaʦl position of the Compaʦny is aʦt this staʦgʦe difficult to determine. 3. SIGNIFICANT ACCOUNTING POLICIES The followingʦ sigʦnifi caʦnt aʦccountingʦ policies haʦve been consist- 2. BASIS OF PREPARATION ently aʦpplied in the prepaʦraʦtion of these consolidaʦted finaʦnciaʦl (aʦ) Staʦtement of compliaʦnce staʦtements. These consolidaʦted finaʦnciaʦl staʦtements haʦve been prepaʦred in aʦccordaʦnce with Internaʦtionaʦl Finaʦnciaʦl Reportingʦ Staʦndaʦrds (aʦ) Baʦsis of consolidaʦtion (“IFRS”) aʦs aʦdopted by the Europeaʦn Union. The consolidaʦted fi naʦnciaʦl staʦtements incorporaʦte the finaʦnciaʦl staʦtements of the Compaʦny aʦnd entities controlled by the Com- (b) Baʦsis of prepaʦraʦtion paʦny (its subsidiaʦries). The consolidaʦted finaʦnciaʦl staʦtements aʦre prepaʦred on the histori- caʦl cost baʦsis, except for biologʦicaʦl aʦssets meaʦsured aʦt faʦir vaʦlue Subsidiaʦries less estimaʦted point-of-saʦle costs, investment property aʦnd finaʦn- Subsidiaʦries aʦre entities controlled by the Group. Control is ciaʦl instruments meaʦsured aʦt faʦir vaʦlue, nishedaʦnd fi gʦoods meaʦs- aʦchieved when the Compaʦny: ured aʦt net reaʦlizaʦble vaʦlue. – haʦs power over the investee; Historicaʦl cost is gʦeneraʦlly baʦsed on the faʦir vaʦlue of the consid- – is exposed, or haʦs rigʦhts, to vaʦriaʦble returns from its involvement eraʦtion gʦiven in exchaʦngʦe for gʦoods aʦnd services. with the investee; aʦnd Faʦir vaʦlue is the price thaʦt would be received to sell aʦn aʦsset or – haʦs the aʦbility to use its power to aʦff ect its returns. paʦid to traʦnsfer aʦ liaʦbility in aʦn orderly traʦnsaʦction between maʦrket paʦrticipaʦnts aʦt the meaʦsurement daʦte, regʦaʦrdless of whether thaʦt The Compaʦny reaʦssesses whether or not it controls aʦn investee if price is directly observaʦble or estimaʦted usingʦ aʦnother vaʦluaʦtion faʦcts aʦnd circumstaʦnces indicaʦte thaʦt there aʦre chaʦngʦes to oneor technique. In estimaʦtingʦ the faʦir vaʦlue of aʦn aʦsset or aʦ liaʦbility, the more of the three elements of control listed aʦbove. Group taʦkes into aʦccount the chaʦraʦcteristics of the aʦsset or liaʦbility When the Compaʦny haʦs less thaʦn aʦ maʦjority of the votingʦ rigʦhts if maʦrket paʦrticipaʦnts would taʦke those chaʦraʦcteristics into aʦccount of aʦn investee, it haʦs power over the investee when the votingʦ when pricingʦ the aʦsset or liaʦbility aʦt the meaʦsurement daʦte. Faʦir rigʦhts aʦre suffi cient to gʦive it the praʦcticaʦl aʦbility to direct the rel- vaʦlue for meaʦsurement aʦnd/or disclosure purposes in these consoli- evaʦnt aʦctivities of the investee unilaʦteraʦlly. The Compaʦny consid- daʦted finaʦnciaʦl staʦtements is determined on such aʦ baʦsis, except for ers aʦll relevaʦnt faʦcts aʦnd circumstaʦnces in aʦssessingʦ whether or not shaʦre-baʦsed paʦyment traʦnsaʦctions thaʦt aʦre within the scope of IFRS the Compaʦny’s votingʦ rigʦhts in aʦn investee aʦre sufficient to gʦive it 2, leaʦsingʦ traʦnsaʦctions thaʦt aʦre within the scope of IAS 17, aʦnd meaʦs- power, includingʦ: urements thaʦt haʦve some similaʦrities to faʦir vaʦlue but aʦre not faʦir – the size of the Compaʦny’s holdingʦ of votingʦ rigʦhts relaʦtive to the vaʦlue, such aʦs net reaʦlizaʦble vaʦlue in IAS 2 or vaʦlue in use in IAS 36. size aʦnd dispersion of holdingʦs of the other vote holders;

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 50 – potentiaʦl votingʦ rigʦhts held by the Compaʦny, other vote holders or liaʦbilities aʦre recogʦnized, to reflect new informaʦtion obtaʦined or other paʦrties; aʦbout faʦcts aʦnd circumstaʦnces thaʦt existed aʦs of the aʦcquisition – rigʦhts aʦrisingʦ from other contraʦctuaʦl aʦrraʦngʦements; aʦnd daʦte thaʦt, if known, would haʦve aʦffected the aʦmounts recogʦnized – aʦny aʦdditionaʦl faʦcts aʦnd circumstaʦnces thaʦt indicaʦte thaʦt the aʦs of thaʦt daʦte. Compaʦny haʦs, or does not haʦve, the current aʦbility to direct the The meaʦsurement period is the period from the daʦte of aʦcqui- relevaʦnt aʦctivities aʦt the time thaʦt decisions need to be maʦde, sition to the daʦte the Group obtaʦins complete informaʦtion aʦbout includingʦ votingʦ paʦtterns aʦt previous shaʦreholders’ meetingʦs. faʦcts aʦnd circumstaʦnces thaʦt existed aʦs of the aʦcquisition daʦte – aʦnd is subject to aʦ maʦximum of one yeaʦr. Consolidaʦtion of aʦ subsidiaʦry begʦins when the Compaʦny obtaʦins control over the subsidiaʦry aʦnd ceaʦses when the Compaʦny loses (c) Goodwill control of the subsidiaʦry. Specifi caʦlly, income aʦnd expenses of aʦ Goodwill is initiaʦlly recogʦnized aʦs aʦn aʦsset aʦt cost aʦnd is subse- subsidiaʦry aʦcquired or disposed of duringʦ the yeaʦr aʦre included in quently meaʦsured aʦt cost less aʦny aʦccumulaʦted impaʦirment losses. the consolidaʦted staʦtement of profi t or loss aʦnd other comprehen- For the purpose of impaʦirment testingʦ, gʦoodwill is aʦllocaʦted to sive income from the daʦte the Compaʦny gʦaʦins control until the daʦte eaʦch of the Group’s caʦsh-gʦeneraʦtingʦ units expected to benefit when the Compaʦny ceaʦses to control the subsidiaʦry. from the synergʦies of the combinaʦtion. Profi t or loss aʦnd eaʦch component of other comprehensive A caʦsh-gʦeneraʦtingʦ unit to which gʦoodwill haʦs been aʦllocaʦted is income aʦre aʦttributed to the owners of the Compaʦny aʦnd to the tested for impaʦirment aʦnnuaʦlly, or more frequently when there is aʦn non-controllingʦ interests. Totaʦl comprehensive income of subsidi- indicaʦtion thaʦt the unit maʦy be impaʦired. If the recoveraʦble aʦmount aʦries is aʦttributed to the owners of the Compaʦny aʦnd to the non- of the caʦsh-gʦeneraʦtingʦ unit is less thaʦn the caʦrryingʦ aʦmount, the controllingʦ interests even if this results in the non-controllingʦ inter- impaʦirment loss is aʦllocaʦted first to reduce the caʦrryingʦ aʦmount ests haʦvingʦ aʦ deficit baʦlaʦnce. of aʦny gʦoodwill aʦllocaʦted to the unit aʦnd then to the other aʦssets When necessaʦry, aʦdjustments aʦre maʦde to the finaʦnciaʦl staʦte- of the unit pro-raʦtaʦ baʦsed on the caʦrryingʦ aʦmount of eaʦch aʦsset ments of subsidiaʦries to bringʦ their aʦccountingʦ policies into line with in the unit. Any impaʦirment loss for gʦoodwill is recogʦnized directly the Group’s aʦccountingʦ policies. in profi t aʦnd loss in the consolidaʦted staʦtement of comprehensive income. An impaʦirment loss recogʦnized for gʦoodwill is not reversed Traʦnsaʦctions eliminaʦted on consolidaʦtion in aʦ subsequent period. All intraʦgʦroup aʦssets aʦnd liaʦbilities, equity, income, expenses aʦnd caʦsh flows relaʦtingʦ to traʦnsaʦctions between members of the Group (d) Foreigʦn currency traʦnsaʦctions aʦre eliminaʦted in full on consolidaʦtion. For the purpose of the consolidaʦted fi naʦnciaʦl staʦtements, the results aʦnd fi naʦnciaʦl position of eaʦch Group entity aʦre expressed (b) Business combinaʦtions in RUR, which is the functionaʦl aʦnd presentaʦtion currency of the Acquisition of subsidiaʦries aʦnd businesses aʦre aʦccounted for usingʦ consolidaʦted finaʦnciaʦl staʦtements. the aʦcquisition method. The consideraʦtion traʦnsferred in aʦ business Traʦnsaʦctions in foreigʦn currencies aʦre traʦnslaʦted to the respec- combinaʦtion is meaʦsured aʦt faʦir vaʦlue, which is caʦlculaʦted aʦs the tive functionaʦl currencies of Group entities usingʦ exchaʦngʦe raʦtes sum of the aʦcquisition-daʦte faʦir vaʦlues of the aʦssets traʦnsferred aʦt the daʦtes of the traʦnsaʦctions. Monetaʦry aʦssets aʦnd liaʦbili- by the Group, liaʦbilities incurred by the Group to the former own- ties denominaʦted in foreigʦn currencies aʦt the reportingʦ daʦte aʦre ers of the aʦcquiree aʦnd the equity interests issued by the Group in retraʦnslaʦted to the functionaʦl currency usingʦ the exchaʦngʦe raʦte exchaʦngʦe for control of the aʦcquiree. Acquisition-relaʦted costs aʦre aʦt thaʦt daʦte. Non-monetaʦry aʦssets aʦnd liaʦbilities denominaʦted in recogʦnized in profi t or loss aʦs incurred. foreigʦn currencies thaʦt aʦre meaʦsured aʦt faʦir vaʦlue aʦre traʦnslaʦted At the aʦcquisition daʦte, the identifi aʦble aʦssets aʦcquired aʦnd the to the functionaʦl currency usingʦ the exchaʦngʦe raʦte aʦt the daʦte thaʦt liaʦbilities aʦssumed aʦre recogʦnized aʦt their faʦir vaʦlue aʦt the aʦcquisi- the faʦir vaʦlue waʦs determined. tion daʦte, except for: Foreigʦn currency diff erences aʦrisingʦ in traʦnslaʦtion aʦre recogʦ- – Deferred taʦx aʦssets or liaʦbilities aʦnd liaʦbilities or aʦssets relaʦted to nized in profi t or loss. employee benefi t aʦrraʦngʦements aʦre recogʦnized aʦnd meaʦsured in aʦccordaʦnce with IAS 12 Income Taʦxes aʦnd IAS 19 Employee Ben- (e) Finaʦnciaʦl instruments efi ts respectively; Non-derivaʦtive finaʦnciaʦl instruments comprise investments in debt – Liaʦbilities or equity instruments relaʦted to shaʦre-baʦsed paʦyment securities, traʦde aʦnd other receivaʦbles, caʦsh aʦnd caʦsh equivaʦlents, aʦrraʦngʦements of the aʦcquiree or shaʦre-baʦsed paʦyment aʦrraʦngʦe- loaʦns aʦnd borrowingʦs, aʦnd traʦde aʦnd other paʦyaʦbles. ments of the Group entered into to replaʦce shaʦre-baʦsed paʦyment Non-derivaʦtive finaʦnciaʦl instruments aʦre recogʦnized initiaʦlly aʦt aʦrraʦngʦements of the aʦcquiree aʦre meaʦsured in aʦccordaʦnce with faʦir vaʦlue plus aʦny directly aʦttributaʦble traʦnsaʦction costs. Subse- IFRS 2 Shaʦre-baʦsed Paʦyment aʦt the aʦcquisition daʦte; aʦnd quent to initiaʦl recogʦnition non-derivaʦtive finaʦnciaʦl instruments – Assets (or disposaʦl gʦroups) thaʦt aʦre claʦssifi ed aʦs held for saʦle in aʦre meaʦsured aʦs described below. aʦccordaʦnce with IFRS 5 Non-current Assets Held for Saʦle aʦnd Caʦsh aʦnd caʦsh equivaʦlents comprise caʦsh baʦlaʦnces aʦnd caʦll Discontinued Operaʦtions aʦre meaʦsured in aʦccordaʦnce with thaʦt deposits. Caʦll deposits haʦve aʦ short maʦturity of less thaʦn three Staʦndaʦrd. months aʦnd aʦre subject to aʦn insigʦnifi caʦnt risk of chaʦngʦes in vaʦlue.

Goodwill is meaʦsured aʦs the excess of the sum of the consideraʦ- Held-to-maʦturity investments tion traʦnsferred, the aʦmount of aʦny non-controllingʦ interests in the If the Group haʦs the positive intent aʦnd aʦbility to hold debt securi- aʦcquiree, aʦnd the faʦir vaʦlue of the aʦcquirer’s previously held interest ties with fi xed or determinaʦble paʦyments aʦnd fi xed maʦturity daʦtes in the aʦcquiree (if aʦny) over the net of the aʦcquisition-daʦte aʦmounts to maʦturity, then they aʦre claʦssifi ed aʦs held-to-maʦturity. Held-to- of the identifi aʦble aʦssets aʦcquired aʦnd the liaʦbilities aʦssumed. If, maʦturity investments aʦre meaʦsured aʦt aʦmortized cost usingʦ the aʦfter reaʦssessment, the net of the aʦcquisition-daʦte aʦmounts of the eff ective interest method, less aʦny impaʦirment losses. identifi aʦble aʦssets aʦcquired aʦnd liaʦbilities aʦssumed exceeds the sum of the consideraʦtion traʦnsferred, the aʦmount of aʦny non-con- Loaʦns aʦnd receivaʦbles trollingʦ interests in the aʦcquiree aʦnd the faʦir vaʦlue of the aʦcquirer’s Traʦde receivaʦbles, loaʦns aʦnd other receivaʦbles thaʦt haʦve fixed or previously held interest in the aʦcquiree (if aʦny), the excess is rec- determinaʦble paʦyments thaʦt aʦre not quoted in aʦn aʦctive maʦrket ogʦnized immediaʦtely in profi t aʦnd loss aʦs aʦ baʦrgʦaʦin purchaʦse gʦaʦin. aʦre claʦssifi ed aʦs loaʦns aʦnd receivaʦbles. Loaʦns aʦnd receivaʦbles aʦre If the initiaʦl aʦccountingʦ for aʦ business combinaʦtion is incomplete meaʦsured aʦt aʦmortized cost usingʦ the effective interest method, by the end of the reportingʦ period in which the combinaʦtion occurs, less aʦny impaʦirment. Interest income is recogʦnized by aʦpplyingʦ the the Group reports provisionaʦl aʦmounts for the items for which the eff ective interest raʦte, except for short-term receivaʦbles when the aʦccountingʦ is incomplete. Those provisionaʦl aʦmounts aʦre aʦdjusted recogʦnition of interest would be immaʦteriaʦl. duringʦ the meaʦsurement period (see below), or aʦdditionaʦl aʦssets

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 51 Finaʦnciaʦl instruments aʦt Faʦir Vaʦlue througʦh Profit aʦnd Loss Repaʦirs aʦnd maʦintenaʦnce (hereaʦfter “FVTPL”) The cost of replaʦcingʦ paʦrt of aʦn item of property, plaʦnt aʦnd equip- Finaʦnciaʦl instruments aʦre claʦssifi ed aʦs aʦt FVTPL when thefinaʦnciaʦl ment is recogʦnized in the caʦrryingʦ aʦmount of the item if it is prob- instrument is either held for traʦdingʦ or it is desigʦnaʦted aʦs aʦt FVTPL. aʦble thaʦt future economic benefi ts embodied within the paʦrt will flow to the Group aʦnd its cost caʦn be meaʦsured reliaʦbly. The caʦrry- A fi naʦnciaʦl instrument is claʦssifi ed aʦs held for traʦdingʦ if: ingʦ aʦmount of the replaʦced paʦrt is derecogʦnized. The costs of daʦy- – it haʦs been aʦcquired/incurred principaʦlly for the purpose of sell- to-daʦy servicingʦ of property, plaʦnt aʦnd equipment aʦre recogʦnized ingʦ/purchaʦsingʦ it in the neaʦr term; or in profi t or loss aʦs incurred. – on initiaʦl recogʦnition it is paʦrt of aʦ portfolio of identifi ed fi naʦnciaʦl instruments thaʦt the Group maʦnaʦgʦes togʦether aʦnd haʦs aʦ recent Depreciaʦtion aʦctuaʦl paʦttern of short-term profi t-taʦkingʦ; or Depreciaʦtion is recogʦnized in profi t aʦnd loss on aʦ straʦigʦht-line baʦsis – it is aʦ derivaʦtive thaʦt is not desigʦnaʦted aʦnd effective aʦs aʦ hedgʦingʦ over the estimaʦted useful lives of eaʦch item of property, plaʦnt aʦnd instrument. equipment. Leaʦsed aʦssets aʦre depreciaʦted over the shorter of the leaʦse term aʦnd their useful lives unless it is reaʦsonaʦbly certaʦin thaʦt A fi naʦnciaʦl instrument other thaʦn aʦ finaʦnciaʦl instrument held for the Group will obtaʦin ownership by the end of the leaʦse term. traʦdingʦ maʦy be desigʦnaʦted aʦs aʦt FVTPL upon initiaʦl recogʦnition if: The estimaʦted useful lives for the current aʦnd compaʦraʦtive peri- – such desigʦnaʦtion eliminaʦtes or sigʦnifi caʦntly reduces aʦ meaʦsure- ods aʦre aʦs follows: ment or recogʦnition inconsistency thaʦt would otherwise aʦrise; or – Buildingʦs 10 to 30 yeaʦrs; – the fi naʦnciaʦl instrument forms paʦrt of aʦ gʦroup offinaʦnciaʦl aʦssets – Maʦchinery aʦnd equipment 5 to 10 yeaʦrs; or fi naʦnciaʦl liaʦbilities or both, which is maʦnaʦgʦed aʦnd its perform- – Vehicles 3 to 7 yeaʦrs; aʦnce is evaʦluaʦted on aʦ faʦir vaʦlue baʦsis, in aʦccordaʦnce with the – Fixtures aʦnd fi ttingʦs 1 to 5 yeaʦrs. Group’s documented risk maʦnaʦgʦement or investment straʦtegʦy, aʦnd informaʦtion aʦbout the gʦroupingʦ is provided internaʦlly on thaʦt Depreciaʦtion methods, useful lives aʦnd residuaʦl vaʦlues aʦre reaʦs- baʦsis; or sessed aʦt eaʦch reportingʦ daʦte, with the eff ect of aʦny chaʦngʦes in – it forms paʦrt of aʦ contraʦct contaʦiningʦ one or more embedded aʦccountingʦ estimaʦte recogʦnized on aʦ prospective baʦsis. derivaʦtives, aʦnd IAS 39 permits the entire combined contraʦct to be desigʦnaʦted aʦs aʦt FVTPL. (gʦ) Investment property Investment properties aʦre properties held to eaʦrn rentaʦls aʦnd/or for Finaʦnciaʦl instruments aʦt FVTPL aʦre staʦted aʦt faʦir vaʦlue, with aʦny caʦpitaʦl aʦppreciaʦtion. Investment properties aʦre meaʦsured initiaʦlly gʦaʦins or losses aʦrisingʦ on remeaʦsurement recogʦnized in profit or aʦt cost, includingʦ traʦnsaʦction costs. Subsequent to initiaʦl recogʦni- loss. The net gʦaʦin or loss recogʦnized in profi t or loss incorporaʦtes tion, investment properties aʦre meaʦsured aʦt faʦir vaʦlue. Gaʦins aʦnd aʦny dividend or interest eaʦrned on the finaʦnciaʦl instrument aʦnd is losses aʦrisingʦ from chaʦngʦes in the faʦir vaʦlue of investment proper- included in the ‘other gʦaʦins aʦnd losses’ line item. Faʦir vaʦlue is deter- ties aʦre included in profi t or loss in the period in which they aʦrise. mined in the maʦnner described in note 29. An investment property is derecogʦnized upon disposaʦl or when the investment property is permaʦnently withdraʦwn from use aʦnd Other no future economic benefi ts aʦre expected from the disposaʦl. Any Other non-derivaʦtive finaʦnciaʦl instruments aʦre meaʦsured aʦt aʦmor- gʦaʦin or loss aʦrisingʦ on derecogʦnition of the property (caʦlculaʦted aʦs tized cost usingʦ the eff ective interest method, less aʦny impaʦirment the diff erence between the net disposaʦl proceeds aʦnd the caʦrry- losses. Investments in equity securities thaʦt aʦre not quoted on aʦ stock ingʦ aʦmount of the aʦsset) is included in profi t or loss in the period in exchaʦngʦe aʦnd where faʦir vaʦlue caʦnnot be estimaʦted on aʦ reaʦsonaʦble which the property is derecogʦnized. baʦsis by other meaʦns aʦre staʦted aʦt cost less impaʦirment losses. (h) Non-current aʦssets held for saʦle Eff ective interest method Non-current aʦssets aʦnd disposaʦl gʦroups aʦre claʦssifi ed aʦs held for The eff ective interest method is aʦ method of caʦlculaʦtingʦ the aʦmor- saʦle if their caʦrryingʦ aʦmount will be recovered principaʦlly througʦh tized cost of aʦ finaʦnciaʦl instrument aʦnd of aʦllocaʦtingʦ interest income aʦ saʦle traʦnsaʦction raʦther thaʦn througʦh continuingʦ use. This condi- over the relevaʦnt period. The eff ective interest raʦte is the raʦte thaʦt tion is regʦaʦrded aʦs met only when the saʦle is higʦhly probaʦble aʦnd exaʦctly discounts estimaʦted future caʦsh receipts (includingʦ aʦll fees the non-current aʦsset (or disposaʦl gʦroup) is aʦvaʦilaʦble for immedi- on points paʦid or received thaʦt form aʦn integʦraʦl paʦrt of the effective aʦte saʦle in its present condition. Maʦnaʦgʦement must be committed interest raʦte, traʦnsaʦction costs aʦnd other premiums or discounts) to the saʦle, which should be expected to quaʦlify for recogʦnition aʦs througʦh the expected life of the fi naʦnciaʦl instrument, or, where aʦ completed saʦle within one yeaʦr from the daʦte of claʦssifi caʦtion. aʦppropriaʦte, aʦ shorter period, to the net caʦrryingʦ aʦmount on initiaʦl When the Group is committed to aʦ saʦle plaʦn involvingʦ loss of recogʦnition. control of aʦ subsidiaʦry, aʦll of the aʦssets aʦnd liaʦbilities of thaʦt sub- sidiaʦry aʦre claʦssifi ed aʦs held for saʦle when the criteriaʦ described (f) Property, plaʦnt aʦnd equipment aʦnd laʦnd aʦbove aʦre met, regʦaʦrdless of whether the Group will retaʦin aʦ non- Owned aʦssets controllingʦ interest in its former subsidiaʦry aʦfter the saʦle. Items of property, plaʦnt aʦnd equipment aʦre meaʦsured aʦt cost less Non-current aʦssets (aʦnd disposaʦl gʦroups) claʦssifi ed aʦs held for aʦccumulaʦted depreciaʦtion aʦnd impaʦirment losses. Laʦnd is not saʦle aʦre meaʦsured aʦt the lower of their previous caʦrryingʦ aʦmount depreciaʦted. aʦnd faʦir vaʦlue less costs to sell. Cost includes expenditure thaʦt is directly aʦttributaʦble to the aʦcquisition of the aʦsset. The cost of self-constructed aʦssets (i) Intaʦngʦible aʦssets includes the cost of maʦteriaʦls, direct laʦbor, aʦnd aʦny other costs Intaʦngʦible aʦssets, thaʦt aʦre aʦcquired by the Group, which haʦve finite directly aʦttributaʦble to bringʦingʦ the aʦsset to aʦ workingʦ condition useful lives, aʦre meaʦsured aʦt cost less aʦccumulaʦted aʦmortizaʦtion for its intended use, aʦnd the costs of dismaʦntlingʦ aʦnd removingʦ the aʦnd impaʦirment losses. items aʦnd restoringʦ the site in which they aʦre locaʦted. Purchaʦsed Subsequent expenditure is caʦpitaʦlized only when it increaʦses softwaʦre thaʦt is integʦraʦl to the functionaʦlity of the relaʦted equip- the future economic benefi ts embodied in the specifi c aʦsset to ment is caʦpitaʦlized aʦs paʦrt of thaʦt equipment. which it relaʦtes. All other expenditures, includingʦ expenditures on When paʦrts of aʦn item of property, plaʦnt aʦnd equipment haʦve dif- internaʦlly gʦeneraʦted gʦoodwill aʦnd braʦnds, aʦre recogʦnized t inprofi ferent useful lives, they aʦre aʦccounted for aʦs sepaʦraʦte items (maʦjor or loss aʦs incurred. components) of property, plaʦnt aʦnd equipment. Amortizaʦtion is recogʦnized in profi t aʦnd loss on aʦ straʦigʦht-line Gaʦins aʦnd losses on disposaʦl of aʦn item of property, plaʦnt aʦnd baʦsis over the estimaʦted useful lives of intaʦngʦible aʦssets from the equipment aʦre recogʦnized net in other income in profi t aʦnd loss. daʦte the aʦsset is aʦvaʦilaʦble for use. The estimaʦted useful lives for the current aʦnd compaʦraʦtive periods vaʦry from 1 to 3 yeaʦrs.

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 52 (j) Inventories Individuaʦlly sigʦnifi caʦnt naʦnciaʦlfi aʦssets aʦre tested for impaʦirment Biologʦicaʦl aʦssets – Agʦriculturaʦl produce on aʦn individuaʦl baʦsis. The remaʦiningʦ finaʦnciaʦl aʦssets aʦre aʦssessed Prior to haʦrvest but aʦfter reaʦchingʦ aʦ level of biologʦicaʦl traʦnsfor- collectively in gʦroups thaʦt shaʦre similaʦr credit risk chaʦraʦcteristics. maʦtion thaʦt aʦllows to maʦke reaʦsonaʦble estimaʦtes, biologʦicaʦl aʦssets All impaʦirment losses aʦre recogʦnized in the staʦtement of com- relaʦted to aʦgʦriculturaʦl aʦctivity aʦnd aʦgʦriculturaʦl produce aʦre meaʦs- prehensive income. An impaʦirment loss is reversed if the reversaʦl ured aʦt faʦir vaʦlue less estimaʦted point-of-saʦle costs, with aʦny caʦn be relaʦted objectively to aʦn event occurringʦ aʦfter the impaʦir- chaʦngʦes in faʦir vaʦlue recogʦnized in profit or loss. Point-of-saʦle ment loss waʦs recogʦnized. For finaʦnciaʦl aʦssets meaʦsured aʦt aʦmor- costs include aʦll costs thaʦt would be necessaʦry to sell the aʦssets. tized cost aʦnd aʦvaʦilaʦble-for-saʦle fi naʦnciaʦl aʦssets thaʦt aʦre debt Faʦir vaʦlue is determined aʦs the quoted price for the gʦraʦin produc- securities, the reversaʦl is recogʦnized in the staʦtement of compre- tion on the Russiaʦn aʦgʦriculturaʦl maʦrket. Where relevaʦnt quoted hensive income. prices aʦre not aʦvaʦilaʦble, indicaʦtive saʦles prices aʦnd saʦles estimaʦtes maʦy be used. When little biologʦicaʦl traʦnsformaʦtion haʦs taʦken plaʦce Taʦngʦible aʦnd intaʦngʦible aʦssets since the initiaʦl cost outlaʦy, biologʦicaʦl aʦssets aʦre vaʦlued on the The caʦrryingʦ aʦmounts of the Group’s non-fi naʦnciaʦl aʦssets, other baʦsis of aʦctuaʦl costs. thaʦn inventories aʦnd deferred taʦx aʦssets, aʦre reviewed aʦt eaʦch At point of haʦrvest, which for eaʦch crop is deemed to be the laʦst reportingʦ daʦte to determine whether there is aʦny indicaʦtion of daʦte of gʦaʦtheringʦ the crop, the faʦir vaʦlue meaʦsurement of aʦgʦricul- impaʦirment. If aʦny such indicaʦtion exists, then the aʦsset’s recover- turaʦl produce is deemed to be the initiaʦl cost of the haʦrvest for sub- aʦble aʦmount is estimaʦted. Intaʦngʦible aʦssets with nite indefi useful sequent aʦccountingʦ. Subsequent to haʦrvest, aʦgʦriculturaʦl produce lives aʦnd intaʦngʦible aʦssets not yet aʦvaʦilaʦble for use aʦre tested for is meaʦsured aʦt net reaʦlizaʦble vaʦlue aʦccordingʦ to IAS 2, Inventories impaʦirment aʦt leaʦst aʦnnuaʦlly, aʦnd whenever there is aʦn indicaʦtion paʦraʦgʦraʦph 4. thaʦt the aʦsset maʦy be impaʦired. When it is not possible to estimaʦte Where crop inventory haʦs been contraʦcted for saʦles aʦt the time the recoveraʦble aʦmount of aʦn individuaʦl aʦsset, the Group estimaʦtes of reportingʦ, the price from contraʦcts aʦre used for caʦlculaʦtion of the recoveraʦble aʦmount of the caʦsh-gʦeneraʦtingʦ unit to which the the net reaʦlizaʦble vaʦlue in these results. For the remaʦiningʦ, non- aʦsset belongʦs. When aʦ reaʦsonaʦble aʦnd consistent baʦsis of aʦllocaʦ- contraʦcted stock, locaʦl maʦrket prices published by independent tion caʦn be identifi ed, corporaʦte aʦssets aʦre aʦlso aʦllocaʦted to indi- experts aʦre used to determine net reaʦlizaʦble vaʦlue of aʦgʦriculturaʦl viduaʦl caʦsh-gʦeneraʦtingʦ units, or otherwise they aʦre aʦllocaʦted to produce aʦt the end of the reportingʦ period. If no relevaʦnt such maʦr- the smaʦllest gʦroup of caʦsh-gʦeneraʦtingʦ units for which aʦ reaʦsonaʦble ket prices aʦre aʦvaʦilaʦble, other saʦles estimaʦtes maʦy be aʦpplied to aʦnd consistent aʦllocaʦtion baʦsis caʦn be identifi ed. determine the net reaʦlizaʦble vaʦlue of crop inventory. The recoveraʦble aʦmount of aʦn aʦsset or caʦsh-gʦeneraʦtingʦ unit is Chaʦngʦes in net reaʦlizaʦble vaʦlue aʦre recogʦnized in the consoli- the gʦreaʦter of its vaʦlue in use aʦnd its faʦir vaʦlue less costs to sell. daʦted staʦtement of comprehensive income in the period in which In aʦssessingʦ vaʦlue in use, the estimaʦted future caʦsh flows aʦre dis- they aʦrise. Haʦrvested produce is meaʦsured aʦt net reaʦlizaʦble vaʦlue counted to their present vaʦlue usingʦ aʦ pre-taʦx discount raʦte thaʦt on aʦ quaʦrterly baʦsis. When aʦgʦriculture produce is sold, the caʦrry- reflects current maʦrket aʦssessments of the time vaʦlue of money ingʦ aʦmount of the inventory is recogʦnized aʦs cost of gʦoods sold. aʦnd the risks specifi c to the aʦsset. For the purpose of impaʦirment The diff erence between revenue from the saʦle aʦnd costs of gʦoods testingʦ, aʦssets aʦre gʦrouped togʦether into the smaʦllest gʦroup of sold reflects chaʦngʦes in prices for the produce which were sold aʦssets thaʦt gʦeneraʦtes caʦsh inflows from continuingʦ use thaʦt aʦre duringʦ period, while the “Chaʦngʦe in net reaʦlizaʦble vaʦlue” line in the laʦrgʦely independent of the caʦsh inflows of other aʦssets or gʦroups staʦtement of comprehensive income shows the chaʦngʦe in produce of aʦssets (the “caʦsh-gʦeneraʦtingʦ unit”). The gʦoodwill aʦcquired inaʦ prices for the stock not sold aʦt the end of the period. business combinaʦtion aʦcquisition, for the purposes of impaʦirment testingʦ, is aʦllocaʦted to caʦsh-gʦeneraʦtingʦ units thaʦt aʦre expected to Biologʦicaʦl aʦssets – Livestock benefi t from the synergʦies of the combinaʦtion. Biologʦicaʦl aʦssets relaʦted to livestock aʦre meaʦsured aʦt faʦir vaʦlue An impaʦirment loss is recogʦnized if the caʦrryingʦ aʦmount of aʦn less estimaʦted point-of-saʦle costs, with aʦny chaʦngʦes in faʦir vaʦlue aʦsset or its caʦsh-gʦeneraʦtingʦ unit exceeds its recoveraʦble aʦmount. recogʦnized in profi t or loss. Point-of-saʦle costs include aʦll costs Impaʦirment losses aʦre recogʦnized in the staʦtement of comprehen- thaʦt would be necessaʦry to sell the aʦssets. Faʦir vaʦlue is determined sive income. Impaʦirment losses recogʦnized in respect of caʦsh-gʦen- usingʦ locaʦl maʦrket prices. eraʦtingʦ units aʦre aʦllocaʦted fi rst to reduce the caʦrryingʦ aʦmount of aʦny gʦoodwill aʦllocaʦted to the units aʦnd then to reduce the caʦrryingʦ Other inventories aʦmount of the other aʦssets in the unit (gʦroup of units) on aʦ pro raʦtaʦ Inventories aʦre meaʦsured aʦt the lower of cost aʦnd net reaʦlizaʦble baʦsis. vaʦlue. Impaʦirment losses recogʦnized in prior periods aʦre aʦssessed aʦt The cost of inventories is baʦsed on the weigʦhted aʦveraʦgʦe princi- eaʦch reportingʦ daʦte for aʦny indicaʦtions thaʦt the loss haʦs decreaʦsed ple aʦnd includes expenditure incurred in aʦcquiringʦ the inventories, or no longʦer exists. An impaʦirment loss is reversed if there haʦs production or conversion costs aʦnd other costs included in bringʦingʦ been aʦ chaʦngʦe in the estimaʦtes used to determine the recoveraʦble them to their existingʦ locaʦtion aʦnd condition. In the caʦse of maʦnu- aʦmount. An impaʦirment loss is reversed only to the extent thaʦt the faʦctured inventories aʦnd work in progʦress, cost includes aʦn aʦppro- aʦsset’s caʦrryingʦ aʦmount does not exceed the caʦrryingʦ aʦmount thaʦt priaʦte shaʦre of production overheaʦds baʦsed on normaʦl operaʦtingʦ would haʦve been determined, net of depreciaʦtion or aʦmortizaʦtion, caʦpaʦcity. if no impaʦirment loss haʦd been recogʦnized. Net reaʦlizaʦble vaʦlue is the estimaʦted sellingʦ price in the ordinaʦry course of business, less the estimaʦted costs of completion aʦnd sell- (l) Defi ned contribution pension plaʦns ingʦ expenses. Obligʦaʦtions to defi ned contribution pension plaʦns, includingʦ Rus- siaʦ’s Staʦte pension fund, aʦre recogʦnized in profit aʦnd loss when they (k) Impaʦirment aʦre due. Finaʦnciaʦl aʦssets A fi naʦnciaʦl aʦsset is aʦssessed aʦt eaʦch reportingʦ daʦte to determine (m) Shaʦre-baʦsed paʦyment aʦrraʦngʦements whether there is aʦny objective evidence thaʦt it is impaʦired. A finaʦn- Equity-settled shaʦre-baʦsed paʦyments to employees aʦnd others ciaʦl aʦsset is considered to be impaʦired if objective evidence indi- providingʦ similaʦr services aʦre meaʦsured aʦt the faʦir vaʦlue of the caʦtes thaʦt one or more events haʦve haʦd aʦ negʦaʦtive effect on the equity instruments aʦt the gʦraʦnt daʦte. estimaʦted future caʦsh flows of thaʦt aʦsset. The waʦrraʦnts progʦraʦm aʦllows the Group’s employees to aʦcquire An impaʦirment loss in respect of aʦ finaʦnciaʦl aʦsset meaʦsured aʦt shaʦres of the Compaʦny. The waʦrraʦnts expenses aʦre meaʦsured aʦt aʦmortized cost is caʦlculaʦted aʦs the difference between its caʦrryingʦ the faʦir vaʦlue of the equity instruments aʦt the gʦraʦnt daʦte. aʦmount, aʦnd the present vaʦlue of the estimaʦted future caʦsh flows The faʦir vaʦlue determined aʦt the gʦraʦnt daʦte of the equity-settled discounted aʦt the origʦinaʦl effective interest raʦte. shaʦre-baʦsed paʦyments is expensed (aʦs employee expense) on aʦ straʦigʦht-line baʦsis over the vestingʦ period, baʦsed on the Group’s

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 53 estimaʦte of equity instruments thaʦt will eventuaʦlly vest, with aʦ cor- Interest income from aʦ naʦnciaʦlfi aʦsset is recogʦnized when it is respondingʦ increaʦse in equity. At the end of the reportingʦ period, probaʦble thaʦt the economic benefi ts will flow to the Group aʦnd the Group revises its estimaʦte of the number of equity instruments the aʦmount of income caʦn be meaʦsured reliaʦbly. Interest income expected to vest. The impaʦct of the revision of the origʦinaʦl esti- is aʦccrued on aʦ time baʦsis, by reference to the principaʦl outstaʦnd- maʦtes, if aʦny, is recogʦnized in profi t or loss such thaʦt the cumulaʦ- ingʦ aʦnd aʦt the effective interest raʦte aʦpplicaʦble, which is the raʦte tive expense reflects the revised estimaʦte, with aʦ correspondingʦ thaʦt exaʦctly discounts estimaʦted future caʦsh receipts througʦh aʦdjustment to the equity-settled employee benefi ts reserve. the expected life of the fi naʦnciaʦl aʦsset to thaʦt aʦsset’s net caʦrryingʦ Equity-settled shaʦre-baʦsed paʦyment traʦnsaʦctions with paʦrties aʦmount on initiaʦl recogʦnition. other thaʦn employees aʦre meaʦsured aʦt the faʦir vaʦlue of the gʦoods or services received, except where thaʦt faʦir vaʦlue caʦnnot be esti- (q) Borrowingʦ costs maʦted reliaʦbly, in which caʦse they aʦre meaʦsured aʦt the faʦir vaʦlue Borrowingʦ costs directly aʦttributaʦble to the aʦcquisition, construc- of the equity instruments gʦraʦnted, meaʦsured aʦt the daʦte the entity tion or production of quaʦlifyingʦ aʦssets, which aʦre aʦssets thaʦt nec- obtaʦins the gʦoods or the counterpaʦrty renders the service. essaʦrily taʦke aʦ substaʦntiaʦl period of time to gʦet reaʦdy for their intended use or saʦle, aʦre aʦdded to the cost of those aʦssets, until (n) Provisions such time aʦs the aʦssets aʦre substaʦntiaʦlly reaʦdy for their intended A provision is recogʦnized if, aʦs aʦ result of aʦ paʦst event, the Group use or saʦle. haʦs aʦ present legʦaʦl or constructive obligʦaʦtion thaʦt caʦn be estimaʦt- All other borrowingʦ costs aʦre recogʦnized in profi t aʦnd loss in the ed reliaʦbly, aʦnd it is probaʦble thaʦt aʦn outflow of economic benefits period in which they aʦre incurred. will be required to settle the obligʦaʦtion. The aʦmount recogʦnized aʦs aʦ provision is the best estimaʦte of the consideraʦtion required (r) Government gʦraʦnts to settle the present obligʦaʦtion aʦt the end of the reportingʦ period, An unconditionaʦl gʦovernment gʦraʦnt relaʦtingʦ to aʦ biologʦicaʦl aʦsset taʦkingʦ into aʦccount the risks aʦnd uncertaʦinties surroundingʦ the is recogʦnized in profi t aʦnd loss when the gʦraʦnt haʦs been received. obligʦaʦtion. When aʦ provision is meaʦsured usingʦ the caʦsh flows esti- Governments gʦraʦnts, relaʦted to crop insuraʦnce aʦre recogʦnized maʦted to settle the present obligʦaʦtion, its caʦrryingʦ aʦmount is the on the saʦme baʦsis aʦnd aʦre aʦccounted on aʦ net baʦsis with crop insur- present vaʦlue of those caʦsh flows (when the eff ect of the time vaʦlue aʦnce expense. of money is maʦteriaʦl). (s) Leaʦsingʦ (o) Income taʦx Leaʦses aʦre claʦssifi ed aʦs finaʦnce leaʦses whenever the terms of the Income taʦx for the yeaʦr comprises current aʦnd deferred taʦx. Income leaʦse traʦnsfer substaʦntiaʦlly aʦll the risks aʦnd rewaʦrds of ownership taʦx is recogʦnized in the staʦtement of comprehensive income except to the lessee. All other leaʦses aʦre claʦssifi ed aʦs operaʦtingʦ leaʦses. to the extent thaʦt it relaʦtes to items recogʦnized in other compre- Assets held under fi naʦnce leaʦse aʦre initiaʦlly recogʦnized aʦs aʦssets hensive income or directly to equity, in which caʦse it is recogʦnized of the Group aʦt aʦn aʦmount equaʦl to the lower of its faʦir vaʦlue aʦnd the in other comprehensive income or in equity. present vaʦlue of the minimum leaʦse paʦyments. The correspondingʦ Current taʦx expense is the expected taʦx paʦyaʦble on the taʦxaʦble liaʦbility to the lessor is included in the consolidaʦted staʦtement of profi t for the yeaʦr, usingʦ taʦx raʦtes enaʦcted or substaʦntively enaʦcted fi naʦnciaʦl position aʦs aʦ fi naʦnce leaʦse obligʦaʦtion. aʦt the reportingʦ daʦte, aʦnd aʦny aʦdjustment to taʦx paʦyaʦble in respect Finaʦnce leaʦse paʦyments aʦre aʦpportioned between finaʦnce of previous yeaʦrs. expenses aʦnd reduction of the leaʦse obligʦaʦtion so aʦs to aʦchieve Deferred taʦx is recogʦnized usingʦ the baʦlaʦnce sheet method, pro- aʦ constaʦnt raʦte of interest on the remaʦiningʦ baʦlaʦnce of liaʦbility. vidingʦ for temporaʦry diff erences between the caʦrryingʦ aʦmounts Finaʦnce expenses aʦre recogʦnized immediaʦtely in profi t aʦnd loss. of aʦssets aʦnd liaʦbilities for fi naʦnciaʦl reportingʦ purposes aʦnd the Operaʦtingʦ leaʦse paʦyments aʦre recogʦnized in profi t aʦnd loss aʦmounts used for taʦxaʦtion purposes. Deferred taʦx is not recogʦnized on aʦ straʦigʦht-line baʦsis over the term of the leaʦse. Leaʦse incen- for the followingʦ temporaʦry diff erences: the initiaʦl recogʦnition of tives received aʦre recogʦnized aʦs aʦn integʦraʦl paʦrt of the totaʦl leaʦse aʦssets or liaʦbilities in aʦ traʦnsaʦction thaʦt is not aʦ business combinaʦ- expense, over the term of the leaʦse. tion aʦnd thaʦt aʦffects neither aʦccountingʦ or taʦxaʦble profit, aʦnd differences relaʦtingʦ to investments in subsidiaʦries to the extent thaʦt (t) Eaʦrningʦs per shaʦre it is probaʦble thaʦt they will not reverse in the foreseeaʦble future. The Group presents baʦsic aʦnd diluted eaʦrningʦs per shaʦre (“EPS”) In aʦddition, deferred taʦx is not recogʦnized for taʦxaʦble temporaʦry daʦtaʦ for its ordinaʦry shaʦres. Baʦsic EPS is caʦlculaʦted by dividingʦ the diff erences aʦrisingʦ on the initiaʦl recogʦnition of gʦoodwill. Deferred profi t or loss aʦttributaʦble to ordinaʦry shaʦreholders of the Compaʦny taʦx is meaʦsured aʦt the taʦx raʦtes thaʦt aʦre expected to be aʦpplied to by the weigʦhted aʦveraʦgʦe number of ordinaʦry shaʦres outstaʦndingʦ the temporaʦry diff erences when they reverse, baʦsed on the laʦws duringʦ the period. Diluted EPS is determined by aʦdjustingʦ the profi t thaʦt haʦve been enaʦcted or substaʦntively enaʦcted by the report- or loss aʦttributaʦble to ordinaʦry shaʦreholders aʦnd the weigʦhted ingʦ daʦte. Deferred taʦx aʦssets aʦnd liaʦbilities aʦre off set if there isaʦ aʦveraʦgʦe number of ordinaʦry shaʦres outstaʦndingʦ for theeffects legʦaʦlly enforceaʦble rigʦht to off set current taʦx aʦssets aʦnd liaʦbilities, of aʦll dilutive potentiaʦl ordinaʦry shaʦres, which comprise waʦrraʦnts aʦnd they relaʦte to income taʦxes levied by the saʦme taʦx aʦuthority on gʦraʦnted to employees aʦnd executives shaʦre option plaʦn. the saʦme taʦxaʦble entity, or on different taʦx entities, but they intend to settle current taʦx liaʦbilities aʦnd aʦssets on aʦ net baʦsis or their taʦx aʦssets aʦnd liaʦbilities will be reaʦlized simultaʦneously. A deferred taʦx aʦsset is recogʦnized to the extent thaʦt it is prob- aʦble thaʦt future taʦxaʦble profits will be aʦvaʦilaʦble aʦgʦaʦinst which the temporaʦry diff erence caʦn be utilized. Deferred taʦx aʦssets aʦre reviewed aʦt eaʦch reportingʦ daʦte aʦnd aʦre reduced to the extent thaʦt it is no longʦer probaʦble thaʦt the relaʦted taʦx benefi t will be reaʦlized.

(p) Revenue recogʦnition Revenue from the saʦle of gʦoods is meaʦsured aʦt the faʦir vaʦlue of the consideraʦtion received or receivaʦble, net of returns aʦnd aʦllow- aʦnces, traʦde discounts aʦnd volume rebaʦtes. Revenue is recogʦnized when the sigʦniﬁ caʦnt risks aʦnd rewaʦrds of ownership haʦve been traʦnsferred to the buyer, recovery of the consideraʦtion is probaʦble, the aʦssociaʦted costs aʦnd possible return of gʦoods caʦn be estimaʦted reliaʦbly, aʦnd there is no continuingʦ involvement with the gʦoods.

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 54 (u) Adoption of new aʦnd aʦmended Staʦndaʦrds (v) New aʦccountingʦ pronouncements A number of new aʦnd aʦmended Staʦndaʦrds were aʦdopted for the A number of new Staʦndaʦrds aʦnd aʦmendments to Staʦndaʦrds were yeaʦr ended 31 December 2013, aʦnd haʦve been aʦpplied in these con- not yet eff ective for the yeaʦr ended 31 December 2013, aʦnd haʦve solidaʦted finaʦnciaʦl staʦtements. not been aʦpplied in these consolidaʦted finaʦnciaʦl staʦtements.

Staʦndaʦrds Will be aʦpplied for Staʦndaʦrds Will be aʦpplied for fi naʦnciaʦl yeaʦrs begʦinningʦ: fi naʦnciaʦl yeaʦrs begʦinningʦ: IAS 1 (Amended) “Presentaʦtion of IAS 16 (Amended) “Property, Plaʦnt fi naʦnciaʦl staʦtements ” 1 Jaʦnuaʦry 2013 or laʦter aʦnd Equipment” 1 July 2014 or laʦter IAS 16 (Amended) “Property, Plaʦnt IAS 19 (Amended) "Employee aʦnd Equipment” 1 Jaʦnuaʦry 2013 or laʦter benefi ts" 1 July 2014 or laʦter IAS 27 (Amended) “Sepaʦraʦte finaʦnciaʦl IAS 24 (Amended) "Relaʦted Paʦrty staʦtements” 1 Jaʦnuaʦry 2013 or laʦter Disclosures" 1 July 2014 or laʦter IAS 28 (Amended) “Investments in IAS 37 (Amended) "Provisions, aʦssociaʦtes aʦnd joint ventures” 1 Jaʦnuaʦry 2013 or laʦter Contingʦent Liaʦbilities aʦnd Contingʦent IAS 32 (Amended) “Finaʦnciaʦl Assets" 1 July 2014 or laʦter instruments: presentaʦtion” 1 Jaʦnuaʦry 2013 or laʦter IAS 38 (Amended) "Intaʦngʦible aʦssets" 1 July 2014 or laʦter IAS 36 (Amended) “Impaʦirment of IAS 40 (Amended) "Investment aʦssets” 1 Jaʦnuaʦry 2013 or laʦter Property" 1 July 2014 or laʦter IFRS 7 (Amended) “Finaʦnciaʦl IAS 27 (Amended) "Sepaʦraʦte Finaʦnciaʦl instruments: disclosure” 1 Jaʦnuaʦry 2013 or laʦter Staʦtements" 1 Jaʦnuaʦry 2014 or laʦter IFRS 10 (Amended) “Consolidaʦted IAS 32 (Amended) "Finaʦnciaʦl fi naʦnciaʦl staʦtements” 1 Jaʦnuaʦry 2013 or laʦter Instruments: Presentaʦtion" 1 Jaʦnuaʦry 2014 or laʦter IFRS 11 (Amended) “Joint IAS 39 (Amended) "Finaʦnciaʦl aʦrraʦngʦements” 1 Jaʦnuaʦry 2013 or laʦter Instruments: Recogʦnition aʦnd Meaʦsurement" 1 Jaʦnuaʦry 2014 or laʦter IFRS 12 (Amended) “Disclosure of interests in other entities” 1 Jaʦnuaʦry 2013 or laʦter IFRS 1 (Amended) "First-time Adoption of Internaʦtionaʦl Finaʦnciaʦl IFRS 13 “Faʦir vaʦlue meaʦsurement” 1 Jaʦnuaʦry 2013 or laʦter Reportingʦ Staʦndaʦrds” 1 July 2014 or laʦter IFRS 2 (Amended) "Shaʦre-baʦsed Paʦyment" 1 July 2014 or laʦter IFRS 3 (Amended) "Business Combinaʦtions" 1 July 2014 or laʦter IFRS 7 (Amended) "Finaʦnciaʦl Instruments: Disclosure" 1 Jaʦnuaʦry 2015 or laʦter IFRS 8 (Amended) "Operaʦtingʦ Segʦments" 1 July 2014 or laʦter IFRS 9 (Amended) "Finaʦnciaʦl Instruments" 1 July 2014 or laʦter IFRS 10 (Amended) "Consolidaʦted Finaʦnciaʦl Staʦtements" 1 Jaʦnuaʦry 2014 or laʦter IFRS 12 (Amended) "Disclosure of Interests in Other Entities" 1 Jaʦnuaʦry 2014 or laʦter IFRS 13 "Faʦir Vaʦlue Meaʦsurement" 1 July 2014 or laʦter IFRS 14 "Regʦulaʦtory Deferraʦl Accounts" 1 Jaʦnuaʦry 2016 or laʦter IFRIC 21 "Levies" 1 Jaʦnuaʦry 2014 or laʦter

Amendments to IAS 1 Presentaʦtion of Items of Other Comprehensive Income The Group haʦs aʦpplied the aʦmendments to IAS 1 Presentaʦtion of Items of Other Comprehensive Income for the fi rst time in the current yeaʦr. The aʦmendments introduce new terminologʦy, whose use is not maʦndaʦtory, for the staʦtement of comprehensive income aʦnd income staʦtement. Under the aʦmendments to IAS 1, the ‘staʦtement of comprehensive income’ is renaʦmed aʦs the ‘staʦtement of profi t or loss aʦnd other comprehensive income’ [aʦnd the ‘income staʦte- ment’ is renaʦmed aʦs the ‘staʦtement of profi t or loss’]. The aʦmend- ments to IAS 1 retaʦin the option to present profi t or loss aʦnd other comprehensive income in either aʦ singʦle staʦtement or in two sepaʦ- raʦte but consecutive staʦtements. However, the aʦmendments to IAS 1 require items of other comprehensive income to be gʦrouped into two caʦtegʦories in the other comprehensive income section: (aʦ) items thaʦt will not be reclaʦssifi ed subsequently to profi t or loss aʦnd (b) items thaʦt maʦy be reclaʦssifi ed subsequently to profi t or loss when specifi c conditions aʦre met. Income taʦx on items of other comprehensive income is required to be aʦllocaʦted on the saʦme baʦsis – the aʦmendments do not chaʦngʦe the option to present items of other comprehensive income either before taʦx or net of taʦx. The

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 55 As staʦted in aʦccountingʦ policy (note 3 (j)) the Group in its 2013 aʦmendments haʦve been aʦpplied retrospectively, aʦnd hence the results aʦpplied aʦ new caʦlculaʦtion methodologʦy for estimaʦtingʦ net presentaʦtion of items of other comprehensive income haʦs been reaʦlizaʦble vaʦlue of aʦgʦriculturaʦl produce. Specifi caʦlly, the Group modifi ed to reflect the chaʦngʦes. Other thaʦn the aʦbove mentioned uses saʦles contraʦcts where aʦvaʦilaʦble to estimaʦte net reaʦlizaʦble presentaʦtion chaʦngʦes, the aʦpplicaʦtion of the aʦmendments to IAS 1 vaʦlue for crop inventory, aʦnd maʦrket prices aʦs provided by experts does not result in aʦny impaʦct on profi t or loss, other comprehensive where no contraʦcts aʦre aʦvaʦilaʦble. In caʦse the previous caʦlculaʦtion income aʦnd totaʦl comprehensive income. aʦpproaʦch haʦd been used, the faʦir vaʦlue of aʦgʦriculturaʦl produce would haʦve been RUR 78,548 thousaʦnd (USD* 2,400 thousaʦnd) Impaʦct of the aʦpplicaʦtion of IFRS 12 less thaʦn in these results. IFRS 12 is aʦ new disclosure staʦndaʦrd aʦnd is aʦpplicaʦble to entities The next yeaʦr’s crop which haʦs been seeded in the current yeaʦr thaʦt haʦve interests in subsidiaʦries, joint aʦrraʦngʦements, aʦssociaʦtes haʦs undergʦone little biologʦicaʦl traʦnsformaʦtion. The faʦir vaʦlue of aʦnd/or unconsolidaʦted structured entities. In gʦeneraʦl, the aʦppli- such biologʦicaʦl aʦssets is equaʦl to aʦctuaʦl incurred costs. The caʦrry- caʦtion of IFRS 12 haʦs resulted in more extensive disclosures in the ingʦ vaʦlue of the next yeaʦr’s crop aʦs aʦt 31 December 2013 aʦmounted consolidaʦted finaʦnciaʦl staʦtements (pleaʦse see notes 34 aʦnd 35 for to RUR 577,253 thousaʦnd (USD* 17,637 thousaʦnd). detaʦils).

(b) Income taʦx Amendments to IFRS 7 Disclosures – Off settingʦ The Group is subject to income taʦxes in diff erent jurisdictions. Finaʦnciaʦl Assets aʦnd Finaʦnciaʦl Liaʦbilities Sigʦnifi caʦnt judgʦment is required in determiningʦ the provision for The Group haʦs aʦpplied the aʦmendments to IFRS 7 Disclosures – income taʦxes due to the complexity of the legʦislaʦtion. There aʦre Off settingʦ Finaʦnciaʦl Assets aʦnd Finaʦnciaʦl Liaʦbilities for thefirst maʦny traʦnsaʦctions aʦnd caʦlculaʦtions for which the ultimaʦte taʦx time in the current yeaʦr. The aʦmendments to IFRS 7 require entities determinaʦtion is uncertaʦin. The Group recogʦnizes liaʦbilities for to disclose informaʦtion aʦbout rigʦhts of offset aʦnd relaʦted aʦrraʦngʦe- aʦnticipaʦted taʦx aʦudit issues baʦsed on estimaʦtes of whether aʦddi- ments (such aʦs collaʦteraʦl postingʦ requirements) for finaʦnciaʦl tionaʦl taʦxes will be due. Where the fi naʦl taʦx outcome of these maʦt- instruments under aʦn enforceaʦble maʦster nettingʦ aʦgʦreement or ters is diff erent from the aʦmounts thaʦt were initiaʦlly recorded, such similaʦr aʦrraʦngʦement. diff erences will impaʦct the income taʦx aʦnd deferred taʦx provision in The aʦmendments haʦve been aʦpplied retrospectively. As the the period in which such determinaʦtion is maʦde. Group does not haʦve aʦny offsettingʦ aʦrraʦngʦements in plaʦce, the Maʦnaʦgʦement judgʦmentaʦlly ceaʦsed to recogʦnize deferred taʦx aʦpplicaʦtion of the aʦmendments haʦs haʦd no maʦteriaʦl impaʦct on aʦssets for aʦll unused taʦx losses. the disclosures or on the aʦmounts recogʦnised in the consolidaʦted The Group maʦintaʦins the legʦaʦl rigʦht to use such taʦx losses in the fi naʦnciaʦl staʦtements. future, up to the daʦte aʦllowed by the taʦx laʦw. Maʦnaʦgʦement determined thaʦt deferred taʦx aʦssets relaʦtingʦ to such taʦx losses would be IFRS 13 Faʦir Vaʦlue Meaʦsurement reconsidered for recogʦnition once the Group reaʦches staʦble profi t- IFRS 13 requires prospective aʦpplicaʦtion from 1 Jaʦnuaʦry 2013. In aʦbility duringʦ severaʦl yeaʦrs. aʦddition, specifi c traʦnsitionaʦl provisions were gʦiven to entities such thaʦt they need not aʦpply the disclosure requirements set out in the Staʦndaʦrd in compaʦraʦtive informaʦtion provided for periods before (c) Impaʦirment of aʦssets Duringʦ the yeaʦr, aʦs the result of the negʦaʦtive finaʦnciaʦl results, the the initiaʦl aʦpplicaʦtion of the Staʦndaʦrd. In aʦccordaʦnce with these Group caʦrried out aʦ review of the recoveraʦble aʦmount of its prop- traʦnsitionaʦl provisions, the Group haʦs not maʦde aʦny new disclo- erty, plaʦnt aʦnd equipment used in aʦgʦriculturaʦl aʦctivity. For the pur- sures required by IFRS 13 for the 2012 compaʦraʦtive period (pleaʦse pose of aʦ review recoveraʦble aʦmounts of the caʦsh-gʦeneraʦtingʦ units see notes 20, 25 aʦnd 29 for the 2013 disclosures). Other thaʦn the to which the aʦssets belongʦ waʦs considered. Reportaʦble operaʦtingʦ aʦdditionaʦl disclosures, the aʦpplicaʦtion of IFRS 13 haʦs not haʦd aʦny segʦments were determined aʦs caʦsh-gʦeneraʦtingʦ units (Note 6). maʦteriaʦl impaʦct on the aʦmounts recogʦnised in the consolidaʦted Baʦsed on the review the Group concluded thaʦt no impaʦirment loss is fi naʦnciaʦl staʦtements. required. This conclusion waʦs baʦsed on the followingʦ aʦssumptions: 1) The Group’s net aʦssets mostly consist of laʦnd caʦrried aʦt his- Other new aʦnd aʦmended staʦndaʦrds haʦve not yet been aʦpplied. toricaʦl cost whereaʦs maʦrket vaʦlue of this laʦnd is consideraʦbly The Group expects no sigʦnifi caʦnt impaʦct from the aʦdoption of the higʦher; aʦmendments to its finaʦnciaʦl position or performaʦnce. The Group’s 2) Property, plaʦnt aʦnd equipment caʦrryingʦ vaʦlue aʦpproximaʦtes its maʦnaʦgʦement continuously considers the potentiaʦl implicaʦtions of faʦir vaʦlue;. new aʦnd aʦmended staʦndaʦrds. 3) Finished gʦoods aʦnd biologʦicaʦl aʦssets aʦre meaʦsured aʦt faʦir vaʦlue.

(d) Investment property 4 Criticaʦl aʦccountingʦ judgʦments aʦnd key The Group’s investment property (note 25) is meaʦsured aʦt faʦir sources of estimaʦtion uncertaʦinty vaʦlue for finaʦnciaʦl reportingʦ purposes on the baʦsis of aʦ vaʦluaʦtion Maʦnaʦgʦement haʦs maʦde aʦ number of judgʦments, estimaʦtes aʦnd caʦrried out by the independent aʦppraʦiser, who haʦs aʦppropriaʦte aʦssumptions relaʦtingʦ to the reportingʦ of aʦssets aʦnd liaʦbilities aʦnd quaʦlifi caʦtions aʦnd recent experience in the vaʦluaʦtion of properties the disclosure of contingʦent aʦssets aʦnd liaʦbilities to prepaʦre these in the relevaʦnt locaʦtion. Level 2 aʦpproaʦch waʦs used to determine consolidaʦted finaʦnciaʦl staʦtements in conformity with IFRS. Actuaʦl faʦir vaʦlue of the Group’s investment property. results maʦy diff er from those estimaʦtes. Additionaʦl informaʦtion relaʦtingʦ to contingʦencies aʦnd commitments is disclosed in Note 32. Estimaʦtes aʦnd underlyingʦ aʦssumptions aʦre reviewed on aʦn ongʦoingʦ baʦsis. Revisions to aʦccountingʦ estimaʦtes aʦre recogʦnized 5. PRIOR YEAR CHANGES in the period in which the estimaʦtes aʦre revised aʦnd in aʦny future Reclaʦssifi caʦtions In 2012 the Group staʦrted to use currency non-deliveraʦble for- periods aʦff ected. waʦrds which it initiaʦlly claʦssifi ed aʦs hedgʦes aʦnd reported unset- tled baʦlaʦnces aʦs receivaʦbles. Duringʦ 2013 the Group reviewed its (aʦ) Biologʦicaʦl aʦssets aʦnd aʦgʦriculturaʦl produce claʦssifi caʦtion aʦnd concluded thaʦt it would be more aʦppropriaʦte to The paʦrticulaʦrity of aʦgʦriculture is such thaʦt aʦpproximaʦtely 40 per- claʦssify these finaʦnciaʦl instruments aʦs held-for-traʦdingʦ derivaʦtives cent of expenditures aʦre incurred in the faʦll of the precedingʦ yeaʦr, thaʦt aʦre not desigʦnaʦted in hedgʦe aʦccountingʦ relaʦtionships. Duringʦ aʦnd the remaʦiningʦ 60 percent incurred duringʦ springʦ aʦnd summer the 2nd quaʦrter 2013 the Group expaʦnded its use of derivaʦtives by in the saʦme yeaʦr aʦs the haʦrvest. enteringʦ into aʦ vaʦriety of gʦraʦin futures, caʦll options aʦnd forex. Due As paʦrt of the process of vaʦluaʦtion of biologʦicaʦl aʦssets the maʦn- to this faʦct compaʦraʦtive informaʦtion relaʦted to presentaʦtion of for- aʦgʦement maʦkes the followingʦ estimaʦtions: expected crop yield; eigʦn exchaʦngʦe forwaʦrd contraʦcts haʦs been reclaʦssifi ed in order to expected costs to haʦrvest; expected waʦstaʦgʦe percentaʦgʦe; expect- aʦchieve compaʦraʦbility with the current period presentaʦtion. ed sellingʦ expenses to be incurred in future.

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 56 Before After certaʦin compaʦraʦtive informaʦtion, presented in the consolidaʦted reclaʦssi-Reclaʦssi-reclaʦssi- fi naʦnciaʦl staʦtements for the yeaʦr ended 31 December 2012, haʦs In thousaʦnds of RUR fi caʦtion caʦtion fi caʦtion fi been reclaʦssifi ed to be consistent with the claʦssifi caʦtion for the Impaʦct aʦs of 31 December 2012 yeaʦr ended 31 December 2013. Traʦde aʦnd other receivaʦbles 687,302 (14,148) 673,154 Other fi naʦnciaʦl aʦssets – 14,148 14,148 Before After reclaʦssi-Reclaʦssi-reclaʦssi- Before After In thousaʦnds of RUR fi caʦtion fi caʦtion fi caʦtion reclaʦssi-Reclaʦssi-reclaʦssi- Impaʦct aʦs of 31 December 2012 In thousaʦnds of USD* fi caʦtion caʦtion fi fi caʦtion Gaʦin on revaʦluaʦtion of Impaʦct aʦs of 31 December 2012 biologʦicaʦl aʦssets 2,413,584 (156,476) 2,257,108 Traʦde aʦnd other receivaʦbles 20,999 (432) 20,567 Cost of saʦles (5,284,958) 156,476 (5,128,482) Other fi naʦnciaʦl aʦssets – 432 432

Duringʦ 2013, the Group haʦs conducted aʦ detaʦiled aʦnaʦlysis aʦnd haʦs Before After reclaʦssi-Reclaʦssi-reclaʦssi- revised its claʦssifi caʦtion of aʦctuaʦl costs relaʦted to gʦoods in traʦn- In thousaʦnds of USD* fi caʦtion fi caʦtion fi caʦtion sit with aʦ view to improve claʦssifi caʦtion of such expenditures. As aʦ Impaʦct aʦs of 31 December 2012 result of such aʦnaʦlysis it waʦs concluded thaʦt aʦctuaʦl costs relaʦted Gaʦin on revaʦluaʦtion of to gʦoods in traʦnsit in the aʦmount of RUR 156,476 thousaʦnd should biologʦicaʦl aʦssets 73,744 (4,781) 68,963 be viewed aʦs Gaʦin on revaʦluaʦtion of biologʦicaʦl aʦssets. Therefore Cost of saʦles (161,475) 4,781 (156,694)

6. SEGMENT INFORMATION The operaʦtingʦ segʦments deﬁ nitions were developed by senior Laʦnd plots, claʦssiﬁ ed aʦs investment property aʦs of 31 December maʦnaʦgʦement in order to enaʦble effective aʦnd effi cient operaʦtingʦ 2013 (aʦssets held for saʦle aʦs of 31 December 2012) aʦre locaʦted in performaʦnce baʦsed on the gʦeogʦraʦphic aʦnd sub-climaʦctic split of Saʦmaʦraʦ regʦion aʦnd aʦttributed to Taʦmbov regʦion (Note 25). the cropped aʦreaʦs in the four Blaʦck Eaʦrth regʦions: Voronezh, Kursk, The maʦnaʦgʦement compaʦny is locaʦted in Moscow. It sets the Lipetsk aʦnd Taʦmbov. The Group aʦlso haʦs one operaʦtingʦ entity in gʦeneraʦl policies for aʦll entities, collects the daʦtaʦ aʦnd controls Saʦmaʦraʦ regʦion, however, for segʦment reportingʦ purposes it waʦs implementaʦtion of aʦll decisions therefore it beaʦrs the maʦjority of included in Taʦmbov, aʦs the entity’s result is not maʦteriaʦl aʦs aʦ singʦle gʦeneraʦl aʦnd aʦdministraʦtive expenses. operaʦtingʦ segʦment. The paʦrent compaʦny Blaʦck Eaʦrth Faʦrmingʦ Ltd. is not included in The Group aʦlso recogʦnizes aʦ sepaʦraʦte segʦment relaʦted to elevaʦ- aʦny of the operaʦtingʦ segʦments, aʦs it does not gʦeneraʦte revenue, tor aʦctivity. The Elevaʦtor segʦment consists of two legʦaʦl entities: therefore its aʦssets aʦnd expenses haʦve been reflected in the cor- Agʦroterminaʦl (one workingʦ elevaʦtor with 60 tons of caʦpaʦcity) aʦnd poraʦte segʦment of the aʦssets aʦnd expenses. Nedvizhimost’ (three elevaʦtors with 115 tons of caʦpaʦcity). The ele- The segʦments aʦre baʦsed on the internaʦl reportingʦ to the chief vaʦtors maʦinly work for internaʦl needs, however it provides services operaʦtingʦ decision maʦker – senior maʦnaʦgʦement heaʦded by the for third paʦrties if there aʦre spaʦre caʦpaʦcities. CEO of Blaʦck Eaʦrth Faʦrmingʦ Limited.

(aʦ) Segʦment revenues aʦnd results In thousaʦnds of RUR RUR RUR RUR Revenue from Inter-segʦment Depreciaʦtion aʦnd externaʦl saʦles revenue aʦmortisaʦtion Net result 12 m. 2013 12 m. 2013 12 m. 2013 12 m. 2013 Agʦriculturaʦlcompaʦnies – Voronezh regʦion 892,905 106,908 111,422 (191,075) – Kursk regʦion 1,381,509 40,355 125,892 (88,907) – Lipetsk regʦion 1,365,536 37,157 132,958 (72,738) – Taʦmbov regʦion 665,355 67,605 109,007 (249,527) Elevaʦtors 2,104 307,027 115,607 1,216 Maʦnaʦgʦement compaʦny (Moscow) – 20,910 4,361 (268,342) Totaʦl 4,307,409 579,962 599,247 (869,373) Generaʦl aʦdministraʦtive costs includingʦ directors’ saʦlaʦries (217,443) Other income aʦnd expenses 111,885 Net ﬁ naʦnciaʦl expenses aʦnd gʦaʦin on foreigʦn exchaʦngʦe differences (453,956) Loss before income taʦx (1,428,887)

In thousaʦnds of RUR RUR RUR RUR Revenue from Inter-segʦment Depreciaʦtion aʦnd externaʦl saʦles revenue aʦmortisaʦtion Net result 12 m. 2012 12 m. 2012 12 m. 2012 12 m. 2012 Agʦriculturaʦlcompaʦnies – Voronezh regʦion 1,061,364 61,747 131,842 206,501 – Kursk regʦion 1,318,221 53,294 134,346 472,966 – Lipetsk regʦion 1,346,746 23,018 151,442 290,257 – Taʦmbov regʦion 723,708 85,523 111,253 174,692 Elevaʦtors 8,417 254,039 34,846 (11,600) Maʦnaʦgʦement compaʦny (Moscow) – 47,611 12,019 (381,540) Totaʦl 4,458,456 525,232 575,748 751,276 Generaʦl aʦdministraʦtive costs includingʦ directors’ saʦlaʦries (222,864) Other income aʦnd expenses 76,989 Net ﬁ naʦnciaʦl expenses aʦnd gʦaʦin on foreigʦn exchaʦngʦe differences (317,995) Proﬁ t before income taʦx 287,406

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 57 In thousaʦnds of USD* USD* USD* USD* Revenue from Inter-segʦment Depreciaʦtion aʦnd externaʦl saʦles revenue aʦmortisaʦtion Net result 12 m. 2013 12 m. 2013 12 m. 2013 12 m. 2013 Agʦriculturaʦlcompaʦnies – Voronezh regʦion 27,282 3,266 3,404 (5,838) – Kursk regʦion 42,210 1,233 3,846 (2,716) – Lipetsk regʦion 41,722 1,135 4,062 (2,222) – Taʦmbov regʦion 20,329 2,066 3,331 (7,625) Elevaʦtors 65 9,381 3,532 37 Maʦnaʦgʦement compaʦny (Moscow) – 639 133 (8,199) Totaʦl 131,608 17,720 18,308 (26,563) Generaʦl aʦdministraʦtive costs includingʦ directors’ saʦlaʦries (6,644) Other income aʦnd expenses 3,419 Net fi naʦnciaʦl expenses aʦnd gʦaʦin on foreigʦn exchaʦngʦe differences (13,870) Loss before income taʦx (43,658)

In thousaʦnds of USD* USD* USD* USD* Revenue from Inter-segʦment Depreciaʦtion aʦnd externaʦl saʦles revenue aʦmortisaʦtion Net result 12 m. 2012 12 m. 2012 12 m. 2012 12 m. 2012 Agʦriculturaʦlcompaʦnies – Voronezh regʦion 32,429 1,887 4,028 6,306 – Kursk regʦion 40,277 1,628 4,105 14,451 – Lipetsk regʦion 41,148 703 4,627 8,868 – Taʦmbov regʦion 22,112 2,613 3,399 5,337 Elevaʦtors 257 7,762 1,065 (354) Maʦnaʦgʦement compaʦny (Moscow) – 1,455 367 (11,656) Totaʦl 136,223 16,048 17,591 22,952 Generaʦl aʦdministraʦtive costs includingʦ directors’ saʦlaʦries (6,809) Other income aʦnd expenses 2,354 Net fi naʦnciaʦl expenses aʦnd gʦaʦin on foreigʦn exchaʦngʦe differences (9,716) Profi t before income taʦx 8,781 The aʦccountingʦ policies of the reportaʦble segʦments aʦre the saʦme aʦs the Group’s aʦccountingʦ policies aʦccordingʦ to IFRS. Segʦment profi t represents the profi t eaʦrned by eaʦch segʦment without gʦen- eraʦl aʦdministraʦtion costs includingʦ directors’ saʦlaʦries, other income aʦnd expenses aʦnd finaʦnce costs (net).

(b) Segʦment aʦssets In thousaʦnds of RUR RUR USD* USD* 31-Dec-13 31-Dec-12 31-Dec-13 31-Dec-12 Agʦriculturaʦlcompaʦnies – Voronezh regʦion 1,706,696 1,950,299 52,146 59,589 – Kursk regʦion 2,242,130 2,637,392 68,505 80,582 – Lipetsk regʦion 2,346,575 2,253,482 71,697 68,852 – Taʦmbov regʦion 1,589,881 1,685,859 48,577 51,509 Elevaʦtors 1,540,388 1,590,226 47,065 48,587 Maʦnaʦgʦement compaʦny (Moscow) 1,240,908 894,609 37,914 27,334 Totaʦl segʦment aʦssets 10,666,577 11,011,867 325,904 336,453 Corporaʦte aʦssets 642,039 1,810,601 19,616 55,321 Consolidaʦted totaʦl aʦssets 11,308,616 12,822,468 345,520 391,774 Corporaʦte aʦssets include closingʦ baʦlaʦnces (maʦinly caʦsh aʦnd caʦsh equivaʦlents) of Blaʦck Eaʦrth Faʦrmingʦ Ltd. aʦnd the Group’s net deferred taʦx position.

(c) Revenues from maʦjor products The Group’s revenues from its maʦjor products were aʦs follows: In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Wheaʦt 1,436,189 1,734,480 43,881 52,995 Sunflowers 965,822 519,442 29,509 15,871 Corn 527,275 637,246 16,110 19,470 Springʦ raʦpe seed 369,995 662,216 11,305 20,233 Sugʦaʦr-beet 335,981 198,016 10,265 6,050 Baʦrley 298,969 305,369 9,135 9,330 Soyaʦ 231,214 339,933 7,064 10,386 Milk aʦnd meaʦt 46,782 33,616 1,429 1,027 Potaʦtoes 39,739 – 1,214 – Peaʦs 26,766 – 818 – Other gʦoods aʦnd services 21,927 14,822 672 454 Other aʦnd waʦste gʦraʦins 6,750 13,316 206 407 4,307,409 4,458,456 131,608 136,223 * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 58 (d) Geogʦraʦphicaʦl informaʦtion (e) Informaʦtion aʦbout maʦjor customers The Group operaʦtes in the Russiaʦn Federaʦtion. The paʦrent com- Revenue from the maʦjor customer duringʦ 2013 aʦnd 2012 waʦs equaʦl paʦny of the Group is locaʦted in Jersey; however the paʦrent does not to RUR 1,248,054 thousaʦnd (USD* 38,134 thousaʦnd) aʦnd RUR own aʦny non-current aʦssets aʦnd gʦeneraʦtes only finaʦnciaʦl income 1,032,821 thousaʦnd (USD* 31,556 thousaʦnd) which represents aʦnd expenses in aʦddition to aʦdministraʦtion costs aʦnd directors’ aʦpproximaʦtely 29 aʦnd 23 percent of the totaʦl aʦnnuaʦl gʦraʦin saʦles saʦlaʦries. Therefore aʦll non-current aʦssets aʦre locaʦted in Russiaʦ aʦnd revenue, respectively. aʦll of the Group’s operaʦtingʦ aʦctivities aʦre in Russiaʦ.

Revenue from this customer duringʦ 2013 aʦnd 2012 waʦs reported by segʦments aʦs follows: In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Voronezh regʦion 223,383 305,862 6,825 9,345 Kursk regʦion 317,602 280,691 9,704 8,576 Lipetsk regʦion 503,973 254,433 15,398 7,774 Taʦmbov regʦion 203,094 191,835 6,205 5,861 1,248,052 1,032,821 38,132 31,556

7 Revenue aʦnd gʦaʦins The followingʦ is aʦn aʦnaʦlysis of the Group’s revenue for the yeaʦr from continuingʦ operaʦtions. In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Revenue from saʦles of crop production 4,238,700 4,410,018 129,508 134,743 Revenue from saʦles of milk aʦnd meaʦt 46,782 33,616 1,429 1,027 Revenue from saʦles of other gʦoods aʦnd services 21,927 14,822 671 453 Gaʦin on revaʦluaʦtion of biologʦicaʦl aʦssets to aʦgʦriculturaʦl produce 418,875 2,257,108 12,798 68,963 Chaʦngʦe in net reaʦlizaʦble vaʦlue of aʦgʦriculturaʦl produce aʦfter haʦrvest 5,804 92,483 177 2,826 4,732,088 6,808,047 144,583 208,012

In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Faʦir vaʦlue less point-of-saʦle costs aʦt daʦte of haʦrvest 3,989,920 4,955,897 121,907 151,421 Actuaʦl production costs (3,570,208) (2,697,172) (109,083) (82,409) Revaʦluaʦtion of biologʦicaʦl aʦssets to aʦgʦriculturaʦl produce 419,712 2,258,725 12,824 69,012

Faʦir vaʦlue of 2013 corn to be haʦrvested less point-of-saʦle costs 19,995 – 611 – Actuaʦl production costs (21,984) – (672) – Revaʦluaʦtion of aʦgʦriculturaʦl produce in the process of haʦrvestingʦ (1,989) – (61) –

Revaʦluaʦtion of daʦiry aʦnd meaʦt livestock 1,152 (1,617) 35 (49) Gaʦin on revaʦluaʦtion of biologʦicaʦl aʦssets to aʦgʦriculturaʦl produce 418,875 2,257,108 12,798 68,963

8 Cost of saʦles In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Maʦteriaʦls 2,299,412 2,107,077 70,256 64,379 Depreciaʦtion aʦnd aʦmortizaʦtion chaʦrgʦe 497,297 499,080 15,194 15,249 Personnel expenses 333,801 302,901 10,199 9,255 Third paʦrty crop haʦndlingʦ services 206,941 162,752 6,323 4,973 Crops not haʦrvested due to daʦmaʦgʦes on ﬁ elds 46,425 39,037 1,418 1,193 Taʦxes 38,964 40,965 1,190 1,252 Operaʦtingʦ leaʦses (Note 31) 37,262 39,222 1,138 1,198 Repaʦir expenses 31,958 27,518 976 841 Other expenses 43,093 62,046 1,318 1,894 Eff ect of revaʦluaʦtions (revaʦluaʦtion of biologʦicaʦl aʦssets to aʦgʦriculturaʦl produce aʦnd chaʦngʦe in net reaʦlizaʦble vaʦlue of aʦgʦriculturaʦl produce aʦfter haʦrvest) 1,001,345 1,847,884 30,595 56,460 4,536,498 5,128,482 138,607 156,694

9 Distribution expenses In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Traʦnsportaʦtion aʦnd delivery services 438,836 274,647 13,408 8,391 Depreciaʦtion aʦnd aʦmortizaʦtion chaʦrgʦe 93,313 59,422 2,851 1,816 Personnel expenses 46,137 43,069 1,410 1,316 Maʦteriaʦls 34,583 26,392 1,057 806 Storaʦgʦe aʦnd other elevaʦtor’s services 28,602 21,822 874 667 Other services 36,376 43,963 1,111 1,343 677,847 469,315 20,711 14,339 * The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 59 10 Generaʦl aʦnd aʦdministraʦtive expenses In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Personnel expenses 366,066 329,965 11,185 10,082 Consultingʦ aʦnd aʦudit 124,058 163,924 3,790 5,008 Offi ce aʦnd aʦdministraʦtion expenses 54,697 46,321 1,671 1,415 Rent expenses 25,516 22,909 780 700 Traʦvellingʦ expenses 20,026 37,468 612 1,145 Depreciaʦtion aʦnd aʦmortizaʦtion 8,637 13,038 264 398 Terminaʦtion paʦyments 1,087 3,284 33 100 Other services 17,379 13,911 531 426 617,466 630,820 18,866 19,274

11 Personnel expenses Personnel expenses aʦre included in gʦeneraʦl aʦnd aʦdministraʦtive expenses, sellingʦ expenses, cost of saʦles aʦnd work in progʦress aʦs follows: In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Generaʦl aʦnd aʦdministraʦtive expenses: Saʦlaʦries 323,657 291,974 9,889 8,921 Sociaʦl taʦxes 43,496 41,275 1,329 1,261 Cost of saʦles aʦnd work in progʦress: Saʦlaʦries 333,801 302,330 10,199 9,237 Saʦlaʦry relaʦted expenses 95,053 68,631 2,904 2,097 Sellingʦ expenses: Saʦlaʦries 34,641 33,414 1,058 1,021 Saʦlaʦry relaʦted expenses 11,496 9,655 352 295 842,144 747,279 25,731 22,832

Personnel expenses for 2013 aʦnd 2012 include shaʦre-baʦsed paʦy- ment expense (see Note 26 (d)) gʦraʦnted to employees of RUR 44,886 thousaʦnd (USD* 1,371 thousaʦnd) aʦnd RUR 13,723 thousaʦnd (USD* 419 thousaʦnd) correspondingʦly.

Averaʦgʦe aʦnd totaʦl number of employees 12 m. 2013 Of whom men 12 m. 2012 Of whom men Paʦrent (Jersey) 12 92% 18 94% Subsidiaʦries (Russiaʦ) 1,997 79% 1,995 79% Group totaʦl 2,009 79% 2,013 79%

The totaʦl number of Group employees aʦs aʦt 31 December 2013 waʦs 2,043 (31 December 2012: 2,067).

Proportion of women in maʦnaʦgʦement 2013 2012 Percentaʦgʦe of women Percentaʦgʦe of women Paʦrent Boaʦrd of directors 14% 0% Other senior executives 10% 0% Group Boaʦrd of directors 14% 0% Other senior executives 10% 0%

Retirement benefi t plaʦns Terminaʦtion of employment The staʦtutory retirement aʦgʦe for employees is 55 yeaʦrs for women The executives aʦre entitled to aʦ severaʦnce paʦy of not more thaʦn aʦnd 60 yeaʦrs for men, in aʦccordaʦnce with the Russiaʦn Laʦbor Code. 6 months if the Group terminaʦtes the employment. Severaʦnce paʦy The Group does not off er aʦ privaʦte pension plaʦn to its employees. In for the executives is caʦlculaʦted only on the baʦse saʦlaʦry aʦnd does aʦccordaʦnce with Russiaʦn taʦx legʦislaʦtion, the Group paʦys staʦtutory not include aʦny vaʦriaʦble compensaʦtions. sociaʦl security taʦx (aʦt maʦximum raʦte 30% aʦt aʦnnuaʦl taʦxaʦble income less thaʦn RUR 568 thousaʦnd aʦnd aʦdditionaʦl 10% aʦt taʦxaʦble income more thaʦn RUR 568 thousaʦnd). This taʦx is regʦressive aʦnd comprises sociaʦl insuraʦnce, contributions to the Staʦte Pension Fund aʦnd the Staʦte Medicaʦl Fund. The totaʦl expense recogʦnized in staʦtement of comprehensive income of RUR 150,045 thousaʦnd (USD* 4,584 thousaʦnd) aʦnd RUR 116,277 thousaʦnd (USD* 3,553 thousaʦnd) represent contributions paʦyaʦble to the Staʦte Pension Fund duringʦ 2013 aʦnd 2012, respectively. The Compaʦny haʦs not reserved or aʦccrued for pension, retirement or similaʦr benefi t obligʦaʦtions to Directors or senior executives. No Directors or senior executives haʦve service contraʦcts with the Compaʦny which offers them benefi ts upon ter- minaʦtion of their respective aʦppointments.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 60 12. Taʦxes other thaʦn income In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Property taʦx 47,985 58,125 1,466 1,776 Unrecoveraʦble VAT 5,493 4,295 168 131 Other taʦxes 2,422 13,492 74 412 55,900 75,912 1,708 2,319

Staʦrtingʦ from 1 Jaʦnuaʦry 2013 property taʦx raʦte for movaʦble items of plaʦnt, property aʦnd equipment waʦs reduced to 0% (2012: 2.2%) in aʦccordaʦnce with the taʦx legʦislaʦtion of the Russiaʦn Federaʦtion.

13. Crop insuraʦnce net of insuraʦnce gʦraʦnts In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Crop insuraʦnce expense 84,420 – 2,579 – Crop insuraʦnce gʦraʦnts (38,645) – (1,180) – 45,775 – 1,399 –

14. Other income aʦnd expenses In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Gaʦin on gʦraʦin options aʦnd futures 135,379 – 4,136 – Result on disposaʦl of property, plaʦnt aʦnd equipment 14,044 37,077 430 1,133 Gaʦins aʦnd losses relaʦted to disposaʦl of other aʦssets 2,473 (3,557) 76 (109) Revaʦluaʦtion of laʦnd 1,753 64,569 54 1,973 Fines aʦnd penaʦlties received 313 3,782 10 116 Allowaʦnce for doubtful debts (1,599) (17,969) (49) (549) Donaʦtions (2,299) (17,905) (70) (547) Write-off aʦccounts receivaʦble or paʦyaʦble (15,759) – (481) – Loss on foreigʦn currency forwaʦrd contraʦcts (29,502) – (901) – Other income aʦnd expenses 7,082 (16,739) 214 (515) 111,885 49,258 3,419 1,502

The followingʦ is the breaʦkdown of net gʦaʦin on held for traʦdingʦ derivaʦtives thaʦt aʦre not desigʦnaʦted in hedgʦe aʦccountingʦ relaʦtion- ships – gʦraʦin futures aʦnd options (Note 29): In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Corn futures 12,871 – 393 – Wheaʦtfutures 54,846 – 1,675 – Corn caʦlls 28,728 – 878 – Wheaʦtcaʦlls 38,934 – 1,190 – 135,379 – 4,136 –

15 Finaʦnciaʦl income aʦnd expenses In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Finaʦnciaʦl income Interest income on deposits 51,611 26,793 1,577 819 51,611 26,793 1,577 819 Finaʦnciaʦlexpenses Interest on bonds (368,447) (374,334) (11,257) (11,437) Loss from repurchaʦse of bonds (11,408) (12,854) (349) (393) Interest expense (551) (536) (17) (16) (380,406) (387,724) (11,623) (11,846) Net ﬁ naʦnciaʦl items (328,795) (360,931) (10,046) (11,027)

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 61 16. Income taʦx Blaʦck Eaʦrth Faʦrmingʦ Limited (the holdingʦ Compaʦny in Jersey) aʦnd culturaʦl producer aʦre exempt from corporaʦte income taʦx on profits Plaʦnaʦlto Enterprises Limited (aʦ subsidiaʦry in Cyprus) aʦre subject to reaʦlized from the saʦle of aʦgʦriculturaʦl produce. the followingʦ taʦx raʦtes: Jersey 0% aʦnd Cyprus 10%, respectively. In 2012 aʦnd 2013, nine maʦin of thirty nine Group’s locaʦl operaʦt- Compaʦnies domiciled in Russiaʦ thaʦt do not haʦve the staʦtus of aʦn ingʦ compaʦnies were gʦraʦnted the staʦtus of aʦgʦriculturaʦl producers aʦgʦriculturaʦl producer aʦre subject to aʦ 20% corporaʦte income taʦx. thereby enaʦblingʦ them to be exempt from corporaʦte income taʦx in Compaʦnies domiciled in Russiaʦ thaʦt do haʦve the staʦtus of aʦn aʦgʦri- aʦccordaʦnce with the Russiaʦn Taʦx Code.

In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Current taʦx expense 11,822 6,464 362 197 Deferred taʦx expense 22,761 63,417 695 1,938 Income taʦx expense 34,583 69,881 1,057 2,135

The income taʦx reconciliaʦtion is presented below: In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 (Loss)/proﬁ t before income taʦx (1,428,887) 287,406 (43,658) 8,782 Income taʦx aʦt aʦpplicaʦble taʦx raʦte of 20% (285,777) 57,481 (8,732) 1,756 Eff ect of income / (loss) aʦt 10% aʦnd 0% taʦx raʦte 227,636 (82,822) 6,955 (2,531) Eff ect of non-deductible expenses aʦnd other permaʦnent diff erences 63,977 66,050 1,955 2,018 Eff ect of previously unrecogʦnized aʦnd unused taʦx losses now recogʦnized aʦnd used (12,205) (6,318) (372) (192) Chaʦngʦe in unrecogʦnized deferred taʦx aʦssets 40,952 35,490 1,251 1,084 Income taʦx expense 34,583 69,881 1,057 2,135

17 Deferred taʦx aʦssets aʦnd liaʦbilities (aʦ) Recogʦnized deferred taʦx aʦssets aʦnd liaʦbilities Deferred taʦx aʦssets aʦnd liaʦbilities aʦre aʦttributaʦble to the followingʦ: Assets LiaʦbilitiesNet In thousaʦnds of RUR 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Inventory 3,454 6,589 – – 3,454 6,589 Traʦde aʦnd other paʦyaʦbles 2,794 15,664 (54) – 2,740 15,664 Traʦde aʦnd other receivaʦbles 120 3,630 (3) (4,416) 117 (786) Property, plaʦnt aʦnd equipment aʦnd Investment property (AHFS) – 6,264 (24,053) (21,529) (24,053) (15,265) Net taʦx (liaʦbilities)/aʦssets 6,368 32,147 (24,110) (25,945) (17,742) 6,202

Assets LiaʦbilitiesNet In thousaʦnds of USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Inventory 104 201 – – 104 201 Traʦde aʦnd other paʦyaʦbles 85 479 (1) – 84 479 Traʦde aʦnd other receivaʦbles 4 111 – (135) 4 (24) Property, plaʦnt aʦnd equipment aʦnd Investment property (AHFS) – 191 (736) (658) (735) (467) Net taʦx (liaʦbilities)/aʦssets 193 982 (737) (793) (543) 189

Maʦnaʦgʦement determined thaʦt deferred taʦx aʦssets relaʦtingʦ totaʦx losses caʦrried forwaʦrd would be considered for recogʦnition once the Group reaʦches staʦble proﬁ taʦbility duringʦ severaʦl yeaʦrs.

(b) Unrecogʦnized deferred taʦx aʦssets In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Taʦx losses caʦrried forwaʦrd 218,960 178,009 6,690 5,439 218,960 178,009 6,690 5,439

The unrecogʦnized taʦx credits aʦmounted to RUR 142,491 thousaʦnd (USD* 4,354 thousaʦnd), RUR 35,514 thousaʦnd (USD* 1,085 thou- saʦnd) aʦnd RUR 40,955 thousaʦnd (USD* 1,251 thousaʦnd) will expire in 2021, 2022 aʦnd 2023 aʦccordingʦly.

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 62 18 Property, plaʦnt aʦnd equipment In thousaʦnds of RUR RUR RUR RUR RUR RUR RUR Maʦchineryaʦnd Fixtures Construction LaʦndBuildingʦsequipment Vehicles aʦndfi ttingʦs in progʦress Totaʦl Cost Baʦlaʦnce aʦs aʦt 1 Jaʦnuaʦry 2012 1,880,762 2,564,307 2,825,208 358,560 36,955 132,465 7,798,257 Additions 11,829 99,248 471,199 18,649 7,444 73,912 682,281 Disposaʦls (49,590) (2,874) (1,261) (2,765) (2,524) (4,422) (63,436) Traʦnsfers to investment property (Note 25) (42,584) – – – – – (42,584) Reclaʦssifi caʦtion of fixed aʦssets 5,246 45,274 15,459 – 96 (66,075) – As aʦt 31 December 2012 1,805,663 2,705,955 3,310,605 374,444 41,971 135,880 8,374,518 Additions 39,528 49,514 288,371 20,015 3,321 32,186 432,935 Disposaʦls (9,593) (3,421) (19,869) (1,824) (2,811) (8,097) (45,615) Traʦnsfers to investment property (Note 25) (31,977) – – – – – (31,977) Reclaʦssifi caʦtion of fi xed aʦssets (5,246) 33,542 721 1,025 811 (30,853) – As aʦt 31 December 2013 1,798,375 2,785,590 3,579,828 393,660 43,292 129,116 8,729,861

Accumulaʦted depreciaʦtion aʦnd impaʦirment Baʦlaʦnce aʦs aʦt 1 Jaʦnuaʦry 2012 (5,321) (335,371) (1,191,018) (220,074) (26,925) – (1,778,709) Depreciaʦtion chaʦrgʦe – (141,177) (395,342) (45,193) (4,133) – (585,845) Adjustment to depreciaʦtion of disposed ﬁ xed aʦssets – 209 669 2,523 2,306 – 5,707 Reversaʦl of impaʦirment of laʦnd (1,496) – – – – – (1,496) As aʦt 31 December 2012 (6,817) (476,339) (1,585,691) (262,744) (28,752) – (2,360,343) Depreciaʦtion chaʦrgʦe – (150,422) (408,538) (44,386) (4,670) – (608,016) Adjustment to depreciaʦtion of disposed ﬁ xed aʦssets – 588 18,899 1,465 2,239 – 23,191 Impaʦirment of PPE – (1) (2) 2 1 – – As aʦt 31 December 2013 (6,817) (626,174) (1,975,332) (305,663) (31,182) – (2,945,168)

Net book vaʦlue As aʦt 1 Jaʦnuaʦry 2012 1,875,441 2,228,936 1,634,190 138,486 10,030 132,465 6,019,548 As aʦt 31 December 2012 1,798,846 2,229,616 1,724,914 111,700 13,219 135,880 6,014,175 As aʦt 31 December 2013 1,791,558 2,159,416 1,604,496 87,997 12,110 129,116 5,784,693

In thousaʦnds of USD* USD* USD* USD* USD* USD* USD* Maʦchineryaʦnd Fixtures Construction LaʦndBuildingʦsequipment Vehicles aʦndfi ttingʦs in progʦress Totaʦl Cost Baʦlaʦnce aʦs aʦt 1 Jaʦnuaʦry 2012 57,464 78,349 86,321 10,955 1,129 4,047 238,265 Additions 361 3,032 14,397 570 227 2,258 20,845 Disposaʦls (1,515) (88) (39) (84) (77) (133) (1,936) Traʦnsfers to investment property (1,301) – – – – – (1,301) Reclaʦssifi caʦtion of fixed aʦssets 160 1,383 472 – 3 (2,018) – As aʦt 31 December 2012 55,169 82,676 101,151 11,441 1,282 4,154 255,873 Additions 1,208 1,514 8,811 612 101 983 13,229 Disposaʦls (294) (105) (606) (55) (85) (250) (1,395) Traʦnsfers to investment property (Note 25) (977) – – – – – (977) Reclaʦssifi caʦtion of fixed aʦssets (160) 1,025 22 30 25 (942) – As aʦt 31 December 2013 54,946 85,110 109,378 12,028 1,323 3,945 266,730

Accumulaʦted depreciaʦtion aʦnd impaʦirment Baʦlaʦnce aʦs aʦt 1 Jaʦnuaʦry 2012 (163) (10,247) (36,390) (6,724) (823) – (54,347) Depreciaʦtion chaʦrgʦe – (4,313) (12,079) (1,381) (126) – (17,899) Adjustment to depreciaʦtion of disposed ﬁ xed aʦssets – 6 20 77 70 – 173 Impaʦirmentof PPE – – – – – – – Reversaʦl of impaʦirment of laʦnd (44) – – – – – (44) As aʦt 31 December 2012 (207) (14,554) (48,449) (8,028) (879) – (72,117) Depreciaʦtion chaʦrgʦe – (4,596) (12,482) (1,356) (142) – (18,576) Adjustment to depreciaʦtion of disposed ﬁ xed aʦssets – 18 576 45 68 – 707 Impaʦirmentof PPE – – – – – – – Impaʦirmentof laʦnd – – – – – – – As aʦt 31 December 2013 (207) (19,132) (60,355) (9,339) (953) – (89,986)

Net book vaʦlue As aʦt 1 Jaʦnuaʦry 2012 57,301 68,102 49,931 4,231 306 4,047 183,918 As aʦt 31 December 2012 54,962 68,122 52,702 3,413 403 4,154 183,756 As aʦt 31 December 2013 54,739 65,978 49,023 2,689 370 3,945 176,744

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 63 Laʦnd As aʦt 31 December 2013 aʦnd 2012, the Group haʦs effective con- Thousaʦnd hectaʦres of laʦnd 31-Dec-13 31-Dec-12 trol over 308 thousaʦnd hectaʦres of laʦnd. Approximaʦtely 18 thou- Laʦnd in regʦistered ownership 254 250 saʦnd hectaʦres were in the process of regʦistraʦtion with the relevaʦnt Laʦnd under longʦ-term leaʦse aʦgʦreements 44 40 aʦuthorities. Until the Group completes the regʦistraʦtion process, it Laʦnd in the process of ownership will not be aʦble to fully exercise its rigʦhts of ownership. regʦistraʦtion with the relevaʦnt aʦuthorities 10 18 As aʦt 31 December 2013 aʦnd 2012 the Group leaʦsed 40 thousaʦnd 308 308 hectaʦres under longʦ-term caʦncellaʦble leaʦse contraʦcts. The Group haʦs 250 thousaʦnd hectaʦres in fully regʦistered ownership.

19 Intaʦngʦible aʦssets In thousaʦnds of RUR RUR USD* USD* 2013 2012 2013 2012 Cost Baʦlaʦnce aʦt the begʦinningʦ of the yeaʦr 23,275 20,391 711 623 Additions 9,971 2,951 305 90 Disposaʦls (20) (67) (2) (2) Baʦlaʦnce aʦt the end of the yeaʦr 33,226 23,275 1,014 711

Accumulaʦted aʦmortizaʦtion aʦnd impaʦirment Baʦlaʦnce aʦt the begʦinningʦ of the yeaʦr (20,834) (13,546) (636) (414) Amortizaʦtion expense (2,313) (7,355) (70) (225) Disposaʦls 20 67 1 3 Baʦlaʦnce aʦt the end of the yeaʦr (23,127) (20,834) (705) (636)

Net book vaʦlue At the begʦinningʦ of the yeaʦr 2,441 6,845 75 209 Baʦlaʦnce aʦt the end of the yeaʦr 10,099 2,441 309 75

Intaʦngʦible aʦssets maʦinly comprise computer softwaʦre aʦnd construction licenses. The estimaʦted useful lives used in the caʦlculaʦ- tion of aʦmortizaʦtion vaʦry from one to three yeaʦrs.

20 Biologʦicaʦl aʦssets In thousaʦnds of RUR Crop production Livestock (current) (non-current) Totaʦl Baʦlaʦnce aʦs aʦt 1 Jaʦnuaʦry 2012 532,598 23,514 556,112 Increaʦse due to aʦcquisitions – – – Increaʦse due to incurred expenses 3,063,085 12,880 3,075,965 Decreaʦse due to saʦles – (8,759) (8,759) Net increaʦse due to births/(deaʦths) – 175 175 Chaʦngʦe in faʦir vaʦlue less estimaʦted point-of-saʦle costs 2,258,725 (1,617) 2,257,108 Haʦrvested crops traʦnsferred to inventories (4,848,280) – (4,848,280) Baʦlaʦnce aʦs aʦt 31 December 2012 1,006,128 26,193 1,032,321

Increaʦse due to incurred expenses 3,143,322 13,522 3,156,844 Decreaʦse due to saʦles - (18,818) (18,818) Chaʦngʦe in faʦir vaʦlue less estimaʦted point-of-saʦle costs 417,723 1,152 418,875 Haʦrvested crops traʦnsferred to inventories (3,989,920) - (3,989,920) Baʦlaʦnce aʦs aʦt 31 December 2013 577,253 22,049 599,302

In thousaʦnds of USD* Crop production Livestock (current) (non-current) Totaʦl Baʦlaʦnce aʦs aʦt 1 Jaʦnuaʦry 2012 16,273 718 16,991 Increaʦse due to aʦcquisitions – – – Increaʦse due to incurred expenses 93,588 394 93,982 Decreaʦse due to saʦles – (268) (268) Net increaʦse due to births/(deaʦths) – 5 5 Chaʦngʦe in faʦir vaʦlue less estimaʦted point-of-saʦle costs 69,013 (49) 68,964 Haʦrvested crops traʦnsferred to inventories (148,133) – (148,133) Baʦlaʦnce aʦs aʦt 31 December 2012 30,741 800 31,541

Increaʦse due to incurred expenses 96,040 413 96,453 Decreaʦse due to saʦles – (574) (574) Chaʦngʦe in faʦir vaʦlue less estimaʦted point-of-saʦle costs 12,763 35 12,798 Haʦrvested crops traʦnsferred to inventories (121,907) – (121,907) Baʦlaʦnce aʦs aʦt 31 December 2013 17,637 674 18,311

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 64 Current biologʦicaʦl aʦssets comprise the plaʦnned crop of 2014. The aʦctuaʦl incurred costs due to the faʦct thaʦt little biologʦicaʦl traʦnsfor- 2014 crop haʦs been seeded duringʦ September-November 2013 maʦtion haʦs taʦken plaʦce. aʦnd therefore, is currently undergʦoingʦ its plaʦnned biologʦicaʦl traʦns- Level 3 aʦpproaʦch waʦs used to determine faʦir vaʦlue of the Group’s formaʦtion which taʦkes its due course until springʦ/summer of 2014; biologʦicaʦl aʦssets. therefore, this “plaʦnned haʦrvest” is currently vaʦlued on the baʦsis of

21 Other non-current aʦssets In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Prepaʦyments for property, plaʦnt aʦnd equipment 42,728 43,856 1,306 1,340 Prepaʦyments for longʦ-term leaʦse 38,609 55,787 1,180 1,705 Allowaʦnce for doubtful debts (8,417) (16,052) (257) (490) Other non-current aʦssets 4,901 5,469 149 166 77,821 89,060 2,378 2,721

22 Inventories In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Finished gʦoods 1,165,164 1,418,118 35,600 43,329 Raʦw maʦteriaʦls aʦnd consumaʦbles 670,828 800,817 20,496 24,468 1,835,992 2,218,935 56,096 67,797

Accordingʦ to IAS 41, haʦrvested crop is traʦnsferred to inventory aʦt faʦir vaʦlue less cost to sell aʦt the daʦte of haʦrvest. Thereaʦfter, ﬁ nished gʦoods aʦre staʦted aʦt net reaʦlizaʦble vaʦlue aʦccordingʦ tothe aʦccountingʦ policy.

23 Traʦde aʦnd other receivaʦbles In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 VAT receivaʦble 227,988 153,403 6,966 4,687 Advaʦnces paʦid for gʦoods aʦnd services 207,177 129,825 6,330 3,967 Traʦde receivaʦbles 188,243 394,944 5,752 12,067 Income taʦx receivaʦble 6,262 7,021 191 215 Other prepaʦyments aʦnd receivaʦbles 129,415 29,821 3,954 910 Allowaʦnce for doubtful debts (30,576) (41,860) (934) (1,279) 728,509 673,154 22,259 20,567

The aʦveraʦgʦe credit period on saʦles of gʦoods is 7 daʦys. No interest is quaʦlity aʦnd deﬁ nes credit limits by customer. Limits aʦnd scoringʦ chaʦrgʦed on traʦde receivaʦbles. aʦttributed to customers aʦre reviewed on aʦ caʦse-by-caʦse baʦsis. Before aʦcceptingʦ aʦ new customer, the Group uses aʦn externaʦl The aʦgʦeingʦ aʦnaʦlysis of traʦde aʦnd other receivaʦbles is presented credit scoringʦ system to aʦssess the potentiaʦl customer’s credit in the taʦble below:

In thousaʦnds of RUR 31-Dec-2013 31-Dec-2012 Gross aʦmount Allowaʦnce Gross aʦmount Allowaʦnce Current 643,847 – 602,093 – Paʦst due 115,238 (30,576) 112,921 (41,860) less thaʦn six months 76,978 – 75,064 (4,369) over six months 38,260 (30,576) 37,857 (37,491) 759,085 (30,576) 715,014 (41,860)

In thousaʦnds of USD* 31-Dec-13 31-Dec-12 Gross aʦmount Allowaʦnce Gross aʦmount Allowaʦnce Current 19,672 – 18,395 – Paʦst due 3,521 (934) 3,450 (1,278) less thaʦn six months 2,352 – 2,293 (133) over six months 1,169 (934) 1,157 (1,145) 23,193 (934) 21,845 (1,278)

Duringʦ 2013, the Group creaʦted aʦllowaʦnce for doubtful debts The totaʦl aʦmount of taʦxes receivaʦbles is recogʦnized aʦs “current” aʦmountingʦ to RUR 30,576 thousaʦnd (USD* 934 thousaʦnd) (2012: regʦaʦrdless of the aʦccepted term of 90 daʦys aʦs the Group haʦs posi- RUR 41,860 thousaʦnd, USD* 1,278 thousaʦnd). Traʦde receivaʦbles tive experience in obtaʦiningʦ taʦx receivaʦbles. In aʦddition aʦccord- over 180 daʦys aʦre provided for baʦsed on aʦn estimaʦtion of unrecov- ingʦ to Russiaʦn taʦx legʦislaʦtion it usuaʦlly taʦkes more thaʦn 90 daʦys to eraʦble aʦmounts from the saʦle of gʦoods, aʦs determined by reference receive VAT refund. to paʦst defaʦult experience.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 65 Movement in the aʦllowaʦnce for doubtful debts In thousaʦnds of RUR RUR USD* USD* 2013 2012 2013 2012 Baʦlaʦnce aʦt the begʦinningʦ of the yeaʦr 41,860 18,261 1,278 558 Impaʦirment losses recogʦnized on receivaʦbles 8,010 41,837 245 1,278 Amounts written off duringʦ the yeaʦr aʦs uncollectible (9,461) (18,238) (289) (558) Impaʦirment losses reversed (9,833) – (300) – Baʦlaʦnce aʦt the end of the yeaʦr 30,576 41,860 934 1,278

24 Caʦsh aʦnd caʦsh equivaʦlents In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Caʦll deposits, overnigʦht RUR denominaʦted aʦt 5.5%–5.9% per aʦnnum 950,000 750,000 29,026 22,915 Baʦnk baʦlaʦnces, RUR denominaʦted aʦccounts 441,275 129,782 13,483 3,965 Baʦnk baʦlaʦnces, SEK denominaʦted aʦccounts 424,986 1,686,863 12,985 51,540 Baʦnk baʦlaʦnces, EUR denominaʦted aʦccounts 253,508 36,359 7,746 1,111 Baʦnk baʦlaʦnces, USD denominaʦted aʦccounts 41,364 34,686 1,264 1,060 Baʦnk baʦlaʦnces, GBP denominaʦted aʦccounts 13,565 911 414 28 Petty caʦsh 251 333 7 10 2,124,949 2,638,934 64,925 80,629

25 Assets claʦssifi ed aʦs held for saʦle aʦnd Investment property The Group owns 13 thousaʦnd hectaʦres in Saʦmaʦraʦ regʦion, which is tion caʦrried out by the independent aʦppraʦiser, who haʦs aʦppropriaʦte not used by the Group in the Group’s primaʦry aʦctivity which is faʦrm- quaʦlifi caʦtions aʦnd recent experience in the vaʦluaʦtion of properties ingʦ. At 31 December 2012 these laʦnd plots were subject to saʦles aʦnd in the relevaʦnt locaʦtion. The faʦir vaʦlue waʦs determined baʦsed on aʦ saʦles aʦnd purchaʦse aʦgʦreement with the third paʦrty waʦs sigʦned the maʦrket compaʦraʦble aʦpproaʦch thaʦt reflects recent traʦnsaʦc- aʦnd the laʦnd plots were staʦted in the consolidaʦted staʦtement of tion prices for similaʦr properties. In estimaʦtingʦ the faʦir vaʦlue of the fi naʦnciaʦl position aʦs aʦssets held for saʦle aʦt faʦir vaʦlue. Duringʦ 2013 properties, the higʦhest aʦnd best use of this laʦnd is saʦles. Level 2 the saʦle waʦs not concluded aʦnd aʦt 31 December 2013 the Group aʦpproaʦch waʦs used to determine faʦir vaʦlue of the Group’s invest- traʦnsferred the laʦnd to investment property aʦnd in aʦccordaʦnce with ment property. IAS 40 haʦs meaʦsured the laʦnd aʦt faʦir vaʦlue on the baʦsis of aʦ vaʦluaʦ- Baʦlaʦnce cost of investment property In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Baʦlaʦnce aʦt the begʦinningʦ of the yeaʦr – – – – Reclaʦssifi caʦtions from/(to) property, plaʦnt aʦnd equipment 31,977 42,584 977 1,301 Reclaʦssifi caʦtions from/(to) aʦssets held for saʦle 107,153 (107,153) 3,274 (3,274) Revaʦluaʦtion gʦaʦin (Note 14) 1,753 64,569 54 1,973 Baʦlaʦnce aʦt the end of the yeaʦr 140,883 – 4,305 –

The Group recogʦnized the followingʦ aʦmounts in proﬁ t aʦnd loss relaʦted to investment property: In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Rentaʦl income from investment property 6,859 983 210 30 Laʦnd taʦx expenses (1,114) (983) (34) (30) 5,745 – 176 –

26 Equity (aʦ) Shaʦre caʦpitaʦl (c) Dividends The Group haʦs only one claʦss of shaʦre – ordinaʦry shaʦres. Eaʦch shaʦre In aʦccordaʦnce with Jersey legʦislaʦtion, the Compaʦny’s (i.e., Blaʦck is entitled to one vote aʦt the gʦeneraʦl meetingʦ aʦnd caʦrries aʦn equaʦl Eaʦrth Faʦrmingʦ Limited) distributaʦble reserves aʦre limited to the rigʦht to the Group’s aʦssets aʦnd profi ts. The shaʦres aʦre denominaʦted baʦlaʦnce of the Compaʦny’s retaʦined eaʦrningʦs. in USD aʦnd haʦve aʦ nominaʦl vaʦlue of USD 0.01 per shaʦre. On 22 December 2007, the Compaʦny’s shaʦres were listed in the (d) Shaʦre-baʦsed paʦyments form of Swedish Depository Receipts (“SDR”) on the First North Waʦrraʦnts maʦrket plaʦce in Stockholm. On 22 June 2009, traʦdingʦ in Blaʦck Eaʦrth The Group gʦraʦnts its key maʦnaʦgʦement waʦrraʦnts thaʦt maʦybe Faʦrmingʦ’s SDRs waʦs traʦnsferred from NASDAQ OMX First North to converted into ordinaʦry shaʦres. All issued waʦrraʦnts haʦve vestingʦ the Mid Caʦp segʦment on NASDAQ OMX Stockholm. periods raʦngʦingʦ from 1 to 5 yeaʦrs (the common vestingʦ condition Duringʦ the 4th quaʦrter of 2012, the Group completed aʦ rigʦhts requires continued employment with the Group). The expiry daʦte of issue, which entaʦiled aʦn increaʦse in the number of shaʦres. 31 December 2015 is common for aʦll waʦrraʦnts gʦraʦnted to employ- There aʦre no unpaʦid shaʦres aʦnd the totaʦl aʦmount of shaʦre caʦpitaʦl ees, except for issued in 2012 aʦnd 2013 with expiry daʦtes in 2016 aʦmounted to RUR 58,349 thousaʦnd (USD* 1,783 thousaʦnd) aʦs aʦt 31 aʦnd 2017. December 2013. The waʦrraʦnts aʦre gʦraʦnted to key maʦnaʦgʦement employees in aʦccordaʦnce with aʦ personaʦl schedule of proportionaʦl yeaʦrly (b) Shaʦre premium traʦnches. Eaʦch traʦnche of waʦrraʦnts caʦn be vested aʦ yeaʦr aʦfter the The totaʦl shaʦre premium aʦmounted to RUR 13,621,100 thousaʦnd gʦraʦnt daʦte. (USD* 416,176 thousaʦnd) aʦs aʦt 31 December 2013. Duringʦ 2013 no waʦrraʦnts were exercised. The Group gʦraʦnted 2,150,000 waʦrraʦnts to key maʦnaʦgʦement. Three employees left the Compaʦny, resultingʦ in the forfeiture of 1,080,000 waʦrraʦnts. The summaʦry informaʦtion on the waʦrraʦnts held by Directors is described in the Corporaʦte Governaʦnce Report. * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 66 The number aʦnd weigʦhted aʦveraʦgʦe exercise prices of the waʦrraʦnts aʦre aʦs follows: In thousaʦnds of waʦrraʦnts Weigʦhted Number of Weigʦhted Number of aʦveraʦgʦe waʦrraʦnts, aʦveraʦgʦe waʦrraʦnts, exercise price in thousaʦnds exercise price in thousaʦnds 12 m. 2013 12 m. 2013 12 m. 2012 12 m. 2012 USD 6.94 1,907 USD 6.94 1,907 SEK 22.25 2,226 SEK 28.53 1,736 Baʦlaʦnce aʦt the begʦinningʦ of the yeaʦr 4,133 3,643 Forfeited duringʦ the yeaʦr USD 5.92 (770) – Forfeited duringʦ the yeaʦr SEK 28.66 (310) SEK 31.10 (210) Graʦnted duringʦ the yeaʦr SEK 8.72 2,150 SEK 11.24 700 Baʦlaʦnce aʦt the end of the yeaʦr 5,203 4,133 USD 7.64 1,137 USD 6.94 1,907 SEK 15.15 4,066 SEK 22.25 2,226 Exercisaʦble aʦs aʦt 31 December 2013 USD 7.64 1,137 USD 6.64 1,697 Exercisaʦble aʦs aʦt 31 December 2013 SEK 24.14 1,149 SEK 26.99 850 2,286 2,547

The weigʦhted aʦveraʦgʦe remaʦiningʦ contraʦctuaʦl life for the waʦrraʦnts Blaʦck-Scholes model. Exercise prices of waʦrraʦnts aʦre stipulaʦted outstaʦndingʦ aʦs aʦt 31 December 2013 is 2.78 yeaʦrs (31 December by the waʦrraʦnt certiﬁ caʦtes. Up to 2009, aʦll exercise prices were 2012: 3.34 yeaʦrs). denominaʦted in USD aʦnd raʦngʦed from USD 2.50 to USD 12.00. The faʦir vaʦlue of services received in return for waʦrraʦnts gʦraʦnted Waʦrraʦnts issued in 2009–2013 aʦre denominaʦted in SEK with exer- is baʦsed on the faʦir vaʦlue of waʦrraʦnts gʦraʦnted, meaʦsured usingʦ the cise prices raʦngʦingʦ from SEK 7.12 to SEK 39.15.

Inputs into the model Graʦnted in Graʦnted in Graʦnted in Graʦnted in Graʦnted in 2013 2012 2011 2010 2009 Faʦir vaʦlue aʦt gʦraʦnt daʦte SEK 4.48 SEK 3.46 SEK 10.70 SEK 8.72 SEK 5.18 Shaʦre price SEK 8.85 SEK 8.50 SEK 22.31 SEK 18.50 SEK 22.90 Averaʦgʦe exercise price SEK 8.72 SEK 11.24 SEK 27.37 SEK 26.64 SEK 33.00 Expected volaʦtility (i) 89% 80% 92% 93% 48% Option life (expected weigʦhted aʦveraʦgʦe life) 2.72 2.49 2.23 2.60 3.01 Expected dividends (ii) 0% 0% 0% 0% 0% Risk-free interest raʦte (baʦsed on gʦovernment bonds) 0.97% 0.94% 1.9% 1.5% 1.7%

(i) Volaʦtility is aʦ meaʦsure of the tendency of investment returns (ii) The Compaʦny haʦs never declaʦred nor paʦid aʦny dividends on its to vaʦry aʦround aʦ longʦ-term aʦveraʦgʦe raʦte. For waʦrraʦnts gʦraʦnted shaʦres aʦnd does not aʦnticipaʦte paʦyingʦ dividends in the foresee- before December 2008 there waʦs not enougʦh historicaʦl infor- aʦble future. Consequently, the expected dividend aʦssumption is maʦtion on the Compaʦny’s stock price, so historicaʦl peer gʦroup set aʦt zero. informaʦtion waʦs used to estimaʦte the expected volaʦtility used in the Blaʦck-Scholes model. Begʦinningʦ in 2010, the expected volaʦ- tility used waʦs baʦsed on the Compaʦny’s historicaʦl shaʦre price volaʦtility since traʦdingʦ inception.

Executives shaʦre option plaʦn (ESOP) For eaʦch of the followingʦ saʦtisfi ed conditions below (A-E), the paʦr- In 2012, the Group implemented aʦ shaʦre option scheme for execu- ticipaʦnts will receive free of chaʦrgʦe one shaʦre (SDR) in the Group: tives aʦnd senior maʦnaʦgʦers of the Group. In aʦccordaʦnce with the A. The paʦrticipaʦnts must still be aʦn employee of the Group aʦt the terms of the plaʦn, in order to paʦrticipaʦte in the plaʦn, the paʦrtici- releaʦse of the interim report for the period Jaʦnuaʦry–Maʦrch in paʦnts must purchaʦse shaʦres (in form of SDRs) in the Group. For the third fi naʦnciaʦl yeaʦr followingʦ the gʦraʦnt of the rigʦhts. eaʦch shaʦre held under the plaʦn, the Group will gʦraʦnt rigʦhts, free of B. The Group’s return on caʦpitaʦl (meaʦsured aʦs EBIT divided by totaʦl chaʦrgʦe, to the paʦrticipaʦnt duringʦ aʦ three yeaʦr period. aʦssets) aʦveraʦgʦes no less thaʦn 10% over the three finaʦnciaʦl yeaʦrs The rigʦhts gʦraʦnted by the Group shaʦll be gʦoverned by the follow- begʦinningʦ with the finaʦnciaʦl yeaʦr when the rigʦhts aʦre gʦraʦnted. ingʦ terms aʦnd conditions: In respect of rigʦhts gʦraʦnted aʦfter 2012, the Boaʦrd of Directors – Graʦnted free of chaʦrgʦe aʦfter the aʦnnuaʦl gʦeneraʦl meetingʦ. shaʦll haʦve the rigʦht, in its sole discretion, to increaʦse the aʦveraʦgʦe – Maʦy not be traʦnsferred or pledgʦed. percentaʦgʦe for the return of caʦpitaʦl referred to aʦbove. – Vests aʦfter the releaʦse of the interim report for the period Jaʦnu- C. The Group is profi taʦble (baʦsed on EBIT) duringʦ two of three aʦry–Maʦrch in the third fi naʦnciaʦl yeaʦr followingʦ the gʦraʦnt ofthe fi naʦnciaʦl yeaʦrs begʦinningʦ with the finaʦnciaʦl yeaʦr when the rigʦhts rigʦhts. aʦre gʦraʦnted. – Any dividends paʦid on the underlyingʦ shaʦre will increaʦse the D. The Group’s totaʦl revenues in the third fi naʦnciaʦl yeaʦr aʦre 75% number of shaʦres thaʦt eaʦch retention rigʦht aʦnd performaʦnce higʦher thaʦn the totaʦl revenues duringʦ the precedingʦ finaʦnciaʦl rigʦht entitles to in order to aʦligʦn the shaʦreholders aʦnd the paʦr- yeaʦr when the rigʦhts aʦre gʦraʦnted. ticipaʦnts’ interests. E. The blended yield of crops over the three fi naʦnciaʦl yeaʦrs, begʦin- – Vests provided thaʦt the holder haʦs maʦintaʦined the personaʦl ningʦ with the finaʦnciaʦl yeaʦr when the rigʦhts aʦre gʦraʦnted, is 20% investment duringʦ the vestingʦ period endingʦ aʦt the releaʦse of the higʦher thaʦn blended yield of crops in the precedingʦ life of the interim report for the period Jaʦnuaʦry – Maʦrch in the third finaʦn- Group excludingʦ 2010 aʦnd corrected for beet aʦnd crop chaʦngʦes. ciaʦl yeaʦr followingʦ the gʦraʦnt of the rigʦhts aʦnd is still employed by the Group duringʦ this vestingʦ period.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 67 As aʦt 31 December 2013, the followingʦ aʦrraʦngʦements existed under the ESOP Averaʦgʦe Faʦir vaʦlue Options series Number purchaʦse Expiry Number aʦt gʦraʦnt purchaʦsed price, SEK daʦte gʦraʦnted daʦte, SEK (1) Graʦnted in 2012 512,587 9.47 31/03/2015 1,537,761 9.47 (2) Graʦnted in 2013 278,061 9.13 31/03/2016 556,122 8.94

One employee left the Compaʦny, resultingʦ in the forfeiture of The aʦmount of shaʦre-baʦsed paʦyment expense recogʦnized in the options, relaʦted to 66,666 purchaʦsed shaʦres. consolidaʦted staʦtement of comprehensive income is presented in the followingʦ taʦble:

In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Waʦrraʦnts expense 21,964 9,933 671 303 ESOP expense 22,922 3,790 700 117 44,886 13,723 1,371 420

(e) Eaʦrningʦs per shaʦre The aʦmounts aʦre indicaʦted in RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 (Loss)/proﬁ t for the period (1,463,470,000) 217,525,000 (44,714,506) 6,646,206 Weigʦhted aʦveraʦgʦe number of ordinaʦry shaʦres 207,669,445 129,140,890 207,669,445 129,140,890 Baʦsic aʦnd diluted (loss)/eaʦrningʦs per shaʦre (RUR/shaʦre, USD*/shaʦre) (7.05) 1.68 (0.22) 0.05

Additionaʦl shaʦres under the existingʦ waʦrraʦnts aʦnd executives shaʦre dilutive eaʦrningʦs/ (loss) per shaʦre. The Group incurred loss in 2013 option plaʦn (described in Note 26 (d)) aʦre aʦntidilutive in aʦccordaʦnce aʦnd in aʦccordaʦnce with IAS 33 the dilutive eff ect is not considered. with IAS 33 aʦnd aʦre not included for purposes of the caʦlculaʦtion of

27 Borrowingʦs The totaʦl aʦmount of loaʦns aʦnd borrowingʦs waʦs RUR 3,253,682 – ﬁ xed aʦnnuaʦl coupon raʦte, 10.22% – effective interest raʦte) aʦnd thousaʦnd (USD* 99,412 thousaʦnd) aʦs aʦt 31 December 2013 (RUR other borrowingʦs. The bonds aʦre due to be redeemed in 2017 aʦnd 3,334,432 thousaʦnd, USD 101,872 thousaʦnd aʦt 31 December 2012). aʦre unsecured. This aʦmount represents bonds paʦyaʦble aʦnd interest aʦccrued (9.4%

In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Unsecured SEK bonds – aʦt aʦmortized cost 3,239,615 3,321,626 98,982 101,488 Non-current 3,186,495 3,161,767 97,359 96,604 Current 53,120 159,859 1,623 4,884 Unsecured borrowingʦs – aʦt aʦmortized cost 14,067 12,806 430 392 Current 14,067 12,806 430 392 Totaʦl borrowingʦs 3,253,682 3,334,432 99,412 101,880

On 30 October 2013 the Group issued aʦ new SEK 750 million sen- As aʦt 31 December 2013 the Group is in compliaʦnce with aʦll cov- ior unsecured bonds, eaʦch of aʦ nominaʦl aʦmount of SEK 1,000,000, enaʦnts stipulaʦted in the bond aʦgʦreement. The maʦjor covenaʦnts aʦre which is aʦlso the minimum round lot. The Bonds haʦve aʦ fixed aʦnnuaʦl aʦs follows: coupon of 9.40% aʦnd maʦture aʦfter 4 yeaʦrs. Interest will be paʦid on 1) Debt to Equity raʦtio does not exceed 75%; 30 Jaʦnuaʦry, 30 April, 30 July aʦnd 30 October eaʦch yeaʦr, with the first 2) No maʦrket Loaʦn is incurred if such maʦrket loaʦn haʦs naʦl aʦfi interest paʦyment on 30 Jaʦnuaʦry 2014 aʦnd the laʦst on 30 October redemption daʦte, eaʦrly redemption daʦtes or instaʦlment daʦtes 2017. The Bonds aʦre listed on the Naʦsdaʦq OMX Stockholm exchaʦngʦe. which occur before the fi naʦl maʦturity daʦte of bonds; The off er to exchaʦngʦe Existingʦ Bonds haʦs been aʦccepted in aʦ 3) Not to distribute aʦny funds to shaʦreholders in excess of 30% of totaʦl nominaʦl aʦmount of SEK 371 million of which the Group haʦs the Group’s consolidaʦted net profi t for the previous fiscaʦl yeaʦr. tendered SEK 100 million thaʦt is previously held on its own aʦccount.

28 Traʦde aʦnd other paʦyaʦbles In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Traʦde paʦyaʦbles 296,056 311,193 9,046 9,508 Advaʦnces received 82,268 107,131 2,514 3,273 Taʦxes other thaʦn on income paʦyaʦble 67,094 44,520 2,050 1,360 Paʦyaʦbles to personnel 15,082 10,920 461 334 Income taʦx paʦyaʦble 4,135 295 126 8 Other paʦyaʦbles 57,077 82,919 1,743 2,533 521,712 556,978 15,940 17,016

The aʦveraʦgʦe credit period on purchaʦses of gʦoods is 25 daʦys. No interest is chaʦrgʦed on traʦde paʦyaʦbles. The Group haʦs ﬁnaʦnciaʦl risk maʦnaʦgʦement policies in plaʦce to ensure thaʦt aʦll paʦyaʦbles aʦre paʦid within the credit timefraʦme.

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 68 29 Other fi naʦnciaʦl aʦssets aʦnd liaʦbilities Other fi naʦnciaʦl liaʦbilities aʦs of 31 December 2013 aʦmounted to RUR Level 1 aʦpproaʦch waʦs used to determine faʦir vaʦlue of the Group’s 22,583 thousaʦnd (USD* 690 thousaʦnd) (2012: fi naʦnciaʦl aʦssets of held for traʦdingʦ derivaʦtives. Open positions aʦt 31 December 2013 RUR 14,148 thousaʦnd (USD* 432 thousaʦnd) represented by for- aʦnd 2012 aʦre presented below: eigʦn exchaʦngʦe raʦte derivaʦtives). Graʦin futures aʦre traʦded on MATIF 31-Dec 31-Dec (Europeaʦn futures maʦrket Paʦris) aʦnd gʦraʦin caʦll-options aʦre traʦded Units 2013 2012 Foreigʦn exchaʦngʦe raʦte derivaʦtives EUR '000 9,492 5,115 on Chicaʦgʦo Boaʦrd of Traʦde (CBoT). Foreigʦn exchaʦngʦe raʦte derivaʦ- Foreigʦn exchaʦngʦe raʦte derivaʦtives USD '000 4,690 – tives aʦre non-deliveraʦble forwaʦrd contraʦcts between the Compaʦny Graʦin futures aʦnd options Tons – – aʦnd SEB aʦnd Monex baʦnks.

30 Finaʦnciaʦl instruments (aʦ) Caʦtegʦories of ﬁnaʦnciaʦl instruments In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Finaʦnciaʦl aʦssets Finaʦnciaʦl aʦssets, 2,420,379 3,075,252 73,951 93,960 includingʦ: – Caʦsh aʦnd caʦsh equivaʦlents 2,124,949 2,638,934 64,925 80,629 – Traʦde aʦnd other receivaʦbles 295,430 422,170 9,026 12,899 – Finaʦnciaʦl instruments – 14,148 – 432 Finaʦnciaʦl liaʦbilities Amortized cost 3,629,740 3,656,833 110,902 111,730 includingʦ: – Loaʦns aʦnd borrowingʦs 3,253,682 3,334,432 99,412 101,879 – Traʦde aʦnd other paʦyaʦbles 353,475 322,401 10,800 9,851 – Finaʦnciaʦl instruments 22,583 – 690 –

(b) Credit risk Credit risk is the risk of fi naʦnciaʦl loss to the Group if aʦ customer or Investments. The Group limits its exposure to credit risk by plaʦcingʦ counterpaʦrty to aʦ fi naʦnciaʦl instrument faʦils to meet its contraʦctuaʦl surplus funds on deposit with aʦ vaʦriety of estaʦblished baʦnks in Rus- obligʦaʦtions, aʦnd aʦrises principaʦlly from the Group’s investment siaʦ aʦnd aʦbroaʦd. Maʦnaʦgʦement does not expect aʦny counterpaʦrty to securities. faʦil to meet its obligʦaʦtions. Traʦde aʦnd other receivaʦbles. Most of the domestic saʦles aʦre maʦde Risk concentraʦtion. Apaʦrt from the laʦrgʦest customer of the Group on aʦ prepaʦyment or caʦsh on delivery baʦsis. The export saʦles in con- (refer to Note 6 (e)), the Group does not haʦve sigʦnifi caʦnt credit risk traʦst aʦre usuaʦlly maʦde on credit terms. The Group is not sigʦnifi caʦnt- exposure to aʦny singʦle counterpaʦrty or aʦny gʦroup of counterpaʦrties ly exposed to credit risk in relaʦtion to receivaʦbles. haʦvingʦ similaʦr chaʦraʦcteristics. Concentraʦtion of credit risk relaʦted Caʦsh aʦnd caʦsh equivaʦlents. The credit risk on liquid funds is limited to the laʦrgʦest customer did not exceed 10% of gʦross monetaʦry becaʦuse the counterpaʦrties aʦre baʦnks with higʦh credit-raʦtingʦs aʦssets aʦt aʦny time duringʦ the yeaʦr. aʦssigʦned by internaʦtionaʦl credit-raʦtingʦ aʦgʦencies. Guaʦraʦntees. There aʦre no gʦuaʦraʦntees provided by the Group.

Exposure to credit risk The caʦrryingʦ aʦmount of naʦnciaʦl ﬁ aʦssets represents the maʦxi- mum credit exposure. The maʦximum exposure to credit risk aʦt the reportingʦ daʦte waʦs: In thousaʦnds of RUR RUR USD* USD* 31-Dec-2013 31-Dec-2012 31-Dec-2013 31-Dec-2012 Caʦsh aʦnd caʦsh equivaʦlents 2,124,949 2,638,934 64,925 80,629 Loaʦns, receivaʦbles aʦnd ﬁnaʦnciaʦl aʦssets 295,430 436,318 9,026 13,331 2,420,379 3,075,252 73,951 93,960

The aʦgʦeingʦ aʦnaʦlysis of traʦde aʦnd other receivaʦbles, loaʦns issued is presented in the taʦble below: In thousaʦnds of RUR 31-Dec-2013 31-Dec-2012 Gross aʦmount Impaʦirment Gross aʦmount Impaʦirment Not paʦst due 287,374 – 371,975 – Paʦst due: 13,770 (5,714) 56,727 (6,532) less thaʦn six months 8,056 – 51,299 (1,104) over six month 5,714 (5,714) 5,428 (5,428) 301,144 (5,714) 428,702 (6,532)

In thousaʦnds of USD* 31-Dec-2013 31-Dec-2012 Gross aʦmount Impaʦirment Gross aʦmount Impaʦirment Not paʦst due 8,780 – 11,366 – Paʦst due: 421 (175) 1,733 (200) less thaʦn six months 246 – 1,567 (34) over six month 175 (175) 166 (166) 9,201 (175) 13,099 (200)

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 69 (c) Liquidity risk Liquidity risk is the risk thaʦt the Group will not be aʦble to meet its The followingʦ aʦre the contraʦctuaʦl maʦturities offinaʦnciaʦl liaʦ- fi naʦnciaʦl obligʦaʦtions aʦs they faʦll due. The Group’s aʦpproaʦch to bilities, includingʦ estimaʦted interest paʦyments aʦnd excludingʦ the maʦnaʦgʦingʦ liquidity is to ensure, aʦs faʦr aʦs possible, thaʦt it will aʦlwaʦys impaʦct of nettingʦ aʦgʦreements: haʦve suffi cient liquidity to meet its liaʦbilities when due, under both normaʦl aʦnd stressed conditions, without incurringʦ unaʦcceptaʦble losses or riskingʦ daʦmaʦgʦe to the Group’s reputaʦtion.

31 December 2013 Interest raʦte Less thaʦn From 1 From 2 In thousaʦnds of RUR Contraʦctuaʦl Eff ective 1 yeaʦr to 2 yeaʦrs to 5 yeaʦrs Totaʦl Fixed interest raʦte instruments Loaʦns aʦnd borrowingʦs 9.4% 10.22% 306,387 306,387 3,872,205 4,484,979 Non-interest beaʦringʦ Traʦde aʦnd other paʦyaʦbles 353,475 – – 353,475 Other ﬁ naʦnciaʦlliaʦbilities 22,583 22,583 682,445 306,387 3,872,205 4,861,037

31 December 2013 Interest raʦte Less thaʦn From 1 From 2 In thousaʦnds of USD* Contraʦctuaʦl Eff ective 1 yeaʦr to 2 yeaʦrs to 5 yeaʦrs Totaʦl Fixed interest raʦte instruments Loaʦns aʦnd borrowingʦs 9.4% 10.22% 9,361 9,361 118,310 137,032 Non-interest beaʦringʦ Traʦde aʦnd other paʦyaʦbles 10,800 – – 10,800 Other ﬁ naʦnciaʦlliaʦbilities 690 690 20,851 9,361 118,310 148,522

31 December 2012 Interest raʦte Less thaʦn From 1 From 2 In thousaʦnds of RUR Contraʦctuaʦl Eff ective 1 yeaʦr to 2 yeaʦrs to 5 yeaʦrs Totaʦl Fixed interest raʦteinstruments Loaʦns aʦnd borrowingʦs 10% 10.75% 159,858 3,529,691 – 3,689,549 Non-interest beaʦringʦ Traʦde aʦnd other paʦyaʦbles 322,401 – – 322,401 482,259 3,529,691 – 4,011,950

31 December 2012 Interest raʦte Less thaʦn From 1 From 2 In thousaʦnds of USD* Contraʦctuaʦl Eff ective 1 yeaʦr to 2 yeaʦrs to 5 yeaʦrs Totaʦl Fixed interest raʦteinstruments Loaʦns aʦnd borrowingʦs 10% 10.75% 4,884 107,845 – 112,730 Non-interest beaʦringʦ Traʦde aʦnd other paʦyaʦbles 9,851 – – 9,851 14,735 107,845 – 122,581

(d) Maʦrket risk Maʦrket risk is the risk thaʦt chaʦngʦes in maʦrket prices, such aʦs for- The followingʦ sigʦnifi caʦnt exchaʦngʦe raʦtes aʦpplied duringʦ the yeaʦr: eigʦn exchaʦngʦe raʦtes, interest raʦtes aʦnd equity prices will aʦffect the RUR RUR RUR RUR Group’s income or the vaʦlue of its holdingʦs of finaʦnciaʦl instruments. Raʦte aʦt Averaʦgʦe raʦte Raʦte aʦt Averaʦgʦe raʦte The objective of maʦrket risk maʦnaʦgʦement is to maʦnaʦgʦe aʦnd control 31 December for the yeaʦr 31 December for the yeaʦr 2013 2013 2012 2012 maʦrket risk exposures within aʦcceptaʦble paʦraʦmeters, while opti- 1 USD 32.7292 31.8853 30.3727 31.0615 mizingʦ the return. 1 EUR 44.9699 42.3656 40.2286 39.9010 The current maʦrket risk faʦced by the Group is further described 1 SEK 5.0145 4.8936 4.6688 4.5873 in Note 32 (b). Foreigʦn currency sensitivity aʦnaʦlysis Currency risk A 10% weaʦkeningʦ of the RUR aʦgʦaʦinst the followingʦ currency aʦt 31 The Group is exposed to currency risk on borrowingʦs thaʦt aʦre December would haʦve increaʦsed/(decreaʦsed) equity aʦnd profit or denominaʦted in aʦ currency other thaʦn the respective functionaʦl loss by the aʦmounts shown below. This aʦnaʦlysis aʦssumes thaʦt aʦll currencies of Group entities, primaʦrily the Russiaʦn Rouble (RUR). other vaʦriaʦbles, in paʦrticulaʦr interest raʦtes, remaʦin constaʦnt. The The currency in which such borrowingʦs primaʦrily aʦre denominaʦted aʦnaʦlysis is performed on the saʦme baʦsis for 2012. is SEK. The Group does not hedgʦe SEK currency risk; however, the Group In thousaʦnds of RUR RUR USD* USD* haʦs suffi cient SEK-denominaʦted caʦsh in order to meet its interest Equity Profi t or loss Equity Profi t or loss paʦyment obligʦaʦtion. 2013 USD 3,271 3,271 100 100 EUR 30,886 30,886 944 944 Exposure to currency risk SEK (285,353) (285,353) (8,719) (8,719) The Group’s exposure to foreigʦn currency exchaʦngʦe raʦte risk determined aʦs the net monetaʦry position in respective currencies waʦs 2012 USD (6,440) (6,440) (197) (197) aʦs follows: EURO 9,433 9,433 288 288 In thousaʦnds of RUR RUR USD* USD* SEK (163,385) (163,385) (4,992) (4,992) 2013 2012 2013 2012 USD/RUR 32,713 (64,404) 1,000 (1,968) EUR/RUR 308,855 94,332 9,437 2,882 SEK/RUR (2,853,528) (1,633,852) (87,186) (49,920)

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 70 Interest raʦte risk (f) Faʦir vaʦlues The Group aʦdopts aʦ policy of limitingʦ its exposure to chaʦngʦes in A number of the Group’s aʦccountingʦ policies aʦnd disclosures require interest raʦtes by borrowingʦ on aʦ fi xed raʦte baʦsis. the determinaʦtion of faʦir vaʦlue, for both fi naʦnciaʦl aʦnd non-finaʦnciaʦl Chaʦngʦes in interest raʦtes impaʦct primaʦrily loaʦns aʦnd borrowingʦs aʦssets aʦnd liaʦbilities. Faʦir vaʦlues haʦve been determined for meaʦs- by chaʦngʦingʦ either their faʦir vaʦlue (fixed raʦte debt) or their future urement aʦnd for disclosure purposes baʦsed on the followingʦ meth- caʦsh flows (vaʦriaʦble raʦte debt). Maʦnaʦgʦement does not haʦve aʦfor- ods. When aʦpplicaʦble, further informaʦtion aʦbout the aʦssumptions maʦl policy of determiningʦ which proportion of the Group’s exposure maʦde in determiningʦ faʦir vaʦlues is disclosed in the notes specifi c to should be to fi xed or vaʦriaʦble raʦtes. However, aʦt the time of raʦisingʦ thaʦt aʦsset or liaʦbility. new loaʦns or borrowingʦs maʦnaʦgʦement uses its judgʦment to decide whether it believes thaʦt aʦ fixed or vaʦriaʦble raʦte would be more faʦvo- Traʦde aʦnd other receivaʦbles raʦble to the Group over the expected period until maʦturity. The faʦir vaʦlue of traʦde aʦnd other receivaʦbles is estimaʦted aʦs the present vaʦlue of future caʦsh flows, discounted aʦt the maʦrket raʦte Faʦir vaʦlue sensitivity aʦnaʦlysis for fi xed raʦte instruments of interest aʦt the reportingʦ daʦte. The faʦir vaʦlue of traʦde aʦnd other The Group does not aʦccount for aʦny fi xed raʦte fi naʦnciaʦl aʦssets aʦnd receivaʦbles aʦpproximaʦte their caʦrryingʦ aʦmounts due to their short liaʦbilities aʦt faʦir vaʦlue througʦh t profi or loss. Therefore aʦ chaʦngʦe in maʦturity. interest raʦtes aʦt the reportingʦ daʦte would not aʦffect profi t or loss. Non-derivaʦtive finaʦnciaʦl instruments (e) Caʦpitaʦl maʦnaʦgʦement Faʦir vaʦlue for loaʦns aʦnd borrowingʦs (Note 27), which is determined The Boaʦrd’s policy is to maʦintaʦin aʦ strongʦ caʦpitaʦl baʦse so aʦsto for disclosure purposes, is caʦlculaʦted baʦsed on the present vaʦlue of maʦintaʦin investor, creditor aʦnd maʦrket confidence aʦnd to sustaʦin future principaʦl aʦnd interest caʦsh flows, discounted aʦt the maʦrket future development of the business. The Boaʦrd of Directors moni- raʦte of interest aʦt the reportingʦ daʦte. tors the return on caʦpitaʦl. Maʦnaʦgʦement believes thaʦt the faʦir vaʦlue of the Group’s finaʦnciaʦl There were no chaʦngʦes in the Group’s aʦpproaʦch to caʦpitaʦl maʦn- aʦssets aʦnd liaʦbilities aʦpproximaʦtes their caʦrryingʦ aʦmounts. aʦgʦement duringʦ the yeaʦr. The interest raʦtes used to discount estimaʦted caʦsh flows, where The caʦpitaʦl structure of the Group consists of debt (Note 27), aʦpplicaʦble, were aʦs follows: caʦsh aʦnd caʦsh equivaʦlents (Note 24) aʦnd equity, comprisingʦ issued 2013 2012 caʦpitaʦl, reserves aʦnd retaʦined eaʦrningʦs (Note 26). Loaʦns aʦnd borrowingʦs 10.22% 10.75% The compaʦny aʦnd its subsidiaʦries aʦre subject to caʦpitaʦl requirements stipulaʦted in the bond aʦgʦreement (Note 27). Faʦir vaʦlue for other fi naʦnciaʦl aʦssets aʦnd liaʦbilities waʦs determined usingʦ Level 1 of faʦir vaʦlue hieraʦrchy (Notes 14, 29).

31 Operaʦtingʦ leaʦses Non-caʦncellaʦble operaʦtingʦ leaʦse commitments aʦre aʦs follows: In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Not laʦter thaʦn one yeaʦr 32,002 35,803 978 1,094 Laʦter thaʦn 1 yeaʦr aʦnd not laʦter thaʦn 5 yeaʦrs 103,881 112,597 3,174 3,440 Laʦter thaʦn 5 yeaʦrs 511,975 590,254 15,643 18,034 647,858 738,654 19,795 22,568

The Group leaʦses aʦ number of laʦnd plots under operaʦtingʦ leaʦses. The leaʦse term is typicaʦlly for aʦn initiaʦl period of forty-nine (49) yeaʦrs. Duringʦ the current yeaʦr, RUR 37,262 thousaʦnd (USD* 1,138 thousaʦnd) of rent expense waʦs recogʦnized in proﬁ t aʦnd loss in respect of operaʦtingʦ leaʦses.

32 Contingʦencies aʦnd commitments (aʦ) Taʦxaʦtion contingʦencies The taʦxaʦtion system in the Russiaʦn Federaʦtion is relaʦtively new These circumstaʦnces maʦy creaʦte taʦx risks in the Russiaʦn Fed- aʦnd is chaʦraʦcterized by frequent chaʦngʦes in legʦislaʦtion, officiaʦl eraʦtion thaʦt aʦre substaʦntiaʦlly more sigʦnifi caʦnt thaʦn in other coun- pronouncements aʦnd court decisions, which aʦre often uncleaʦr, tries. Maʦnaʦgʦement believes thaʦt it haʦs provided aʦdequaʦtely for aʦll contraʦdictory aʦnd subject to vaʦryingʦ interpretaʦtion by different taʦx liaʦbilities baʦsed on its interpretaʦtions of aʦpplicaʦble Russiaʦn taʦx taʦx aʦuthorities. Taʦxes aʦre subject to review aʦnd investigʦaʦtion byaʦ legʦislaʦtion, officiaʦl pronouncements aʦnd court decisions. However, number of aʦuthorities, which haʦve the aʦuthority to impose severe the interpretaʦtions of the relevaʦnt aʦuthorities could differ aʦnd the fi nes, penaʦlties aʦnd interest chaʦrgʦes. A taʦx yeaʦr remaʦins open for eff ect on these consolidaʦted finaʦnciaʦl staʦtements, if the aʦuthori- review by the taʦx aʦuthorities duringʦ the three subsequent caʦlendaʦr ties were successful in enforcingʦ their interpretaʦtions, could be yeaʦrs; however, under certaʦin circumstaʦnces aʦ taʦx yeaʦr maʦy remaʦin sigʦnifi caʦnt. open longʦer. Recent events within the Russiaʦn Federaʦtion sugʦgʦest thaʦt the taʦx aʦuthorities aʦre taʦkingʦ aʦ more aʦssertive position in their interpretaʦtion aʦnd enforcement of taʦx legʦislaʦtion.

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 71 (b) Risks relaʦtingʦ to the Group Agʦriculturaʦl maʦrket risk Poor or unexpected weaʦther conditions As aʦ rule, gʦraʦin prices exhibit raʦther higʦh seaʦsonaʦl fluctuaʦtion. As Weaʦther conditions aʦre aʦ sigʦnifi caʦnt operaʦtingʦ risk ectingʦ aʦff the aʦ gʦeneraʦl trend, prices tend to be lower in aʦutumn maʦinly due to Group. Poor weaʦther conditions (whether too dry or too wet) aʦnd the increaʦsingʦ in supply. Maʦrket prices of aʦgʦriculturaʦl commodities unpredictaʦble climaʦte chaʦngʦes maʦy aʦdversely aʦffect faʦrm output aʦre aʦlso influenced by aʦ vaʦriety of unpredictaʦble faʦctors which aʦre which, in turn, maʦy negʦaʦtively aʦff ect the Group’s business. beyond the control of the Group, includingʦ weaʦther, plaʦntingʦ inten- tions, gʦovernment (Russiaʦn aʦnd foreigʦn) faʦrm progʦraʦms aʦnd policies, chaʦngʦes in gʦlobaʦl demaʦnd resultingʦ from populaʦtion gʦrowth aʦnd higʦher staʦndaʦrds of livingʦ aʦnd gʦlobaʦl production of similaʦr aʦnd competitive crops.

(c) Commitments for expenditure In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Commitments for aʦcquisition of raʦw maʦteriaʦls 70,562 178,302 2,156 5,448 Commitments for leaʦse aʦgʦreements 32,002 35,803 978 1,094 102,564 214,105 3,134 6,542

33 Relaʦted paʦrty traʦnsaʦctions Duringʦ the yeaʦr, the Group entered into the followingʦ traʦnsaʦctions with relaʦted paʦrties thaʦt aʦre not members of the Group. In thousaʦnds of RUR RUR USD* USD* 12 m. 2013 12 m. 2012 12 m. 2013 12 m. 2012 Purchaʦse of services from relaʦted paʦrties Kinnevik Agʦri Ltd (i) 33,974 36,508 1,038 1,115 KCM internaʦtionaʦl (ii) 38,323 25,170 1,171 769 Audit Vaʦlue Internaʦtionaʦl – 4,707 – 144 72,297 66,385 2,209 2,028 Interest aʦccrued aʦnd paʦid Kinnevik AB Investment – 11,311 – 346 Vostok Komi (Cyprus) Ltd – 11,287 – 345 – 22,598 – 691 Accounts paʦyaʦble owed to relaʦted paʦrties KCM internaʦtionaʦl (ii) 5,094 5,632 156 172 Kinnevik Agʦri Ltd (i) 5,202 4,838 159 148 10,296 10,470 315 320 (i) Kinnevik Agʦri Ltd provided consultaʦncy services aʦnd aʦ review of (ii) KCM internaʦtionaʦl provided consultaʦncy services relaʦted to BEF crop production performaʦnce. All contraʦcts haʦve been scru- budgʦetingʦ aʦnd forecaʦstingʦ process, production plaʦnningʦ, haʦr- tinized for aʦrms lengʦth aʦnd haʦve been aʦpproved by the members vest, storaʦgʦe aʦnd logʦistics. All contraʦcts haʦve been scrutinized of the Boaʦrd of Directors independent from Kinnevik. for aʦrms lengʦth aʦnd haʦve been aʦpproved by the members of the Boaʦrd of Directors independent from Kinnevik.

The aʦmounts outstaʦndingʦ aʦre unsecured aʦnd will be settled in caʦsh. No expense haʦs been recogʦnized in the current or prior periods for baʦd or doubtful debts in respect of the aʦmounts owed by relaʦted paʦrties.

Saʦlaʦries aʦnd other remuneraʦtion for Directors aʦnd other senior executives In thousaʦnds of RUR 12 m. 2013 12 m. 2013 12 m. 2012 12 m. 2012 Boaʦrd of Senior Boaʦrd of Senior directors executives directors executives (7 positions) (10 positions) (7 positions) (10 positions) Saʦlaʦries, bonuses aʦnd non-monetaʦry beneﬁ ts (mobile, flaʦt rent, medicaʦl insuraʦnce) 12,943 85,062 10,497 74,479 Shaʦre-baʦsed paʦyments – 13,651 6,174 7,974 Terminaʦtion paʦyments – 1,087 – 864 Contribution to the Staʦte Pension Fund – 5,747 – 1,995 Totaʦl 12,943 105,547 16,671 85,312

In thousaʦnds of USD* 12 m. 2013 12 m. 2013 12 m. 2012 12 m. 2012 Boaʦrd of Senior Boaʦrd of Senior directors executives directors executives (7 positions) (10 positions) (7 positions) (10 positions) Saʦlaʦries, bonuses aʦnd non-monetaʦry beneﬁ ts (mobile, flaʦt rent, medicaʦl insuraʦnce) 395 2,599 321 2,276 Shaʦre-baʦsed paʦyments – 417 189 244 Terminaʦtion paʦyments – 33 – 26 Contribution to the Staʦte Pension Fund – 176 – 61 Totaʦl 395 3,225 510 2,607

* The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 72 34 Staʦtement of finaʦnciaʦl position for Blaʦck Eaʦrth Faʦrmingʦ Limited (the Compaʦny) The aʦudited fi naʦnciaʦl staʦtements of the paʦrent compaʦny will be published before 30 April 2014 aʦnd will be aʦvaʦilaʦble aʦt the Com- paʦny’s website aʦt http://www.blaʦckeaʦrthfaʦrmingʦ.com/.

35 Sigʦniﬁ caʦnt subsidiaʦries List of sigʦniﬁ caʦnt subsidiaʦries (totaʦl number of subsidiaʦries equaʦls 39) is presented below. Country of Ownership aʦnd votingʦ interest Principaʦl incorporaʦtion 31-Dec-2013 31-Dec-2012 aʦctivity Plaʦnaʦlto Enterprises Limited Cyprus 100% 100% Maʦnaʦgʦement Blaʦck Eaʦrth Traʦdingʦ Internaʦtionaʦl* Guernsey 100% – Traʦdingʦ OOO Maʦnaʦgʦement Compaʦny Agʦro-Invest (Moscow) Russiaʦ 100% 100% Maʦnaʦgʦement OOO Nedvizhimost Russiaʦ 100% 100% Elevaʦtors OOO Agʦroterminaʦl Russiaʦ 100% 100% Elevaʦtors ZAO Dmitriev Agʦro-Invest Russiaʦ 100% 100% Agʦriculture OOO Sosnovkaʦ Agʦro-Invest Russiaʦ 100% 100% Agʦriculture OOO Staʦnovoje Agʦro-Invest Russiaʦ 100% 100% Agʦriculture ZAO Kaʦstornoje Agʦro-Invest Russiaʦ 100% 100% Agʦriculture OOO Podgʦornoe Agʦro-Invest Russiaʦ 100% 100% Agʦriculture OOO Agʦrolipetzk Russiaʦ 100% 100% Agʦriculture OOO Novokhopersk Agʦro-Invest Russiaʦ 100% 100% Agʦriculture OOO Kaʦlaʦch Agʦro-Invest Russiaʦ 100% 100% Agʦriculture OOO Morshaʦnsk Agʦro-Invest Russiaʦ 100% 100% Agʦriculture * Blaʦck Eaʦrth Traʦdingʦ Internaʦtionaʦl waʦs incorporaʦted aʦt the end of 2013 for the purpose of export traʦdingʦ aʦctivities.

36 Subsequent events The prices for fi nished gʦoods were relaʦtively staʦble in the 1st quaʦr- ter of 2014, aʦnd the maʦnaʦgʦement does not believe thaʦt there is aʦ risk of sigʦnifi caʦnt gʦaʦins or losses aʦs aʦ result of chaʦngʦes nished infi gʦoods prices from 31 December 2013 to the daʦte of this report. Duringʦ the 1st quaʦrter 2014 aʦnd up to the daʦte of publicaʦtion of this report, the Group’s functionaʦl currency, the RUR, haʦs depreci- aʦted sigʦnifi caʦntly aʦgʦaʦinst key currencies (aʦbout 8% vs USD, 9% vs EUR aʦnd 10% vs SEK respectively). A weaʦker RUR maʦy haʦve poten- tiaʦl negʦaʦtive effects on the Group’s results. At the end of Maʦrch 2014, the Group aʦgʦreed the saʦle of laʦnd aʦnd relaʦted reaʦl estaʦte aʦssets from subsidiaʦries OOO Podgʦornoe Agʦro- Invest aʦnd OOO Ostrogʦozhsk Agʦro-Invest in Voronezh regʦion. Saʦle aʦnd purchaʦse aʦgʦreements were sigʦned with the plaʦnned saʦle expected to be fi naʦlized in the 2nd quaʦrter of 2014. As paʦrt of the plaʦnned traʦnsaʦction, Blaʦck Eaʦrth Faʦrmingʦ will sell 27.8 thousaʦnd hectaʦres of laʦnd for aʦ totaʦl of USD 21.1 million to Avaʦngʦaʦrd Agʦro.

* The USD equivaʦlent ﬁ gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted ﬁ naʦnciaʦl staʦtements – refer to note 2(d). 73 Board, Management and Auditors

BOARD OF DIRECTORS of Företagsservice. Before her time at WM-data, she worked Vigo Carlund, Chairman of the Board as, inter alia, CFO of Integro AB, as CFO of Lexicon and in Swedish citizen, born in 1946 accounting and external reporting at SEB. Camilla Öberg is Mr. Carlund is a Swedish citizen born 1946. He has been a Board member of RusForest AB. She is also CFO for Cyber- Director of the Board of Investment AB Kinnevik since 2006 com Group AB. Board member of subsidiaries of Cybercom and is Chairman of the Board of Net Entertainment NE AB Group AB. since 2011. He also serves as Director of the Board of Aca- Shareholdings: 1,500 SDRs demic Work Solutions since 2006 and iZettle AB since 2010. Mr. Carlund worked within the Kinnevik Group 1968–2006 Poul Schroeder, Non-executive Director and and was CEO of Korsnäs AB 1998–2000, and President and Chairman of Operations Committee CEO of Transcom WorldWide S.A. 2000–2002 and Kinnevik Danish citizen, born in 1944 1999–2006. Principal education: Mr. Schroeder is a graduate in econom- Shareholdings: 1,002,662 SDRs* ics from the Aarhus Business School and has completed the International Senior Management Program at Columbia Per Brilioth, Non-Executive Director University. Swedish citizen, born in 1969 Work experience: Mr. Schroeder is an independent consult- Principal education: Mr. Brilioth holds a BA in Business ant and has been active in the international agricultural Administration from the University of Stockholm, and a industry since 1966, among others, within the Continental Master of Finance from the London Business School. Grain Company and Bunge. Mr. Schroeder is Chairman of Work experience: Mr. Brilioth is managing director and mem- the Board of Dan Store. ber of the board of Vostok Nafta Investment Ltd. In addition Shareholdings: 250,000 SDRs Mr. Brilioth is currently a member of the Board of Direc- tors of RusForest AB, Avito AB, X5 Group AB and Svenska Magnus Unger, Non-executive Director Fotografiska museet AB. Swedish citizen, born in 1942 Shareholdings: 321,656 SDRs* Principal education: Mr. Unger holds a Master of Science in Economics and Business from the Stockholm School of Anders Kronborg, Non-executive Director Economics. Danish citizen, born in 1964 Work experience: Mr. Unger is a businessman with many years Principal education: Graduate in Economics from the Univer- of industrial experience, with among others SCA/Mölnlycke sity of Copenhagen. and Atlas Copco. Mr. Unger is a member of the Board of Direc- Work experience: Chief Operating Officer of Investment AB tors of Lundin Petroleum AB and Otirol Art AB. Kinnevik since 2012. CFO of Metro International S.A. since Shareholdings: 250,000 SDRs 2007. Member of the Board of Millicom International Cellu- lar S.A., Vireo Energy AB and G3 Good Governance Group Ltd. Richard Warburton, Executive Director and CEO Shareholdings: 7,833 SDRs British citizen, born in 1966 Principal education: Mr. Warburton holds a Bachelor of Sci- Camilla Öberg, Non-executive Director ence degree in Agriculture from the University of Newcastle Swedish citizen, born in 1964 as well as an MBA. Principal education: Camilla Öberg holds a Degree in Eco- Work experience: Mr. Warburton is CEO of KinnAgri Lim- nomics and Business Administration from Stockholm ited and a Director of KCM International and Rolnyvik Sp. School of Economics. z.o.o., all of which are companies in the Investment AB Kin- Work experience: From 2006 to 2011, Camilla Öberg was nevik group, as well as a member of the investment commit- employed at the IT-company Logica, serving as CFO of Log- tee to funds run by Northbridge Capital Partners. Mr. War- ica Sweden AB from 2007. Between 1998 and 2006, Camil- burton was previously head of agriculture at Investment AB la Öberg was employed at WM-data, where she, inter alia, Kinnevik. He has also been Equity Partner and Head of Agri- worked as head of IR and Group Treasury. Camilla Öberg business Bidwells 1999–2010 and a Director of British Field also worked as CFO of one of WM-data’s subsidiaries and as Products 1994–1998. business controller for one of four business areas. During her Shareholdings: 430,000 SDRs first two years at WM-data, Camilla Öberg worked as CFO Warrants: 876,863

* SDRs held via an insurance policy

74 GROUP MANAGEMENT khstan. Experience also covers post acquisition company Richaʦrd Waʦrburton, Chief Executive Offi cer integration and management consulting. See also “Board of Directors” above. Shareholdings: 0 SDRs Warrants: 150,000 Fraʦser Scott, Chief Operaʦtingʦ Officer British citizen, born in 1961 Victoriaʦ Fletcher, Business Development Director Principal education: Mr. Scott holds a Bachelor of Science in British citizen, born in 1981 Agriculture from Newcastle University. Principal education: Ms. Fletcher holds a Master of Science in Work experience: Mr. Scott has more than 20 year experience agricultural management from Reading University. of large scale corporate farm management, most recently as Work experience: Ms. Fletcher joined the Group in 2012 and head of arable and potato operations on 20 thousand hec- has 8 years’ experience in Supplying major British super- tares of arable farming and food operations at the Co-oper- markets with fresh food, most recently as Business Unit ative farms in the UK. He has also been involved in several Director for a rapidly growing fresh produce business. Her large scale agribusinesses as farm and operations manager function included procurement from Africa and across the at Booker, Broad Oak and the Co-operative farms in the UK. world and management of production and logistics. She also Shareholdings: 151,649 SDRs has been involved in business development in Central Asia. Warrants: 338,941 Shareholdings: 71,000 SDRs Warrants: 150,000 Erik Daʦnemaʦr, Chief Finaʦnciaʦl Officer Swedish citizen, born in 1976 Avto Maʦkhaʦroblishvili, Director of Investor Relaʦtions Principal education: Mr. Danemar holds a BA in Econom- Georgian citizen, born in 1990 ics and Management from the University of Oxford and an Principal education: Mr. Makharoblishvili holds a Bachelor of Executive MBA from the London Business School. Science degree in Accounting, business fi nance and manage- Work experience: Mr. Danemar has more than nine years ment from the University of York. of fi nancial sector experience from various positions at Work experience: Mr. Makharoblishvili joined the Group in Deutsche Bank and United Financial Group in London and September 2013. Mr. Makharoblishvili has experience from Moscow, most recently as Director within equity research, the investor community having worked at Tetra Tech ENE., focused on mining and basic resources. He has also been a and in diff erent investment research positions at Georgian Board Director at Ferronordic Machines AB. From 1998 to banks KorStandard and Bank of Georgia. 2000, Mr. Danemar worked in the diplomatic service at the Shareholdings: 0 SDRs Swedish Embassy in Moscow. Warrants: 0 Shareholdings: 25,000 SDRs Warrants: 200,000 AUDITORS Deloitte Richaʦrd Willows, Director of Saʦles & Maʦrketingʦ Principal auditors: British citizen, born in 1953 Svaʦnte Forsbergʦ, Group Audit Paʦrtner Mr. Willows has a background in trading of agricultural com- Mr. Forsberg is a Swedish citizen, born in 1952. modities, specializing in the marketing of quality assured Deloitte are the appointed auditors since 2008. Among other grains and oilseeds for the food industry including direct entities Mr. Forsberg is the lead auditor of Anticimex, Dili- exporting to key customers in the Baltic States and Europe. gentia, Diös, Skandia Liv and Swedbank. He has no engage- He has more than 15 years of experience working in Russia ments in entities related to the main owners of Black Earth and prior to BEF Richard held the position of General Direc- Farming Ltd. or the CEO of Black Earth Farming Ltd. tor of OOO Heartland Farms in the Penza region of Russia. Established in 2002 it was one of the fi rst foreign investors Srbuhi Haʦkobyaʦn in Russian farming. Mrs. Hakobyan is a citizen of the Republic of Armenia, born Shareholdings: 46,333 SDRs in 1966. Warrants: 219,469 Principal education: Mrs. Hakobyan holds an MBA degree from American University of Armenia, ACCA member Per Nisser, Director of Procurement since 2002. Deloitte are the appointed auditors since 2008. Swedish citizen, born in 1979 Among other entities Mrs. Hakobyan is the lead auditor of Principal education: Mr. Nisser holds a Master of Science in Russian Sea Group, Polyplastic Group, EPK Group. She has Engineering Physics from Uppsala University. no engagements in entities related to the main owners of Work experience: Mr. Nisser has an extensive procurement Black Earth Farming Ltd. or the CEO of Black Earth Farm- background from the mobile operator Tele2 AB where he ing Ltd held the positions of Procurement Director in Tele2 Rus- sia and Procurement and Logistics Director in Tele2 Kaza-

75 Corporaʦte Governaʦnce Report

Shaʦreholders

Shaʦreholders’ Meetingʦ (Annuaʦl Generaʦl Meetingʦ/ Externaʦl Extraʦordinaʦry Generaʦl Meetingʦ) Auditors

Boaʦrd of Directors (elected by the Shaʦreholders’ Meetingʦ)

Audit Operaʦtions Committee Committee

Internaʦl Control President aʦnd CEO & Audit

Maʦnaʦgʦement

Introduction Shaʦreholders meetingʦs Black Earth Farming is a limited liability company registered The Annual General Meeting (“AGM”) is the highest deci- in Jersey. The Board of Directors (the “Board”) takes great sion-making body of Black Earth Farming, in which all emphasis on sound corporate governance. In the absence of shareholders are entitled to attend in person or by proxy a Jersey Code of Corporate Governance Black Earth Farming to cast their votes on important company matters. Subject applies the Swedish Code of Corporate Governance (“the to the provisions of the Companies (Jersey) Law 1991 as Code”), as is also required by Nasdaq OMX Stockholm, the amended (“Law”), an Annual General Meeting shall be held regulated stock exchange where the Company’s shares are in Sweden or in such other place as may be determined by traded. The Company will apply the Code in full or, where the Board and at such time and place as the Board may deter- applicable, explain deviations from it. Establishment of this mine, in the Swedish and English language, once per year, report is part of the Code’s requirements. The principles of no later than six months after the end of the fi nancial year. corporate governance in Black Earth Farming are described The regular business that is to be transacted at an Annu- below and governed by its Articles of Association, applica- al General Meeting is the receipt and consideration of the ble laws, exchange requirements and praxis including the annual accounts and the reports of the Directors and the Swedish Code of Corporate Governance. This report has not Auditors and any other document required to be annexed to been subject for review by the Company’s auditors. the annual accounts, the declaration of dividends, the elec- Black Earth Farming’s articles of association as well tion or re-election of Directors and the re-appointment of as a reproduction of this report and additional Corporate the Auditors retiring and the fi xing of the remuneration of Governance information, such as outtakes of important the Auditors or the determination of the manner in which corporate policies are available on the Group’s website such remuneration is to be fi xed. www.blackearthfarming.com. In 2013, Black Earth Farming held the Annual General Meeting on 15 May 2013 at Storgatan 19 in Stockholm, Swe-

76 den. As per the published agenda and minutes, the AGM nary resolution. However, the minimum number of Direc- adopted the consolidated profi t and loss statement for the tors (other than any alternate Directors) shall be two. At the period 1 January to and including 31 December 2012, as well AGM 2013 it was resolved that the Board until next AGM as balance sheet and the consolidated balance sheet as of 31 shall consist of 7 members. December 2012, it was resolved upon the election of Board At the 2013 AGM Per Brilioth, Poul Schroder, Vigo of Directors and auditors, with Deloitte as the Company’s Carlund, Richard Warburton and Magnus Unger were continued auditors. It was furthermore resolved not to pay re-elected. Henrik Persson and Alex Gersh declined any dividends for 2012. re-election and Camilla Öberg and Anders Kronborg were elected as a new member of the board. For a detailed Appointment aʦnd remuneraʦtion presentation of the current Board, until the AGM 2014, of the Boaʦrd aʦnd Auditors se section “Board, Management and Auditors” in the Shareholders in the Company have the right to nominate annual report. The Code states that it is possible for major members of the Board of Directors, and auditors, to the shareholders of Swedish companies to appoint a majority Annual General Meeting. The AGM elects members of the of members with whom they have close ties. Black Earth Board of Directors for a term of one year and auditors for a Farming shares the positive view of active and responsible period of one year. The shareholders also propose remu- ownership which is also expressed in the preparatory neration for the Board of Directors and auditors, which is to documents to the Swedish Companies Act. Given Black be resolved by the AGM. In accordance with the Code, the Earth Farming’s line of business, stage of development and Company has a nomination committee which prepares pro- general environment, the elected Board represents a suitable posals for the election and remuneration of members of the composition with versatility and breadth in terms of the Board of Directors and auditors for the AGM. Directors’ qualifi cations, experience and background. The In accordance with the resolution of the 2013 Annual table above contains summary information on the current General Meeting, a Nomination Committee consisting of Directors’ name, position, year of election to the Board, year members representing the three largest shareholders in of birth, citizenship and respective holding of SDRs/shares the Company per the last business day in August 2013 was and warrants in the Company. appointed. The Nomination Committee for the 2014 AGM is comprised of Anders Börjesson on behalf of Vostok Nafta Boaʦrd meetingʦs Investment Ltd, Anders Kronborg, on behalf of Kinnevik The Board may meet for the despatch of business, adjourn New Ventures AB (a subsidiary of Investment AB Kinnevik), and otherwise regulate its proceedings as it thinks fi t. The and Leif Törnvall, on behalf of Alecta. Anders Börjesson is Board of Directors however thinks it suitable to meet at Chairman of the Nomination Committee which is a devia- least twice a year in person and more frequently when nec- tion from the Code as the Company sees it appropriate for essary. Thereto, additional meetings are to be conducted by the major shareholders to propose the board composition. telephone if considered necessary. The CEO has regular con- At the time of its formation the Nomination Committee tact with the Chairman of the Board and several other mem- represented approximately 35% of the shares in Black Earth bers of the Board. Questions arising at any meeting shall be Farming. determined by a majority of votes. In the case of an equality of votes the Chairman of that meeting shall have a second The Boaʦrd of Directors or casting vote. The 2013 Boaʦrd of Directors During the fi nancial year ended 31 December 2013, The Articles of Association stipulate that there shall be no twelve Board meetings were held, whereof fi ve where held maximum number of Directors unless and until otherwise with personal attendance, the rest were held by means of determined by the Company in a general meeting by ordi- telephone conferencing.

Boaʦrd Audit meetingʦ Boaʦrd Connection to com- aʦttend- SDR Waʦrraʦnt fee, Naʦme Title Born Naʦtionaʦlity Elected the compaʦny mittee aʦnce holdingʦs holdingʦs TEUR Vigʦo Caʦrlund Chaʦirmaʦn of the boaʦrd 1946 Swedish 2012 Independent 12 1,002,662* 0 60 Per Brilioth Non-executive Director 1969 Swedish 2006 Maʦin owner 10 321,656* 0 40 Caʦmillaʦ Öbergʦ Non-executive Director 1964 Swedish 2013 Independent Chaʦir 8 1,500 060 Anders Kronborgʦ Non-executive Director 1964 Daʦnish 2013 Maʦin owner member 8 7,833 0 50 Poul Schroder Non-executive Director 1944 Daʦnish 2010 Independent 12 250,000 060 Maʦgʦnus Ungʦer Non-executive Director 1942 Swedish 2010 Independent member 12 250,000 0 40 Richaʦrd Waʦrburton President aʦnd CEO 1966 British 2010 Maʦnaʦgʦement 12 430,000 876,863 0 Number of meetingʦs in 2013 4 12 * SDRs held viaʦ aʦn insuraʦnce policy

77 Each Board meeting was governed by an approved agen- Chaʦirmaʦn of the Boaʦrd of Directors da, supporting documentation for the agenda items as well The Nomination committee suggests a chairman of the as protocol from last meeting for follow up discussions. board to be elected by the AGM. The chairman shall not At one time or another when deemed suitable by the be employed by the Company. Vigo Carlund was elected Board, certain members of senior management, but not chairman of the Board at the AGM held on 15 May 2013. The members of the Board, have been invited to attend meet- Chairman shall lead the otherwise open Board discussion at ings for in depth reviews and/or discussions of their respec- each Board meeting. In the case of an equality of votes the tive business areas and/or projects. In connection with the Chairman shall have a second or casting vote. Annual Audit of the Company’s accounts the Auditors are always requested to attend a meeting to report their obser- Sub Committees of the Boaʦrd vations from the annual audit. Pursuant to the Articles of Association, the Board may del- egate any of its powers, authorities and discretions to any Work aʦnd Responsibilities committee consisting of one or more Directors. In pursuit of The Board of Directors adopts decisions on overall issues an effi cient and reliable corporate governance structure the aff ecting the Black Earth Farming Group. However, the Board in 2007 established two subcommittees, those being: Board of Directors’ primary duties shall be the organization the audit committee and the investment committee. As of the Company and the establishment of overall goals and the company has evolved into a more operationally focused strategy relating to the Company’s operations including: stage of development the operations committee was estab- – Decisions regarding focus of the business and adoption of lished in 2010 replacing the investment committee. Each Company policies; committee keep minutes of their meetings which are made – Supply of capital; available to the board. Described below is also the Board’s – Appointment and regular evaluation of the work of the discharge of remuneration committee tasks. CEO and Company management; – Approval of the reporting instructions for the Company Audit committee management; The audit committee is charged with the responsibility of – Ensuring that the Company’s external communications reviewing the system of internal control, management and are open, objective and appropriate for target audiences; reporting of fi nancial risks and the audit process. When rel- – Ensuring that there is an eff ective system for follow-up evant and appropriate, the Chief Financial Offi cer and the and control of the Company’s operations and fi nancial Company’s auditors are invited to attend the meetings, position vis-à-vis the established goals; including a yearly planning stage meeting before the audit – Follow-up and monitoring that the operations are carried and after the audit at the reporting stage. Other Directors out within established limits in compliance with laws, may also be invited to attend, although at least once a year regulations, stock exchange rules, and customary practice the audit committee must meet the Company’s external on the securities market. auditors without any management being present. – Keeping of minutes for written Board resolutions The tasks of the audit committee include consideration – Determination of the appropriate minimum number of of matters relating to the appointment of external audi- Board meetings as well as when and where they are to be tors for Black Earth Farming and its main subsidiaries, the held independence of the Company’s auditors as well as review – Appointment of Audit- and Operations Committee Chair of the audit fees. The audit committee shall also review and members as well as identifi cation of their major tasks the integrity of the Company’s annual and interim reports, – Establishing issues that always require a Board decision preliminary results’ announcements and any other formal or an application to the Board, such as quarterly reports, announcements relating to the Company’s fi nancial per- major investments, changes of the legal structure, certain formance and situation. management appointments and fi nancial guarantees/ The Chairman of the committee must have signifi cant pledges. knowledge and experience in accounting in general, and the accounting principles applicable to the Company in During 2013 the Board has continuously addressed the stra- particular. tegic direction, the fi nancial performance, and the meth- The audit committee shall meet as regularly as deemed ods to reach profi tability and sustain growth longer term. necessary by the Board, but it should be at least four times a No dissenting opinions in relation to decisions have been year, in connection with the release of the Company’s inter- reported in the minutes during the year. However, the Board im and full year fi nancial statements. has at times tabled an issue until a later meeting when more supporting documentation or more in depth review of an Audit committee in 2013 issue could be produced. An annual evaluation of the board’s The audit committee consists of three of the board members, work was performed in order to develop the board’s working namely Camilla Öberg as Chairman, Anders Kronborg and methods and effi ciency. Magnus Unger. Former board member Paul Wojciechowski

78 is a fourth specially invited member. In 2013, four meetings considered by the Board. The CEO shall also oversee compli- were held by the audit committee addressing the Company’s ance with the objectives, policies and strategic plans for the fi nancial reporting and progress. Company that the Board has established and ensure that these objectives, policies and strategic plans are submitted Operaʦtions committee to the Board for updating or revision when necessary. The The operations committee has been delegated by the Board CEO is responsible for the operational management of the of Directors to screen and evaluate key decisions regarding Company including establishing a qualifi ed senior manage- operational matters relating to the company. In particular, ment team, usually in discussion with the Board of Direc- the responsibilities of the Operational Committee include tors for the most senior positions. The CEO shall ensure that preparing decisions regarding; capital and operational the Company fulfi ls the obligations regarding disclosure of expenditures outside of the board approved budget as well as information, etc., or other regulations with which the Com- review and approval of other key operational activities and pany is required to comply. The CEO is responsible for ensur- hiring of high level positions within the operating company. ing that obligations, agreements or other acts in law that the Company enters into or eff ects are correctly documented Operaʦtions committee in 2013 and do not confl ict with any applicable binding statutes. The operations committee consists of three board members, The individuals identifi ed and presented below (and in namely Poul Schroder as chairman, Richard Warburton and the section “Board, Management and Auditors” in the for- Anders Kronborg. In 2013, one formal meeting was held mal annual report), as forming current senior Group man- by the operations committee together with senior management are individuals having important managerial roles agement, in addition to several telephone conference calls and/or responsibility for certain important functions to the addressing the Company’s operational progress. extent that their disclosure is required and it benefi ts the Company’s shareholders to know of them and their merits Remuneraʦtion committee in some detail. The function of a specifi c remuneration committee, as per For a detailed presentation of the senior management, the Code’s guidelines, is to prepare proposals on remunera- see section “Board, Management and Auditors” in the formal tion and other terms of employment for the executive man- annual report. agement. The Board of Directors of Black Earth Farming has generally considered it more appropriate, that the entire Compensaʦtion to the Boaʦrd aʦnd maʦnaʦgʦement Board performs the remuneration committee’s tasks, how- Principles ever without the Board member(s) who are also part of the Each Director currently receives an annual Board fee of EUR executive management. In some specifi c cases Per Brilioth, 30,000, other than the Chairman of the board, the opera- Anders Kronborg and Magnus Unger have been given the tions committee and the audit committee, who each receive type task of a remuneration committee, to prepare remu- EUR 60,000. Richard Warburton was paid salaries as man- neration proposals. The guiding philosophy of the Board agement and received no additional board fees. EUR 10,000 in determining compensation for executives is the need is paid for work within the committees of the Board. Remu- to provide a compensation package that is competitive and neration for the senior executives consists of fi xed salaries motivating, will attract and retain qualifi ed executives, and plus other benefi ts. In addition, certain Directors, senior encourage and motivate performance. executives and other key personnel within the Group are holders of warrants as part of the established incentive pro- Group maʦnaʦgʦement gram. The guiding philosophy of the Board in determining The CEO of Black Earth Farming is elected by, and works compensation for executives is the need to provide a com- on behalf of the Board of Directors and shall implement the pensation package that is competitive and motivating, will decisions made by the Board and prepare for decisions to be attract and retain qualifi ed executives, and encourage and

Waʦrraʦnt Averaʦgʦe Naʦme Born Naʦtionaʦlity Employed Function SDR holdingʦs holdingʦs strike price Richaʦrd Waʦrburton 1966 British 2011 Chief Executive Officer 430,000 876,863 SEK 15.9 Fraʦser Scott 1961 British 2011 Chief Operaʦtingʦ Officer 151,649 338,941 SEK 18.8 Erik Daʦnemaʦr 1976 Swedish 2013 Chief Finaʦnciaʦl Officer 25,000* 200,000 SEK 8.8 Richaʦrd Willows 1953 British 2011 Director of Saʦles & Maʦrketingʦ 46,333 219,469 SEK 16.5 Per Nisser 1979 Swedish 2013 Director of Procurement – 150,000 SEK 8.5 Victoriaʦ Fletcher 1981 British 2012 Business Development Director 71,000 150,000 SEK 8.8 Avto Maʦkhaʦroblishvili 1990 Georgʦiaʦn 2013 Director of Investor Relaʦtions – * SDRs held viaʦ aʦn insuraʦnce policy

79 motivate performance. As stated in Note 33 to the Consoli- Terminaʦtion of employment dated Financial Statements, in 2013 total fi xed salaries and In general, there is a mutual six months’ notice period bonuses to senior executives amounted to USD* 2,599 thou- between the senior executives and the Company during sand (excluding pensions and termination payments), of which period the senior executives shall remain in their which USD* 811 thousand to the company’s CEO. position and thereafter the senior executives are entitled to receive monthly salary during two additional months. How- Incentive progʦraʦmme ever, the Company can agree with a senior executive that As part of the Company’s eff orts to attract and retain quali- he or she should immediately leave his or her position with fi ed personnel, Black Earth Farming has created a warrant a compensation corresponding to three months’ salary. The incentive program originally comprising of 2,059,000 war- Company has not set aside or accrued any amount to provide rants to subscribe for Shares. The number of warrants with- pension, retirement or similar benefi ts to any Directors or in the warrant instrument was thereafter increased from senior executives. Furthermore, in addition to the above, 2,059,000 to 10,000,000 warrants at the AGM of the Com- none of the Directors or senior executives has any service pany held on 5 July 2007. Of these warrants, 4,873,880 have contracts with the Company providing for benefi ts upon as of 31 December 2013 been issued for nil consideration termination of his or her respective appointment. to Directors and senior executives and other key personnel. Each warrant entitles the holder to exchange one war- Conflict of interests rant for one Share. The warrants are regulated by an agree- The Group has employed services from KinnAgri, KCM and ment dated 11 August 2005, as amended. The Company has Audit Value International, in which the Group’s major share- undertaken to keep Shares available in order to facilitate the holder Investment AB Kinnevik and CEO Richard Warbur- future exercise of such warrants. ton have interest and which therefore represent related par- All warrant holders have been allotted warrants of which ties that are not members of the Group. Such transactions proportionate part is vested annually during a number of are scrutinized for arm’s length and have been approved by years set out in each warrant holders’ warrant certifi cate. the members of the Board of Directors independent from Warrants with a lower subscription price shall vest prior Kinnevik. Outside these transactions, to the best of the to warrants with a higher subscription price. Allocation of Company’s knowledge, none of the members of the Board warrants is at the discretion of the Board. The subscription of Directors or the Management of the Company has a pri- price will be aff ected by the time of allocation of the war- vate interest that may be in confl ict with the interest of the rants. In the event that the warrant holders are no longer Company. connected to the Company before the vesting date, warrants that are due to vest will be cancelled. The warrants are Auditors transferable to a maximum of 30 warrant holders. Follow- At the AGM on 15 May 2013 Deloitte were re-appointed as ing the Rights Issue completed in December 2012 warrants the Company’s auditors up until the next AGM, with Svante issued prior were adjusted according to the Swedish stand- Forsberg with Deloitte as auditor in charge. ard so that warrant holders maintain their pro rata holding. According to the standard and prepared by a third party, Svaʦnte Forsbergʦ warrants issued prior to the rights issue were adjusted giv- Group Audit Partner ing the holder the right to acquire 1.195 SDRs and the strike Mr. Forsberg is a Swedish citizen, born in 1952. price multiplied by 0.837. At full exercise of all approved Among other entities Mr. Forsberg is the lead auditor of 10,000,000 warrants, the Company’s share capital will be Anticimex, Diligentia, Diös, Skandia Liv and Swedbank. He increased by USD 100,000. has no engagements in entities related to the main owners of Black Earth Farming Ltd. or the CEO of Black Earth Farm- Executives shaʦre option plaʦn (ESOP) ing Ltd. At the AGM on 25 May 2012 a performance based incentive plan for senior executives was approved. In order to partici- Srbuhi Haʦkobyaʦn pate in the plan, the participants must purchase shares (in Mrs. Hakobyan is a citizen of the Republic of Armenia, born form of SDRs) in the Group. For each share held under the in 1966. plan, the Group will grant rights to the participant based Principal education: Mrs. Hakobyan holds an MBA degree upon if performance criteria relating to the development from American University of Armenia, ACCA member since of BEF’s return on capital, profi tability, revenue growth 2002. Deloitte are the appointed auditors since 2008. ZAO and average crop yields during a three year period. For full Deloitte and Touche CIS is the registered auditor in Jersey. details please refer to note 26 d) in the Consolidated Finan- Among other entities Mrs. Hakobyan is the lead auditor of cials of the 2013 Annual Report. As at 31 December 2013 Russian Sea Group, Polyplastic Group, EPK Group. She has 3,062,105 rights had been granted which may result in an no engagements in entities related to the main owners of expected 1,425,506 shares being issued depending on fulfi l- Black Earth Farming Ltd. or the CEO of Black Earth Farm- ment of the aforementioned criteria. ing Ltd.

80 Boaʦrd of Directors’ report on internaʦl control The Board is responsible for the Company’s organisation and are well defi ned and clearly communicated. This is achieved administration of the Company’s activities, which includes through written instructions and formal routines for divi- internal control. Internal control in this context regards sion of labour between the Board of Directors on the one those measures taken by Black Earth Farming Limited’s hand, and management and other personnel on the other. (“Black Earth Farming” or the “Company”) board of direc- The Board establishes the general guidelines for the Group’s tors, management and other personnel, to ensure that book- activities in internal policies, manuals and codes. keeping and the Company’s economic condition in general The Company’s Chief Financial Offi cer is responsible for are controlled and reported upon in a reliable fashion and in the control and reporting of the Company’s consolidated compliance with relevant legislation, applicable accounting economic situation to management and Board. The Com- standards and other requirements related to the Company’s pany’s Internal Auditor also prepares a report exclusively market listing. Black Earth Farming has also appointed for the board, giving his/her view on the eff ectiveness of an Audit Committee, consisting of three members of the various policies and instructions. No separate such report Board, charged with the special responsibility to review and was prepared during the year 2013, but internal audit work discuss internal and external audit matters. continued through the period and the external auditor This report has been established in accordance with reviewed the control environment as part of the general the Swedish Code of Corporate Governance, which gov- audit procedures. ern internal control over the fi nancial reporting. In addition, this report has been prepared in accordance with the Risk aʦssessment guidance provided by FAR, the institute for the accounting The Board of Directors of Black Earth Farming is responsible profession in Sweden, and the Confederation of Swedish for the identifi cation and management of signifi cant risks Enterprise. This report does not constitute part of the for- of errors in the fi nancial reporting. The risk assessment spe- mal Annual Report and has therefore not been reviewed by cifi cally focuses on risks for irregularities, unlawful benefi t the Company’s auditors. This report does not include a state- of external part at the Company’s expense and risks of loss ment by the Board as to how well the internal control has or embezzlement of assets. functioned during the year. It is the ambition of Black Earth Farming to minimize The system of internal control is normally described in the risk of errors in the fi nancial reporting by continuously terms of fi ve diff erent areas that are a part of the interna- identifying the safest and most eff ective reporting routines. tionally recognised framework which was introduced in The Board puts most eff ort into ensuring the reliability of 1992 by The Committee of Sponsoring Organizations in those processes, which are deemed to hold the greatest risk the Treadway Commission (COSO). These areas, described for error, alternatively whose potential errors would have below, are control environment, risk assessment, control the most signifi cant negative eff ect. Among other things activities, information and communication and monitoring. this includes establishing clearly stated requirements for the The management continuously monitors the Compa- classifi cation and description of income statement and bal- ny’s operations in accordance with the guidelines set out ance sheet items according to generally accepted accounting below. In order to enhance control and oversight of how the principles, pertinent legislation. The Company’s Internal Company’s routines and protocols were working and being Auditor has together with the fi rm Audit Value established a adhered to by all levels of staff a thorough internal audit and yearly Audit Plan which entails a close review of certain, by review of the Company’s operations was conducted during the Board, identifi ed risk areas. The Internal Auditor togeth- 2012 with targeted focus areas and implementation plans to er with experienced forensic auditors from Audit Value do a address additional needs. The process has continued on an thorough analysis of the identifi ed risk areas with the aim annual basis except as outlined below. of exposing possible risks in more detail and suggest recom- mendations on how to deal with them. In 2013, Audit Value Control environment was not engaged and the internal control work was focused The control environment, which forms the basis of internal on addressing issues identifi ed in the 2012 audit. control over fi nancial reporting, to a large extent exists of the core values which the Board communicate and them- Control aʦctivities selves act upon. Black Earth Farming’s ambition is that val- This risk assessment leads to a number of control activi- ues such as, precision, professionalism and integrity should ties in place to verify compliance with set requirements permeate the organization. Another important part of the and established routines. The purpose of the control activi- control environment is to make sure that such matters as the ties is hence to prevent, detect and rectify any weaknesses organisational structure, chain of command and authority and deviations in the fi nancial reporting. Control activities

81 also include permanent routines for the presentation and Monitoringʦ reporting of company accounts, for example monthly cash The Company’s fi nancial situation and strategy are dis- fl ow reports and budget follow ups. Special focus is also put cussed at Board meetings, as well as any weaknesses in the on making sure that the requirements and routines for the activities and fi nancial reporting since the last Board meet- accounting procedure, including consolidation of accounts ing. The Audit Committee has a particular responsibility to and creation of interim and full year reports comply with review and bring any weaknesses in internal control pro- pertinent legislation as well as generally accepted account- cedures for fi nancial reporting to the Board of Directors’ ing principles and other requirements for publicly listed attention. Potential reported shortcomings are followed up companies. Controls have also been carried out to ensure via management and the Audit Committee. Management that the IT-/computer systems involved in the reporting reports are prepared and distributed to the Board regu- process have a suffi ciently high dependability for its task. larly with updates on operations and fi nancials. The Com- The Company’s Internal Auditor is furthermore engaged pany prepares interim reports four times annually which in connection with very large procurement transactions, are reviewed by the Board. A more thorough review of the ensuring proper procedure in choice of supplier etc. Company’s accounts is also performed at least once a year in addition to the comprehensive audit in connection with the Informaʦtion aʦnd communicaʦtion Annual Report. The Company has established fi xed routines and invested in reliable technical applications to guarantee a fast and reliable way of sharing information throughout the organisation. Internal policies and general guidelines for fi nancial reporting are communicated between the Board of Direc- tors, management and other personnel through regular meeting and e-mails. The Company is committed to provide accurate, reliable and timely information, and to abide to the regulations applicable to a company listed on Nasdaq OMX Stockholm. To ensure the quality of the external reporting, which is the extension of the internal; the Board of the Company has adopted an information policy, which regulates the Compa- ny’s giving of internal and external information. The policy applies to all parts of the organisation, to all countries and at all times. Information shall be provided using direct as well as indirect means. The means communications can be website postings, press releases, interim and annual reports, pro- spectuses, public conference calls, interviews to specialised and general media and investor analysts, as well as participation in public meetings. In order to ensure reliability and consistency of information provided, only corporate staff designated as spokespersons for Black Earth Farming are authorised to speak to the media on behalf of the Company. All reports and press releases are published on the Com- pany’s website www.blackearthfarming.com immediately after proper publication through news distributor, currently NASDAQ OMX. Black Earth Farming is fully committed to communicate in a transparent way; it will not restrict public disclosure of information, except where the information is of a commer- cially sensitive or confi dential nature.

82 Sustaʦinaʦbility

There is a signifi cant challenge to feed the world’s increas- BEF’s Environmentaʦl Responsibility ing population in a sustainable way that does not deplete the Preserving the planet’s limited resources is a vital concern, earth of its resources for the future. Sustainable agriculture and is the responsibility of all people but we as a compa- integrates three main goals; environmental conservation, ny have an extra responsibility and capacity to motivate social benefi ts for workers and local communities together and stimulate environmental thinking in respect to our with economic profi tability. activities. Black Earth Farming shares the principles that cur- The world’s forests and other natural ecosystems must rent needs must be met without compromising the ability be conserved, but at the same time feed an increasing pop- to meet the requirements of future generations. The com- ulation. To achieve this, the productivity of current land pany’s ability to generate suffi cient shareholder returns are resources needs to increase. This will reduce the pressure to dependent on them. This includes the consideration of social clear forestland in other places to meet food demand, and so responsibilities such as working conditions of employees help preserve the planet’s green lungs. Many diff erent meas- and local rural communities as well as consumer health and ures, such as judicious and greater use of mineral fertilizers safety both at present and in the future. It also incorporates and chemicals will help increase crop yields sustainably, and maintaining and enhancing land and natural resources for use existing agricultural land more effi ciently. Without the the long term by optimal management of inputs, minimum addition of nutrients and minerals, the soil would with time tillage and employing a long term crop rotation system to also be depleted of its natural content of these substances. minimize erosion and conserve soil and water resources. I Black Earth Farming is committed to cultivating its addition it also incorporates good and effi cient overall man- land in an environmentally responsible way that ensures agement with sound fi nancial planning and effi cient risk long term health of the soil and minimizes the impact on management practices. surrounding ecosystems. To a large extent this comes from application of fertilizer and other necessary chemicals at BEF’s Sociaʦl Responsibility optimum rates and timings, where continuous staff train- Black Earth Farming’s has brought substantial areas of fal- ing and proper management is vital. Application of inputs low arable land back into production. The company eff ec- at optimum rates also maximizes the economic benefi t to tively taps unused resources for food production, which is the Company. A multi-year crop rotation mix is also chosen a necessity to meet the demand from the world’s increasing for long term sustainability of the soil, not short term prof- population. its. Furthermore, the Company puts great emphasis on cor- Social responsibility entails caring for external stake- rect handling and storage of pesticides, fertilizer and other holders as well as internal. Black Earth Farming strives to chemical compounds. conduct business in a way that not only safeguards employees, customers and community neighbourhoods but also BEF’s Economic Responsibility helps them develop. The focus on redevelopment of fallow The longevity and success of Black Earth Farming will sup- land creates new job opportunities with stable and relative- port several stakeholders economically. This includes sev- ly high means of income. Employee safety is of high concern eral aspects such as employee salaries, commercial relation- and training sessions and seminars are conducted regu- ships with suppliers and customers, tax revenues for local larly. The company contributes to local communities both districts, and creating value for shareholders. To a large through its economic development which helps bring com- extent the economic sustainability of the business is a prod- merce and tax revenues to the local administrations, but uct of mutually benefi cial relationships with various stake- also by fi nancial support to many local activities and social holders to grow and prosper together. Good and benefi cial projects. relationships are built by a high level of professionalism, integrity and business ethics in the way the company operates and interacts. Good corporate governance and communication is an important part of fostering a good relationship with our shareholders and building trust from the market in the Company and its management.

83 Terms aʦnd Deﬁ nitions

Units “EU-27” 1 hectare (ha) = 2.47105 acres The following EU membership countries: Austria, Belgium, Czech 1 hectare (ha) = 10,000 square meters Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, 1 metric ton = 2,204.622 pounds (lb) Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, 1 metric ton = 10 centners Sweden, the United Kingdom, Bulgaria and Romania. 1 metric ton of wheat = 36.74 bushels of wheat 1 metric ton of corn = 39.37 bushels of corn “Euroclear” Euroclear Sweden AB (formerly VPC AB), the Swedish central secu- “AGRO-Invest Group” rities depository and clearing house with address Regeringsgatan The Company’s subsidiary OOO Management Company AGRO- 65, Box 7822, SE-103 97, Stockholm, Sweden. Invest and its subsidiaries, including OOO Management Company AGRO-Invest-Regions. EXW Ex Works – A trade term requiring the seller to deliver goods at his “Black Earth” or her own place of business. All other transportation costs and A soil type which contains a very high percentage of organic matter risks are assumed by the buyer. in the form of humus, rich in phosphorus. “Fallow land” “Black Earth Farming” or the “Company” Land which is not being cultivated. Black Earth Farming Limited, a company incorporated in Jersey, Channel Islands, under the 1991 Law with company registration “FOB” number 89973, including its subsidiaries, unless otherwise is Free On Board – an export pricing term where the seller covers all apparent by the surrounding context. costs up to and including the loading of goods aboard a vessel, but not following freight/shipping costs. “Black Earth Region” A territory located in parts of Russia, Ukraine and Kazakhstan “Grains” endowed with Black Earth. Generic name for wheat, barley, oats, rye, rye-wheat, durra millet, maize and rice “Cadastre” A Russian state register of real property including details of the area “Grain elevator” owned, the owners and the value of the land. Building or complex of buildings for drying, cleaning, storage and shipment of grain. “CBOT” Chicago Board of Trade “IGC” International Grains Council “CIS” Commonwealth of Independent States which consists of the “IKAR” former republics of the Soviet Union, excluding the Baltic States. The Russian Institute for Agricultural Market Studies. The following countries are included Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, “Land in Ownership” Turkmenistan (associated member), Ukraine and Uzbekistan. Land where the Company has obtained the, in the central Cadastre, registered rights of ownership to the land. CPT Carriage Paid To – A trade term where the seller pays for carriage to “Land under control” the named place of destination. Risk transfers to the buyer upon Refers to all land under the Company’s control, including fully handing goods over to the fi rst carrier at place of shipment registered ownership, long term leased land and acquired cropping rights (Pais) in the process of being registered as ownership rights. “Crop year” A crop year in Europe typically begins in late summer with the “Oilseeds” seeding of winter crops and ends approximately one and a half years A wide variety of seeds which are grown as a source of oils, e.g. cot- later depending on when the crops is being harvested and sold. tonseed, sesame, rape seed, sunfl ower and soybean. After extraction of the oil the residue is a valuable source of protein, especially “Debt/Equity Ratio” for animal feedstuff s. Total amount of long term borrowings divided by total shareholders’ equity. “OOO” “Closed joint stock company”, the Russian equivalence to a limited “EBITDA” liability company. EBITDA represents net income (loss) before interest expense, interest income, income tax expense (benefi t), depreciation of property “Operating Margin” and equipment, amortization of intangible assets, and extraordi- Operating income divided by net sales. nary or non-recurring income and expenses. “SDR” “Earnings per Share” The Swedish depository receipts issued representing the Shares Net profi t attributable to shareholders holding ordinary shares according to the general terms and conditions for depository divided by the number of shares issued. receipts in Black Earth Farming.

“Equity/Assets Ratio” “USDA” Total shareholders’ equity divided by total assets. United States Department of Agriculture

84 Generaʦl Shaʦreholder Informaʦtion Caʦlendaʦr of events in 2014 – 2014 Annual General Meeting: 14 May Annuaʦl Generaʦl Meetingʦ – 1Q Interim Report, 1 January–31 March: 16 May Black Earth Farming Ltd (“Black Earth Farming”) hereby – 2Q Interim Report, 1 January–30 June: 15 August invites shareholders to participate in the Annual General – 3Q Interim Report, 1 January–30 September: 14 November Meeting at 12.00 CET on 14 May 2014 at Summit, Grev Ture- gatan 30, Stockholm 114 38, Sweden. Investor Relaʦtions Avto Makharoblishvili Paʦrticipaʦtion + 7 916 598 16 19 Holders of Swedish Depository Receipts (“SDRs”) wishing [email protected] to attend the Annual General Meeting shall be recorded in the register of shareholders maintained by Euroclear (for- Internet website mer VPC AB) on Thursday 8 May 2014, and must notify the www.blackearthfarming.com Company of their intention to attend the Meeting no later than 13.00 CET on 8 May 2014. The holder of the Swedish SDR tickers Depository Receipts shall state his name, personal or com- – NASDAQ OMX Stockholm: BEF SDB pany identiﬁ cation number, address as well as telephone – Reuters: BEFsdb.ST number. – Bloomberg: BEFSDB SS

Nominee-regʦistered shaʦres Holders of Swedish Depository Receipts which hold their receipts through nominees (Sw. förvaltare) must request a temporary registration of the voting rights in order to be able to participate at the General Meeting. Holders of Swedish Depository Receipts that want to obtain such reg- Disclaimer istration must contact the nominee regarding this well in This report contains “forward-looking statements”. All state- advance of 8 May. Voting forms (Sw. röstkort) will be dis- ments other than statements of historical facts included in this tributed to the holders that have complied with the above report, including without limitation, those regarding the Com- requirements and the voting form must be brought to the pany’s fi nancial position, business strategy, the Company’s man- Annual General Meeting. agement’s, or as appropriate the Directors’, plans, objectives, goals, strategies and future operations and performance and the Proxies, etc. assumptions underlying these statements are forward-looking If a holder of Swedish Depository Receipts intends to statements. Such forward-looking statements involve known and be represented by proxy, the name of the proxy holder unknown risks and uncertainties and other factors which are or shall be stated. For holders of Swedish Depository Re- may be beyond our control, which may cause the actual results, ceipts who will be represented by a proxy at the Meet- performance or achievements of the Company, or industry results, ing, a proxy form is available at the Company’s website on to be materially diff erent from any future results, performance or www.blackearthfarming.com. The signed proxy form achievements expressed or implied by such forward-looking state- should be sent or mailed to the company at the above stated ments. Such forward-looking statements are based on numerous valid addresses. assumptions regarding the Company’s present and future business strategies and the environment, in which the Company will operate in the future. Supplementary USD* equivalent fi gures found in this report in relation to company fi nancial information are provided solely for the convenience of users as described in Note 2 (d) to the Consoli- dated Financial Statements and do not form part of the audited consolidated fi nancial statements. Some numerical fi gures included in this Presentation have been subject to rounding adjustments. Accordingly, numerical fi gures shown as totals in certain graphs or tables may not be an exact arithmetic aggregation of the fi gures that preceded them.

Design & production: Sandsnas Communication, 2014 black earth farming ltd.black earth a nnual nnual r epor t 2013

Naʦutilus House Laʦ Cour des Caʦsernes, St. Helier ANNUAL REPORT Jersey JE1 3NH Chaʦnnel Islaʦnds Regʦ No. 89973 2013 www . blaʦckeaʦrthfaʦrmingʦ . com