ANNUAL
REPORT
2013
Trigon Agri is an integrated soft commodities producer, storage provider and trader. Its core operations are cereals production in Rostov, Russia and cereals production in Central- Eastern Ukraine.
CONTENTS
HIGHLIGHTS OF 2013 ...... 2 COMMENTS BY THE CHAIRMAN: ...... 3 OVERVIEW OF TRIGON AGRI ...... 4 COMPETITIVE STRENGHTS ...... 5 GOALS ...... 6 HISTORY ...... 7 FINANCIAL AND OPERATIONAL REVIEW ...... 9 CORPORATE GOVERNANCE ...... 29 CORPORATE SOCIAL RESPONSIBILITY ...... 36 FINANCIAL HISTORY...... 39 THE SHARE ...... 40 FINANCIAL CALENDAR ...... 42 CONSOLIDATED FINANCIAL STATEMENTS ...... 43 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... 43 CONSOLIDATED INCOME STATEMENT ...... 44 CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY ...... 45 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS ...... 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...... 49 MANAGEMENT`S STATEMENT ON THE ANNUAL REPORT ...... 105 INDEPENDENT AUDITOR´S REPORT ...... 106 DEFINITIONS ...... 107
HIGHLIGHTS OF 2013
Total revenue, other income, fair value adjustments and net changes in inventory amounted to EUR 75.4 million (EUR 73.0 million in 2012). EBITDA was a loss of EUR 1.1 million (profit of EUR 19.5 million in 2012). The Net loss was EUR 16.8 million (profit of EUR 1.7 million in 2012). The consolidated assets as of December 31,
2013 amounted to EUR 185.2 million (EUR
214.0 million at December 31, 2012).
Income statement, EUR thousand 2012 2013 Total revenue, other income and fair value adjustments and net changes in inventories 73,006 75,389 Cost of purchased goods for trading purposes -14,165 -15,010 OPEX -60,635 -63,819 Other (losses)/gains - net 19,540 2,327 EBITDA 19,480 -1,113 EBIT 10,846 -9,371 Net financial items -8,687 -6,785 Net profit/loss 1,687 -16,844
Balance sheet, EUR thousand 31.12.2012 31.12.2013 Total assets 213,965 185,247 incl Non-current assets 167,831 155,617 incl Property, plant and equipment 147,473 132,750 Investment in property, plant and equipment 9,059 6,912 Net debt 61,268 69,080 Total equity 128,566 103,805
Cash flow statement, EUR thousand 2012 2013 Cash flows from operating activities 10,842 9,263 Cash flows from investing activities -19,249 -14,511 Cash flows from financing activities -2,648 2,280 Effects of exchange rate changes -68 -225 Cash and cash equivalents at beginning of period 19,313 8,190 Cash and cash equivalents at end of period 8,190 4,997
Key figures 31.12.2012 31.12.2013 Number of shares, end of the period 129,627,479 129,627,479 Number of shares outstanding, end of the period 129,627,479 129,627,479 Total number of employees 1,569 1,455 Land under control, hectares 169,811 167,381 incl land under registered ownership, hectares 113,767 113,926
Ratios 2012 2013 Earnings per share (EPS), EUR 0.01 -0.13 Book value per share, EUR 0.99 0.80 Return on assets (ROA) 1% -9% Return on equity (ROE) 1% -15% Equity ratio, % 60% 56% Current ratio 1.45 1.51 Acid test 0.60 0.72
TRIGON AGRI ANNUAL REPORT 2013 PAGE 2
COMMENTS BY THE CHAIRMAN:
previous reports this will impact results going forwards as follows: Interest payments: will fall by almost EUR 8 million (assuming repayment of all loans). Depreciation: will decline by EUR 3.5 million leaving the core business with annual depreciation of around EUR 4.8 million. Assuming the fulfillment of the divestment program combined with the cost cuts in the core business areas we will move into 2015 with a very strong balance sheet and underlying profitability. In order to get an idea of the impact the cost cuts and planned divestments will have on Trigon Agri’s results one can make the theoretical assumption Trigon Agri’s Founder and Chairman of the Board, that if they had been made ahead of the fiscal year Joakim Helenius 2013 Trigon Agri would have been able to achieve a net profit rather that the disappointing net loss of EUR 16.8 million. The dramatic events we are witnessing in Ukraine have not affected Trigon Agri’s business interests. The winter crops sowed last Autumn which will be If anything the sharp devaluation of the Ukrainian harvested this Summer are currently in a very Hryvna will benefit us as a lot of our costs are fixed good condition, especially in Rostov, but it is still in Hryvna whereas our revenue is fixed in U.S. much too early to draw any firm conclusions from Dollars. It is too early to forecast the longer-term this. We were fortunate in that we managed to get impact of the fast evolving events but the strong our fields seeded before the onset of the heavy probability is that it will lead to a better business Autumn rains which disrupted seeding in large environment than the one we have had to operate parts of the Black Sea region. in during recent years. As far as the divestments are concerned we remain The weak 2013 results were the result of the very optimistic about the overall progress. Unfortunately weak price environment for soft commodities which the buyer who had signed up to acquire the Penza have stressed the entire farming industry in the cluster unexpectedly did not manage to raise the Black Sea region and beyond. The weak results financing required to finalise the deal. We are now have however made it possible for us to carry out a in negotiations with three new serious alternative significant cost cutting exercise. Cost savings for investors. Additionally to announced divestments 2014 come to more than EUR 6 million for the core we are in advanced discussions with four interested businesses alone. The cuts do not involve a investors with regards to our remaining stake in decrease in fertilizer application per hectare which Trigon Agri’s Estonian dairy farms. means that future yield potential is not being sacrificed.
When we effect the divestment of non-core businesses (more on progress below) listed in
TRIGON AGRI ANNUAL REPORT 2013 PAGE 3
OVERVIEW OF TRIGON AGRI
TRIGON AGRI IS AN INTEGRATED SOFT COMMODITIES PRODUCER, STORAGE PROVIDER AND TRADER. ITS CORE OPERATIONS ARE CEREALS PRODUCTION IN
ROSTOV, RUSSIA AND CEREALS PRODUCTION IN CENTRAL-EASTERN UKRAINE.
Trigon Agri cereal production Core assets
Trigon Agri milk production
The Group has divided its assets into core and non- contiguously located in large blocks next to core. required transportation and storage infrastructure, CORE ASSETS allows for taking the land into production at lowest possible operational costs. By introducing modern Core operations of the Group are: production technology, the Group believes that it Cereal production in Central Eastern Ukraine has the ability to significantly increase efficiency Cereal production in Rostov, Russia. and productivity of the acquired former collective Cereal production in Central Eastern Ukraine. The farms. cereals production farms in Ukraine are clustered To support its cereals production operations, the close to major population centres of Kharkov and Group has five operational elevators in Ukraine Kirovograd in the Black Earth region of Ukraine. with a total storage capacity of 322 thousand The proximity to urban areas, storage facilities and tonnes. transport networks facilitates logistics, transport as To have an efficient sales set-up the Group well as access to qualified personnel. operates its own cereals sales and trading arm. The In Ukraine the Group controls a total land bank of primary purpose of this division is to maximise the 52 thousand hectares under long-term land rental sales prices received for Group’s own commodities agreements out of which 52 thousand hectares was and also on a case-by-case basis engage in also cropped in 2012. intermediation of third-party goods if such trading Cereal production in Rostov, Russia. The cereal supports the sales of its own production. production cluster in Rostov is unique because it NON-CORE ASSETS has irrigation potential. The total land bank of 71 Non-core operations of the Group are: thousand hectares is extremely compactly laid out in two contiguous blocks with roughly 20 km Cereal production operations in Penza, Russia radiuses each and is very close to ports for export. Milk production operations in Estonia and in the St Petersburg region of Russia. The selection of locating cereal farming operations in the Black Earth region of Russia and Ukraine is In Penza cluster the Group currently controls a due to this region’s soil fertility, which provides for total land bank of 36 thousand hectares, out of some of the lowest production costs for grains and which 10 thousand hectares was cropped in 2013. oilseeds globally and relatively low investment cost for acquiring or leasing land. The land that is
TRIGON AGRI ANNUAL REPORT 2013 PAGE 4
COMPETITIVE STRENGTHS
The Group believes that its main competitive smaller in size and rely on out-dated Soviet-era strengths are: machinery. HIGH-QUALITY LAND PORTFOLIO EFFICIENT APPLICATION OF MODERN All of the Group’s land area for cereal production is AGRICULTURAL KNOW-HOW IN THE located in the Black Earth region, offering some of FORMER SOVIET UNION SETTING the lowest production costs of grains and oilseeds The Western training and Russian language skills of globally. its key management in combination with their OPTIMAL GEOGRAPHIC LOCATION WITH knowledge of the post-Soviet environment allows ACCESS TO REQUIRED the Group to implement modern agricultural know- INFRASTRUCTURE AND PERSONNEL how efficiently in the former Soviet Union setting. The Group’s production clusters are contiguous and INTEGRATED BUSINESS MODEL WITH compact, allowing for low production logistics ACCESS TO GRAIN ELEVATORS AND costs, and are located close to regional population TRADING EXPERTISE centres providing access to required infrastructure The Group has its own elevator storage facilities and personnel. which strengthens independence from regional SOME OF THE LOWEST PRODUCTION traders and storage providers. The Group’s sales COSTS IN ITS REGION and trading business allows the Group to obtain best available prices for its commodities through Due to high potential for economies of scale from the execution of deliveries both domestically as land concentration and high-capacity Western well as to export markets. Further, it allows the manufactured machinery, the Group obtains some Group to combine its own goods with third-party of the lowest production costs in the Black Earth commodities thereby increasing sale volumes and region where many competitors are substantially average prices achieved.
State-of-the-art equipment base
TRIGON AGRI ANNUAL REPORT 2013 PAGE 5
GOALS
The Company has formulated a comprehensive FOUR-YEAR GOALS goal and a set of four-year goals. Over the next four years Trigon Agri aims to: COMPREHENSIVE GOAL Avoid issuing new shares Trigon Agri as a commodity producer is a price Focus our business on core assets by taker and, thus, revenues are highly dependent on disposing of our non-core assets market prices for the commodities it produces. Pay off our debt from non-core asset Although the Group can to some extent manage its disposals so as to leave us essentially revenues through choosing the timing for the sale debt-free of its commodities (the Group owns elevator Roll out irrigation on appropriate land storage capacity which allows it to store its produce holdings in Russia and Ukraine over longer time periods), the main operational Look into high margin crops made possible focus of the Group is on cost management. through irrigation as well as early stage Therefore, the Group’s operational goal is to processing as ways over time to decrease produce its commodities at the lowest possible earnings volatility and increase margins price per tonne. This is planned to be achieved through continuous improvements of the efficiency in its production operations.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 6
HISTORY
2006 Ramburs Trigon. The joint venture handled sales Trigon Agri was established in May 2006 by the and trading activities as well as the management of asset management company Trigon Capital. The the cereal storage operations of the Group. initially committed start-up capital of EUR 20 On May, 6 2008, Trigon Agri completed a further million was raised from Trigon Capital and primarily follow-on capital raising of EUR 105 million to fund Finnish high net worth individuals. Trigon Capital the expansion of its operations in the Black Earth remains a non-controlling shareholder in the Group regions of Ukraine and Russia. The funds raised while its wholly-owned subsidiary Trigon Agri from the placing were intended for financing Advisors provides management services to the investment programmes in the existing production Group. clusters. With the start-up capital raised, the Group made 2009 its first investments in farming companies in 2006 In late 2009, the Group acquired the fifth by acquiring cereal farming operations in eastern operational cereal cluster in Stavropol, Russia. Ukraine nearby the city of Kharkov. The Additionally, the Group acquired a brownfield acquisitions marked the establishment of the first elevator site next to its farming operations in the production cluster of the Group. The Group’s dairy Penza region and increased its freehold ownership of farms were acquired during the second half of land in Russia to 80,276 hectares. 2006. Since the St Petersburg farm was of greenfield character, commercial milk production In December 2009, the Group signed an agreement did not start until April 2008. to acquire a brownfield elevator site next to its farming operations in the Stavropol region. 2007 2010 On May, 17 2007, Trigon Agri completed a private placing of shares to institutional investors and high In August 2010, the Group acquired the non- net worth individuals in several European Union controlling share of Ramburs Trigon, thereby fully member states and in the United States securing taking over the operations of its sales and trading approximately EUR 50 million, before issue costs. joint venture. Following the private placing, the Group’s shares Since December 8, 2010 the shares of Trigon Agri were listed on the NASDAQ OMX First North A/S are listed on main market of Small Cap segment alternative stock exchange in Stockholm on 18 May on NASDAQ OMX Stockholm. 2007. 2011 With the capital raised in 2007, the Group continued the expansion of its cereal farming in In 2Q 2011 Trigon Agri concluded a four-year bond Kharkov and made the first investments into issue in amount of SEK 350 million with an annual railroad connected large storage facilities interest rate of 11%. (elevators) pursuing its strategy of building an Since December 14, 2011 the bonds of Trigon Agri integrated production, storage and trading are listed on the Corporate Bond List of NASDAQ operation. OMX Stockholm. 2008 2012 During the first quarter of 2008, the Group also In April 2012 the Group finalized acquisition of established a second production cluster nearby the Estonian dairy farm AS Väätsa Agro, the largest city of Kirovograd in Ukraine, and two further milk production farm in Estonia in terms of milk clusters nearby the cities of Samara and Penza in quota. At the time of the acquisition the company Russia. After the set-up of operations in three farmed 4,160 hectares of farmland and had 3,386 additional cereal production clusters in the Black dairy animals, including 1,685 milking cows. Earth region, the Group had by the middle of 2008 In 4Q 2012 Trigon Agri carried out a land-swap established a strong platform for cereal production, transaction in Russia involving the acquisition of a storage and trading throughout the Black Earth new 71 thousand hectares production cluster in regions of Ukraine and Russia. Rostov Oblast in exchange for its two current On April, 7 2008, Trigon Agri entered into an Russian production clusters in Samara and agreement with Ramburs Group, a leading Stavropol. Ukrainian commodities trading group, for the establishment of the joint venture company
TRIGON AGRI ANNUAL REPORT 2013 PAGE 7
2013 In 2Q 2013 the Group completed a limited capital As part of the Group’s longer-term planning the raising for its Estonian dairy farming subsidiary AS Group divided its assets into core and non-core Trigon Dairy Farming Estonia (‘TDFE’). As a part of with focus on core assets. The core assets of the the transaction, the Ingman Group from Finland Group are cereals production operations in Ukraine acquired 21% of TDFE. and cereals production operations in the Rostov In 4Q 2013 the Group disposed 15.3% in AS Trigon cluster in Russia. The non-core assets of the Group Dairy Farming Estonia. Following the transaction are cereals production operations in Penza, Russia Trigon Agri retains an ownership stake of 63.7% in and milk production operations in St Petersburg AS Trigon Dairy Farming Estonia. region in Russia and in Estonia.
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FINANCIAL AND OPERATIONAL REVIEW INCOME STATEMENT The Group’s operations are divided into the disposal of Stavropol and Samara assets that was following operational segments: Cereals production recorded in 2012. in Ukraine and Russia, Milk production, Storage In the Milk production segment the EBITDA in 2013 services and Sales and trading. was EUR 1.8 million lower than in 2012 due to the In 2013, the Group’s EBITDA was a loss of EUR 1.1 Gain from bargain purchase recorded in 2012 in million compared with a profit of EUR 19.5 million amount of EUR 1.7 million. in 2012. The decrease in EBITDA was related to the In the Storage services segment the increase in the one-off gain on disposal of Stavropol and Samara revenue from drying services raised the EBITDA by assets recorded in 2012 and decrease in cereal EUR 0.7 million in 2013 compared with 2012. prices. The EBITDA by segments is explained as follows. In the Sales and trading segment the EBITDA stayed at the same level. In 2013 the EBITDA was The Cereals production segment in 2013 achieved EUR 0.3 million, same as in 2012. the highest average yield in its history. On the other hand, the average sales prices for cereals Summary of the financial results by segments can decreased by 18% during 2013. In the Cereals be seen in the following tables. For detailed production segment in Ukraine the EBITDA declined explanations on each operational segment, please by EUR 4.0 million and in Russia by EUR 15.6 refer to further sections in this report. million, mostly due to the EUR 18.1 million Gain on
Cereals Cereals Sales Eliminations production production Milk Storage and between 2012, in EUR thousand Ukraine Russia production services trading segments Total Revenue between segments 30,441 10,206 2 2,188 5,724 -48,561 - Revenue from external customers 2,658 429 9,848 3,574 56,808 - 73,317 Total segment revenue 33,099 10,635 9,850 5,762 62,532 -48,561 73,317
Subsidies 1 197 2,176 - - - 2,374 Other income 245 205 17 22 84 -4 569 Change in biol.assets 130 -356 572 - - - 346 TOTAL income 33,475 10,681 12,615 5,784 62,616 -48,565 76,606
Change in inventories -4,069 -4,257 3,531 - 306 889 -3,600 Cost of purchased goods -4 -133 -72 -11 -59,277 45,332 -14,165 OPEX -27,254 -13,790 -13,753 -4,987 -3,192 2,341 -60,635 Gain from bargain purchase - - 1,734 - - - 1,734 Other (losses)/gains - net 3,280 16,827 -22 -369 -179 3 19,540 EBITDA 5,428 9,328 4,033 417 274 - 19,480
TRIGON AGRI ANNUAL REPORT 2013 PAGE 9
Cereals Cereals Sales Eliminations production production Milk Storage and between 2013, in EUR thousand Ukraine Russia production services trading segments Total Revenue between segments 31,605 7,153 - 2,640 6,929 -48,327 - Revenue from external customers 1,393 162 12,903 4,241 56,909 - 75,608 Total segment revenue 32,998 7,315 12,903 6,881 63,838 -48,327 75,608
Subsidies - 293 2,065 - - - 2,358 Other income 373 206 39 15 214 -81 766 Change in biol.assets -280 -528 567 - - - -241 TOTAL income 33,091 7,286 15,574 6,896 64,052 -48,408 78,491
Change in inventories -6,109 -774 3,781 - - - -3,102 Cost of purchased goods -760 -91 -23 -291 -59,087 45,242 -15,010 OPEX -27,672 -12,375 -16,961 -5,304 -4,592 3,085 -63,819 Gain from bargain purchase ------Other (losses)/gains - net 2,891 -288 -100 -208 -49 81 2,327 EBITDA 1,441 -6,242 2,271 1,093 324 - -1,113
TRIGON AGRI ANNUAL REPORT 2013 PAGE 10
BALANCE SHEET ASSETS The consolidated assets of the Group as at hryvna, which have devalued by 12.4% and 4.8%, December 31, 2013 amounted to EUR 185.2 million respectively, against the Euro during 2013. (EUR 214.0 million at December 31, 2012). A The total land under control as at December 31, significant part of the decline resulted from non- 2013 stood at 167 thousand hectares. cash currency translation losses caused by devaluations of the Russian rouble and the Ukrainian hryvna. Most of the Group’s assets are denominated in Russian rouble and Ukrainian
Land under control, hectares 31.12.2012 31.12.2013 Cereal production Ukraine Land under rental agreements 52,030 47,843 Total Cereal production Ukraine 52,030 47,843 Cereal production Russia Land in ownership 107,260 107,262 Land under rental agreements - 1,656 Total Cereal production Russia 107,260 108,918 Milk production Russia Land in ownership 1,991 1,991 Land under rental agreements 500 500 Total Milk production Russia 2,491 2,491 Milk production Estonia Land in ownership* 4,516 4,673 Land under rental agreements 3,513 3,456 Total Milk production Estonia 8,030 8,129 Total Land in ownership* 113,767 113,926 Land under rental agreements 56,044 53,455 Total 169,811 167,381 * including usufruct agreements in Estonia
TOTAL ASSETS BY SEGMENTS 31.12.2013 Unallocated assets 5% Russia Milk 49% production 23%
Storage 9%
Sales and trading 1.0% Ukraine 13%
Unallocated assets of the Group include cash and other assets in Group holding companies that are not possible to allocate between segments.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 11
NON-CURRENT ASSETS BREAKDOWN 31.12.2013 NON-CURRENT ASSETS BY SEGMENTS 31.12.2013 Biological Unallocated assets Fixed assets assets (excl. land) 6.0% 3% Lease 33% Milk prepayments production 2% Other 25% 6%
Russia 55% Storage 9% Sales and Land trading 53% 0.1% Ukraine 8%
NET DEBT AND LIQUIDITY POSITION
The total borrowings of the Group as at December BALANCE SHEET STRUCTURE 31.12.2013 31, 2013 amounted to EUR 74.1 million compared Cash Other 100% liabilities with EUR 69.5 million as at December 31, 2012. The 90% borrowings increased due to a new loan received by Other assets the Cereals production segment in Russia, related to 80% Biological Borrowings assets the final payment and closing of the Rostov 70% transaction in 2013. Other changes in borrowings 60% include repayments, refinancing of existing loans 50% and changes in exchange rates. 40% Property, The net debt of the Group as at December 31, plant and 30% equipment 2013 amounted to EUR 69.1 million (EUR 61.3 Equity million as at December 31, 2012). 20% 10%
0% Assets Equity and liabilities
INVESTMENTS In 2013 the acquisition of subsidiary in amount of EUR 4.9 million was related to the final payments Cash flows from investing for Rostov cluster (Russia). The Group’s activities, EUR thousand 2012 2013 investments into property, plant and equipment Acquisition of subsidiary, net of during 2013 were mainly related to the cash acquired -6,676 -4,864 investments into the Milk production segment (EUR Cash outflow from disposal of discontinued operations 4.9 million), into the storage elevators (EUR 2.4 -49 - Purchase of biological assets million), into the irrigation systems in Russia (EUR - -2 Purchase of property, plant and 1.2 million) prepayment for land for the dairy equipment -10,660 -10,686 business in Russia (EUR 1.9 million), and the Purchase of intangible assets -448 -90 remaining amount is related to investments into Proceeds from sales of Ukraine. Investments into the accounting software property, plant and equipment 66 1,131 were recorded under Purchase of intangible assets Short-term loans given, net -1,482 - in the amount of EUR 0.1 million. Net cash used in investing activities -19,249 -14,511
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CEREAL PRODUCTION The Group has its cereals production operations in available for sale in cereals production segments the Black Earth region in Kharkov, Nikolaev and please refer to the included tables. Kirovograd in Ukraine and Penza and Rostov in Other revenue earned by the cereals production Russia. segments during the reporting period was made up Cereal production segment in 2013 achieved the from sales of other produce and services. highest average yield in its history, yet due to a Government subsidies stood at EUR 0.3 million in decline in cereals prices and acquisition-related 2013 (EUR 0.2 million in 2012) and Other income one-off gains recorded in 2012, the 2013 EBITDA stood at EUR 0.6 million in 2013 (EUR 0.5 million in showed a EUR 19.6 million decline. 2012). CEREAL PRODUCTION FINANCIAL Gains/losses arising from changes in biological REVIEW assets during 2013 amounted to a loss of EUR 0.8 In the Cereal production segment the revenue is million (loss of EUR 0.2 million during 2012). made up primarily from sales of cereals to the Group’s Sales and trading segment. Sales and SALES OF CEREALS 2013 trading division in turn sells the cereals to third Soya parties. Other 6% 1% In 2013, the Cereal production segment revenue Rapeseed stood at EUR 40.3 million (EUR 43.7 million in 12% Wheat 2012). Out of that, sales of cereals amounted to 40% EUR 39.0 million (EUR 43.0 million in 2012). The average price received in 2013 by the Cereal Corn production segment was 18% lower than in 2012. 16% Net changes in inventory in 2013 amounted to a negative amount of EUR 6.9 million (negative amount of EUR 8.3 million in 2012), as the Group sold its year-end inventory from 2012 during 2013, Barley partially at lower prices than used for valuation at Sunflower 3% 22% 31.12.2012. For details on cereals sales prices, sold quantities, and period-end agricultural produce
Revenue breakdown: Total cereal production segment 2012 2013
Revenue, Revenue, EUR Price EUR Price Tonnes thousand EUR/t Tonnes thousand EUR/t Wheat 94,006 13,654 145 121,207 15,790 130 Barley 15,686 2,454 156 10,917 1,131 104 Sunflower 38,030 11,722 308 28,666 8,449 295 Corn 40,732 5,881 144 56,000 6,253 112 Rapeseed 12,604 4,567 362 15,195 4,641 305 Soya 11,725 3,602 307 7,495 2,444 326 Other 1,001 151 151 2,514 278 111 Total 213,783 42,031 197 241,994 38,986 161 *excluding sugarbeet
TRIGON AGRI ANNUAL REPORT 2013 PAGE 13
Revenue breakdown: Ukraine cereal production segment
2012 2013 Revenue, Revenue, EUR Price EUR Price Tonnes thousand EUR/t Tonnes thousand EUR/t Wheat 80,919 11,692 144 78,086 10,492 134 Barley 4,407 611 139 1,483 204 138 Sunflower 20,184 6,879 341 26,013 7,923 305 Corn 40,732 5,881 144 55,339 6,191 112 Rapeseed 8,693 3,191 367 15,176 4,640 306 Soya 10,772 3,408 316 7,495 2,444 326 Other 480 103 215 48 13 270 Total 166,187 31,765 191 183,639 31,907 174 *excluding sugarbeet
Revenue breakdown: Russia cereal production segment 2012 2013 Revenue, Revenue, EUR Price EUR Price Tonnes thousand EUR/t Tonnes thousand EUR/t Wheat 13,087 1,962 150 43,121 5,298 123 Barley 11,279 1,843 163 9,434 927 98 Sunflower 17,846 4,843 271 2,653 526 198 Corn - - - 661 62 93 Rapeseed 3,911 1,376 352 19 1 42 Soya 953 194 203 - - n/r Other 521 48 92 2,466 265 107 Total 47,596 10,265 216 58,355 7,079 121
Own produced grain available for sale in stock in Cereals production segments 31.12.2012 Ukraine Russia Total Value, Average Value, Average Value, Average EUR price, EUR price, EUR price, Tonnes thsd EUR/t Tonnes thsd EUR/t Tonnes thsd EUR/t Wheat 413 71 172 70 17 243 483 88 182 Barley 653 105 161 - - - 653 105 161 Sunflower 12,743 5,089 399 840 323 385 13,583 5,412 398 Corn 18,669 2,868 154 - - - 18,669 2,868 154 Rapeseed 41 12 295 67 24 360 107 36 336 Soya 3,742 1,317 352 - - - 3,742 1,317 352 Other 2,300 132 57 13 2 157 2,313 134 58 Total 38,561 9,594 249 989 366 370 39,550 9,960 252
Own produced grain available for sale in stock in Cereals production segments 31.12.2013 Ukraine Russia Total Value, Average Value, Average Value, Average EUR price, EUR price, EUR price, Tonnes thsd EUR/t Tonnes thsd EUR/t Tonnes thsd EUR/t Wheat 283 38 134 - - - 283 38 134 Barley 62 8 130 - - - 62 8 130 Sunflower 10,313 2,491 242 - - - 10,313 2,491 242 Corn 160 16 100 56 6 106 217 22 102 Rapeseed - - - 100 22 220 100 22 220 Other 1,594 50 31 3 - - 1,597 50 31 Total 12,413 2,603 210 159 28 176 12,572 2,631 209
TRIGON AGRI ANNUAL REPORT 2013 PAGE 14
Total operating expenses in 2013 decreased in CEREAL PRODUCTION SEGMENTS OPEX 2013 amount of EUR 1.0 million compared with 2012 due Legal, consulting to smaller harvested area reducing the production and audit fees 6% Other expenses costs and lower legal, consulting and audit fees. Operational 1% management fee Seeds, 7% fertilizers, Office and chemicals administration 29% expenses 4% Employee benefits expense 13%
Repairs Transportation, 5% other services and materials Fuel, gas, 15% electricity Land tax and 9% land rental 11%
Operating expenses breakdown: Cereals production segment
2012 2013
Cereals Cereals Total Cereals Cereals Total Operating expenses breakdown, production production cereals production production cereals EUR thousand Ukraine Russia production Ukraine Russia production Seeds, fertilizers, chemicals -7,813 -4,372 -12,185 -8,027 -3,720 -11,747 Animal feed -23 - -23 - - - Repairs -1,255 -891 -2,146 -1,147 -938 -2,085 Fuel, gas, electricity -2,742 -1,148 -3,890 -2,295 -1,062 -3,357 Land tax and land rental -3,767 -332 -4,099 -4,263 -259 -4,522 Transportation, other services and materials -3,558 -2,209 -5,767 -4,007 -2,116 -6,123 Employee benefits expense -3,599 -1,877 -5,476 -3,496 -1,762 -5,258 Office and administration expenses -1,030 -628 -1,658 -1,127 -471 -1,598 Operational management fee -1,503 -998 -2,501 -1,693 -1,053 -2,746 Legal, consulting and audit fees -1,791 -1,214 -3,005 -1,447 -890 -2,337 Other expenses -173 -121 -294 -170 -104 -274 Total expenses -27,254 -13,790 -41,044 -27,672 -12,375 -40,047
In the Cereals production segment in Ukraine the EBITDA in 2013 compared with 2012 decreased by
EUR 4.0 million due to lower prices.
In the Cereals production segment in Russia EBITDA decreased by EUR 15.6 million due to one- off items in 2012 in amount of EUR 16.5 million included in Other (losses)/gains.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 15
Cereals production segment 2012 2013
Cereals Cereals Total Cereals Cereals Total production production cereals production production cereals in EUR thousand Ukraine Russia production Ukraine Russia production Revenue between segments 30,441 10,206 40,647 31,605 7,153 38758 Revenue from external customers 2,658 429 3,087 1,393 162 1555 Total segment revenue 33,099 10,635 43,734 32,998 7,315 40,313
Subsidies 1 197 198 0 293 293 Other income 245 205 450 373 206 579 Change in biol.assets 130 -356 -226 -280 -528 -808 TOTAL income 33,475 10,681 44,156 33,091 7,286 40,377
Change in inventories -4,069 -4,257 -8,326 -6,109 -774 -6,883 Cost of purchased goods -4 -133 -137 -760 -91 -851 OPEX -27,254 -13,790 -41,044 -27,672 -12,375 -40,047 Other (losses)/gains - net 3,280 16,827 20,107 2,891 -288 2,603 EBITDA 5,428 9,328 14,756 1,441 -6,242 -4,801
CEREALS PRODUCTION OPERATIONAL REVIEW In 2013 the Group harvested 238 thousand tonnes CROP PRODUCTION DYNAMICS from 78 thousand hectares. Gross production Crop plan, Gross increased by 27% compared with the drought- ha tonnes affected 2012 harvest, although the harvested area 140,000 300,000 decreased by 10%. The total gross yield for cereals 120,000 in 2013 was 3.06 tonnes per hectare - the highest 250,000 average yield ever archived in the history of Trigon 100,000 Agri. For details about harvest results please refer 200,000 to the included tables. 80,000 The Group completed autumn seeding in the end of 150,000 October, 2013. Today, all of the 7.5 thousand 60,000 hectares of winter rapeseed and the majority of the 100,000 38 thousand hectares of winter wheat are in good 40,000 condition, the mild conditions in late autumn 50,000 compensating for the delayed sowing of some of 20,000 the crop. All planned autumn cultivations were - -
completed and all lands are in good condition in
2008 2009 2010 2011 2012
preparation for the spring crop sowing season. The 2007 2013E extent of possible reseeding will be decided in the Crop plan, ha Gross production, t spring of 2014.
Crop plan, ha 2007 2008 2009 2010 2011 2012 2013 Wheat 7,212 25,019 38,992 34,615 35,703 33,489 41,262 Corn 2,883 5,806 3,336 3,462 4,889 6,053 5,077 Rapeseed - 2,132 1,706 2,001 5,544 14,749 8,814 Sunflower 2,937 10,733 13,039 29,091 32,886 22,541 13,837 Soya - 1,004 2,115 8,646 6,277 4,003 3,116 Barley 4,650 8,165 15,499 5,364 2,859 5,341 4,593 Other cereals 4,976 11,555 7,087 1,439 - - 1,251 Total cereals 22,658 64,414 81,774 84,618 88,158 86,176 77,951 Sugar beet, other - - - - 969 722 - Total 22,658 64,414 81,774 84,618 89,127 86,898 77,951
TRIGON AGRI ANNUAL REPORT 2013 PAGE 16
Gross production, t 2007 2008 2009 2010 2011 2012 2013 Wheat 21,275 78,769 94,185 89,312 131,531 78,029 131,498 Corn 15,177 30,912 20,400 14,554 50,549 44,394 43,796 Rapeseed - 3,722 2,645 4,247 7,642 14,295 16,560 Sunflower 7,398 16,969 23,438 43,960 56,309 32,350 28,311 Soya - 1,279 3,073 8,973 11,999 6,246 4,367 Barley 6,693 26,619 40,186 15,020 8,521 12,426 11,168 Other cereals 6,064 22,637 11,533 1,096 - - 2,514 Total cereals 56,607 180,907 195,459 177,162 266,550 187,740 238,214 Sugar beet, other - - - - 13,845 32,921 - Total 56,607 180,907 195,459 177,162 280,395 220,661 238,214
Gross yield, t/ha 2007 2008 2009 2010 2011 2012 2013 Wheat 2.95 3.15 2.42 2.58 3.68 2.33 3.19 Corn 5.26 5.32 6.12 4.20 10.34 7.33 8.63 Rapeseed - 1.75 1.55 2.12 1.38 0.97 1.88 Sunflower 2.52 1.58 1.80 1.51 1.71 1.44 2.05 Soya - 1.27 1.45 1.04 1.91 1.56 1.40 Barley 1.44 3.26 2.59 2.80 2.98 2.33 2.43 Other cereals 1.22 1.96 1.63 0.76 - - 2.01 Total cereals 2.50 2.81 2.39 2.09 3.02 2.18 3.06 Sugar beet, other - - - - 14.29 45.60 - Total 2.50 2.81 2.39 2.09 3.15 2.54 3.06
Kharkov (Ukraine) Kirovograd (Ukraine)
Gross yield, t/ha 2007 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Winter wheat 2.95 5.66 4.14 3.85 4.71 3.74 4.73 3.61 5.26 4.94 4.93 2.17 4.79
Corn 5.26 6.24 5.78 2.22 8.03 4.07 - 5.33 7.98 7.67 11.55 8.03 8.79
Winter - - - 3.01 1.52 1.61 2.04 2.13 2.43 1.70 - - - rapeseed Sunflower 2.52 2.74 2.71 1.86 2.95 2.73 2.84 2.04 2.36 2.14 - - -
Soya - 1.30 1.40 0.99 2.22 1.57 1.40 1.02 1.91 1.47 1.95 - -
Nikolaev (Ukraine) Penza (Russia) Gross yield, t/ha 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 3.43 3.59 3.52 3.57 1.02 2.14 1.86 3.00 2.24 2.47 2.03 3.02 Winter wheat - - - - 2.63 10.59 ------Corn 1.61 1.35 2.37 1.33 0.62 1.02 - - - 0.96 0.90 - Winter rapeseed 1.49 1.47 2.15 1.70 0.82 1.90 0.56 0.91 1.08 1.33 1.86 - Sunflower - - 1.56 0.35 0.94 - - - 0.38 1.21 - - Soya
Samara (Russia) Stavropol (Russia) Rostov (Russia) Gross yield, t/ha 2008 2009 2010 2011 2012 2010 2011 2012 2012 2013 1.38 1.37 1.51 1.90 - 2.56 3.34 0.47 2.04 Winter wheat - 1.39 3.58 ------4.19 Corn ------1.34 0.21 - Winter rapeseed - 0.76 1.30 0.90 1.32 - 1.28 1.09 0.55 0.59 Sunflower - - - 0.39 - - 0.42 0.37 - - Soya -
TRIGON AGRI ANNUAL REPORT 2013 PAGE 17
CEREALS STORAGE SERVICES The Group owns cereals storage elevators to STORAGE SERVICES FINANCIAL REVIEW support its production operations. Currently the The total revenues of the Storage services segment Group has five operational elevators in Ukraine stood at EUR 6.9 million in 2013 (EUR 5.8 million in with a total storage capacity of 322 thousand 2012). The rainy weather in autumn 2013 tonnes. increased revenues from drying services due to In the Storage services segment the EBITDA in higher moisture levels in late crops, especially in 2013 increased by EUR 0.7 million compared with corn. The total operating expenses also rose, but 2012 due to higher revenues, especially from only by 6%. drying services.
STORAGE SERVICES SEGMENT INCOME 2013 STORAGE SERVICES SEGMENT OPEX 2013 Transportation, Storage other services 21% Land tax and and materials Transportation land rental 8% and other 2% services Fuel, gas, Employee 11% electricity benefits 23% expense Shipment Receiving 44% 18% 4%
Cleaning 5% Repairs 3% Other expenses 1% Operational Drying management 41% fee Legal, 6% consulting and Office and audit fees administration 6% expenses 7%
Operating expenses breakdown, EUR thousand 2012 2013 Repairs -248 -184 Fuel, gas, electricity -842 -1,234 Land tax and land rental -110 -116 Transportation, other services and materials -345 -409 Employee benefits expense -2,262 -2,307 Office and administration expenses -440 -363 Operational management fee -294 -323 Legal, consulting and audit fees -392 -306 Other expenses -54 -62 Total expenses -4,987 -5,304
In the Storage services segment the EBITDA for 2013 amounted to EUR 1.1 million compared with
EUR 0.4 million in 2012 due to higher revenues in 2013.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 18
in EUR thousand 2012 2013 Revenue between segments 2,188 2,640 Revenue from external customers 3,574 4,241 Total segment revenue 5,762 6,881
Other income 22 15 TOTAL income 5,784 6,896
Cost of purchased goods -11 -291 OPEX -4,987 -5,304 Other (losses)/gains - net -369 -208 EBITDA 417 1,093
STORAGE SERVICES OPERATIONAL REVIEW In 2013, the cereals storage elevators of the Group handled more than twice the amount of drying volumes than in 2012. The average prices received in 2013 from the sales of elevator services remained at the same level compared with 2012.
ELEVATOR SERVICES VOLUMES BREAKDOWN Tonnes* AVERAGE PRICES OF ELEVATOR SERVICES 1,400,000 EUR/t* 5.00 1,200,000 4.50 4.00 1,000,000 3.50 800,000 3.00 2.50 600,000 2.00 400,000 1.50 1.00 200,000 0.50 - - Receiving Cleaning Drying Shipment Storage Receiving Cleaning Drying Shipment Storage 2012 2013 2012 2013
*for storage services tonnes are accumulated, for cleaning and drying services tonnes are multiplied with cleaning and moisture percentages
Volumes handled, Trigon Agri Third party Trigon Agri Third party tonnes* commodities commodities Total commodities commodities Total 2012 2013 Receiving 122,836 106,993 229,830 131,358 156,768 288,127 Cleaning 265,839 242,193 508,031 341,639 250,969 592,608 Drying 345,736 273,874 619,610 592,355 749,277 1,341,632 Shipment 72,744 187,145 259,889 101,287 173,344 274,631 Storage 274,676 756,276 1,030,952 207,661 507,390 715,051 *for storage services tonnes are accumulated, for cleaning and drying services tonnes are multiplied with cleaning and moisture percentages
TRIGON AGRI ANNUAL REPORT 2013 PAGE 19
SALES AND TRADING The main purpose of the Sales and trading and sold quantities in the Sales and trading segment is to maximize the cereals sales prices segment please refer to the included tables. received for the Group’s own commodity Other revenue in 2013 was mainly related to the production. Depending on market situation, the intermediation of seeds and fertilizers to the Group Sales and trading department is also engaged in cereals production companies. intermediation of third-party goods. In addition to Cost of purchased goods decreased from EUR 59.3 the cereals sales the Sales and trading division million in 2012 to EUR 59.1 million in 2013 due to organizes purchases of seeds and fertilizers for the lower purchase prices in 2013. cereals production companies of the Group. In the Sales and trading segment the EBITDA in SALES AND TRADING SEGMENT INCOME 2013 2013 was EUR 0.3 million (EUR 0.3 million in 2012) SALES AND TRADING FINANCIAL REVIEW Sales of cereals The total revenue of the Sales and trading segment 89% Other in 2013 stood at EUR 63.8 million (EUR 62.5 million revenue in 2012). Out of that, EUR 56.9 million (EUR 56.8 11% million in 2012) was generated from the sales of cereals (own produced and third party). Although Other higher volumes of cereals were sold, the 21% income 0.3% decrease in average price kept revenues at the same level. For details on the cereals sales prices
Revenue breakdown: Sales of cereals in Sales and trading segment 2012 2013 Revenue, Revenue, EUR Price EUR Price Tonnes thousand EUR/t Tonnes thousand EUR/t Wheat 95,669 15,939 167 147,698 23,992 162 Barley 17,800 3,075 173 12,564 1,367 109 Sunflower 50,400 16,444 326 35,047 10,524 300 Corn 50,000 9,102 182 83,000 10,275 124 Rapeseed 18,284 8,233 450 20,648 8,010 388 Soya 12,696 3,949 311 7,221 2,492 345 Other 534 81 152 2,478 250 101 Total 245,383 56,822 232 308,657 56,909 184
incl own produced 204,999 242,675
incl third party 40,384 65,982
TRIGON AGRI ANNUAL REPORT 2013 PAGE 20
Higher volumes sold increased transportation costs SALES AND TRADING SEGMENT OPEX 2013 and in total the operating expenses rose by EUR 1.4 million. Legal, consulting and Other expenses audit fees 1% 3% Transportation, Operational other services management and materials fee 74% 3% Office and administration expenses 7% Employee benefits expense 12%
Operating expenses breakdown, EUR thousand 2012 2013 Transportation, other services and materials -2,016 -3,389 Employee benefits expense -564 -571 Office and administration expenses -262 -300 Operational management fee -147 -162 Legal, consulting and audit fees -176 -135 Other expenses -27 -35 Total expenses -3,192 -4,592
In the Sales and trading segment EBITDA in 2013 amounted to EUR 0.3 million, the same as in 2012.
in EUR thousand 2012 2013 Revenue between segments 5,724 6,929 Revenue from external customers 56,808 56,909 Total segment revenue 62,532 63,838
Other income 84 214 TOTAL income 62,616 64,052
Change in inventories 306 - Cost of purchased goods -59,277 -59,087 OPEX -3,192 -4,592 Other (losses)/gains - net -179 -49 EBITDA 274 324
TRIGON AGRI ANNUAL REPORT 2013 PAGE 21
SALES AND TRADING OPERATIONAL REVIEW The total volume of cereals sold by the Sales and 2012 to 44% in 2013. Commodities produced by trading segment in 2013 was 309 thousand tonnes the Group comprised 79% of the total sales (245 thousand tonnes in 2012). The proportion of volumes. sales to export markets has increased from 34% in
SALES AND TRADING SEGMENT CEREALS SALES VOLUME SALES AND TRADING SEGMENT CEREALS SALES BREAKDOWN 2013 VOLUME BREAKDOWN 2013
Trigon commodities Sales to 79% Ukraine and Export sales Russia 44% 56% 3rd parties 21%
TRIGON AGRI ANNUAL REPORT 2013 PAGE 22
MILK PRODUCTION
The Group’s milk production operations are located MILK PRODUCTION SEGMENT INCOME 2013 in Estonia and in the St Petersburg region of Russia. Other revenue 6% In the Milk production segment the EBITDA in 2013 Sales of milk amounted to EUR 2.3 million (EUR 4.0 million in 73% Subsidies 2012). Both revenues and expenses in 2013 were 13% higher compared with 2012 due to higher prices of milk, increase in productivity and higher feed costs, Changes in as well as Väätsa Farm acquisition in 2Q 2012. biol. assets Additionally, a Gain from bargain purchase was 4% Sales of recorded in 2012 in amount of EUR 1.7 million. cereals 4%
in EUR thousand 2012 2013 Revenue between segments 2 - Revenue from external customers 9,848 12,903 Total segment revenue 9,850 12,903
Subsidies 2,176 2,065 Other income 17 39 Change in biol.assets 572 567 TOTAL income 12,615 15,574
Change in inventories 3,531 3,781 Cost of purchased goods -72 -23 OPEX -13,753 -16,961 Gain from bargain purchase 1,734 - Other (losses)/gains - net -22 -100 EBITDA 4,033 2,271
TRIGON AGRI ANNUAL REPORT 2013 PAGE 23
EVENTS AFTER BALANCE SHEET DATE
The Russian rouble and the Ukrainian hryvna have hryvna weaken against the euro. A significant part continued to devalue in 2014. The assets on the of the Group’s revenues (cereals sales) are either Group’s balance sheet in Russia and Ukraine are denominated in foreign currencies or driven by denominated in local currency and will decrease in prices in foreign currencies. euro terms when rouble and hryvna weaken For further information on the situation in Ukraine against the euro. Additionally, part of the Group’s and potential impact on the Group, please refer to costs decrease in euro terms when rouble and note 3.5.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 24
MARKET DYNAMICS AND OUTLOOK GLOBAL MARKET FOR GRAINS AND consumption estimate is also raised for coarse OILSEEDS grains, abundant supplies for grain and oilseeds Compared with the production estimate in our 3Q have kept prices at low levels. On the other hand, 2013 report, USDA increased their 2013/14 grain concerns over 2014 harvest after the sudden cold and oilseeds output estimate in February. wave (“polar vortex”) in the Northern Hemisphere and dryness in Brazil, combined with strong Favorable weather conditions boosted the wheat demand, could increase prices in 2014. production estimate for Canada, the corn production estimate for China and the soybean production estimate for Brazil. Although
World use of grains, millions of tonnes 2008 2009 2010 2011 2012 2013 Wheat Total production 684 686 652 697 656 712 Total production y-o-y, % 12% 0% -5% 7% -6% 8% Total use 642 650 655 697 679 704 Total use y-o-y, % 4% 1% 1% 6% -3% 4% Ending stocks 167 203 198 199 176 184 Ending stocks y-o-y, % 34% 21% -2% 1% -12% 4% Inventory in days 95 114 110 104 94 95 Coarse grains Total production 1,110 1,116 1,099 1,151 1,133 1,260 Total production y-o-y, % 3% 0% -1% 5% -2% 11% Total use 1,080 1,115 1,131 1,152 1,134 1,233 Total use y-o-y, % 2% 3% 1% 2% -2% 9% Ending stocks 194 195 166 165 164 191 Ending stocks y-o-y, % 19% 1% -15% 0% -1% 17% Inventory in days 66 64 54 52 53 57 Oilseeds Total production 396 445 456 446 474 506 Total production y-o-y, % 1% 12% 2% -2% 6% 7% Total use 401 422 444 466 466 483 Total use y-o-y, % 0% 5% 5% 5% 0% 4% Ending stocks 55 72 82 65 68 86 Ending stocks y-o-y, % -11% 31% 14% -21% 5% 26% Inventory in days 50 62 67 51 53 65 Source: USDA, estimates as of February 10, 2014
14.02.2014 CBOT 6 m future CBOT 1 year future Wheat CBOT USD/t 223 221 228 Corn CBOT USD/t 163 179 181 Soybeans CBOT USD/t 496 480 417 Oil WTI USD/bbl 100 97 92
Source: Bloomberg
TRIGON AGRI ANNUAL REPORT 2013 PAGE 25
INVENTORY IN DAYS COMMODITY PRICES Days USD/t USD/bbl 160 700 160
140 600 140 120 120 500 100 100 400 80 80 300 60 60 200 40 40 20 100 20
- - -
1995 1980 1983 1986 1989 1992 1998 2001 2004 2007 2010 2013
Jul/07 Jul/08 Jul/09 Jul/10 Jul/11 Jul/12 Jul/13
Jan/07 Jan/08 Jan/09 Jan/10 Jan/11 Jan/12 Jan/13 Jan/14
Wheat Coarse grains CBOT wheat spot USD/t CBOT corn spot USD/t
Oilseeds Wheat average (108 days) CBOT soyabeans spot USD/t Oil WTI USD/bbl
Coarse grains average (80 days) Oilseeds average (52 days)
Source: USDA
CHINA IMPORTS CHINA FEED CONSUMPTION (WHEAT, CORN, SOYABEANS Milliones of COMBINED) Milliones of tonnes tonnes 200 90 180 81 160 72 140 63 120 54 100 45 80 36 60 27 40 18 20 9
- -
2007 1980 1983 1986 1989 1992 1995 1998 2001 2004 2010 2013
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Soybean Corn Wheat
INDIA FEED CONSUMPTION (WHEAT, CORN, SOYABEANS INDIA IMPORTS Milliones of COMBINED) Milliones of tonnes tonnes 16 8 14 7 12 6 10 5 8 4 6 3 4 2 2 1
- -
1980 2013 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
2010 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2013
Soybean Corn Wheat
Source: USDA
TRIGON AGRI ANNUAL REPORT 2013 PAGE 26
WHEAT PRICE CORN PRICE USD/t USD/t 1,120 720 980 630 840 540 700 450 560 360 420 270 280 180 140 90
- -
Jul/72 Jul/77 Jul/82 Jul/87 Jul/92 Jul/97 Jul/02 Jul/07 Jul/12
Jul/72 Jul/77 Jul/82 Jul/87 Jul/92 Jul/97 Jul/02 Jul/07 Jul/12
Jan/70 Jan/75 Jan/80 Jan/85 Jan/90 Jan/95 Jan/00 Jan/05 Jan/10
Jan/70 Jan/75 Jan/80 Jan/85 Jan/90 Jan/95 Jan/00 Jan/05 Jan/10
Nominal price Real price Nominal price Real price
Price chart comments:
SOYABEAN PRICE USD/t Prices are monthly averages until January 1,840 2014 (last date 31.01.2014) 1,610 1,380 S&P GSCI Index (1 January 1970 = 100) 1,150 first converted to CBOT Futures prices 920 (USd/bushel) and then to USD/tonnes. 690 Source: Bloomberg. 460 Real values adjusted with US CPI (1982- 230 84=100 rebased to Current prices = 100). -
Source: Bureau of Labor Statistics.
Jul/72 Jul/77 Jul/82 Jul/87 Jul/92 Jul/97 Jul/02 Jul/07 Jul/12
Jan/00 Jan/10 Jan/70 Jan/75 Jan/80 Jan/85 Jan/90 Jan/95 Jan/05
Nominal price Real price
TRIGON AGRI ANNUAL REPORT 2013 PAGE 27
RUSSIAN AND UKRAINIAN MARKET FOR In Russia, domestic grain prices in rubles have also GRAINS AND OILSEEDS increased since November 2013 , yet the strength In Ukraine, record supply kept the grain prices at of the US dollar has kept prices in dollar terms at low levels in 2013. Domestic prices in hryvnas have the same level or even lower. increased since November 2013 due to reduction In 2013, 14.7 million hectares of winter grains for in area under winter crops and cold weather in 2014 harvest were planted in Russia, a decrease by January. However, the change of exchange rate 7% compared with 2012 due to difficult weather between the US dollar and the hryvna has now conditions. Currently the losses of winter grains are decreased the prices in dollar terms. expected not to exceed 5%, which is below the ten Winter crop losses in Ukraine are currently year average loss of 9%. In total, the harvest area reported at 8% and combined with a reduction in for 2014 is estimated to increase as the land under autumn plantings the area under spring crops is spring crop will increase. expected to rise. The total area under crops in 2014 is set to increase by 2% compared with 2013.
Grains and oilseeds Ukraine 2008 2009 2010 2011 2012 2013 Arable area, millions of ha 32 32 32 32 32 32 Harvested area, millions of ha 21 21 21 22 22 24 Average yield, tonne/ha 3.0 2.6 2.3 3.1 2.6 3.4 Harvest, millions of tonnes 63 56 50 70 58 80 Harvest y-o-y, % 82% -12% -10% 40% -17% 38% Exports, millions of tonnes 29 23 15 26 25 36 Exports y-o-y, % 414% -19% -35% 73% -4% 43% Consumption, millions of tonnes 33 33 34 42 36 41 Consumption y-o-y, % 12% 1% 3% 23% -14% 12% Ending stocks, millions of tonnes 6 5 6 8 5 9 Russia 2008 2009 2010 2011 2012 2013 Arable area, millions of ha 122 122 122 122 122 122 Harvested area, millions of ha 51 48 39 48 44 47 Average yield, tonne/ha 2.2 2.1 1.7 2.1 1.8 2.1 Harvest, millions of tonnes 113 102 65 102 77 100 Harvest y-o-y, % 33% -10% -36% 56% -24% 29% Exports, millions of tonnes 23 22 4 28 16 23 Exports y-o-y, % 73% -7% -80% 544% -44% 43% Consumption, millions of tonnes 81 80 65 79 70 77 Consumption y-o-y, % 10% -2% -18% 20% -10% 10% Ending stocks, millions of tonnes 17 18 16 13 6 9
Source: USDA and FAO
USD per tonne excl VAT 31.12.2011 31.12.2012 30.09.2013 31.12.2013 14.02.2014 Wheat 3rd class EXW Ukraine 181 224 157 181 176 Wheat 3rd class FOB Ukraine 237 340 250 295 277 Wheat 3rd class EXW Russia 175 344 199 232 215 Wheat 3rd class FOB Russia 243 365 253 295 279 Wheat CBOT 234 282 246 223 224 Corn EXW Ukraine 147 205 125 134 131 Corn FOB Ukraine 240 305 195 205 220 Corn EXW Russia 149 253 151 148 148 Corn FOB Russia 220 305 195 197 197 Corn CBOT 253 278 170 163 171 Sunflower EXW Ukraine 381 521 349 349 338 Sunflower FOB Ukraine 420 670 480 480 495 Sunflower EXW Russia 352 521 345 335 303 Sunflower FOB Russia n/a n/a n/a n/a n/a
Source: Bloomberg, APK-Inform
TRIGON AGRI ANNUAL REPORT 2013 PAGE 28
CORPORATE GOVERNANCE
INTRODUCTION management and shareholders, and this The full Report on Corporate Governance during requirement is fulfilled by Trigon Agri having three the period of 1 January 2013-31 December 2013 independent members of the Board of Directors (“Report”) is published at the same time with the (Raivo Vare, David Mathew and René Nyberg). Annual Report on the Company’s web page In accordance with the Code the elected members (available at http://www.trigonagri.com/wp- of the Board of Directors are appointed to hold content/uploads/2012/03/Trigon-Agri-Report-on- office for one year and thus the election term Corporate-Governance-2013.pdf ).The following expires at the annual General Meeting following the constitutes Trigon Agri’s statutory reporting on election. The Board of Directors shall have a corporate governance in accordance with Section Chairman, which they shall elect from among their 107 b (1)(3) of the Danish Financial Statements members. Act. More information for the Board of Directors has Despite the absence of any Danish law requirement been presented in the following paragraphs. No to apply the Danish Recommendations on member of the Board of Directors has management Corporate Governance (“Code”, available at positions in any other Danish company. www.corporategovernance.dk), the Board of Joakim Helenius (born 1957) Directors and Executive Board feel strongly about Chairman of the Board of Directors of Trigon Agri sound corporate governance and applies the Code since 2007 (Supervisory Board until its dissolution within Trigon Agri. in 2010). The principles of corporate governance in Trigon Shareholdings in Company: 10,424,0341. Agri are described below and governed by the Articles of Association, applicable laws, the Code, Warrant holdings: none. Rules of Procedure for both of the Boards, Other current active positions: exchange requirements and market practice. Supervisory Board member in Trigon Specific reference is made to any areas in which Capital (8) Trigon Agri deviates from the Code, as is required Supervisory Board member in Trigon by the ‘comply or explain’ principle in the Code. Capital subsidiary companies (Trigon It is Trigon Agri’s declared intention to secure that Capital ownership less than 100%) (7) the standards and principles of good corporate Supervisory Board member in other Trigon governance will be adhered to at all times. Agri Group companies (4) The governance of Trigon Agri is attended to by: AS Marat, Supervisory board ERGO Funds AS, Supervisory board • The General Meeting of Shareholders OÜ Helenius Baltic, Management board • The Board of Directors Experience (highlights of former positions): • The Executive Board Baltic Republics Fund, Board of Directors Trigon Agri Advisors provides management AS Baltika, Supervisory Board advisory services to the company. EMV, Supervisory Board GENERAL MEETING FKSM, Supervisory Board The General Meeting of Shareholders has supreme Estonian Savings Bank, Supervisory Board authority in all matters and things pertaining to the Hansapank, Supervisory Board Company subject to the limits set by statute and Reval Hotelligrupi AS, Supervisory Board by the Articles of Association. Any share carries Koger & Sumberg, Supervisory Board one vote in the General Meeting of Shareholders. Gutta, Supervisory Board The members of the Board of Directors and the Olainfarm, Supervisory Board auditor are elected by the General Meeting of Shareholders.
BOARD OF DIRECTORS 1 Owns 305,700 shares directly and The Board of Directors consists of five members. In 10,118,334 indirectly, i.e. controls an entity (55.69 accordance with the Code, at least half of the per cent) which holds 10,118,334 shares in the members must be independent of the company, Company.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 29
Sylvester and Sanitas, Supervisory Board – Ambassador of Finland, Berlin Merrill Lynch International Bank, Board of – Ambassador of Finland, OSCE, Vienna Directors – Ambassador of Finland, Moscow Goldman Sachs International Limited, Vice President of fixed income division Raivo Vare (born 1958) AS Estonian Air, Supervisory Board Member of Board of Directors of Trigon Supervisory Board member in Trigon Agri since 2012. Capital Group companies Shareholdings in Company: None. Warrant holdings: None. Pertti Laine (born 1941) Other current active positions: Member of Board of Directors of Trigon Agri since Live Nature OÜ, Owner 2007 (Supervisory Board until its dissolution in AS SmartCap, Member of the Supervisory 2010). Council/Board of Directors Shareholdings in Company: 8,817,8362. AS Smart City Group, Member of the Warrant holdings: None. Supervisory Council/Board of Directors AS Mainor Ülemiste, Member of the Other current active positions: Supervisory Council/Board of Directors Supervisory Board member / member of 3D Technologies R&D AS, Member of the Board of Directors in Trigon Capital (3) Supervisory Council/Board of Directors Veikko Laine Ltd, Board of Directors AS Sthenos Grupp, Chairman of the Osaühing Karlskroona, Board of Directors Supervisory Council/Board of Directors Länsiauto Oy, Board of Directors AS Superia, Member of the Supervisory Taaleritehdas Oyj, Board of Directors Council/Board of Directors Experience (highlights of former positions): Member of Supervisory Board/Board of Finnlines Plc, Chairman Directors, Trigon Agri Group companies Nordic Aluminium Oyj, Board of Directors (2) Evox Rifa Oyj, Board of Directors Experience (highlights of former Conventum Oyj, Board of Directors positions): United Bankers Ltd, Board of Directors Minister of State Evox Rifa Group Plc, Board of Directos Minister of Transport and Communications Amanda Capital Plc, Board of Directors Development Director and Member of the eQ Oyj, Board of Directors Management Board of Estonian Railways Supervisory Board member in Trigon Agri Ltd Group companies Chief Executive Officer and Member of the Management Board of Pakterminal Ltd René Nyberg (born 1946) Director and Member of the Management Member of Board of Directors of Trigon Agri since Board of the Bank of Tallinn 2008 (Supervisory Board until its dissolution in Industrial Advisor, EQT Funds 2010). Management Ltd. Shareholdings in Company: 15,000. Member of Advisory Board of Norwegian Warrant holdings: None. Eastern Europe Group Member of Transport Industry Task Force Other current active positions: of EU-Russia Industrialists’ Round Table East Office of Finnish Industries, CEO Supervisory Board/Board of Directors Experience (highlights of former positions): member in Trigon Agri Group companies Foreign Ministry of Finland: Supervisory Board/Board of Directors member in Trigon Capital Group – Assistant Secretary General of the companies Finnish-Soviet Economic Commission Member of Board of Directors/Supervisory – Director for Security Policy Council in several other different – Director for Eastern Affairs companies in telecom, real estate etc. David Mathew (born 1954)
Member of Board of Directors of Trigon Agri since
2012. 2 Does not own any shares directly. Controls Shareholdings in Company: None. an entity (83.33 per cent) which holds 8,817,836 shares in the Company. Warrant holdings: None.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 30
Experience (highlights of former positions): Supervisory Board / Management Board Director of Robert Fleming member in Trigon Capital subsidiary Director of Baring Brothers Hong Kong companies (Trigon Capital ownership less Director of Jardine Matheson China than 100%) (7) OÜ Invenio (personal investment All the members of Board of Directors are at the company) age below 80 which is the retirement age for Board of Directors set by Articles of Association. Experience (highlights of former positions): A Board of Directors meeting shall constitute a AS Telema, Supervisory Board quorum when more than half the directors are Trigon Capital Sp. Z.o.o., Management present. Resolutions by the Board of Directors shall board be passed by a simple majority of votes. The Board ST Coffee Advisors Ltd, Board of Directors of Directors has held five physical meetings during Quadro Media Sp. Z.o.o., Supervisory 2012 and several via electronic means. board OÜ Macro Kinnisvara, Supervisory board The Board of Directors is the highest level of the AS Martinson Trigon Venture Partners, management structure, which primary functions Management board are to be responsible for the overall and strategic AS MARTINSON TRIGON, Supervisory management as well as decision outside of the board day-to-day management, i.e. decisions of unusual Supervisory Board / Management Board nature or of major importance. The Board of member of Trigon Capital Group Directors will arrange for the proper organisation of companies the activities of Trigon Agri, and will ensure that the keeping of accounts and the administration of Konstantin Kotivnenko (born 1978) property are carried out in a satisfactory way. Member of the Executive Board of Trigon Agri since The Board of Directors has drawn up rules of 2010, responsible for sourcing, structuring and set- procedure governing the performance of its duties. up of the majority of Trigon Agri A/S acquisitions in Ukraine and Russia. Fees paid to Board of Directors are resolved by General Meeting and are disclosed under section Shareholdings in Company: None. ‘related Party Transactions’. Warrant holdings: None. EXECUTIVE BOARD Other current active positions: The Board of Directors has appointed an Executive Supervisory Board member in Trigon Agri Board consisting of two members to be responsible Group companies (2) for the day-to-day operations of the company. One Supervisory Board / Management Board of the managers of the Executive Board shall be member in Trigon Capital (1) appointed the CEO. Management Board member in Trigon List of management positions of Executive Board Capital subsidiary company (Trigon Capital members in other companies is presented in the ownership less than 100%) (1) following paragraphs. No member of the Executive Experience (highlights of former positions): Board has management positions in any other Law Firm Sorainen, Attorney at Law Danish company. Supervisory Board member of Trigon Agri Ülo Adamson (born 1978) Group companies Chairman of the Executive Board, CEO and the The Executive Board shall be accountable to the President of Trigon Agri, in charge of the financial Board of Directors for managing the company in and operational strategy of the company since accordance with applicable law in force, the 2007. company's Articles of Association, the Rules of Shareholdings in Company: None. Procedure of the Board of Directors and the Guidelines for Segregation of Duties between the Warrant holdings: None. Board of Directors and Executive Board. Other current active positions: According to the Advisory Agreement with Trigon Supervisory Board / Management Board Agri Advisors, the parties have undertaken to member of Trigon Agri Group companies ensure that person(s) nominated by Trigon Agri (7) Advisors are appointed as members of the Supervisory Board / Management Board Executive Board and that such members from time member in Trigon Capital (7)
TRIGON AGRI ANNUAL REPORT 2013 PAGE 31
to time may be replaced by such persons as Trigon the Advisory Agreement, Trigon Agri Advisors is Agri Advisors may designate. the exclusive provider of strategic management The Board of Directors has drawn up guidelines to services and general management services to segregation of duties between the Board of Trigon Agri, including strategic and financial Directors and the Executive Board. management, structuring of land and farm acquisitions and designing financing solutions. Fees paid to Executive Board are disclosed under section ‘related Party Transactions’. The management structure of the Group as at the date of publication of the current report is shown in ADVISORY AGREEMENT the following graph. Trigon Agri has entered into the Advisory Agreement with Trigon Agri Advisors. Pursuant to
Shareholders
Board of Directors
Executive Board
Advisory Agreement with Trigon Agri Advisors
Cereals Production Cereals Production Cereals Production Milk Production Storage Services Sales and Trading Ukraine Cluster Rostov Cluster Penza Cluster Cluster Management Cluster Management Cluster Management Management Management Management
Storage Services Sales and Trading Cereals Production Units Milk Production Units Units Units The average number of employees in 2013 stood at 1,506 (2012: 1,487).
RULES FOR AMENDMENT OF THE authorise the Board of Directors to amend the ARTICLES OF ASSOCIATION Articles of Association in certain respects e.g. by an Amendments of the Company's Articles of increase or decrease of the share capital of the Association may be proposed either by the Company. The authorisation is subject to a number shareholders or the Board of Directors. of requirements. As a general rule, proposed resolutions to amend Except for the authorisations mentioned under the Articles of Association shall be passed at a ‘Authorisations to Board of Directors’ below, the general meeting by the shareholders. The Company's general meeting has not passed resolution to amend the Articles of Association shall resolutions with respect to such authorisations. generally be passed by a majority of at least two- COMMITTEES thirds of the votes cast as well as of the share In the autumn of 2010, the Board of Directors capital represented at the general meeting, cf. established three committees: the Audit Section 105 of the Danish Companies Act (the Committee, the Nomination Committee and the "DCA"). Remuneration Committee. For the sake of good order, please note that Audit committee pursuant to Section 107(2) of the DCA, certain The responsibilities of the Audit Committee include: proposals to amend the Articles of Association shall (i) reviewing significant accounting and reporting be passed by at least nine-tenths of the votes cast issues; (ii) giving recommendations to the Board of as well as of the share capital represented at the Directors prior to the release of the interim reports, general meeting. Finally, certain decisions which annual reports and preliminary results’ favour certain shareholders to the detriment of announcements whether these should be approved other shareholders may contravene with the by the Board of Directors; (iii) assisting the Board principle of equal treatment of shares in Section 45 of Directors with the oversight of the financial of the DCA and as such requires unanimity. reporting process; and (iv) reviewing, on an annual However, pursuant to the DCA the shareholders basis, the performance of the external auditors. may by passing a resolution at a general meeting
TRIGON AGRI ANNUAL REPORT 2013 PAGE 32
The members of the Audit Committee shall be In 2013 the Remuneration Committee held one appointed by the Board of Directors and among its meeting via electronic form. members. Trigon Agri’s Audit Committee currently INTERNAL CONTROL consists of Raivo Vare (Chairman) and David The Executive Board is responsible for the Mathew. organisation and administration of the Company, The Audit Committee shall meet as frequently as which includes establishing an effective system of the Chairman of the Audit Committee deems internal control. Internal control in this context necessary, but it should be at least twice a year. In refers to those measures taken by the Executive 2013, the Audit Committee held two physical Board, the senior executives and other personnel meetings and several via electronic form. to ensure that the bookkeeping and the Company’s Nomination Committee financial condition in general are controlled and The Nomination Committee’s duties include: (i) reported upon in a reliable fashion and in identifying and recommending members to the compliance with relevant legislation, applicable Board of Directors and Executive Board to the accounting standards and other requirements Board of Directors; (ii) evaluating the structure, related to the Company’s listing on the Stock size, composition and performance of the Board of exchange. Directors and Executive Board and to propose any In order to ensure that the organisational changes in this respect to the Board of Directors; structure, chain of command and authority are well and (iii) considering proposals submitted by defined and clearly communicated, the Company relevant persons for candidates for executive has prepared written instructions and formal positions. routines for division of labour between the The Nomination Committee shall consist of two to Executive Board, the Board of Directors, the four persons and at least half of its members shall management and other personnel. The Executive be independent of Trigon Agri and its subsidiaries. Board has established general guidelines for the The members of the Nomination Committee shall Company’s activities in internal policies, manuals be appointed by the Board of Directors and among and codes. Controls have also been carried out to its members. The Nomination Committee currently ensure that the IT-/computer systems involved in consists of Pertti Laine (Chairman), Joakim the reporting process support a sufficiently high Helenius, Raivo Vare, and David Mathew. dependability for its task. The Company has established fixed routines and invested in reliable In 2013, the Nomination Committee held one technical applications to guarantee a fast and meeting via electronic form. reliable way of sharing information throughout the Remuneration Committee organisation. Internal policies and general The Remuneration Committee’s duties include to guidelines for financial reporting are communicated make proposals to the Board of Directors, prior to between the Executive Board, senior executives approval at the general meeting, on the and other personnel through regular meetings and remuneration policy and the principles of the via electronic form. incentive pay schemes for the Board of Directors The internal control system followed in 2013 and the Executive Board and to ensure that the consisted of risk assessment, reporting remuneration is consistent with Trigon Agri’s instructions, control procedures and monitoring. remuneration policy and the evaluation of the The Executive Board and also the Audit Committee performance of the persons concerned. assess risks related to financial reporting that the The members of the Remuneration Committee shall Company is exposed to. The main risks have been be appointed by the Board of Directors and among identified as risk of fraud and misconduct. Certain its members. The Remuneration Committee shall risks have been disclosed and explained also in the consist of two to three members and the Chairman Annual Report under section Financial Risk of the Board of Directors shall always be the Management. Chairman of the Remuneration Committee. At least Several control procedures have been integrated in half of the members shall be independent in the accounting and reporting systems such as relation to Trigon Agri and its subsidiaries. Trigon finance policy, internal reporting guidelines and Agri’s Remuneration Committee consists of Joakim certain internal accounting control routines. Helenius (Chairman) and René Nyberg. The Remuneration Committee shall convene as often as The Executive Board follows up to ensure that any considered necessary by the Chairman of the internal control weaknesses are addressed and that Committee and at least once a year. potential errors are detected and reported and corrected in timely and orderly fashion.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 33
The policies, guidelines and routines are updated SUMMARY OF CODE on an on-going basis and are introduced to RECOMMENDATIONS NOT FOLLOWED employees regularly via electronic form or internal AND REASONS WHY NOT FOLLOWED training events. The following table is a summary from the Report Monitoring over accounting and financial reporting and outlines the Code recommendations the is conducted by the Executive Board and Audit Company did not follow as well as explanation why Committee on a regular basis. Monitoring the Company did not comply with the procedures are designed to identify risks, detect recommendation. Regardless, the Company is errors and correct any weaknesses. The Executive satisfied with its Code adherence discipline. Board receives monthly internal financial reporting and the Audit Committee receives quarterly interim reports.
Recommendation Reason why the Company complied only partially
2.1.1. The Committee recommends that at least The procedure is being established and will be approved once a year the board of directors take a position and implemented in the first half of 2014. on the matters related to the board’s performance of its responsibilities.
3.5.1. The Committee recommends that the board The procedure is being established and will be approved of directors establish an evaluation procedure and implemented in the first half of 2014. where contributions and results of the board of directors and the individual members, as well as collaboration with the executive board are annually evaluated. Significant changes deriving from the evaluation should be included in the management commentary or on the company’s website.
4.1.1. The Committee recommends that the No separate remuneration policy has been adopted. board of directors prepare a clear and transparent However, since the remuneration of the Board of remuneration policy for the board of directors and Directors and Executive Board is very transparent, the the executive board, including Company does not see the need for a separate policy. • a detailed description of the components The remuneration of the Board of Directors is always of the remuneration for members of the board of resolved by the annual general meeting. directors and the executive board, The remuneration of the Executive Board is resolved by • the reasons for choosing the individual the Board of Directors following the annual general components of the remuneration, and meeting.
• a description of the criteria on which the The Company notes the following: balance between the individual components of the The Company has entered into an Advisory Agreement remuneration is based. with AS Trigon Agri Advisors (Advisor). The Executive The remuneration policy should be approved by Board (save for CEO) receive compensation from the the general meeting and published on the Advisor and the compensation is included in the company’s website. management fee paid to the Advisor. Detailed information about the Advisory Agreement is available here http://www.trigonagri.com/corporate- governance/advisory-agreement/
The agenda of the annual general meeting includes agenda item regarding remuneration of Board of Directors and is very transparent as the fee is resolved as annual flat fee per each individual member.
5.2.1. The Committee recommends that the board The matter will be evaluated during first half of 2014. of directors decide whether to establish a whistleblower scheme for expedient and confidential notification of possible or suspected wrongdoing.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 34
TRIGON AGRI ANNUAL REPORT 2013 PAGE 35
CORPORATE SOCIAL RESPONSIBILITY
The Group management has a policy on social adequate amenities; responsibility with the following focus areas: safe and healthy premises of work; Human rights safe and well maintained plant and machinery; safe methods of handling, storing and The Group operates in countries where businesses’ transporting materials; exposure to human rights violations is limited. adequate instruction and training for Consequently, the Group does not conduct any employees; activities, liaise or contract with business partners adequate supervision by competent and or suppliers in countries considered high-risk in trained personnel; terms of human rights abuses. Therefore there is relevant and adequate information for all no separate formal human rights policy. However, employees; Trigon Agri is respecting human rights and responsible person. supports the UN Global Compact principles for human rights and labour. The rights include the According to the health and safety policy each rights covered in the International Bill of Human employee of the Group is encouraged to play a Rights and the principles concerning fundamental vital and responsible role in maintaining a safe and rights set out in the International Labour healthy workplace through: Organization’s Declaration on Fundamental being involved in the workplace health and Principles and Rights at Work. safety system; In 2013 there were no registrations of violations of sticking to correct procedures and equipment; human rights or incidents of discrimination wearing appropriate clothing and equipment as reported. and when required; ensuring all accidents and incidents are The Group strives for gender equality and does not reported to direct superior and responsible discriminate based on gender. While the Board of staff member; Directors (5 members) and Executive Board (2 helping new employees, trainees and visitors members) consist of men, the next level of to the workplace understand the right safety management and top specialists consists of 48% of procedures and their objective; women and 52% of men. In 2013, the Group telling your direct superior immediately of any adopted new rules of procedure stating that the health and safety concerns; Board of Directors must assess every year whether keeping the work place tidy to minimise the men and women are equally represented on the risk of any trips and falls. Board of Director, or whether there is a The Group has implemented strict work safety requirement for the definition of a target ratio for regulations and provides proper training to the share of the underrepresented sex on the employees in order to ensure safety and avoid Board of Directors. The Board of Directors has accidents. assessed this matter and considered it appropriate not to have a specific target for the The Group has dedicated work safety officers to underrepresented gender in the Board of Directors ensure compliance with the policy. General health and Executive Board effectively meaning that the and safety induction training is provided for all target is set to zero and continue not to employees. discriminate based on gender when searching for new member of the Board of Directors or Executive In 2013 there were no work place accidents Board. reported.
Health and safety The Group health and safety policy provides a brief overview of major principles in the field of health and safety. According to the health and safety policy basic obligations of Trigon Agri in the area of health and safety are to provide: safe and healthy systems of work; safe and healthy work environment;
TRIGON AGRI ANNUAL REPORT 2013 PAGE 36
Community involvement the most up to date technical information, to Trigon Agri contributes to making the communities ensure that there is optimal use of seeds, fertilisers in which it operates better places to live and do and pesticides so as to keep a sound balance business. Trigon Agri values mutually beneficial between production and the environment. Trigon relationships with communities where it operates Agri’s cultivation, field application, and harvesting and strives to engage or consult communities philosophy focuses on the minimal usage of energy regarding business development plans that have a thus minimising the Group’s carbon footprint. The material impact on those communities. crop rotations adopted are carefully planned to ensure no build-up of pests, diseases or weeds. We Trigon Agri strives to support on select basis local are highly water conscious and at all times look to municipalities and organizations taking into preserve this most precious resource. All waste account the availability of resources. For example, materials are disposed of in an environmentally the support can be in the form of organising local sensitive way so as to minimise pollution of our events, buying equipment to schools, helping with planet. renovation works of public facilities, etc. A record of contributions and donations shall be kept to The Group has a real-time, 24 hour, monitor activities and progress. computerized control centre and immediate reaction to on-ground mistakes. This has In 2013, the Group’s subsidiaries in Russia and resulted in a drop in fuel consumption of 10- Ukraine have supported local municipalities and 25% (depending on type of machinery) and organisations by prevents non-compliances, accidents and making non-returnable charity and financial technical failures (speed limits, servicing, aid payments diagnostics). buying renovation materials or organizing Maintaining soil fertility is ensured by having in small renovation works for schools, churches, place a sustainable rotation, nutrient kindergartens management plan, soil management plan and buying necessary equipment and furnishing for crop protection management plan. These are the various local organisations (incl. machinery enforced by approving annual budgets where and furnishing for schools and other local the utilization of hectares and application of organisations) nutrients and chemicals is detailed. doing gifts for children, students or veteran Soil management – low-till farming is used organisations whenever possible. This helps to preserve soil supporting other local activities (for example microbes, preserve natural drainage, results in supporting veteran’s trips, organising local less nitrogen leaching and lowers fuel events, transportation and catering). consumption. Cultivation is not carried out up The Group has also given financial aid and and down any slopes wherever possible, to organised events and training for its employees prevent soil erosion. and bought Christmas gifts for the children of the Crop protection – chemicals are applied strictly employees. adhering to label recommendations that The financial resources allocated by the Group for specify which crops the chemical can be community support amounted to nearly EUR 0.3 applied to, application rate per hectare, million. The activities have improved the facilities permissible frequency of application and in the local communities and helped to carry out harvest interval – i.e. the minimum time events, increasing the welfare of people in the period that has to be left between application communities where Trigon Agri operates. and harvest to ensure food safety. Reduced application rates are used when they have Environment internally been proven to be sufficient, which also assists to reduce our environmental Trigon Agri is committed to operating the footprint. agricultural businesses under its control utilising Nutrient management – appropriate quantities environmentally and agronomically sustainable and application practices are used to ensure production methods. We recognise the need to optimum growing conditions, maintain soil honour the responsibilities we have with respect to fertility and prevent pollution that would be protecting the environment and to the consumer caused by over-application of nutrients. by ensuring that the food we produce is both safe Fertilizer and Pesticide storage – national and of a high standard. regulations are followed that specify maximum To achieve this commitment we ensure that all our agronomists and managers are fully trained with
TRIGON AGRI ANNUAL REPORT 2013 PAGE 37
quantities permissible to store and the specific steps in each vehicle and all relevant required distance from habitation. operatives have been trained in the procedure. Fuel consumption is monitored using real-time The Group has acted in accordance with this policy GPS tracking of vehicles for example enforcing for several years, thus new activities were not optimum driving speeds and engine carried out in 2013. No environmental incidents revolutions helps to reduce fuel were reported in 2013. consumption.Waste disposal – washed Trigon Agri will continue ensure that all its chemical, fertilizer and seed packaging are employees are fully conversant with the aims set delivered to a special factory where they are out in this policy statement in order that all its incinerated to provide energy for power activities are compliant and represent best production. practise. Accident and emergency plan – in case of chemical spill there is an action plan listing
TRIGON AGRI ANNUAL REPORT 2013 PAGE 38
FINANCIAL HISTORY Income statement, EUR thousand 2009 2010 2011 2012 2013 Total revenue 75,392 74,704 47,995 73,317 75,608 EBIT -13,042 -5,312 6,242 10,846 -9,371 Result of Financial items 748 -1,748 -5,100 -8,687 -6,785 Profit/loss for the period -12,790 -7,723 1,202 1,687 -16,156
Balance sheet, EUR thousand 31.12.2009 31.12.2010 31.12.2011 31.12.2012 31.12.2013 Total assets 155,392 148,121 194,360 213,965 185,247 incl Non-current assets 101,590 112,180 119,944 167,831 155,617 incl Property, plant and equipment 80,934 100,708 83,228 147,473 132,750 Investment in property, plant and equipment 32,988 25,186 8,659 9,059 6,912 Net debt -61 -2,073 40,434 61,268 69,080 Total equity 113,836 120,387 122,098 128,566 103,805
Cash flow statement, EUR thousand 2009 2010 2011 2012 2013 Cash flows from operating activities -16,621 9,183 -11,127 10,842 9,263 Cash flows from investing activities 3,311 -8,594 -20,473 -19,249 -14,511 Cash flows from financing activities -1,017 5,294 39,974 -2,648 2,280 Effects of exchange rate changes 832 319 65 -68 -225 Cash and cash equivalents at beginning of period 18,167 4,672 10,874 19,313 8,190 Cash and cash equivalents at end of period 4,672 10,874 19,313 8,190 4,997
Key figures 31.12.2009 31.12.2010 31.12.2011 31.12.2012 31.12.2013 Number of shares, end of the period 129,627,479 129,627,479 129,627,479 129,627,479 129,627,479 Number of shares outstanding, end of the period 116,936,479 129,627,479 129,627,479 129,627,479 129,627,479 Total number of employees 2,201 1,463 1,501 1,569 1,455 Land under control, hectares 170,005 170,956 176,891 169,811 167,381 incl land under registered ownership, hectares 136,626 167,725 114,787 113,767 113,926
Ratios 2009 2010 2011 2012 2013 Earnings per share (EPS), EUR -0.10 -0.10 0.01 0.01 -0.13 Dividends per share, EUR 0.00 0.00 0.00278 0.00390 0.00 Book value per share, EUR 0.97 0.93 0.94 0.99 0.80 Return on assets (ROA) -8% -5% 1% 1% -9% Return on equity (ROE) -11% -6% 1% 1% -15% Equity ratio, % 73% 81% 63% 60% 56% Current ratio 3.30 3.00 4.56 1.45 1.51 Acid test 2.07 1.82 2.37 0.60 0.72 For definitions of the ratios please refer to page 107
TRIGON AGRI ANNUAL REPORT 2013 PAGE 39
THE SHARE
Share information Dividend policy Official listing: OMX NASDAQ Stockholm It is the Company’s continual policy to seek to Form of listing: Common stock distribute 30% of the Group’s annual audited net Round lot: 500 profits as dividends to shareholders to the extent Sector: Agricultural Products Exchange ISIN: DK0060083566 this is consistent with the Danish Companies Act. Short name: TAGR No dividend will be proposed for 2013. Reuters ticker: TAGR.ST
Bloomberg ticker: TAGR:SS Analyst coverage: Pareto Öhman Remium Nordic AB
Major nominee shareholders as at 31.12.2013 Country No of shares Holdings in % JPM CHASE NA Great Britain 12,515,410 9.7% SWEDBANK Sweden 12,248,867 9.4% ALECTA PENSIONSFÖRSÄKRING Sweden 11,400,000 8.8% UB SECURITIES AB Finland 8,822,501 6.8% J P MORGAN CLEARING CORP, W9 USA 8,098,653 6.2% MORGAN STANLEY & CO INC, W9 USA 6,609,163 5.1% NORDEA BANK FINLAND ABP Finland 5,569,333 4.3% SIX SIS AG, W8IMY Switzerland 5,534,315 4.3% SSB CL OMNIBUS AC OM09 (30PCT) USA 5,092,767 3.9% CBLDN-POHJOLA BANK PLC CLIENT A/C Great Britain 4,974,631 3.8% OTHER 48,761,839 37.6% TOTAL 129,627,479 100.0%
As at December 30, 2013 Trigon Agri had approximately 1,190 shareholders.
Trigon Agri Share trade data 2011 2012 2013 MCap (period end), SEK 1,017,575,710 674,062,891 320,179,873 Average no of trades per day 37 28 32 Average volume per trade 2,580 3,061 3,544 Average number of traded shares per day 95,214 84,910 112,350 Average turnover per day, SEK 843,716 564,293 357,850 Average turnover per trade, SEK 22,864 20,342 11,289
Volume Price, SEK
14,000,000 25.00 Initial listing EUR 1.25 (11.5 SEK) 12,000,000 Follow-on offering EUR 1.50 (SEK 15.0) 20.00
10,000,000
15.00 8,000,000
6,000,000 10.00
4,000,000
5.00 2,000,000
- -
Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14
Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13
May-07 May-08 May-09 May-10 May-11 May-12 May-13
Total volume Closing price SEK Nordic Small Cap SEK Pl
Group changed its listing currency from EUR to SEK on May 11, 2010.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 40
BONDS
Bonds information Official listing: Corporate Bond List of OMX NASDAQ Stockholm Exchange ISIN: SE0004019008 Short name: TAGR 001 O2 Currency: SEK Annual interest rate: 11% Expiry date: 29.06.2015 Next coupon date: 29.06.2014
TRIGON AGRI ANNUAL REPORT 2013 PAGE 41
FINANCIAL CALENDAR
Annual General meeting Interim Report 1Q 2014 Interim Report 2Q 2014 April 28, 2014 May 30, 2014 August 29, 2014
Interim Report 3Q 2014 Interim Report 4Q 2014 Annual Report 2014 November 28, 2014 February 27, 2015 March 31, 2015
For further information please contact: Mr Ülo Adamson, President of A/S Trigon Agri Tel: +372 66 79 200 E-mail: [email protected]
Trigon Agri A/S Sundkrogsgade 5, DK-2100 Copenhagen, Denmark Phone: +372 66 79 200 Fax: +372 66 79 201 E-mail: [email protected] Home page: www.trigonagri.com
TRIGON AGRI ANNUAL REPORT 2013 PAGE 42
CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position Amended in EUR thousand Note 31.12.2013 31.12.2012 ASSETS Current assets Cash and cash equivalents 5,7 4,997 8,190 Trade and other receivables 6,7 9,083 10,705 Inventories 8 10,790 21,459 Biological assets 9 4,629 5,715 Assets held for sale 131 65 29,630 46,134 Non -current assets Prepaid land rents and land usage rights 12 3,361 4,043 Other non-current prepayments and receivables 6 9,782 5,940 Biological assets 9 9,317 9,117 Deferred tax assets 16 18 775 Investment Property 136 136 Intangible assets 11 253 347 Property, plant and equipment 10 132,750 147,473 155,617 167,831 Total assets 185,247 213,965
LIABILITIES Current liabilities Trade and other payables 7,13 4,350 11,795 Borrowings 7,14 15,282 19,972 19,632 31,767 Non -current liabilities Trade and other payables 7,13 149 755 Borrowings 7,14 58,795 49,486 Deferred tax liabilities 16 2,316 2,817 Deferred income from EU subsidies 550 574 61,810 53,632 Total liabilities 81,442 85,399 EQUITY Capital and reserves attributable to equity holders of the Group Ordinary shares 17 64,814 64,814 Share premium 17 99,941 99,941 Other reserves 19 -32,886 -16,762 Retained earnings/accumulated deficit -33,629 -19,920 98,240 128,073 Non -controlling interest in equity 5,565 493 Total equity 103,805 128,566 Total equity and liabilities 185,247 213,965
The notes on pages 49 to 104 are an integral part of these consolidated financial statements.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 43
CONSOLIDATED INCOME STATEMENT
in EUR thousand Note 2013 2012 Revenue 20 75,608 73,317 Other income 20 3,124 2,943 Gain/loss arising from changes in fair value less estimated point-of-sale costs of biological assets 9 -241 346
Total revenue, other income and fair value adjustments 78,491 76,606
Net changes in inventories of agricultural produce and work in process -3,102 -3,600 Cost of purchased goods for trading purposes -15,010 -14,165
Raw materials and consumables used for production purposes 21 -43,040 -39,577 Employee benefits expense 22 -11,498 -10,980 Depreciation and amortization -8,258 -8,634 Other administrative expenses 24 -9,281 -10,078 Gain from bargain purchase 31 - 1,734 Other (losses)/gains - net 25 2,327 19,540 -9,371 10,846
Gains/losses from exchange rate differences 1,040 -1,431 Interest income 26 141 97 Finance costs 26 -7,966 -7,353
Profit/loss before income tax -16,156 2,159 Corporate income tax 15 -688 -472 Profit/loss for the period -16,844 1,687
Attributable to: Equity holders of the Company -17,157 1,620 Non-controlling interest 313 67 -16,844 1,687
Earnings/loss per share for profit attributable to the equity holders of the Company during the period, both basic and diluted (expressed in Euros per share) 27 -0.13 0.01
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME in EUR thousand 2013 2012 Profit/loss for the period -16,844 1,687 Other comprehensive income:
Items that may be subsequently reclassified to profit or loss Currency translation differences 19 -13,277 4,633 -13,277 4,633
Total comprehensive income/expense for the period -30,121 6,320 Attributable to: Equity holders of the Company -30,434 6,253 Non-controlling interest 313 67 -30,121 6,320
The notes on pages 49 to 104 are an integral part of this consolidated financial information.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 44
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the Company
Retained earnings/ Non- Share Share Other accumulated controlling Total in EUR thousand capital premium reserves deficit Total interest Equity Balance at 31.12.2011 129,627 35,127 -20,658 -22,426 121,670 428 122,098 Profit for the period - - - 1,620 1,620 67 1,687 Other comprehensive income - - 1,473 - 1,473 - 1,473 Other comprehensive income recycled to Income statement in relation to disposal of subsidiaries - - 3,160 - 3,160 - 3,160 Total comprehensive income - - 4,633 1,620 6,253 67 6,320 Cost of expected equity transaction recycled to Income statement (Note 25) - - - 512 512 - 512 Reclassification of warrants reserve - - -737 737 - - - Reduction in share capital (Note 17) -64,814 64,814 - - - - - Dividends (Note 18) - - - -360 -360 - -360 Total contributions by and distributions to owners of the parent, recognised directly in equity -64,814 64,814 -737 889 152 - 152
Non-controlling interest from business combination - - - - - 35 35 Purchase of non- controlling interest ------35 -35 Total transactions with owners of the parent, recognised directly in the equity ------Balance at 31.12.2012 64,814 99,941 -16,762 -19,920 128,073 493 128,566
The notes on pages 49 to 104 are an integral part of this consolidated condensed interim financial information.
TRIGON AGRI ANNUAL REPORT 2013 PAGE 45
Attributable to equity holders of the Company
Retained earnings/ Non- Share Share Other accumulated controlling in EUR thousand capital premium reserves deficit Total interest Total Equity Balance at 31.12.2012 64,814 99,941 -16,762 -19,920 128,073 493 128,566 Loss for the period - - - -17,157 -17,157 313 -16,844 Other comprehensive income - - -13,277 - -13,277 -13,277 Total comprehensive income - - -13,277 -17,157 -30,434 313 -30,121 Reclassification of warrants reserve - - -2,847 2,847 - - - Dividends (Note 18) - - - -506 -506 - -506 Total contributions by and distributions to owners of the parent, recognised directly in equity - - -2,847 2,341 -506 - -506 Sale of interest to non- controlling interest in TDFE AS (Note 31) - - - 1,106 1,106 4,759 5,865 Total transactions with owners, recognised directly in equity - - - 1,106 1,106 4,759 5,865 Balance at 31.12.2013 64,814 99,941 -32,886 -33,629 98,240 5,565 103,805
31.12.2013 31.12.2012
Total number of shares 129,627,479 129,627,479 Number of shares outstanding 129,627,479 129,627,479
The notes on pages 49 to 104 are an integral part of this consolidated condensed interim financial information.
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CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
in EUR thousands Note 2013 2012 Cash flows from operating activities Cash receipts from customers 82,002 82,468 Cash paid to suppliers and employees -74,650 -73,091 Income tax paid 15 -636 -651 Subsidies received 2,479 2,035 Interest received 26 68 81 Net cash generated from operating activities 9,263 10,842
Cash flows from investing activities Acquisition of subsidiary 31 -4,864 -6,676 Cash outflow from disposal of subsidiaries 31 - -49 Purchase of biological assets 9 -2 - Purchase of property, plant and equipment 10 -10,686 -10,660 Purchase of intangible assets 11 -90 -448 Proceeds from sales of property, plant and equipment 10 1,131 66 Short-term loans given, net 6 - -1,482 Net cash used in investing activities -14,511 -19,249
Cash flows from financing activities Proceeds from borrowings 14 33,327 16,020 Proceeds from issuance of subsidiary´s shares to non-controlling interest 31 3,000 - Proceeds from sales of subsidiary´s shares 31 1,000 - Repayments of borrowings 14 -25,957 -10,292 Repayments of finance lease liabilities 14 -972 -1,372 Dividends paid to company´s shareholders 18 -506 -360 Interest paid 26 -7,612 -6,644 Net cash generated from/used in financing activities 2,280 -2,648
Net increase in cash and cash equivalents -2,968 -11,055 Effects of exchange rate changes on cash and cash equivalents -225 -68 Cash and cash equivalents at beginning of period 5 8,190 19,313 Cash and cash equivalents at end of period 5 4,997 8,190
The notes on pages 49 to 104 are an integral part of this consolidated condensed interim financial information.
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CONTENTS OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION ...... 49 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ...... 49 3. FINANCIAL RISK MANAGEMENT ...... 59 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENT ...... 67 5. CASH AND CASH EQUIVALENTS ...... 69 6. TRADE AND OTHER RECEIVABLES ...... 69 7. FINANCIAL INSTRUMENTS BY CATEGORY ...... 71 8. INVENTORIES ...... 71 9. BIOLOGICAL ASSETS ...... 72 10. PROPERTY, PLANT AND EQUIPMENT ...... 73 11. INTANGIBLE ASSETS ...... 75 12. PREPAID LAND RENTS AND LAND USAGE RIGHTS ...... 75 13. TRADE AND OTHER PAYABLES ...... 76 14. BORROWINGS ...... 76 15. INCOME TAX ...... 78 16. DEFERRED TAX ...... 79 17. SHARE CAPITAL ...... 80 18. DIVIDENDS PER SHARE ...... 81 19. OTHER RESERVES ...... 81 20. REVENUE AND OTHER INCOME ...... 82 21. RAW MATERIALS AND CONSUMABLES USED FOR PRODUCTION PURPOSES ...... 82 22. EMPLOYEE BENEFIT EXPENSE ...... 83 23. OPERATING LEASE PAYMENTS ...... 83 24. OTHER ADMINISTRATIVE EXPENSES ...... 83 25. OTHER LOSSES/GAINS ...... 83 26. FINANCE INCOME AND FINANCE COST ...... 84 27. EARNINGS/LOSS PER SHARE ...... 84 28. SEGMENT REPORTING ...... 85 29. CONTINGENCIES ...... 86 30. COMMITMENTS ...... 88 31. BUSINESS COMBINATIONS AND TRANSACTIONS WITH NON-CONTROLLING INTEREST ...... 88 32. GROUP STRUCTURE ...... 90 33. RELATED PARTY TRANSACTIONS ...... 92 34. FEES TO THE AUDITORS APPOINTED BY THE SHAREHOLDERS ...... 93 35. EVENTS AFTER THE BALANCE SHEET DATE ...... 94 36. FINANCIAL STATEMENTS OF THE PARENT COMPANY ...... 95 37. NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY ...... 98
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION
Trigon Agri A/S (The Company) is an integrated address of its registered office is Sundkrogsgade 5, soft commodities producer (operating commercial DK-2100 Copenhagen. The company listed its cereals and dairy farms), storage provider and shares on the Stockholm First North Stock trader with operations in Ukraine, Russia and Exchange in May 18, 2007. From December 8, Estonia. The Company was established on 2010 the company’s shares are traded in main December 11, 2006. The Company has subsidiaries market Small Cap segment on NASDAQ OMX in Estonia, Cyprus, Russia, Ukraine and Switzerland Stockholm. The Group’s owners are legal and (together hereinafter referred to as “the Group”). physical persons and no sole shareholder has The list of all Group subsidiaries is provided in Note control over the Group’s activities. 32. These financial statements were authorised for issue The parent company is a limited liability company by the Board of Directors on March 31, 2014. incorporated and domiciled in Denmark. The 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the estimates are significant to the consolidated preparation of these financial statements are set out financial statements are disclosed in Note 4. below. The policies have been consistently applied to The following new or revised standards and all the years presented unless otherwise stated. interpretations became effective for the Group from 2.1 BASIS OF PREPARATION 1 January 2013: The consolidated financial statements of Trigon • Presentation of Items of Other Agri A/S have been prepared in accordance with Comprehensive Income, amendments to IAS 1; International Financial Reporting Standards (IFRS) (effective for annual periods beginning on or after as adopted by the European Union and additional 1 July 2012). The amendments require entities to Danish statutory disclosure requirements for separate items presented in other comprehensive annual reports. The consolidated financial income into two groups, based on whether or not statements have been prepared under the they may be reclassified to profit or loss in the historical cost convention, as modified by the future. The suggested title used by IAS 1 has revaluation of biological assets, available-for-sale changed to ‘statement of profit or loss and other financial assets and financial assets at fair value comprehensive income’. The amended standard through profit or loss. resulted in changed presentation of consolidated financial statements, but did not have any impact The reporting period of the financial statements is on measurement of transactions and balances. the calendar year. • IFRS 13, Fair Value Measurement The Company prepares its separate financial (effective for annual periods beginning on or after statements in accordance with IFRS and the 1 January 2013) aims to improve consistency and additional Danish requirements for annual reports. reduce complexity by providing a revised definition Parent company financial statements are presented of fair value, and a single source of fair value after notes to the consolidated financial statements measurement and disclosure requirements for use in the same set of financial statements. across IFRSs. The Standard resulted in additional The preparation of financial statements in disclosures in these consolidated financial conformity with IFRS requires the use of certain statements. Refer to Note 2.8 and 2.10. critical accounting estimates. It also requires There are no other new or revised standards or management to exercise its judgment in the interpretations that are effective for the first time process of applying the Group’s accounting policies. for the financial year beginning on or after 1 The areas involving a higher degree of judgment or complexity, or areas where assumptions and
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January 2013 that would be expected to have a De-facto control may arise in circumstances where material impact to the Group. the size of the Group’s voting rights relative to the Certain new or revised standards and size and dispersion of holdings of other shareholders interpretations have been issued that are give the Group the power to govern the financial and mandatory for the Group’s annual periods operating policies, etc. Subsidiaries are fully beginning on or after 1 January 2014, and which consolidated from the date on which control is the Group has not early adopted. transferred to the Group. They are de-consolidated from the date that control ceases. • IFRS 12, Disclosure of Interest in Other Entities (effective for annual periods beginning on The Group uses the acquisition method of or after 1 January 2014), applies to entities that accounting to account for business combinations. have an interest in a subsidiary, a joint The consideration transferred for the acquisition of a arrangement, an associate or an separately subsidiary is the fair values of the assets structured entity. IFRS 12 sets out the required transferred, the liabilities incurred and the equity disclosures for entities reporting under the two new interests issued by the Group. Any difference standards: IFRS 10, Consolidated financial between fair value and carrying value of assets statements, and IFRS 11, Joint arrangements, and transferred is recognised in the income statement. replaces the disclosure requirements currently The consideration transferred includes the fair value found in IAS 28 “Investments in associates”. IFRS of any asset or liability resulting from a contingent 12 requires entities to disclose information that consideration arrangement. Acquisition-related costs helps financial statement readers to evaluate the are expensed as incurred. Identifiable assets nature, risks and financial effects associated with acquired and liabilities and contingent liabilities the entity’s interests in subsidiaries, associates, assumed in a business combination are measured joint arrangements and separately structured initially at their fair values at the acquisition date. entities. To meet these objectives, the new On an acquisition-by-acquisition basis, the Group standard requires disclosures in a number of areas, recognises any non-controlling interest in the including (i) significant judgements and acquiree either at fair value or at the non-controlling assumptions made in determining whether an interest’s proportionate share of the acquiree’s net entity controls, jointly controls, or significantly assets. The excess of the consideration transferred, influences its interests in other entities, (ii) the amount of any non-controlling interest in the extended disclosures on share of non-controlling acquiree and the acquisition-date fair value of any interests in group activities and cash flows, (iii) previous equity interest in the acquiree over the fair summarised financial information of subsidiaries value of the Group’s share of the identifiable net with material non-controlling interests, and (iv) assets acquired is recorded as goodwill. If this is less detailed disclosures of interests in separately than the fair value of the net assets of the subsidiary structured entities. The Group is currently acquired in the case of a bargain purchase, the assessing the impact of the standard on its difference is recognised directly in the income financial statements. statement.
There are no other new or revised standards or Inter-company transactions, balances and unrealised interpretations that are not yet effective that would profits on transactions between Group companies be expected to have a material impact on the are eliminated. Losses are also eliminated but Group. considered whether they indicate an impairment that 2.2 CONSOLIDATION requires recognition in consolidated financial (a) Subsidiaries statements. Accounting policies of subsidiaries have been changed where necessary to ensure Subsidiaries are all entities (including special consistency with the policies adopted by the Group. purpose entities) over which the Group has the power to govern the financial and operating policies (b) Transactions with non-controlling interests generally accompanying a shareholding of more than The Group treats transactions with non-controlling one half of the voting rights. The existence and interests as transactions with equity owners of the effect of potential voting rights that are currently group. For purchases from non-controlling interests, exercisable or convertible are considered when the difference between any consideration paid and assessing whether the Group controls another the relevant share acquired of the carrying value of entity. The Group also assesses existence of control net assets of the subsidiary is recorded in equity. where it does not have more than 50% of the voting Gains or losses on disposals to non-controlling power but is able to govern the financial and interests are also recorded in equity. operating policies by virtue of de-facto control.
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2.3 FOREIGN CURRENCY TRANSLATION (a) Functional and presentation currency
Items included in the financial statements of each of shareholders’ equity. When a foreign operation is the Group’s entities are measured using the partially disposed of or sold, exchange differences currency of the primary economic environment in that were recorded in Other comprehensive income which the entity operates (‘the functional currency’). are recognised in the income statement as part of The functional currencies of group entities are the the gain or loss on sale. following: for Estonian subsidiaries the Euro, for Goodwill and fair value adjustments arising on the Ukrainian subsidiaries the Ukrainian hryvna, for acquisition of a foreign entity are treated as assets Russian subsidiaries the Russian rouble, for Cypriot and liabilities of the foreign entity and translated at subsidiaries the Euro and for Danish parent company the closing rate. the Euro). The consolidated financial statements are presented in Euro, which is the functional currency The following year-end exchange rates as quoted by for the parent company and the presentation the European Central Bank or Ukrainian Central currency for the group. Bank have been used for December 31, 2013 in translation to the presentation currency: 1 Euro = (b) Transactions and balances 11.0415 Ukrainian hryvnas, 1 Euro = 45.3246 Foreign currency transactions are translated into the Russian roubles. The average rates used in functional currency using the exchange rates translating of income statement lines were: 1 Euro = prevailing at the dates of the transactions. Foreign 10.6157 Ukrainian hryvnas, 1 Euro = 42.3370 exchange gains and losses resulting from the Russian Roubles. settlement of such transactions and from the translation at year-end exchange rates of monetary The following year-end exchange rates have been assets and liabilities denominated in foreign used for December 31, 2012 in translation to the currencies are recognised in the income statement. presentation currency: 1 Euro = 10.5372 Ukrainian hryvnas, 1 Euro = 40.3295 Russian roubles. The Foreign exchange gains and losses that relate to average rates used in translating of income borrowings and cash equivalents are presented in statement lines were: 1 Euro = 10.2706 Ukrainian the income statement within ‘Gains/losses from hryvnas, 1 Euro = 39.9262 Russian Roubles. exchange rate differences’. All other foreign exchange gains and losses are presented in the 2.4 PROPERTY, PLANT AND income statement within ‘Other (losses)/gains – net. EQUIPMENT All property, plant and equipment is stated at (c) Group companies historical cost less depreciation and impairment, The results and financial position of all the Group where required. Historical cost includes entities (none of which has the currency of a expenditure that is directly attributable to the hyperinflationary economy) that have a functional acquisition of the items. currency different from the presentation currency Subsequent costs are included in the asset’s carrying are translated into the presentation currency as amount or recognised as a separate asset, as follows: appropriate, only when it is probable that future economic benefits associated with the item will flow a) assets and liabilities for each balance sheet to the Group and the cost of the item can be presented are translated at the closing rate at measured reliably. The carrying amount of the the date of that balance sheet; replaced part is derecognised. All other repairs and b) income and expenses for each income statement maintenance are charged to the income statement are translated at average exchange rates (unless during the financial period in which they are this average is not a reasonable approximation incurred. of the cumulative effect of the rates prevailing Land is not depreciated. Depreciation on other on the transaction dates, in which case income assets is calculated using the straight-line method to and expenses are translated at the rate on the allocate their cost to their residual values over their dates of the transactions); and estimated useful lives, as follows:
c) all resulting exchange differences are recognised Buildings 25-40 years in other comprehensive income. Machinery 7-20 years On consolidation, exchange differences arising from Vehicles 3-5 years the translation of the net investment in foreign operations and of borrowings are taken to Furniture, fittings and equipment 3-8 years
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The assets’ residual values and useful lives are months after the balance sheet date. These are reviewed, and adjusted if appropriate, at each classified as non-current assets. The group’s loans balance sheet date. and receivables comprise “Trade and other receivables” (see Note 6) and Cash and cash An asset’s carrying amount is written down equivalents (see Note 5) in the balance sheet. See immediately to its recoverable amount if the asset’s Note 2.11 for measurement of trade receivables. carrying amount is greater than its estimated recoverable amount (Note 2.6). (b) Recognition and measurement
Gains and losses on disposals are determined by Regular purchases and sales of financial assets are comparing the proceeds with the carrying amount recognised on the trade-date – the date on which and are recognised within Other gains/losses – net, the Group commits to purchase or sell the asset. in the income statement. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried Borrowing costs are capitalised in the cost of the at fair value through profit or loss. Financial assets item of property, plant and equipment if they are are derecognised when the rights to receive cash directly attributable to the acquisition, construction flows from the investments have expired or have or production of the qualifying asset. been transferred and the Group has transferred 2.5 INTANGIBLE ASSETS substantially all risks and rewards of ownership. (a) Licences Loans and receivables are carried at amortised cost using the effective interest method. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and The Group assesses at each balance sheet date bring to use the specific software. These costs are whether there is objective evidence that a financial amortised over their estimated useful lives of two asset or a group of financial assets is impaired. to ten years. Impairment testing of trade receivables is described 2.6 IMPAIRMENT OF NON-FINANCIAL in Note 2.11. ASSETS (c) Impairment of financial assets carried at Assets that are subject to depreciation are reviewed amortised cost for impairment whenever events or changes in The Group assesses at the end of each reporting circumstances indicate that the carrying amount period whether there is objective evidence that a may not be recoverable. An impairment loss is financial asset or group of financial assets is recognised for the amount by which the asset’s impaired. A financial asset or a Group of financial carrying amount exceeds its recoverable amount. The assets is impaired and impairment losses are recoverable amount is the higher of an asset’s fair incurred only if there is objective evidence of value less costs to sell and value in use. For the impairment as a result of one or more events that purposes of assessing impairment, assets are occurred after the initial recognition of the asset (a grouped at the lowest levels for which there are ‘loss event’) and that loss event (or events) has an separately identifiable cash flows (cash-generating impact on the estimated future cash flows of the units). Non-financial assets other than goodwill that financial asset or Group of financial assets that can suffered impairment are reviewed for possible be reliably estimated. Evidence of impairment may reversal of the impairment at each reporting date. include indications that the debtors or a group of 2.7 FINANCIAL ASSETS debtors is experiencing significant financial difficulty, (a) Classification default or delinquency in interest or principal payments, the probability that they will enter The Group classifies its financial assets in the bankruptcy or other financial reorganisation. following categories: loans and receivables, available for sale, and at fair value through profit and loss. For loans and receivables category, the amount of The classification depends on the purpose for which the loss is measured as the difference between the the financial assets were acquired. Management asset’s carrying amount and the present value of determines the classification of its financial assets at estimated future cash flows (excluding future credit initial recognition. The Group only has financial losses that have not been incurred) discounted at assets in category “Loans and receivables”. the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the Loans and receivables are non-derivative financial amount of the loss is recognised in the consolidated assets with fixed or determinable payments that are income statement. If, in a subsequent period, the not quoted in an active market. They are included in amount of the impairment loss decreases and the current assets, except for maturities greater than 12 decrease can be related objectively to an event
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occurring after the impairment was recognised, the Livestock are measured at their fair value less reversal of the previously recognised impairment estimated point-of-sale costs. The fair value of loss is recognised in the consolidated income livestock is determined in co-operation with Animal statement. Breeders Association and based on market prices of livestock of similar age, breed and genetic merit 2.8 AGRICULTURE based on the relevant market, taking into account Agricultural activity is defined by the management transaction prices, sales opportunities in local and as an activity of the biological transformation of export markets, and the market situation in the biological assets for sale into agricultural produce or dairy sector. The fair value of dairy herd also takes into additional biological assets. Agricultural produce into account the milk quota attached to the herd. is defined as the harvested product of the Group’s The fair value measurements are categorized under biological assets and a biological asset is defined as Level 2 in the fair value hierarchy, as defined by a living animal or plant. The Group has determined IFRS 13. the groups of its biological assets to be livestock and Milk within EU can be sold based on milk quotas growing crops. allocated by the State for each producer. The milk Biological assets are measured on initial recognition quota itself cannot be separated from the herd and and at each balance sheet date at its fair value less the agricultural business as it is not possible to trade estimated point-of-sale cost, except for the case with the quota in EU countries where the Group where the fair value cannot be measured reliably on operates without selling it together with the herd initial recognition. Agricultural produce harvested and the agricultural business. Also, there is no active from the Group’s biological assets is measured at its market available for the herd without the milk fair value less estimated point-of-sale costs at the quota. As the fair value of the herd can be point of harvest and is subsequently recorded as determined reliably only together with the attached inventories and measured in accordance with the milk quota, the Group considers the milk quota to be accounting principles of inventory (Note 2.10 (a)). an integral part of the fair value of the dairy herd.
If an active market exists for a biological asset or Milk outside EU can be sold free of any quota and agricultural produce, the quoted price in that market therefore the fair value of herd is not affected by the is the appropriate basis for determining the fair sales restrictions. value of that asset. If an active market does not (b) Crops – cereals and grassland exist the most proximate market transaction price, provided that there has not been a significant Crops are measured at their fair value less change in economic circumstances between the date estimated point-of-sale costs. The fair value of that transaction and the balance sheet date, is measurements are categorized under Level 2 in the used in determining fair value. Cost is used as an fair value hierarchy, as defined by IFRS 13. At initial approximation of fair value when little biological recognition (after seeding) the crops are measured transformation has taken place since initial cost at cost as the market-determined values are not incurrence, e.g. within short time after seeding the available for such biological assets. The cost includes crop. direct costs related to the management of the biological transformation of biological assets, like A gain or loss arising on initial recognition of a costs of seeds, fertilising, cultivation, labour costs of biological asset at fair value less estimated point-of- employees directly involved in production process, sale costs and from a subsequent change in fair fuel and energy and related production overheads value less estimated point-of-sale costs of a (based on normal operating capacity). The crops are biological asset is included in profit or loss for the measured at fair value once the fair value becomes period in which it arises as “Gain/loss arising from reliably measurable. Usually the fair value of a crop changes in fair value less estimated point of sale can be reliably measured only immediately before costs of biological assets”. harvest. This does not create a significant limitation The biological assets are recorded as current and in valuation of crop balances at year-end, as the non-current biological assets based on the main increase in fair value is attributable to the operational cycle of the respective biological assets. same accounting period when the crop is harvested. In general, biological assets of growing plants are As the main growth period of the crops is April to recognised as current assets, because the July, the change in the fair values is always the operational cycle is less than 12 months. Dairy herd highest in the second quarter of the year. The is recorded as non-current biological asset. biological assets are revalued using the latest information about actual harvesting results of the (a) Livestock and dairy herd early crops, harvest related cash outflows and cereal
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sales market prices. Yields for the late crops are 2.10 INVENTORIES estimated using the latest field surveys. The cereals Inventories that are measured at fair value are sales prices used for revaluation include actual categorized under Level 2 in the fair value contracted prices and latest market prices. hierarchy, as defined by IFRS 13.
(a) Agricultural produce
2.9 GOVERNMENT GRANTS (i) Milk
(a) Government grants related to agricultural Milk is initially measured at its fair value less activity estimated point-of-sale costs at the time of An unconditional government grant related to a milking and subsequently recorded as biological asset measured at its fair value less inventories. The fair value of milk is determined estimated point-of-sale costs is recognised as based on market prices in the local area. income when the government grant becomes (ii) Grain- own produced (harvested) receivable (government grants for dairy herd, Grain and feeds produced by the Group are general area- aid subsidies). If a government grant initially measured at its fair value less estimated related to a biological asset measured at its fair point-of-sale costs at the time of harvest and value less estimated point-of-sale costs is recorded in inventories until sold to third parties conditional, including whereby a government grant or used internally for feeding animals or for requires a Group company not to engage in specified seeds. Grains and feed produced by the Group is agricultural activity, the Group recognises the subsequently measured at net realisable value. government grant as income when the conditions The net realisable value of feed is determined attaching to the government grant are met based on market prices in the local area. The net (investment subsidies, area-aid environmental realisable value of grain is determined based on subsidies) and until then aid received is recognised quoted prices on the nearest market or if as a liability. multiple markets are available, of the market (b) Government grants related to purchase of where the Group’s company expects to sell the property, plant and equipment produce.
Grants from the government are recognised at their (iii) Other agricultural produce fair value where there is a reasonable assurance Other agricultural produce are initially recorded that the grant will be received and the group will cost. Cost of other agricultural produce is comply with all attached conditions. Government determined using FIFO method. Write-down of grants relating to property, plant and equipment are other agricultural produce (excluding grain) to included in non-current liabilities as deferred the net realisable value (if lower than cost) is government grants and are amortised to the income included in income statement as change is statement on a straight-line basis over the expected inventories. Net realisable value is the estimated lives of the related assets. selling price in the ordinary course of business, (c) Ukraine VAT treatment for companies under less applicable variable selling expenses. agricultural regime (b) Grain – purchased from third parties In Ukraine there is a special VAT treatment for Purchased grain from third parties is initially companies under agricultural regime. Companies recorded at purchase price and subsequently under agricultural regime are not obliged to pay VAT measured at fair value less estimated costs to sell. and the net of VAT receivable and payable is The fair value of grain is determined based on recorded under Other Losses/Gains. Amount quoted prices on the nearest market or if multiple recognized under Other Losses/Gains is measured as markets are available, of the market where the a difference between VAT on sales invoices issued Group’s company expects to sell the produce. during the year and purchase invoiced received during the year. VAT balances receivable on the (c) Work-in-progress related to field preparation balance sheet relate to capitalized costs. These VAT Cost of agricultural preparation on fields before balances are recognized in the Income statement seeding is recorded as work-in-progress in according to the amortization schedules of the inventories. Work in progress comprises raw capitalized costs. materials, direct labour costs, other direct costs and overheads (based on normal operating capacity). After seeding the cost of field
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preparation is reclassified as biological assets held income statement over the period of the borrowings at fair value (Note 2.8 (b)). using the effective interest method. Borrowing costs (d) Raw materials are capitalised to the cost of a qualifying asset if these are directly attributable to the acquisition, Inventories are stated at the lower of costs and net construction or production of the asset and the realisable value. Cost is determined using first-in, capitalisation rate is disclosed in Notes. Other first-out (FIFO) method. Net realisable value is the borrowing costs are recognised as expense. estimated selling price in the ordinary course of business, less applicable variable selling expenses. Borrowings are classified as current liabilities unless 2.11 TRADE RECEIVABLES the Group has an unconditional right to defer settlement of the liability for at least 12 months Trade receivables are amounts due from customers after the balance sheet date. for merchandise sold or services performed in the ordinary course of business. If collection is 2.16 CURRENT AND DEFERRED expected in one year or less (or in the normal INCOME TAX operating cycle of the business if longer), they are The tax expense for the period comprises current classified as current assets. If not, they are and deferred tax. Tax is recognised in the income presented as non-current assets. statement, except to the extent that it relates to Trade receivables are recognised initially at fair items recognised directly in equity. In this case, the value and subsequently measured at amortised tax is also recognised in equity. cost using the effective interest method, less a) Corporate income tax provision for impairment. The current income tax charge is calculated on the 2.12 CASH AND CASH EQUIVALENTS basis of the tax laws enacted or substantively Cash and cash equivalents includes cash in hand, enacted at the balance sheet date in the countries deposits held at call with banks, other short-term where the Company and its subsidiaries operate and highly liquid investments with original maturities of generate taxable income. Management periodically three months or less, and bank overdrafts. evaluates positions taken in tax returns with respect Deposits over three months are classified as cash to situations in which applicable tax regulations is and cash equivalents if they are readily convertible subject to interpretation and establishes provisions to a known amount of cash and are subject to where appropriate on the basis of amounts expected insignificant risk of changes in value. Bank to be paid to the tax authorities. overdrafts are shown within borrowings in current liabilities on the balance sheet. The effective income tax rate in Ukraine is 19% (in 2012 21%) and in Russia 20%. Agricultural 2.13 SHARE CAPITAL producers in both Ukraine and Russia are exempted Ordinary shares are classified as equity. Incremental from the ordinary corporate income tax system if costs directly attributable to the issue of new shares they meet the requirements to be recognised as or options are shown in equity as a deduction, net agricultural producers (Note 2.16 (b)). The income of tax, from the proceeds. tax in Estonia is calculated only on distributed 2.14 TRADE PAYABLES earnings with the effective rate 21/79 of the Trade payables are obligations to pay for goods or distributed amount (Note 2.17 (c)) services that have been acquired in the ordinary Deferred income tax is provided in full, using the course of business from suppliers. Accounts payable liability method, on temporary differences arising are classified as current liabilities if payment is due between the tax bases of assets and liabilities and within one year or less (or in the normal operating their carrying amounts in the consolidated financial cycle of the business if longer). If not, they are statements. However, the deferred income tax is not presented as non-current liabilities. accounted for if it arises from initial recognition of an Trade payables are recognised initially at fair value asset or liability in a transaction other than a and subsequently measured at amortised cost using business combination that at the time of the the effective interest method. transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined 2.15 BORROWINGS using tax rates (and laws) that have been enacted or Borrowings are recognised initially at fair value, net substantially enacted by the balance sheet date and of transaction costs incurred. Borrowings are are expected to apply when the related deferred subsequently stated at amortised cost; any income tax asset is realised or the deferred income difference between the proceeds (net of transaction tax liability is settled. costs) and the redemption value is recognised in the
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Deferred income tax assets are recognised to the 2.17 EMPLOYEE BENEFITS extent that it is probable that future taxable profit (a) Pension obligations and other post-employment will be available against which the temporary obligations differences can be utilised. The Group does not operate pension schemes and Deferred income tax is provided on temporary does not provide post-retirement benefits to their differences arising on investments in subsidiaries and retirees. Pension obligations may arise due to a legal associates, except where the timing of the reversal of obligation to pay for the incapability to work because the temporary difference is controlled by the Group of an accident. and it is probable that the temporary difference will The Group has legal obligation to pay contributions not reverse in the foreseeable future. to the state pension funds according to the local Deferred income tax assets and liabilities are offset regulations of each country of location. The when there is a legally enforceable right to offset contributions to the local pension funds are treated current tax assets against current tax liabilities and as social security tax payments. when the deferred income taxes assets and liabilities (b) Termination benefits relate to income taxes levied by the same taxation authority on either the taxable entity or different Termination benefits are payable when employment taxable entities where there is an intention and is terminated by the Group before the normal ability to settle the balances on a net basis. retirement date, or whenever an employee accepts voluntary redundancy in exchange for these b) Agricultural tax regimes in Ukraine and Russia benefits. The Group recognises termination benefits Both in Ukraine and Russia companies are exempt when it is demonstrably committed to either: from ordinary corporate income tax regime if they terminating the employment of current employees meet criteria to be recognised as agricultural according to a detailed formal plan without possibility producers. of withdrawal; or providing termination benefits as a In Ukraine, a company is considered to be an result of an offer made to encourage voluntary agricultural producer if it derived at least 75% of its redundancy. Benefits falling due more than 12 revenue in the previous tax year from the sales of months after the balance sheet date are discounted self-produced agricultural product. Simplified to present value. agricultural tax means that the agricultural producer 2.18 PROVISIONS pays tax based not on its profits, but on the total Provisions for environmental restoration, area used for agricultural production. restructuring costs and legal claims are recognised In Russia a company can apply for the agricultural when: the Group has a present legal or tax regime if it meets the criteria of an agricultural constructive obligation as a result of past events; it company. However, the companies on a general tax is probable that an outflow of resources will be regime having the revenue from sales of self- required to settle the obligation; and the amount produced agricultural produce have reduced tax can be reliably estimated. Restructuring provisions rates. comprise lease termination penalties and employee termination payments. Provisions are not c) Income tax in Estonia recognised for future operating losses. According to the Income Tax Act of Estonia, the Where there are a number of similar obligations, the annual profit earned by enterprises is not taxed and likelihood that an outflow will be required in thus there are no temporary differences between the settlement is determined by considering the class of tax bases and carrying values of assets and liabilities obligations as a whole. A provision is recognised and no deferred tax assets or liabilities arise. even if the likelihood of an outflow with respect to Instead of taxing the net profit, the distribution of any one item included in the same class of retained earnings is subject to income tax of 21/79 obligations may be small. of the amount paid out as dividends. The corporate income tax arising from the payment of dividends is Provisions are measured at the present value of the accounted for as an expense in the period when expenditures expected to be required to settle the dividends are declared, regardless of the actual obligation using a pre-tax rate that reflects current payment date or the period for which dividends are market assessments of the time value of money and paid. the risks specific to the obligation. The increase in the provision due to passage of time is recognised
as interest expense.
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2.19 REVENUE RECOGNITION 2.20 LEASES Revenue comprises the fair value of the The Group as a lessee. consideration received or receivable for the sale of Leases in which a significant portion of the risks and goods and services in the ordinary course of the rewards of ownership are retained by the lessor are Group’s activities. Revenue is shown net of value- classified as operating leases. Payments made under added tax, returns, rebates and discounts and after operating leases (net of any incentives received eliminating sales within the Group. from the lessor) are charged to the income The Group recognises revenue when the amount of statement on a straight-line basis over the period of revenue can be reliably measured, it is probable that the lease. Land lease is considered to be operating future economic benefits will flow to the entity and lease unless the title of the land passes to the lessee specific criteria have been met for each of the at the end of the lease period. Group’s activities as described below. The amount of Leases in which the risks and rewards incidental to revenue is not considered to be reliably measurable the ownership of an asset are transferred until all contingencies relating to the sale have been substantially to the lessee are classified as finance resolved. The Group bases its estimates on historical leases. At the commencement of the lease term, the results, taking into consideration the type of Group recognises the asset purchased on finance customer, the type of transaction and the specifics lease term on its balance sheet at the amount lower of each arrangement. of the present value of future rent payments of fair (a) Sales of goods – agricultural produce value of the leased asset.
The Group’s main revenue arises from the sales of Each lease payment is allocated between the liability agricultural produce – grain and milk. The and finance charges so as to achieve a constant rate agricultural produce is subject to quality control at on the finance balance outstanding. The the point of sale and the sales value is depending on corresponding rental obligations, net of future the quality. Revenue from sales of agricultural finance charges, are included in borrowings. The produce is recognised after the results of quality interest cost is charged to the income statement control are available. over the lease period using the effective interest (b) Sales of biological assets method. The assets acquired under finance leases are depreciated over the shorter of their useful life The Group sells living animals for slaughtering. The or lease term if the Group is not reasonably certain revenue from sales of living animals is recognised that it will obtain ownership by the end of the lease after the animals have been delivered to the term. slaughterhouse. 2.21 DIVIDEND DISTRIBUTION (c) Sales of services Dividend distribution to the Group’s shareholders is The Group occasionally sells services to other recognised as a liability in the Group’s financial agricultural producers. Revenue from the services is statements in the period in which the dividends are recognised when the service has been provided. approved by the Group’s shareholders. (d) Interest income 2.22 SEGMENT REPORTING Interest income is recognised on a time-proportion Operating segments are reported in a manner basis using the effective interest method. When a consistent with the internal reporting provided to the receivable is impaired, the Group reduces the chief operating decision-maker. The chief operating carrying amount to its recoverable amount, being decision-maker, who is responsible for allocating the estimated future cash flow discounted at the resources and assessing performance of the original effective interest rate of the instrument, and operating segments, has been identified as the continues unwinding the discount as interest Executive Board. The Executive Board considers the income. Interest income on impaired loans is business from a geographical and operational recognised using the original effective interest rate. perspective. Local production units, which are (e) Dividend income interlinked with each other in operational activities, Dividend income is recognised when the right to are aggregated in the internal reporting in receive payment is established. production clusters. Segments are presented to the management on aggregated unit basis, indicating separately plant cultivation and animal husbandry if they are both material for the clusters’ revenue.
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2.23 SHARE-BASED PAYMENTS statement. Taxes on dividends in amount of EUR The fair value of services assumed to have been 97 thousand in 2012 have been reclassified from received in exchange for the equity instruments line item ‘Income tax paid’ to line item ‘Dividends (warrants) issued is generally recognised as an paid to company’s shareholders’. expense in the income statement and in other COMPLETION OF THE PROVISIONAL PURCHASE reserves in equity during the vesting period (from PRICE ALLOCATION AS AT DECEMBER 31, 2012 the grant date of warrants until the vesting date). In Certain changes have been made to the balance case the services assumed form part of the costs sheet as at December 31, 2012 in relation to the directly attributable to the issue of new shares, the completion of the provisional purchase price costs are shown in equity as a deduction from the allocation as at December 31, 2012 for the Rostov proceeds as a part of related translation costs and cluster business combination. not as an expense in the income statement. The fair value of the services received is determined by The initial provisional amounts recognised in the reference to the fair value (market value) of equity 2012 financial statements for the Rostov cluster instruments granted at the grant date, which equals business combination were determined only the fair value of services received by the Group. The provisionally and have been amended according to proceeds received net of any directly attributable the exact balances of assets and liabilities transaction costs are credited to share capital transferred. Below is the amended balance sheet (nominal value) and share premium when the as at December 31, 2012, listing all the options are exercised. adjustments made to the previous figures. For details please see Note 31. 2.24 CHANGES TO COMPARATIVES
Certain changes have been made to the presentation of taxes on dividends in the cash flow
COMPLETION OF THE PROVISIONAL PURCHASE PRICE ALLOCATION AS AT DECEMBER 31, 2012 Amended in EUR thousand Note 31.12.2012 Adjustments 31.12.2012 ASSETS Current assets Biological assets 9 5,500 215 5,715 45,919 215 46,134 Non -current assets Other non-current prepayments and receivables 6 2,426 3,514 5,940 Investment Property - 136 136 164,181 3,650 167,831 Total assets 210,100 3,865 213,965
LIABILITIES Current liabilities
Trade and other payables 13 16,031 -4,236 11,795 Borrowings 14 11,871 8,101 19,972 27,902 3,865 31,767 Total liabilities 81,534 3,865 85,399 Total equity and liabilities 210,100 3,865 213,965
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3. FINANCIAL RISK MANAGEMENT
3.1 FINANCIAL RISK FACTORS decreased the value of the net investment in 2013 The Group’s activities expose it to a variety of (increased in 2012). financial risks: market risk (including currency risk, (ii) Commodity price risk commodity price risk, cash flow interest rate risk, The Group is exposed to commodities price risk fair value interest rate risk), credit risk, liquidity because of the significant size of its business risk and capital repatriation risk. The Group’s operations in the production of cereals. In case overall risk management program acknowledges cereals produced by the Group in Russia and Ukraine the unpredictability of financial markets and on the are primarily exported, a significant share of the basis of the current business operations of the Group’s revenues will be exposed to global Group the management is following financial risk fluctuations in agricultural commodity prices. The management policies to minimise potential adverse milk production operations of the Group are to a effects on the Group’s financial performance from much lesser extent affected by global commodity unpredictable fluctuations in the financial markets. prices since the raw milk is sold regionally and The Group’s centralised controlling and risk cannot be exported over long distances. This is management function carries out risk management further supported by the fact that milk powder, a activities on a day-to-day basis in close milk product commodity which can be transported cooperation with the regional management over long distances, does not directly compete with members. raw milk due to the inferiority of milk powder based (a) Market risk end-product quality. Such lower quality makes milk (i) Foreign exchange risk powder a secondary raw material to the milk The Group operates in Estonia, Ukraine and Russia processing companies operating in the target and is exposed to foreign exchange risk arising countries of the Group and allows the Group to primarily from exposures to the US dollar, Russian negotiate fresh high quality raw milk price relatively rouble, Ukrainian hryvna and Swedish krona. independently of global milk powder price levels. Foreign exchange risks from US dollar, Swedish The Group’s strategy is not to hedge against any krona, Russian rouble and Ukrainian hryvna arise commodity price movements in order to provide its mainly from recognised assets and liabilities. Foreign shareholders a direct exposure to the fluctuation in exchange risk from Swedish krona arises from the market. Unlike traditional large-scale farming Trigon Agri four-year bonds issued in 2011. The enterprises that have typically used a financial Group has not implemented any currency risk hedging strategy to protect against adverse price management policies. fluctuations or the risks inherent in a highly seasonal Ukrainian hryvna, Russian rouble, Swedish krona business, the Group does not engage in any and US dollar have floating exchange rate. commodity hedging. The Group believes that its diversified geographic production base, its crop The average value of hryvna relative to euro rotation system and its combination of cereal depreciated in 2013 (depreciated in 2012). production and dairy farming provide its business Russian rouble depreciated in value in 2013 with sufficient operational stability, while enabling (appreciation relative to euro in 2012). investors to pursue their own individual hedging strategies. Swedish krona depreciated relative to euro in 2013 (appreciated relative to euro in 2012). (iii) Cash flow and fair value interest rate risk As the Group has no significant floating interest- Reasonably Impact on bearing assets, the Group’s income and operating possible Income change statement cash flows are substantially independent of changes UAH +/- 10% +/-372 in market interest rates. Cash (see Note 5) is RUB +/- 10% +/-144 invested in short term deposits and thus interest SEK +/- 10% -/+4,117 rate risk does not affect significantly the Group. USD +/- 10% -/+1,011 The Group’s interest rate risk arises from long-term The changes in exchange rates of Russian rouble borrowings. Borrowings issued at variable rates and Ukrainian hryvna have been unfavourable to the expose the Group to cash flow interest rate risk. The Group’s business in 2013 (favourable in 2012). The Group analyses its interest rate exposure on a changes in exchange rates of rouble and hryvna dynamic basis. Various scenarios are simulated
TRIGON AGRI ANNUAL REPORT 2013 PAGE 59
taking into consideration refinancing, renewal of Breakdown between floating and fixed interest rates existing positions and alternative financing. for the existing borrowings of the Group is shown below:
Amended in EUR thousand 31.12.2013 31.12.2012 Bank borrowings and finance lease (outstanding amount) Floating rate 13,810 8,083 incl. related to 6-month EURIBOR 9,082 6,283 incl. related to 3-month EURIBOR 235 - incl. related to 5-year EURIBOR - 723 incl. related to bank´s base interest rate - 1,077 incl. related to LIBOR 4,493 - Fixed rate 60,267 61,375 74,077 69,458
At 31 December 2013, if interest rates on floating (c) Liquidity risk interest rate borrowings at that date had been 50 The Group’s main liquidity risks derive from the basis points higher with all other variables held cyclical nature of agricultural production. Field-works constant, net profit for the year would have been in spring and harvest in autumn entails EUR 69 thousand lower, as a result of higher interest concentration of costs and working capital need in expense on floating rate borrowings. At 31 the spring season and concentration of revenues in December 2012, if interest rates on floating interest the autumn season. The cyclicality is stronger in rate borrowings at that date had been 50 basis cereals production and much lower in dairy points lower (higher) with all other variables held production, as dairy production revenues accrue constant, net profit for the year would have been evenly throughout the whole operating year. The EUR 40 thousand higher (lower), as a result of lower Group has been lowering the cyclicality also in (higher) interest expense on floating rate borrowings cereals production by acquiring its own warehousing (b) Credit risk and counterparty business risk infrastructure to store grain for longer time periods Credit risk for the Group arises from cash and cash and to be able to sell cereal products more evenly equivalents, deposits with banks and financial throughout the year. In addition, the management institutions and customers, including outstanding monitors the liquidity risk by following the main key receivables and committed transactions. Credit limits performance indicators on a continuous basis, are not normally set for individual companies, as all including cash flows. balances are closely monitored specifically (see also Note 6 for details). For banks and financial institutions, the Group’s policy is to work with institutions, which have an internationally reputable strategic shareholder as the majority investor. (See also Note 5 for details).
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The undiscounted gross payments of all borrowings tables. The amounts include interest payments. and trade payables are presented in the included no later between Total Over 5 than 12 1 and 5 Maturity Interest rate 31.12.2013 years in EUR thousand months years Borrowings and finance leases 87,788 19,905 62,406 5,477 6-month incl. related to 6- EURIBOR+1.4%- month EURIBOR 12,594 1,070 6,047 5,477 2014-2020 3.35% incl. related to 3 3-month month EURIBOR 235 96 139 - 2016 EURIBOR+0% incl. related to LIBOR+8.75%- LIBOR 4,829 4,368 461 - 2014-2016 9.5% inc.with fixed no interest, 2%- interest rate 7,939 6,804 1,135 - 2014-2017 17% inc.with fixed interest rate* 14,510 3,209 11,301 - 2016 10% incl. fixed interest rate bond 47,681 4,358 43,323 - 2015 11%
Trade payables no interest rate, 3,287 3,137 107 43 2014-2054 5% Total 91,075 23,042 62,513 5,520
*Fixed interest rate borrowings in amount of EUR 14,510 thousand represent a loan that carries interest rate of 3-month EUR LIBOR +6% or minimum 10%, whichever is higher. As at 31.12.2013, the interest rate was 10%.
Amended no later between Total Over 5 than 12 1 and 5 Maturity Interest rate 31.12.2012 years in EUR thousand months years Borrowings and finance leases 83,641 24,286 59,049 306
incl. related to 6- 6-month month EURIBOR EURIBOR+1.4%- 6,589 668 5,915 6 2013-2018 2.7% incl. related to 5- 5-year year EURIBOR 858 110 448 300 2020 EURIBOR+1.9% incl. related to bank´s base bank´s base interest interest 1,106 121 985 - 2014 rate+1.5% inc.with fixed no interest, interest rate 21,361 18,772 2,589 - 2013-2017 2.3%-19% incl. fixed interest rate bond 53,727 4,615 49,112 - 2015 11%
Trade payables no interest rate, 10,088 9,094 473 521 2013-2054 5%-6% Total 93,729 33,380 59,522 827
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3.2 CAPITAL RISK MANAGEMENT future Market Loan taken up by any other person than the Company; The Group considers as capital its equity and borrowings. (e) to ensure that the Company’s Subsidiaries do not issue any Market Loans and furthermore, when All significant bank borrowings of the Group will be taking up a loan, observe the provisions in (d)(i)-(iii) approved by the Board of Directors of the Group above (for the avoidance of doubt, any reference to prior to being drawn upon. The Board of Directors the Company under (d)(iii) above shall, when will also approve the leveraging strategy to be interpreting this provision be construed as a worked out by the management, keeping in mind (i) reference to the respective Subsidiary); safeguarding the Group’s ability to continue as a going concern in order to provide returns for (f) not to use any of the proceeds from the issue of shareholders and benefits for other stakeholders and the Bonds outside of the ordinary course of (ii) development of an optimal capital structure so as business; to reduce the cost of capital. (g) to prepare and publish quarterly reports (which As of December 31, 2013 (and as of December 31, reports shall be prepared consistently with the same 2012), the Group was financed in addition to the accounting principles that are applied when owners’ equity by proceeds of the four-year bond preparing the Company’s annual financial reports issue. For as long as the bonds remain outstanding, and published not later than two (2) months after based on the Terms and Conditions of the bonds, the end of the relevant quarter. Once the Bonds the Group undertakes: have been listed such reports shall be published in accordance with the then applicable regulations by (a) to procure that the ratio of Financial NASDAQ OMX); indebtedness to shareholders’ equity will never exceed seventy five (75) per cent. (calculated on the (h) not later than within twenty (20) days from the basis of audited annual financial reports, quarterly Agent’s request to prepare a special unaudited unaudited financial reports or, where relevant, a financial report as per the historic date the Agent special financial report); stated in its request (which report shall be prepared consistently with the same rules and accounting (b) not to for any financial year (i) pay any dividend principles that are applied when preparing the on shares, (ii) repurchase any of its own shares, (iii) Company’s annual financial reports and quarterly redeem its share capital or other restricted equity financial reports); and with repayment to shareholders or (iv) to make any other similar distribution to the shareholders of the (i) together with each quarterly report or no later Company, if such distribution mentioned under (i), than twenty (20) days from the Agent’s request, to (ii), (iii) or (iv) above would exceed thirty (30) per provide a compliance certificate signed by two duly cent. of the Net Profit; authorised signatories of the Company on its behalf, and accompanied by a report setting out the (c) to take all measures required to ensure that the calculations of (and compliance with) the financial Bonds continue being listed on NASDAQ OMX for as covenants, certifying that so far as it is aware no long as any Bonds are outstanding (however, taking event which would entitle the Agent to accelerate into account the rules and regulations of NASDAQ the Bonds is outstanding or, if it is aware that such OMX and the CSD (as amended from time to time) an event is outstanding, specifying the event and preventing trading in the Bonds in close connection the steps, if any, being taken to remedy it. to the redemption of the Bonds); According to the terms of bonds, the bonds will be (d) not to: redeemed early in case one or more persons acting (i) issue any Market Loans with higher together shall acquire control over Trigon Agri by priority than the Bonds; acquiring control over more than 50% of voting rights in the company or over the right to appoint (ii) provide or permit to subsist any or remove the whole or majority of the Board of security or permit someone else to provide Directors. or permit to subsist any security in the form of a contingent liability or otherwise to The total Group capital is influenced by exchange secure any present or future Market Loan of rate fluctuations of Ukrainian hryvna, Russian rouble the Company; or and Swedish krona, as described also in Note 3.1. a) i). The total recognised decrease in equity from (iii) provide or permit to subsist any currency translation differences amounted to EUR security over any of the Company’s assets (present or future) to secure any present or
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32,887 thousand at December 31, 2013 (EUR Group’s balance sheet in Russia and Ukraine are 19,610 thousand at December 31, 2012). denominated in local currency and will decrease in euro terms when rouble and hryvna weaken against According to the terms of bonds, the Group monitors the euro. capital on the basis of the Financial indebtedness to shareholders’ equity ratio. Financial indebtedness" In order to counterbalance the negative impact of means the total amount of any indebtedness of the the currency devaluation on the book values of Group Company on a consolidated basis, at any Group's assets, the management is considering given time, in respect of: adopting a policy of revaluing its freehold land to fair value in accordance with fair value provisions of IAS (a) the principal amount outstanding in 16 ‘Property, plant and equipment’. Currently respect of any monies borrowed or raised including, freehold land is stated at historic cost. The without limitation, pursuant to the Bonds; revaluation of land would provide shareholders with (b) the principal amount outstanding in a more representative value than the historic cost respect of any Market Loan; basis and would enable to protect against the fluctuations of local currencies against the euro. (c) any Finance Lease; The bond expires in June 2015. The management (d) any net liability incurred under interest aims to repay the bond using the proceeds that rate management arrangements; would come from non-core asset disposals. For further information, please refer to Note 3.5. (e) any guarantee or other assurance against financial loss in respect of a type referred to in the Capital repatriation risk above items; The capital repatriation risk derives from the Group’s investments into Ukrainian and Russian subsidiaries. (f) any counter indemnity obligation in Potential changes in the political environment in respect of a guarantee, indemnity, bond, standby or Ukraine or Russia may impose restrictions on documentary letter of credit or any other instrument repatriating capital invested into these countries. issued by a bank or financial institution; and The Group’s policy is to make investments into (g) any amount raised under any other Ukraine and Russia only via Cypriot holding transaction (including any forward sale or purchase, companies. The advantageous double taxations sale and sale back or sale and leaseback agreement) treaties with Ukraine and Russia make Cyprus a having the commercial effect of a borrowing or favoured location of inward investments to these otherwise classified as borrowings under the regions by several internationally recognised Accounting Principles. investors as well as for Ukrainian and Russian own capital, which seeks to have foreign domiciliation. In Shareholders’ equity means the total shareholders’ the assessment of the Group’s management, equity of the Group Company on a consolidated carrying out investments into Ukraine and Russia via basis at any given time. Cypriot holding companies is the best possible hedge The Financial indebtedness to shareholders’ equity for minimising capital repatriation risks. ratios as at December 31, 2013 and December 31, 3.3 FAIR VALUE ESTIMATION 2012 were as follows: The carrying value less impairment provision of Amended trade receivables and trade payables are assumed in EUR thousand 31.12.2013 31.12.2012 to approximate their fair values. The fair value of Total borrowings financial liabilities for disclosure purposes is 74,077 69,458 (Note 15) estimated by discounting the future contractual Total shareholders´ cash flows at the current market interest rate that 103,805 128,566 equity is available to the group for similar financial Financial instruments. The Group’s management estimates indebtedness to 71% 54% shareholders’ that the fair values of the financial assets (Notes 5, equity 6) and financial liabilities (Notes 13, 14) recognised in the balance sheet at amortised cost do not As described in Note 10, significant portion of significantly differ from their carrying amounts reduction of equity is due to devaluation of the presented in the Group’s consolidated balance Russian rouble and the Ukrainian hryvna that has sheet on 31 December 2013 and 31 December led to decrease of the book value of rouble and 2012. The management estimates that the fair hryvna denominated assets on the Group's balance value of long-term borrowings does not sheet. Russian rouble and Ukrainian hryvna have significantly differ from their carrying amounts. The continued to devalue in 2014. The assets on the
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fair value of financial liabilities is determined on the agricultural land, no assurances can be given that basis of discounted future contractual cash flows, the ownership structure could not be challenged on using a market interest rate, which is available for the basis that they possibly violate the spirit of the the Group upon using similar financial instruments. law. The Russian courts and legal system generally Trade receivables and trade payables are tend to adopt a formal approach to legislative recognised at amortised cost, due to which the interpretation. However, no assurance can be given management estimates that their carrying amount as to how a Russian court would treat each approximates their fair value. particular situation brought to its consideration or Trigon Agri bonds are listed on NASDAQ OMX. As as to future developments in the Russian legal there have been no material transactions, the system which may give greater weight to Group considers that the carrying amount of the substance over form. bonds approximate their fair value. If the Russian agricultural land holding structure of 3.4 OTHER RISK FACTORS the Group is found to breach the above mentioned Russian law restriction, the Group could be forced RISKS RELATED TO UKRAINIAN LAND to either sell its land, or return the land to the RENTAL previous owner (in which case it will be entitled to Ukrainian law imposes several restrictions on require the purchase price back from the previous ownership of agricultural land. Foreign citizens or owner), or introduce Russian shareholders to its foreign legal entities are not allowed to acquire subsidiaries, which may have a material adverse agricultural land, and it is unclear whether a effect on the Group’s business, financial condition Ukrainian company controlled by non-Ukrainians and operational results. may own agricultural land in Ukraine. Moreover, 3.5 SITUATION IN UKRAINE AND there is a blanket moratorium against selling POTENTIAL IMPACT ON THE freeholds of agricultural land until adoption of GROUP’S OPERATIONS particular legal act on the land market and land cadastre in Ukraine. Background: The Group owns the buildings and structures of its The Ukrainian economy is considered to be Ukrainian farms and controls the Ukrainian land developing and characterised by relatively high through registered long-term leases supplemented economic and political risks. The future stability of with a right of first refusal to acquire the freehold, the Ukrainian economy is largely dependent upon or through signed, but not yet registered, leases. reforms and the effectiveness of economic, However, under the current legislation, the Group financial and monetary measures undertaken by may not be able to exercise its right of first refusal government, together with tax, legal, regulatory, to acquire the freehold. In the event that the and political developments. As a developing Group’s title to any of its land is challenged, and economy, it is vulnerable to market downturns and the Group is unable to defend such a claim, the economic slowdowns elsewhere in the world. Group risks losing its rights to such land which In 2013, the world demand for Ukraine's main could materially affect the Group’s business, export commodities, steel and iron ore, was weak. financial condition, and operational results. The year was marked by one of record crop RISKS RELATED TO LAND OWNERSHIP harvests; however world prices for wheat, corn and IN RUSSIA sunflower seed reduced significantly due to peak harvests in other crop producing regions. In 2013 Russian law does not allow a foreign entity nor a Ukraine's GDP was flat year on year (2012: foreign controlled Russian entity to own agricultural increase by 0.2%), while industrial output land in Russia. A Russian entity is considered a contracted by 4.7% (2012: reduction by 0.5%). foreign controlled entity when more than 50 per The Government of Ukraine introduced a number of cent of its share capital is owned by a foreign restrictions in relation to foreign exchange aiming entity. to support the national currency, the Ukrainian The Russian agricultural land of the Group is Hryvnia. Inflation during the year was close to zero currently owned by Russian operating companies, as the National Bank of Ukraine reduced the money which are wholly-owned subsidiaries of the relevant supply. The national foreign exchange reserves holding companies incorporated in Russia. The reduced to the level of 3 month imports at year Russian parent holding companies are, in turn, end due to reduced inflows from sale of owned (depending on the Company, directly or commodities and agro produce, the need to settle indirectly) by Cypriot holding companies. While this scheduled payments, primarily with the structure technically complies with the Russian law restriction on the foreign ownership of Russian
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International Monetary Fund, and to pay the of EUR 5.1 million. Additionally, prepayments for current and past purchase of natural gas. land rent amount to EUR 2.4 million. The anticipated association agreement with the The Group has significant balances receivable with European Union was not signed at the end of and prepayments made to various government November 2013. The Government announced a departments in Ukraine in total amount of EUR deal with the Russian Federation for the purchase 1,340 thousand. Out of this amount, the timing of of Ukrainian Government bonds up to USD 15 settlement is uncertain and is dependent upon the billion, of which USD 3 billion was provided in availability of State funds for prepaid income taxes December 2013. The political system of Ukraine of EUR 90 thousand and VAT recoverable of EUR experienced instability with a number of protests 293 thousand. against the Government’s actions in late 2013 and The current situation could impact the Group’s street violence in January - February 2014. At the ability to operate in Ukraine and the value of end of January 2014, the President of Ukraine Ukrainian assets. accepted the resignation of Ukraine’s Prime Devaluation impact: Minister. Following this, the Russian Government suspended the support of the Ukrainian The Group is impacted by the devaluation of the Government and Moody’s Investors Service Ukrainian hryvna and the Russian rouble. As downgraded Ukraine's government bond rating to described in Note 10, significant portion of Caa2 from Caa1 with a negative outlook. To reduction of equity is due to devaluation of the stabilise the deteriorating political situation, the Russian rouble and the Ukrainian hryvna that has Parliament voted a return of the 2004 Constitution led to decrease of the book value of rouble and and dismissed the President. On 26 February, the hryvna denominated assets on the Group's balance newly formed Parliament majority coalition sheet. Russian rouble and Ukrainian hryvna have appointed a Prime Minister and the Government. continued to devalue in 2014. The assets on the Group’s balance sheet in Russia and Ukraine are During January-February 2014, the Ukrainian denominated in local currency and will decrease in Hryvnia saw a significant decrease in value against euro terms when rouble and hryvna weaken the major world currencies. The new Government against the euro. called for immediate dialogue with the International Monetary Fund to provide financing In order to counterbalance the negative impact of and avoid possible default. On 1 March, the the currency devaluation on the book values of Russian parliament granted approval for the use of Group's assets, the management is considering armed forces in Ukraine. Russian troops were adopting a policy of revaluing its freehold land to believed to be occupying government offices and fair value in accordance with fair value provisions other locations in Crimea. The Ukrainian armed of IAS 16 ‘Property, plant and equipment’. forces were put on full alert. Currently freehold land is stated at historic cost. Land prices are considered to be stable measured On 16 March, a referendum was held in Crimea in EURO and therefore increasing in local currency where 96% of voters supported Crimea joining when local currencies are devaluing. The Russia. The EU and U.S. condemned the revaluation of land would provide shareholders with referendum as illegal. On 18 March, Russia a more representative value than the historic cost annexed Crimea. At this point it is impossible to basis and would enable to protect against the predict how far the ambitions of Russia will go in fluctuations of local currencies against the euro. Ukraine and whether Russia will try to invade eastern Ukraine. Apart from Crimea, there have Impact on liquidity: been violent clashes between pro-Russian The Group has issued SEK nominated bonds demonstrators and Ukrainian nationalist in the city amounting to 41.2 million EUR. Covenants are of Kharkov which is located close to the Russian attached to the bonds. As described in Note 3.2, border. Financial indebtedness to shareholders’ equity as of Impact on the Group’s operations 31 December 2013 is 71%. According to covenants Financial indebtedness to shareholders’ equity A significant part of Trigon Agri’s operations are should at all-time be below 75%. located in the Kharkov region, where the Group has in total 32.7 thousand hectares, out of which There is uncertainty as to whether the devaluation 21.0 thousand hectares has been seeded with of Ukrainian hryvna and Russian rouble will result winter crops in autumn 2013. The book value of in Financial indebtedness to shareholders’ equity fixed assets as at 31.12.2013 stands at EUR 7.8 breaching the covenant limit of 75%. To million, including vehicles and machinery in amount counterbalance the impact of the devaluation, the management is considering adopting a policy of
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revaluing its freehold land to fair value (as on the disposal of non-core asset disposals that explained above under “Devaluation impact”), include the dairy businesses in Estonia and Russia, which would also provide shareholders with a more and the cereals production cluster in Penza. representative value of the Group’s land holdings. Based on the initiatives implemented, the The bond expires in June 2015. Management aims initiatives planned and possible further initiatives if to repay the bond using the proceeds that would the situations worsened the Group expect to have come from non-core asset disposals. If the sufficient cash to continue its business. situation in Ukraine gets worse and the Group The final resolution and the effects of the political would have to repay the bond early, the Group and economic crisis are difficult to predict but they could launch a fire sale of non-core assets and, if may have further severe effects on the Ukrainian necessary, include parts of core assets to the sale. economy and the Group’s business. As explained in the Chairman’s comment, the Group has implemented cost cuts and is working
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4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENT
Estimates and judgments are continually evaluated December 31, 2012). The remaining balance and are based on historical experience and other includes land, which does not depreciate; and factors, including expectations of future events that construction in process. Management has estimated are believed to be reasonable under the useful lifetimes for depreciable property, plant and circumstances. equipment. However, the actual useful lifetimes can be different than those estimated by the 4.1 CRITICAL ACCOUNTING ESTIMATES management. If the average useful lifetime would be AND ASSUMPTIONS 10% longer (shorter) than estimated by the The Group makes estimates and assumptions management, it would decrease (increase) the concerning the future. The resulting accounting depreciation charge by EUR 746 thousand (EUR 766 estimates will, by definition, rarely equal the related thousand in 2012). actual results. The estimates and assumptions that have a significant risk of causing a material c) Net realisable value and fair value less adjustment to the carrying amounts of assets and costs to sell of inventories liabilities within the next financial year are outlined The Group has its agricultural produce in inventory below. as of the year end. The agricultural produce and inventories for commodities trading have been a) Fair value of biological assets valued to fair value less costs to sell. The fair value The Group’s biological assets are measured at fair of the grain is determined based on the market value less point-of-sale costs at each balance sheet statistics published by APK-Inform or in case the date (value at December 31, 2013 was EUR 13,946 Group had sold or had sales contracts for its thousand, value at December 31, 2012 was EUR inventory then those actual prices were used. 14,832 thousand). Due to the specifics of the Would the prices been lower than estimated by agricultural production, fair value of some crops and 10%, the value of the inventories would be EUR animals cannot be determined reliably in their 263 thousand less and the equity smaller by the present status. The biological assets in the countries equal amount (in 2012: EUR 1,086 thousand). where the Group operates (Ukraine, Russia and d) Fair values of the assets and liabilities Estonia) are mostly not traded on active market. analysed in purchase price allocations in Therefore the fair value is determined using the accounting for business combinations alternative methods described in Note 2.8. The use of alternative methods of fair value estimation The Group has estimated the fair values of the requires the Group to refer to latest transactions and assets and liabilities of the subsidiaries acquired in use price averages, or to use cost as an course of the business combinations. Because the approximation of fair value in case when little subsidiaries have been bought from different biological transformation has taken place since initial counterparties on arm's length conditions, these cost incurrence, e.g. within short time after seeding different transactions provided additional the crop. Because the carrying value of the biological comparative basis for determining the fair values of assets in the plant cultivation is based on cost upon assets and liabilities, in addition to the information initial recognition, no variability analysis is relevant. disclosed in public by the competitors and that Were the actual prices for the biological assets in provided by consultants. animal husbandry higher by 10% from e) Distinction between the business management’s estimates, the net profit would combinations and asset purchases increase by EUR 876 thousand (EUR 870 thousand in 2012), if the prices were lower by 10%, the net The Group decides at each purchase of majority profit would decrease by the same amount. share of a company or major group of assets whether the acquisition is a business combination b) Useful lives of property, plant and or asset acquisition. The acquisition is classified as equipment business combination when the assets acquired The depreciable items of property, plant and and liabilities assumed constitute a business. For equipment amounted to EUR 46,862 thousand as at each acquisition, the Group analyses whether it has December 31, 2013 (EUR 53,228 thousand as at inputs, processes applied to those inputs and
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created outputs in place before acquisition with the revenues, operating expenses, investment main component being processes. Acquisition of a requirements and working capital needs. The test company owning property, plant and equipment or demonstrated that the Group’s assets recoverable inventories without having in place processes to value is higher than the carrying amount in all of generate outputs is not considered a business its operating segments. The Group has used in the combination. model its target yields and 3-year average prices f) Recoverable values of the non-current for cereals, except for 2014 where lower prices assets were used. The Group applied 2% long-term growth rate that has been aggregated from the In 2013 impairment test was carried out, no long-term growth perspective in the respective requirement for impairment was identified. The country and estimation of the growth in food prices value-in-use method was applied to determine the in relation to other inputs. The discount rates recoverable values of non-current assets in applied were the following: 16% in Ukraine, 11% in operating clusters (cereals production Ukraine; Russia and 7% in Estonia. cereals production Rostov; cereals production Penza; storage services and sales and trading; milk In 2012 the impairment testing was not necessary production Estonia, milk production Russia). Cash as the management of the Group did not identify flows were projected in each cluster, including any indication of impairment.
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5. CASH AND CASH EQUIVALENTS
in EUR thousand 31.12.2013 31.12.2012 Cash on hand 19 46 Short-term bank deposits 4,978 8,144 4,997 8,190
Short-term bank deposits bear interest of 0%-2% The credit quality of cash at bank according to banks on annualised base (in 2012 0.0% – 5.0%). external credit rating (Moody’s) is given in the following table.
in EUR thousand 31.12.2013 31.12.2012 A1 2,254 675 A2 452 4,888 Baa1 240 624 Baa2 - 60 Baa3 139 - Ba2 996 6 Caa1 - 1,173 Caa3 330 - Without Moody’s rating * 7 519 Other** 579 245 4,997 8,190 * The balances without Moody’s rating include cash **Other includes cash in Megabank (Ukraine) – not in Unicreditbank (Russia) and in Alfa Bank (Russia), rated and cash in hand. which are not rated by Moody’s.
The split of cash between currencies: The split of cash between currencies: in EUR thousand 31.12.2013 31.12.2012 Ukrainian hryvna 2,133 4,091 US dollar 186 2,146 Euro 2,266 1,129 Swedish krona 1 12 Russian rouble 365 627 Swiss franc 45 185 Danish krone 1 - 4,997 8,190
6. TRADE AND OTHER RECEIVABLES
Amended in EUR thousand 31.12.2013 31.12.2012 Trade receivables 2,495 3,405 Other receivables 6,619 5,087 Prepayments 9,751 8,153 Total receivables and prepayments 18,865 16,645 Less non-current portion: Prepayments for new acquisitions -4,949 -2,416 Prepayments for non-current assets -1,223 - Other receivables -3,610 -3,524 Total non-current portion 9,782 5,940 Current portion 9,083 10,705
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The fair values of trade and other receivables are dairy operations in Russia. In February 2014 the not materially different from the carrying values Group finalised land purchases in amount of EUR based on the expected discounted cash flows. All 2,026 thousand out of the total amount of EUR non-current receivables are due within more than 4,949 thousand. one year from the balance sheet date. Non-current As at December 31, 2013, Prepayments for non- prepayments will realize in non-current assets, like current assets stood at EUR 1,223 thousand. As at land and property, plant and equipment. December 31, 2012, Prepayments for non-current As at December 31, 2013, Other receivables include assets in amount of EUR 382 thousand were EUR 1,865 thousand for the sale of shares in Trigon recorded under property, plant and equipment. Dairy Farming Estonia AS (Note 31). For breakdown of trade and other receivables by As at December 31, 2013, Non-Current prepayments category please refer to Note 7. for new acquisitions in amount of EUR 4,949 thousand were related to the land acquisition for
The expected timing of proceeds from trade receivables is as follows: in EUR thousand 31.12.2013 31.12.2012 Up to 3 months 1,745 2,202 3 to 6 months 620 404 Over 6 months 130 799 2,495 3,405 including receivables not due 2,303 1,738 including receivables overdue up to 3 months 88 1,009 including receivables overdue up 3 to 6 months 5 11 including receivables overdue over 6 months 99 647 The expected timing of proceeds from other receivables is as follows: Amended in EUR thousand 31.12.2013 31.12.2012 Up to 3 months 2,346 603 3 to 6 months 22 32 Over 6 months 4,251 4,452 6,619 5,087
including receivables not due 6,617 5,035 including receivables overdue over 6 months 2 52
All receivables are from counterparties without credit recognised from the receivables in 2013 was EUR rating. Trade receivables less than 3 months past 269 thousand (in 2012 EUR 443 thousand). EUR 631 due from balance sheet date are not considered thousand was write-off of other doubtful receivables impaired based on the individual assessment of each (in 2012 EUR 2,842 thousand) (Note 25). significant receivable. Total impairment loss
in EUR thousand 2013 2012 At January 1 -460 -472 Provision for receivables impairment -269 -443 Unused amounts reversed 27 112 Disposed subsidiaries - 354 Currency translation differences 57 -11 At December 31 -645 -460
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The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies: Amended in EUR thousand 31.12.2013 31.12.2012 US dollar 2 - Russian rouble 3,163 2,626 Ukrainian hryvna 3,158 5,846 Euro 12,542 8,173 18,865 16,645 The maximum exposure to credit risk arising from mentioned above. The Group does not hold any trade and other receivables at the reporting date is collateral as security for the trade receivable the carrying amount of each class of receivable
7. FINANCIAL INSTRUMENTS BY CATEGORY
Amended 31.12.2013 31.12.2012
Loans and Loans and receivables receivables Assets as per balance sheet Cash and cash equivalents 4,997 8,190 Trade and other receivables excluding prepayments 9,114 8,492 14,111 16,682
Financial Financial liabilities at liabilities at amortised amortised cost cost Liabilities as per balance sheet Trade and other payables excluding social security, other taxes and prepayments from clients 3,285 9,836 Borrowings excluding finance lease liabilities 72,607 67,317 Finance lease liabilities 1,470 2,141 77,362 79,294
Prepayments are excluded as this analysis is required only for financial assets. 8. INVENTORIES
Inventory breakdown, EUR thousand 31.12.2013 31.12.2012 Grain for sale 2,631 10,856 Raw materials, supplies 5,533 7,379 Fieldworks in process 2,626 3,224 Total 10,790 21,459
Grain for sale, Average price used Breakdown of the grain for sale, agricultural Total Grain for for valuing Grain for agricultural produce inventory, produce, EUR sale, agricultural sale, agricultural 31.12.2013 thousand produce, tonnes produce, EUR/t Wheat 38 283 134 Barley 8 62 130 Sunflower 2,491 10,313 242 Corn 22 217 102 Rapeseed 22 99 221 Other 50 1,597 31 Total 2,631 12,572 209
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Grain for sale, Average price used Breakdown of the grain for sale, agricultural Total Grain for for valuing Grain for agricultural produce inventory, produce, EUR sale, agricultural sale, agricultural 31.12.2012 thousand produce, tonnes produce, EUR/t Wheat 91 499 182 Barley 105 653 161 Sunflower 5,412 13,584 398 Corn 3,761 24,478 154 Rapeseed 37 107 345 Soya 1,317 3,742 352 Other 133 2,334 57 Total 10,856 45,397 239
Grain for sale is revalued by the Group on each Inventory in Ukraine as at December 31, 2013 was balance sheet date. For revaluations as at pledged at a carrying value of EUR 2,357 thousand December 31, the Group has used the market for the benefit of the bank (no inventory pledged prices from APK-Inform statistics as at the end of as at 31.12.2012). January both years (the year-end prices did not Inventory in Estonia as at December 31, 2013 was reflect the realistic market situation due to the long pledged at a carrying value of EUR 2,228 thousand holiday´s season in Ukraine and Russia and for the benefit of the bank (EUR 2,252 thousand as therefore very low volume of trades). In case the at 31.12.2012). APK-Inform market is considered to be illiquid at year-end, then the Group uses market from the moment when trading volumes are restored and market becomes liquid. In case the Group had sold or had sales contracts for its inventory after the balance sheet date but before February 1, 2014, the actual prices were used.
9. BIOLOGICAL ASSETS
Plant Animal Total in EUR thousand cultivation husbandry Carrying amount at 31.12.2011 5,947 5,014 10,961 Non-current biological assets 130 5,013 5,143 Current biological assets 5,817 1 5,818 2012 Increases through business combinations (amended) 1,558 3,357 4,915 Decrease due to sales -1,506 - -1,506 Gain/loss arising from changes in fair value less estimated point of sale costs of biological assets: 105 241 346 - Increases due to new plantations/birth 45,326 1,354 46,680 - Harvest -43,623 - -43,623 - Decreases due to written-off biol.assets -1,598 -1,851 -3,449 - Other changes in fair value - 738 738 Currency translation differences 24 92 116 Carrying amount at 31.12.2012 (amended) 6,128 8,704 14,832 Non-current biological assets 413 8,704 9,117 Current biological assets 5,715 - 5,715
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Plant Animal Total in EUR thousand cultivation husbandry Carrying amount at 31.12.2012 (amended) 6,128 8,704 14,832 Non-current biological assets 413 8,704 9,117 Current biological assets 5,715 - 5,715 2013 Increases due to purchases 20 2 22 Decrease due to sales -3 - -3 Gain/loss arising from changes in fair value less estimated point of sale costs of biological assets: -617 376 -241 - Increases due to new plantations/birth 42,676 1,721 44,397 - Harvest -42,729 - -42,729 - Decreases due to written-off biol.assets -564 -1,921 -2,485 - Other changes in fair value - 576 576 Currency translation differences -345 -319 -664 Carrying amount at 31.12.2013 5,183 8,763 13,946 Non-current biological assets 554 8,763 9,317 Current biological assets 4,629 - 4,629
Winter Animals, crops, pcs hectares Physical quantities at 31.12.2013 8,134 46,344 Physical quantities at 31.12.2012 7,585 52,186
As at the balance sheet date, Current biological The gain arising from changes in fair value includes assets in plant cultivation include winter crops changes in both physical quantities due to the seeded in autumn 2013. The fair value of these growth of plants/animals and changes in market crops is determined by the cost of seeding. Costs prices of the biological assets. are capitalised only to plant cultivation, as animal Biological assets in Russia were pledged at a carrying husbandry is measured at fair value less costs to value of EUR 551 thousand (2012: EUR 1,012 sell. thousand) for the benefit of the bank. In Ukraine Non-current biological assets in plant cultivation winter crops (10,801 hectares) at a carrying value of include grasslands, which are used for harvesting of EUR 1,339 thousand were pledged for the benefit of animal feed, and non-current assets in animal the bank (2012: no pledges). In Estonia biological husbandry include dairy herd, both mature and assets at a carrying value of EUR 6,909 thousand were immature. pledged for the benefit of the bank (2012: 6,456).
10. PROPERTY, PLANT AND EQUIPMENT
As of 31 December 2013 the Group owned 113,926 The change in total property, plant and equipment hectares of land, out of which 4,673 hectares was in carrying value was also influenced by the change in Estonia and 109,253 hectares in Russia. As of 31 the exchange rate of Russian rouble and Ukrainian December 2012 the Group owned 113,767 hectares of hryvna, which decreased their value in relation to land, out of which 4,516 hectares was in Estonia and the Euro by 12% and 5% respectively between 109,251 hectares in Russia. December 31, 2012 and December 31, 2013 The Group’s acquisitions of property, plant and (increased their value in relation to the Euro by 3% equipment during 2013 amounted to EUR 6,912 and decreased by 2% respectively between thousand (EUR 9,059 thousand in 2012). The December 31, 2011 and December 31, 2012). difference compared to the purchase of property, Please see Note 3.2 for further information. plant and equipment in the cash flow statement is In Estonia as at December 31, 2013 land at a carrying mainly related to the prepayments for new value of EUR 4,005 thousand was pledged for the acquisitions and prepayments for non-current assets benefit of the bank (2012: EUR 3,109 thousand). that are recorded under Trade and other receivables Buildings, machinery and equipment in Estonia were (Note 6). pledged at a carrying value of EUR 7,913 thousand (2012: EUR 7,878 thousand). Land in Russia was
TRIGON AGRI ANNUAL REPORT 2013 PAGE 73
mortgaged at a carrying value of EUR 40,011 stood at EUR 2,754 thousand (as at December 31, thousand (no mortgages in 2012). Buildings, 2012 EUR 3,142 thousand). Information on operating machinery and equipment in Russia were pledged at a lease liabilities of the assets acquired under the terms carrying value of EUR 982 thousand (2012: EUR 1,573 of an operating lease is presented in Note 23. thousand). Buildings, machinery and equipment in In 2013, there were no material construction-related Ukraine were pledged at a carrying value of EUR 7,837 borrowing costs, thus interest costs were not thousand (2012: EUR 11,542 thousand). capitalized. The net book value of the financial leased assets (vehicles and machinery) as at December 31, 2013
Furniture, Vehicles & Construction in EUR thousand Land Buildings fittings & Total machinery in process equipment
31.12.2011 Cost 28,907 33,266 36,174 863 818 100,028 Accumulated depreciation - -4,014 -12,351 -435 - -16,800 Net book amount 28,907 29,252 23,823 428 818 83,228
2012
Additions 618 950 4,921 -46 2,616 9,059
Acquisitions through 72,497 3,560 726 69 94 76,946 business combinations
Disposals -12,438 -1,877 -1,366 -29 -15 -15,725 Reclassification balance sheet items/between 6 23 -148 -10 - -129 groups Depreciation charge - -1,539 -5,977 -146 - -7,662 Exchange rate differences 1,138 -81 565 130 4 1,756 Closing net book 90,728 30,288 22,544 396 3,517 147,473 amount
31.12.2012
Cost 90,728 35,606 40,377 981 3,517 171,209 Accumulated depreciation - -5,318 -17,833 -585 - -23,736 Net book amount 90,728 30,288 22,544 396 3,517 147,473
2013 Additions 527 1,680 2,507 94 2,104 6,912 Disposals -1 -208 -369 -41 - -619 Reclassification balance sheet items/between - 364 289 71 -1,187 -463 groups Depreciation charge - -1,625 -5,684 -147 - -7,456 Exchange rate differences -9,539 -1,810 -1,464 -23 -261 -13,097 Closing net book 81,715 28,689 17,823 350 4,173 132,750 amount
31.12.2013 Cost 81,715 35,539 39,804 1,059 4,173 162,290 Accumulated depreciation - -6,850 -21,981 -709 - -29,540 Net book amount 81,715 28,689 17,823 350 4,173 132,750
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11. INTANGIBLE ASSETS
Software in Software Total in EUR thousand progress
31.12.2011 Cost - 179 179 Accumulated amortization - - - Net book amount - 179 179
2012 Additions 66 20 86 Reclassification balance sheet items/between groups 129 - 129 Amortization charge -43 - -43 Exchange rate differences -4 - -4 Closing net book amount 148 199 347
31.12.2012 Cost 209 199 408 Accumulated amortization -61 - -61 Net book amount 148 199 347
2013 Additions 212 22 234 Disposals -166 - -166 Reclassification balance sheet items/between groups 170 -220 -50 Amortization charge -101 - -101 Exchange rate differences -11 - -11 Closing net book amount 252 1 253
31.12.2013 Cost 425 1 426 Accumulated amortization -173 - -173 Net book amount 252 1 253
12. PREPAID LAND RENTS AND LAND USAGE RIGHTS
The Group’s land in Ukraine is used mainly based on has made prepayments or has recognised land usage long term (up to 40 years) lease agreements. There rights in business combinations to get access to that was 47,843 hectares of land in use based on long- land. These prepayments and land usage rights are term lease agreements as of December 31, 2013 (as amortised during the period of lease (Note 23). of December 31, 2012: 52,030 hectares). The Group
in EUR thousand 31.12.2013 31.12.2012 Balance at the beginning of the period 4,043 5,876 Additional prepayments made 61 57 Amortization recognised -705 -928 Disposal - -818 Unrealised exchange rate differences -38 -144 Balance at the end of the period 3,361 4,043
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13. TRADE AND OTHER PAYABLES
Amended in EUR thousand 31.12.2013 31.12.2012 Trade payables 1,317 3,633 Social security and other taxes 1,175 1,853 Accrued expenses 1,687 1,392 Amounts due to related parties (Note 34) 12 15 Payables related to new acquisitions - 4,864 Other payables 308 793 4,499 12,550 Less: non-current portion -149 -755 4,350 11,795
Fair values of trade and other payables are not The carrying amounts of the Group’s trade payables materially different from book values due to short are denominated in the following currencies: maturities.
Amended in EUR thousand 31.12.2013 31.12.2012 US dollar - 2,301 Russian rouble 764 1,235 Ukrainian hryvna 1,527 1,799 Euro 2,208 7,215 4,499 12,550
14. BORROWINGS
The total borrowings of the Group as at December Details of the borrowings’ currencies, interest rates 31, 2013 amounted to EUR 74,077 thousand and maturities are shown in the included tables. compared with EUR 69,458 thousand as at Total finance costs in 2013 amounted to EUR 7,966 December 31, 2012. thousand (EUR 7,353 thousand in 2012). Increase in borrowings was related mainly to the In the Cash flow statement proceeds/repayments of new loan of EUR 12,000 thousand with maturity date borrowings and interests are shown in a different in 2016. We also received following loans to amount due to changes in foreign exchange rates, refinance existing loans: USD-nominated loans in different periodization of interest payments amount of USD 16,828 thousand with maturity dates compared with accrual of interest expenses and due in 2014-2016 and EUR 8,542 thousand loan with to finance lease payables (Cash flow statement maturity date in 2020. The value of the SEK- reflects only actual payments and not changes in nominated bond in EUR decreased due to the change Balance sheet items). in exchange rate. Other changes in borrowings included repayments of RUB-nominated loans and refinancing of existing loans.
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31.12.2013, in EUR thousand 31.12.2013 Maturity Interest rate SEK-nominated (bonds incl accrued interest) 41,174 2015 11% RUB-nominated 1,319 2014-2017 2-17% USD-nominated 5,663 2014-2015 5-9% USD-nominated 4,493 2014-2016 LIBOR+8.75%-9.5% USD-nominated 141 2017 no interest EUR-nominated 15 2014 6.07% EUR-nominated 11,881 2016 3m EUR LIBOR+6%, min 10% EUR-nominated 235 2016 3 month EURIBOR+0.0% EUR-nominated 9,082 2014-2020 6m EURIBOR + 1.4-3.35% EUR-nominated 31 2016 no interest UAH-nominated 43 2016-2017 no interest 74,077
Less: non-current portion 58,795 15,282
Amended 31.12.2012 Maturity Interest rate 31.12.2012, in EUR thousand SEK-nominated (bonds incl accrued interest) 42,259 2015 11% RUB-nominated 10,249 2013-2017 2-19% USD-nominated 8,493 2013-2015 5-12% USD-nominated 178 2017 no interest EUR-nominated 35 2013-2014 5.9-6.07% EUR-nominated 1,077 2014 bank base interest rate + 1.5% EUR-nominated 6,283 2013-2018 6m EURIBOR + 1.4-2.7% EUR-nominated 723 2020 5y EURIBOR + 1.9% EUR-nominated 41 2016 no interest UAH-nominated 32 2013 23% UAH-nominated 88 2016-2017 no interest 69,458
Less: non-current portion 49,486 19,972 Amended in EUR thousand 31.12.2013 31.12.2012 Non-current Bank borrowings 57,995 48,094 Finance lease payables 800 1,392 58,795 49,486 Current Bank borrowings 14,612 19,223 Finance lease payables 670 749 15,282 19,972 Total borrowings 74,077 69,458
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Amended 31.12.2013 31.12.2012 Finance Finance lease lease in EUR thousand Borrowings payables Borrowings payables Euro 20,422 821 7,278 881 US dollar 9,746 551 7,575 1,096 Swedish krona 41,174 - 42,259 - Russian rouble 1,265 55 10,173 76 Ukrainian hryvna - 43 32 88 72,607 1,470 67,317 2,141
TRIGON AGRI ANNUAL REPORT 2013 PAGE 77
Amended 31.12.2013 31.12.2012 Finance Finance Bank lease Bank lease borrowings payables borrowings payables Floating rate: – Expiring within one year 4,478 301 472 225 – Expiring beyond one year 8,557 474 6,806 580 Fixed rate:
– Expiring within one year 10,134 369 18,751 524 – Expiring beyond one year 49,438 326 41,288 812 72,607 1,470 67,317 2,141
Finance lease Total future minimum payments payables in EUR thousand 31.12.2013 31.12.2012 up to 12 months 737 987 1-5 years 851 1,523 1,588 2,510 Future interests 118 369 Present value of the lease 1,470 2,141
All the loan and lease arrangements have been lease because the ownership of leased assets passes concluded under regular terms in the respective to the Group at the end of lease term. The Group country. Lease agreements are related to the has operating lease of land, office premises and purchase of buildings, machinery and equipment in machinery in several locations (for further details on the Group’s production clusters of Estonia, Ukraine operating lease payments please refer to Note 23) and Russia. All these leases are classified as finance
15. INCOME TAX
Income tax expense in EUR thousand 2013 2012 Current tax:
Current tax on profits for the year 860 751 Adjustments in respect of prior years -112 39 Total current tax 748 790 Deferred tax (Note 16): Origination and reversal of temporary differences -28 -309 Impact of change in tax rate (Ukraine) -32 -9 Total deferred tax -60 -318 Income tax expense 688 472
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The tax on the group’s profit before tax differs from weighted average tax rate applicable to profits of the the theoretical amount that would arise using the consolidated entities as follows:
Profit/loss before tax -16,156 2,159 Loss before tax from entities not subject to Income tax by statutory legislation -3,018 -677
Adjusted Profit/loss before tax -13,138 2,836 Tax calculated at domestic tax rates applicable to profits in the respective countries -2,541 361 Tax effects of: - - Income not subject to tax -5,502 -8,887 Expenses not deductible for tax purposes 7,527 6,930 Utilisation of previously unrecognised tax losses -854 -677 Tax losses for which no deferred income tax asset was recognised 1,937 2,625 Adjustments in respect of prior years 121 120 Tax charge 688 472
The weighted average applicable tax rate was 19% income tax, but to the unified agricultural tax. (2012: 13%). The increase is caused by a change in The agricultural tax is based on hectares of arable the profitability of the Group’s subsidiaries in the land the company uses, not on its earnings and respective countries. therefore no deferred tax arises. All other companies in Ukraine (companies that are related The Group does not have material deferred tax to sales and trading and storage elevators) are assets or liabilities in companies, which are active in under regular tax regime and subject to income agricultural production. This is due to the following tax. The deferred tax assets in Ukraine as at reasons: 31.12.2013 are expected to be recovered before 1) The Group companies in Estonia are subject to they expire during coming periods. income tax only when the profits are distributed. 3) The Group companies in Russia, except for No corporate income tax is imposed on earnings; sub-holding companies, are also subjects of the therefore there are no temporary differences agricultural tax. Agricultural tax regime means between the tax and accounting bases of assets that the agricultural producer pays tax only from and liabilities. non-agricultural profits. 2) All of the Group companies in Ukraine that are producing agricultural produce are not subject to
16. DEFERRED TAX
The analysis of deferred tax assets and deferred tax liabilities is as follows: in EUR thousand 2013 2012 Deferred tax assets: – Deferred tax assets to be recovered after more than 12 months -1 -762 – Deferred tax asset to be recovered within 12 months -17 -13 -18 -775 Deferred tax liabilities: – Deferred tax liability to be recovered after more than 12 months 2,221 2,719 – Deferred tax liability to be recovered within 12 months 95 98 2,316 2,817 Deferred tax liabilities (net) 2,298 2,042 The gross movement on the deferred income tax account is as follows:
in EUR thousand 2013 2012 At 1 January 2,042 2,260 Exchange differences -88 -88
Income statement charge related to change in deferred tax assets/ liability -60 -318
TRIGON AGRI ANNUAL REPORT 2013 PAGE 79
Tax charge /(credit) relating to components of other comprehensive income 404 188 At 31 December 2,298 2,042
Deferred income tax assets are recognised for tax accumulated amount of tax losses where tax asset loss carry-forwards to the extent that the was not recognized as at 31.12.2013 was EUR realisation of the related tax benefit through future 17,637 thousand (2012: EUR 12,259 thousand) taxable profits is probable. In 2013, the group did that can be carried forward against future taxable not recognise deferred income tax assets of EUR income. Losses amounting to EUR 5,533 thousand 1,937 thousand (EUR 2,625 thousand in 2012) in (EUR 2,563 thousand 2012) have unlimited usage, respect of losses amounting to EUR 9,416 thousand rest of losses will expire during 5 to 10 years. (EUR 12,166 thousand in 2012) that can be carried forward against future taxable income. The Accelerated tax Other Total Deferred tax liabilities depreciation At 1 January 2012 2,542 535 3,077 Charged/(credited) to the income statement -98 -83 -181 Exchange difference -46 -33 -79 At 31 December 2012 2,398 419 2,817 Charged/(credited) to the income statement -95 -294 -389 Exchange difference -106 -6 -112 At 31 December 2013 2,197 119 2,316
Deferred tax assets Other Total At 1 January 2012 -817 -817 Charged/(credited) to the income statement -137 -137 Tax charge /(credit) relating to components of other comprehensive income 188 188 Exchange difference -9 -9 At 31 December 2012 -775 -775 Charged/(credited) to the income statement 329 329 Tax charge /(credit) relating to components of other comprehensive income 404 404 Exchange difference 24 24 At 31 December 2013 -18 -18
17. SHARE CAPITAL
Incl. Number of ordinary Share Share in EUR thousand shares shares capital premium Total 31.12.2011 129,627,479 129,627,479 129,627 35,127 164,754 2012 Reduction in share capital - - -64,814 64,814 - 31.12.2012 129,627,479 129,627,479 64,814 99,941 164,755 31.12.2013 129,627,479 129,627,479 64,814 99,941 164,755
The total authorized number of ordinary shares is reserve and by reduction of the nominal value of the 129,627,479 shares (as of December 31, 2012: Company’s shares from EUR 1 to EUR 0.5. The 129,627,479 shares) with a par value of 0.5 EUR per reduction of the share capital did not dilute any share (0.5 EUR per share as at December 31, 2012). existing shareholdings or impact the number of All shares have been fully paid. shares owned by each shareholder. Special reserve is recorded within Share premium in equity. According to the resolutions of the Trigon Agri Annual General Meeting on April 26, 2012 the The shares of Trigon Agri A/S are listed on main Company’s nominal share capital was reduced by market of Small Cap segment on NASDAQ OMX EUR 64,814 thousand from EUR 129,627 thousand Stockholm. to EUR 64,814 thousand by transfer to a special
TRIGON AGRI ANNUAL REPORT 2013 PAGE 80
WARRANTS ISSUED TO AS TRIGON CAPITAL: IFRS 2 Share-based Payment requires that the In 2006- 2007, Trigon Capital received warrants to warrants have to be evaluated and recognised in the purchase 14,906,516 shares, which equalled financial statements despite the fact that the approximately 25 per cent of the aggregate number warrants were not disposable. of shares outstanding immediately after the private Based on the valuation results the fair value of the placement completed on 17 May 2007. Trigon Agri warrants in amount of EUR 893 thousand was Advisors received further warrants in 2008 to included in the transaction costs and subtracted purchase 17,500,000 shares. from the share premium in the owners’ equity in The warrants would have been executable if the 2006 financial statements and EUR 4,380 thousand shares of Trigon Agri met the performance criteria in 2008 financial statements. The warrants’ reserve described in the Articles of Association. The period of in other reserves in the owners’ equity was measurement of criteria started in 2010. During recognised in the same amount in the respective 2010-2013 the criteria were not met and the years (Note 19). In 2013 the whole remaining warrants did not have dilutive effects on earnings warrants reserve in amount of EUR 2,847 thousand per share. On October 31, 2013 the last exercise was reclassified to retained earnings as all the window lapsed and as none of the warrants were warrants outstanding as at December 31, 2012 exercised, all warrants have now become null and became null and void during 2013. In 2012 the void and there are no outstanding warrants as at warrants reserve in amount of EUR 737 thousand December 31, 2013 (17,500,000 outstanding was reclassified to retained earnings as the warrants warrants as at December 31, 2012). that had exercise windows between April 30, 2012 The terms and conditions of the warrants are also and October 31, 2012 were not exercised. included in the Articles of Association.
18. DIVIDENDS PER SHARE
Trigon Agri´s Annual General Meeting on April total the Group distributed EUR 506 thousand 29, 2013 approved to distribute 30% of the as dividends, i.e. 0.00390 EUR per share (EUR 2012 net profit of the Group to the 0.00278 per share distributed from 2011 net shareholders as dividends in line with a profit in 2012). dividend policy adopted on April 26, 2012. In 19. OTHER RESERVES
Other reserves Translation in EUR thousand Total (a) differences(b) 31.12.2011 3,584 -24,242 -20,658 Currency translation differences - 1,473 1,473 Reclassification of warrants reserve -737 - -737 Currency translation differences recycled to Income statement in relation to disposal of subsidiaries - 3,160 3,160 31.12.2012 2,847 -19,609 -16,762 Currency translation differences - -13,277 -13,277 Reclassification of warrants reserve -2,847 - -2,847 31.12.2013 - -32,886 -32,886 (a) Warrants’ reserve has been recognised in the warrants will become void. In 2013 all the warrants amount of the fair value of the warrants issued to expired and the total warrants reserve in amount of Trigon Capital and Trigon Agri Advisors during each EUR 2,847 thousand was reclassified to retained consecutive fundraising (Note 18). The fair value of earnings as the warrants that had exercise windows the warrants issued, which equals to the services between April 30, 2013 and October 31, 2013 were received by the Company from Trigon Capital, is not exercised. In 2012 the warrants reserve in included in the other reserves. The reserve will be amount of EUR 737 thousand was reclassified to included into share capital when the warrants are retained earnings as the warrants that had exercise exercised or reversed into retained earnings if the windows between April 30, 2010 and October 31, vesting conditions of the warrants are not met and 2012 were not exercised.
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(b) The currency translation differences arise mainly Income statement in relation to disposal of from the Ukrainian hryvna and Russian rouble subsidiaries was related to the Rostov land swap exchange rate movements during the reporting transaction (Note 31). period. Currency translation differences recycled to 20. REVENUE AND OTHER INCOME
in EUR thousand 2013 2012 Sales of cereals 58,342 59,703 Sales of milk 11,328 8,374 Revenue from elevator services 3,297 3,556 Other revenue 2,641 1,684 TOTAL revenue 75,608 73,317 Subsidies 2,358 2,374 Other income 766 569 Total other income 3,124 2,943
Government grants recognized as income include Revenues of EUR 24,606 thousand (2012: EUR subsidies for both plant cultivation and animal 18,449 thousand) are derived from one external husbandry. Government grants have been received customer and revenues of EUR 5,213 thousand within the framework of the European Union (2012: EUR 1,222 thousand) are derived from projects and Russian government. Additionally the second external customer. These revenues are Group has benefited from special Ukraine VAT attributable to the Sales and trading and Milk treatment, as Ukraine companies under an production segments, respectively. agricultural regime are not obliged to pay VAT and the net of VAT receivable and payable is recorded under Other Losses/Gains (Note 25).
21. RAW MATERIALS AND CONSUMABLES USED FOR PRODUCTION PURPOSES
in EUR thousand 2013 2012 Seeds, fertilizers, chemicals 13,153 13,234 Animal feed 6,947 5,250 Repairs 3,124 3,260 Fuel, gas, electricity 5,927 6,016 Land tax and land rental 4,773 4,325 Other services and materials 9,116 7,492 43,040 39,577
In 2013 the animal feed expenses increased volume of cereals and therefore the use of compared with 2012 due to the acquisition of transportation services increased. Väätsa Farm in April 2012. Higher cost for Other services and materials in 2013 was related to the Sales and trading segment, which sold a larger
TRIGON AGRI ANNUAL REPORT 2013 PAGE 82
22. EMPLOYEE BENEFIT EXPENSE
in EUR thousand 2013 2012 Wages and salaries 8,776 8,360 Social security costs 2,722 2,620 11,498 10,980
The average number of employees in 2013 stood at Remuneration to the Board of Directors is disclosed 1,506 (2012: 1,487). under Note 33.
23. OPERATING LEASE PAYMENTS
In 2013, operating lease payments amounted to income statement. The future aggregate estimated EUR 5,247 thousand (in 2012 EUR 4,330 thousand). operating lease payments under non-cancellable Lease expense are included in Raw material and operating lease agreements include mainly land consumables used and in Other expenses in the lease agreements and are as follows:
in EUR thousand 2013 2012 up to 12 months 4,904 4,377 1-5 years 17,309 15,892 Over 5 years 76,122 80,563 98,335 100,832
Lease agreements have been concluded under as a certain percentage of the value of the land, land regular terms, there are no renewal or purchase rent might be dependent on the financial results and options for the underlying assets. position of the lessee, land rent should be adjusted Calculating future land lease payments in Ukraine with the inflation and depends on other matters include uncertainties as the land rental cost per regulated in the rental agreements. hectare is not fixed, but depends on a number of variables. For example, land rental cost is calculated 24. OTHER ADMINISTRATIVE EXPENSES
in EUR thousand 2013 2012 Legal and consulting fees 6,353 6,969 Office and administration expenses 2,507 2,656 Other expenses 421 453 9,281 10,078
25. OTHER LOSSES/GAINS
in EUR thousand 2013 2012 Gain on disposal of Stavropol and Samara assets (Note 31) - 18,052 VAT in Ukraine 3,608 5,279 Write-off of doubtful receivables (Note 6) -900 -3,285 Foreign exchange losses/gains net -115 295 Write-off of property, plant and equipment -413 -43 Other losses / gains net 147 -758 2,327 19,540
Positive VAT item is related to Ukraine VAT the net of VAT receivable and payable is recorded treatment as Ukraine companies under an under Other Losses/Gains. agricultural regime are not obliged to pay VAT and
TRIGON AGRI ANNUAL REPORT 2013 PAGE 83
26. FINANCE INCOME AND FINANCE COST
in EUR thousand 2013 2012 Interest income 132 95 Other finance income 9 2 141 97 Interest expense at effective interest rate: Finance lease liabilities -108 -137 Bank borrowings -2,889 -2,175 Bond interests -4,719 -4,835 Other interests - -18 Other finance costs -250 -188 -7,966 -7,353
Other interests arise from long-term payables to suppliers. 27. EARNINGS/LOSS PER SHARE
Basic earnings/loss per share is calculated by the Group by the weighted average number of dividing the profit attributable to equity holders of ordinary shares outstanding during the year.
in EUR thousand 2013 2012 Profit/Loss attributable to equity holders of the Group (EUR thousand) -17,157 1,620 Weighted average number of ordinary shares outstanding (thousands) 129,627 129,627 Basic earnings/loss per share (EUR per share) -0.13 0.01
The warrants issued to Trigon Capital are expired dilutive instruments except for the warrants (Note as of December 31, 2013 and the Group does not 18). Thus diluted EPS equals basic EPS as at have convertible bonds, preference shares or other 31.12.2013 and 31.12.2012.
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28. SEGMENT REPORTING
Cereal Cereal Sales Eliminations production production Milk Storage and between 2013, in EUR thousand Ukraine Russia production services trading segments Total Revenue between segments 31,605 7,153 - 2,640 6,929 -48,327 - Revenue from external customers 1,393 162 12,903 4,241 56,909 - 75,608 Total segment revenue 32,998 7,315 12,903 6,881 63,838 -48,327 75,608
Subsidies - 293 2,065 - - - 2,358 Other income 373 206 39 15 214 -81 766 Gain/loss arising from changes in fair value less estimated point-of-sale costs of biological assets -280 -528 567 - - - -241 Total revenue, other income and fair value adjustments 33,091 7,286 15,574 6,896 64,052 -48,408 78,491
Net changes in inventories of agricultural produce and work in process -6,109 -774 3,781 - - - -3,102 Cost of purchased goods -760 -91 -23 -291 -59,087 45,242 -15,010 OPEX -27,672 -12,375 -16,961 -5,304 -4,592 3,085 -63,819 Gain from bargain purchase ------Other (losses)/gains - net 2,891 -288 -100 -208 -49 81 2,327 EBITDA 1,441 -6,242 2,271 1,093 324 - -1,113 Depreciation and amortization -8,258 Finance income/costs -6,785 Profit/loss before income tax -16,156 Additions of Property, plant and equipment 1,192 1,262 3,433 972 53 - 6,912 Additions of Intangible assets 159 9 - 65 1 - 234
Primary measures monitored by the Executive the milk production segment, cereals are produced Board are segment OPEX (which is defined as only in crop rotation order and used mainly as operating expenses less Depreciation and animal feed. In these segments, cereals are amortization) and segment EBITDA (which is considered to be side production. Trading segment defined as Total segment revenue, other income includes companies active in purchasing the cereals and fair value adjustments adjusted with Changes both from the Group and from third parties and in inventories of agricultural produce and work in sales of the purchased cereals. The Storage process less operating expenses before services segment includes grain storage elevators Depreciation and amortization). providing storage services to both Group The management considers five business companies and third parties. segments. For cereals production operations the The Group’s business is seasonal by its nature. The Executive Board considers the business separately largest increase in fair value of biological assets for Ukraine and Russia, for milk production the occurs during the plant growth season from March operations in Russia and Estonia are viewed to September and consequently the largest gains together, for storage services and sales and trading are recognised in the second quarter. The harvest operations the Ukrainian and Russian operations starts in the last days of June and usually lasts are viewed together. until the end of October but subject to weather The Group’s milk production is located in Estonia conditions can continue also to November. During and St Petersburg region. Cereals are produced for the harvest time, the prices for the cereals are sale only in cereals production segments located in usually lowest and the Group may use its storage the Black Earth region in Ukraine and Russia. In capacities to keep the crops until the price increases. Respectively the income in storage
TRIGON AGRI ANNUAL REPORT 2013 PAGE 85
services is usually higher during second half of the Trading income depends on the market conditions year and lower during first half of the year, when and may be irregular. The income from milk sales the elevators are having maintenance period and has the least seasonal nature. are preparing for the next season. Cereal Cereal Sales Eliminations production production Milk Storage and between 2012, in EUR thousand Ukraine Russia production services trading segments Total Revenue between segments 30,441 10,206 2 2,188 5,724 -48,561 - Revenue from external customers 2,658 429 9,848 3,574 56,808 - 73,317 Total segment revenue 33,099 10,635 9,850 5,762 62,532 -48,561 73,317
Subsidies 1 197 2,176 - - - 2,374 Other income 245 205 17 22 84 -4 569 Gain/loss arising from changes in fair value less estimated point-of-sale costs of biological assets 130 -356 572 - - - 346 Total revenue, other income and fair value adjustments 33,475 10,681 12,615 5,784 62,616 -48,565 76,606
Net changes in inventories of agricultural produce and work in process -4,069 -4,257 3,531 - 306 889 -3,600 Cost of purchased goods -4 -133 -72 -11 -59,277 45,332 -14,165 OPEX -27,254 -13,790 -13,753 -4,987 -3,192 2,341 -60,635 Gain from bargain purchase - - 1,734 - - - 1,734 Other (losses)/gains - net 3,280 16,827 -22 -369 -179 3 19,540 EBITDA 5,428 9,328 4,033 417 274 - 19,480 Depreciation and amortization -8,634 Finance income/costs -8,687 Profit/loss before income tax 2,159 Additions of Property, plant and equipment 2,123 2,337 2,014 2,583 2 - 9,059 Additions of Intangible assets 26 8 - 9 43 - 86 Acquisitions through business combinations - 71,844 5,102 - - - 76,946
29. CONTINGENCIES TAXES UKRAINE: ESTONIA: Tax legislation. Ukrainian tax, currency and The tax authorities may at any time inspect the customs legislation is subject to varying books and records within three to five years interpretations, and changes, which can occur subsequent to the reported tax year, and may frequently. Management’s interpretation of such impose additional tax assessments and penalties in legislation as applied to the transactions and Estonian subsidiaries of the Group. Tax audits were activity of the Group may be challenged by the not conducted in 2012 or 2013 in Estonia. The relevant regional and federal authorities. The tax Group's management is not aware of any authorities in Ukraine may be taking a more circumstances which may give rise to a potential assertive position in their interpretation of the material liability in this respect. legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain
TRIGON AGRI ANNUAL REPORT 2013 PAGE 86
open to review by the authorities in respect of possible that transactions and activities that have taxes for three calendar years preceding the year not been challenged in the past may be challenged. of review. Under certain circumstances reviews As a result, significant additional taxes, penalties may cover longer periods. and interest may be assessed. The tax consequence of transactions for Ukrainian Fiscal periods remain open to review by the taxation purposes is frequently determined by the authorities in respect of taxes for three calendar form in which transactions are documented and the years preceding the year of review. Under certain underlying accounting treatment prescribed by circumstances reviews may cover longer periods. Ukrainian GAAP. Russian transfer pricing legislation provides the The Group performed legal merger of 5 companies possibility for tax authorities to make transfer acquired in 2008 in Kirovograd region. For the pricing adjustments and impose additional tax merger to be effective, the Tax Authorities are liabilities in respect of all controllable transactions, obliged to issue confirmation about missing of the provided that the transaction price differs from the tax liabilities. The Group has received these market price by more than 20%. confirmations for all 5 companies. Tax Authorities Controllable transactions include transactions with performed regular revisions in two Kharkov cluster interdependent parties, as determined under the companies and revealed no misstatements in these Russian Tax Code, all cross-border transactions companies. Tax Authorities also performed revision (irrespective whether performed between related in 2010 in one Kirovograd cluster company and as or unrelated parties), transactions where the price a result issued order for paying UAH 16 million applied by a taxpayer differs by more than 20% (EUR 1,391 thousand as at December 31,2009) from the price applied in similar transactions by the income tax. The Group considered that request same taxpayer within a short period of time, and unjustified and challenged the order in court. The barter transactions. There is no formal guidance as Group won the case in the Court of First Instance to how these rules should be applied in practice. In and the Group’s legal consultants were of opinion the past, the arbitration court practice with this that paying the amount requested by the local Tax respect has been contradictory. Authority is unlikely and no provision were Tax liabilities arising from transactions between recognised against the contingency. The next court companies are determined using actual transaction session took place in 2012. The appellate court prices. It is possible with the evolution of the ruled in favour of the Company and as at the date interpretation of the transfer pricing rules in the of the current report the decision of the appellate Russian Federation and the changes in the court has come into effect. However, the Tax approach of the Russian tax authorities, that such authority filed cassation to the Higher transfer prices could be challenged. Given the brief Administrative court of Ukraine (HACU). The HACU nature of the current Russian transfer pricing rules, opened cassation proceedings by rendering ruling, the impact of any such challenge cannot be reliably dated 30.10.2012 № К/9991/66276/12. Cassation estimated; however, it may be significant to the proceedings are still on-going. financial position and/or the overall operations of RUSSIA: the entity. Tax legislation. Russian tax legislation is subject to CHANGE OF CONTROL varying interpretations, and changes, which can Trigon Agri has entered into the Advisory occur frequently. Management’s interpretation of Agreement with Trigon Agri Advisors. Advisory such legislation as applied to the transactions and Agreement include change of control clauses. activity of the Group may be challenged by the Trigon Agri has the right to terminate the Advisory relevant authorities. Agreement if the controlling interest of the Advisor The Russian tax authorities may be taking a more or Trigon Capital are transferred to a third party or assertive and sophisticated approach in their if more than 5% of the voting shares of the Advisor interpretation of the legislation and tax or Trigon Capital are acquired, directly or examinations. This includes them following indirectly, by the competitors of Trigon Agri. guidance from the Supreme Arbitration Court for In 2011 Trigon Agri issued four-year bonds. The anti-avoidance claims based on reviewing the Terms and conditions of the bonds also include substance and business purpose of transactions. change of control clauses (please refer to Note Combined with a possible increase in tax collection 3.2). efforts to respond to budget pressures, the above may lead to an increase in the level and frequency of scrutiny by the tax authorities. In particular, it is
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30. COMMITMENTS
The Group leases land and passenger cars under agreements are disclosed in Note 23. The Group has non-cancellable operating lease agreements. Future no other commitments. rent payments from non-cancellable lease
31. BUSINESS COMBINATIONS AND TRANSACTIONS WITH NON-CONTROLLING INTEREST
TRANSACTIONS IN 2013 controlling interest for a consideration of EUR Disposal of interest in a subsidiary without loss of 2,865 thousand. In 2013 the Group received EUR control 1,000 thousand cash proceeds for the sale and the On May 30, 2013, a 21% interest in Trigon Dairy remaining amount receivable as at December 31, Farming Estonia AS was sold to non-controlling 2013 was EUR 1,865 thousand. interest by way of a share issue. Trigon Dairy The total carrying amount of non-controlling Farming Estonia AS received EUR 3,000 thousand interests disposed of was EUR 4,759 thousand and of proceeds from the share issue. the increase in parent’s equity EUR 1,106 On December 12, 2013, the Group sold a 15.3% thousand. interest in Trigon Dairy Farming Estonia AS to non-
In EUR thousand 2013 2012 Carrying amount of non-controlling interests disposed of -4,759 - Proceeds from subsidiary's share issue 3,000 - Consideration received from non-controlling interests 2,865 - Increase in parent's equity 1,106 -
TRANSACTIONS IN 2012 Väätsa acquisition-related costs in the amount of EUR 295 thousand have been charged to other Business combination. On April 4, 2012, the Group administrative expenses in the consolidated income acquired 97.8676% of dairy company Väätsa Agro statement. AS in Estonia to expand its dairy production activities. In addition to the initial acquisition in Since acquisition in 2012 Väätsa Agro revenue April, on August 7, 2012 the Group acquired also stood at EUR 3,393 thousand and loss EUR 327 the non-controlling interests of Väätsa Agro AS for thousand. EUR 35 thousand leaving the Group 100% owner of Had Väätsa Agro AS been consolidated from Väätsa Agro AS. January 1, 2012, the consolidated statement of The gain from the bargain purchase arising from income would show additional revenue of EUR the acquisition of 97.8675% of Väätsa Agro AS 1,183 thousand and less profit of EUR 24 thousand. reflects the difference between the net value of the The purchase price allocation as of April 1, 2012 acquired assets and the purchase price of the arising from the acquisition is as follows: Väätsa farm and shows that the acquisition was carried out at very favourable terms due to a distressed sale by the previous owners.
In EUR thousand - Total purchase price 7,300 - Cash paid 7,300 Total purchase considerations 7,300 Fair value of net assets acquired 9,034
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The assets and liabilities as of April 1, 2012 arising from the acquisition are as follows:
In EUR thousand Fair value Cash and deposits 659 Trade receivables and prepayments 466 Inventory 1,017 Biological Assets 3,537 Non-current investments 3 Property, plant and equipment 5,102 Payables and accrued expenses -1,715 Net assets 9,069 Non-controlling interest 35 Net assets acquired 9,034 Gain from bargain purchase -1,734 Purchase consideration settled in cash 7,300 Cash and cash equivalents in subsidiary acquired -659 Cash flow on acquisition 6,641
its disposed assets in Stavropol and Samara. The Business combination. On December 14, 2012, the gain is included in Other (losses)/gains - net in the Group obtained control of 100% of Ennivolorous consolidated income statement (Note 26). Holding Ltd, 100% of CJSC Markon and 100% of Based on the management’s calculations and fair CJSC Smart (reorganized CJSC Pobeda), which value estimates from external valuators, majority represents a new 71 thousand hectare cereals of the gain arose from the disposal of the Stavropol production cluster in Rostov Oblast in Russia. cluster assets, because at the time of the Stavropol The transaction was structured as a land-swap deal cluster acquisition in 2009 the assets were where Trigon Agri acquired ownership of legal acquired in a distressed sale and therefore the cost entities involved in agricultural activities and was relatively low. having a free-hold title to 71 thousand hectares of The fair value of land received and given up was farmland in the Rostov Oblast in exchange for its determined based on the comparable sales two existing Russian production clusters in Samara transactions in similar regions, adjusted for a and Stavropol. number of factors to reflect the differences with the The payment for the shares of the acquired entities comparable transactions. External evaluators were was effected in the form of shares in the Group’s used to assess the fair value of land plots in Rostov two existing production clusters in Samara and Samara cluster. (Investment property) (45 thousand hectares of Because of acquisition of existing agricultural farmland in ownership) and Stavropol (33 thousand businesses the transaction meets the definition of a hectares of farmland in ownership) and a monetary business combination, although the majority of the payment of EUR 10.9 million. Out of the monetary value acquired is attributable to land. payment, Trigon Agri paid EUR 6 million as a Acquisition-related costs of EUR 278 thousand have prepayment in 2011 and EUR 4.9 million in 2013. been charged to other administrative expenses in Trigon Agri’s new production cluster in Russia’s the consolidated income statement in 2012 and Rostov oblast offers exceptional potential for EUR 162 thousand in 2013. consistent profitability. The main competitive The initial provisional amounts recognized in the advantages of the newly acquired farms are 2012 financial statements for the business proximity to export ports, good historical rainfall, combination were determined only provisionally contiguous layout of the land and irrigation and have been amended according to the finalized potential. Irrigation allows for a much more purchase price allocation. predictable yield profile, as insufficient rainfall is mitigated through artificial irrigation. The amount of biological assets acquired increased by EUR 215 thousand, representing a higher value The following table summarises the consideration of fieldworks than was initially provisioned. paid for the legal entities acquired, as well as the fair value of assets acquired and liabilities assumed Non-current prepayments increased by EUR 3,514 at the acquisition date. The Group has recognised a thousand. The amount includes prepayment for an gain on disposal of EUR 18,052 thousand as a additional 1,656 hectares of land and livestock. difference between fair value and carrying value of
TRIGON AGRI ANNUAL REPORT 2013 PAGE 89
The amount of investment property transferred As a result of the amendments, the total purchase decreased by EUR 136 thousand as part of the consideration and fair value of net assets acquired assets in Samara remained under the control of the both increased by EUR 1,990 thousand. Group. Total cash payment for the transaction decreased The amount of liabilities transferred decreased by by EUR 4,236 thousand and amounted to EUR EUR 6,362 thousand. 10,864. Payables and accrued expenses assumed increased by EUR 1,740 thousand. All the above changes were offset against the total purchase consideration.
In EUR thousand Provisional Correction Amended Fair value of transferred assets 63,787 -136 63,651 Fair value of transferred liabilities -6,758 6,362 -396 Cash paid 15,100 -4,236 10,864 Total purchase considerations 72,129 1,990 74,119 Fair value of net assets acquired 72,129 1,990 74,119
Recognised amounts of identifiable assets acquired and liabilities assumed: Amended In EUR thousand Fair value Correction Fair value Trade receivables and prepayments 347 - 347 Inventory 871 - 871 Biological Assets 1,164 215 1,379 Non-current prepayments - 3,514 3,514 Property, plant and equipment 71,844 - 71,844 Payables and accrued expenses -2,097 -1,740 -3,837 Net assets 72,129 1,990 74,119 Net assets acquired 72,129 1,990 74,119
Gain on disposal Fair value of net assets disposed 57,029 6,226 63,255 Less carrying value of net assets disposed -35,817 -6,226 -42,043 Less foreign exchange reserve recycled from Other comprehensive income to Income statement -3,160 - -3,160 Total gain on disposal 18,052 - 18,052
Fair value of net assets disposed increased by EUR (EUR6,362 thousand). The same amounts 6,226 thousand and consists of the above- correspond to the decrease in the carrying value of mentioned decrease in transferred investment net assets disposed of EUR 6,226 thousand. property (EUR 136 thousand) and liabilities
32. GROUP STRUCTURE
The Group’s parent company A/S Trigon Agri is Trigon Agri A/S Eesti filiaal (Estonia), Ennivolorous registered in Denmark. The parent company owns Holdings Limited (Cyprus). directly ten subsidiaries (including a branch in TC Farming Russia and TC Farming Ukraine have Estonia), which are holding companies for the Group both participations in their subsidiary companies in operations in Estonia, Ukraine, Russia. These Ukraine and Russia due to the local legislation, holdings are: Trigon Farming AS (Estonia); TC which requires that at least two shareholders must Farming Russia Ltd. (Cyprus), TC Farming Ukraine exist. TC Farming Ukraine owns also shares of the Ltd. (Cyprus), Arsetta Investments Ltd. (Cyprus), Ukrainian elevators. Trigon Dairy Farming AS owns United Grain (Suisse) SA (Switzerland), Trigon Dairy milk production companies in Estonia and Russia. Farming AS (Estonia), Trigon Security Llc. (Ukraine),
TRIGON AGRI ANNUAL REPORT 2013 PAGE 90
All intermediary holding companies have members from Ukraine and Russia to intermediary holdings of the parent Company’s Board of Directors as may be subject to restrictions in relation to foreign members of the management board, who are currency transactions due to the occasional responsible for the management of the respective limitations in local legislation. As of December 31, companies. 2013 the Group included the following companies: Transfer of funds from subsidiaries to A/S Trigon Agri is not restricted. However, transfer of funds
Legal Country of Ownership Segment Status in registration percentage the Group
Parent 1 Trigon Agri Ltd. Denmark - 100% company 2 TC Farming Ukraine Ltd. Cyprus - 100% Subsidiary 3 TC Farming Russia Ltd. Cyprus - 100% Subsidiary 4 Arsetta Investments Ltd. Cyprus - 100% Subsidiary 5 Ennivolorous Holding Limited Cyprus - 100% Subsidiary 6 LLC Trigon Farming Ukraine - 100% Subsidiary 7 Costwern Ltd Cyprus - 100% Subsidiary 8 Trigon Farming Ltd. Estonia - 100% Subsidiary 9 LLC Russian Agro Investors Russia - 100% Subsidiary 10 United Grain (SUISSE) SA Switzerland Trading 100% Subsidiary 11 LLC Trigon Farming Kharkiv Ukraine Ukraine cereals production 100% Subsidiary 12 LLC Trigon Agro 2 Ukraine Ukraine cereals production 100% Subsidiary 13 OJSC Krasnokutskagrohim Ukraine Ukraine cereals production 64.87% Subsidiary 14 PJV Kolos Ukraine Ukraine cereals production 100% Subsidiary 15 LLC Kirovograd agroinvestment Ukraine Ukraine cereals production 100% Subsidiary company 16 LLC Agro Capital Center Ukraine Ukraine cereals production 100% Subsidiary 17 LLC Agroperspektiva Ukraine Ukraine cereals production 100% Subsidiary 18 LLC Objedinjonnye Agrarnye Ukraine Ukraine cereals production 100% Subsidiary Sistemy 19 PAC Molniya-1 Ukraine Ukraine cereals production 100% Subsidiary 20 LLC Trigon-Export Ukraine Trading 100% Subsidiary 21 LLC Trigon Export Vostok (Volga- Russia Trading 100% Subsidiary Grain) 22 LLC Trigon-Elevator Ukraine Elevators 100% Subsidiary 23 LLC Trigon-Elevator Vostok Russia Elevators 100% Subsidiary 24 LLC Kovyaqovskoуe Ukraine Elevators 100% Subsidiary 25 CJSC Vovchanskiy Combinat Ukraine Elevators 100% Subsidiary Khliboproduktiv 26 LLC Ludmilovsky elevator Ukraine Elevators 100% Subsidiary 27 OJSC Yavkinskiy elevator Ukraine Elevators 92.33% Subsidiary 28 OJSC Novomirgorodski elevator Ukraine Elevators 85.70% Subsidiary 29 LLC Trigon Security Ukraine - 100% Subsidiary 30 LLC Agroholding Moskovie Russia Russia cereals production 100% Subsidiary 31 LLC Surskaya Niva Russia Russia cereals production 100% Subsidiary 32 LLC Surskiy Kray Russia Russia cereals production 100% Subsidiary 33 LLC Sura Agro Russia Russia cereals production 100% Subsidiary 34 LLC Surskoe Pole Russia Russia cereals production 100% Subsidiary 35 LLC Agrofirma Russia Russia cereals production 100% Subsidiary 36 LLC Surskoe Zerno Russia Russia cereals production 100% Subsidiary 37 LLC Agro Russia Russia cereals production 100% Subsidiary 38 CJSC Markon Russia Russia cereals production 100% Subsidiary 39 OJSC Plemennoy zavod Russia Russia cereals production 100% Subsidiary Gashunskiy 40 CJSC Zimovmikovskiy Russia Russia cereals production 100% Subsidiary agrocompany 41 Ltd Trigon Dairy Farming Estonia Milk production 100% Subsidiary 42 LLC Trigon Moloko Russia Milk production 100% Subsidiary 43 LLC Dobruchi-2 Russia Milk production 100% Subsidiary 44 Ltd Trigon Dairy Farming Estonia Estonia Milk production 63.71% Subsidiary 45 Kaiu LT Llc. Estonia Milk production 100% Subsidiary
TRIGON AGRI ANNUAL REPORT 2013 PAGE 91
Legal Country of Ownership Segment Status in registration percentage the Group
46 Kärla Farmers Cooperative Estonia Milk production 100% Subsidiary 47 LLC Saare Farmer Estonia Milk production 100% Subsidiary 48 LLC Eikla Agro Estonia Milk production 90% Subsidiary 49 LLC Lindoria Estonia Milk production 100% Subsidiary 50 Ltd Väätsa Agro Estonia Milk production 100% Subsidiary
33. RELATED PARTY TRANSACTIONS
The following parties are considered to be related • Individuals with significant ownership and parties: entities under their control unless these individuals • AS Trigon Capital, who owns 7.81 % of lack the opportunity to exert significant influence shares and held options for further shares (Note over the business decisions of the Group. 18); The Group’s owners are legal and physical persons • Member of the Executive Boards and the and no sole shareholder has control over the Boards of Directors of parent company and Group’s activities. subsidiaries and their immediate family members; AS Trigon Capital, which owns 7,81% of the total • Entities under the control of the members voting shares (7.81% at December 31, 2012) and of the Executive Board and Board of Directors or held the warrants described in Note 18, provides their family members; management services to the Group.
(a) Sales and purchases in EUR thousand Sales and purchases 2013 2012 Purchase of management services - AS Trigon Capital and its subsidiaries 3,381 2,943 Purchase of goods and services from AS Trigon Capital and its subsidiaries 204 412
The following table sets forth the aggregate gross amounts of salaries and other remuneration by the Group to the members of its Board of Directors and Executive Board in 2013 and in 2012.
Salary (incl social in EUR thousand Bonuses Total security costs) 2013
Members of Board of Directors 65 - 65 Members of the Executive Board 146 - 146 211 - 211
2012
Members of Board of Directors 106 - 106 Members of the Executive Board 144 - 144 250 - 250
The payments from the company to the Executive of the management fee payable to Trigon Agri Board members in 2013 amounted to EUR 146 Advisors. Therefore, in each reporting period where thousand (in 2012 EUR 144 thousand). In payments are made directly from the Group to any accordance with the management agreement signed Executive Board members, the management fee for between the Group and Trigon Agri Advisors, such period is reduced by the corresponding amount Executive Board members compensation form a part as the payment to the Executive Board members
TRIGON AGRI ANNUAL REPORT 2013 PAGE 92
during the period. The respective deduction of the During the year 2013 AS Trigon Capital has paid for management fee in 2013 stood at EUR 144 thousand the operating expenses in the amount of EUR 202 (in 2012 EUR 144 thousand). thousand (EUR 411 thousand Euros in 2012) what has been re-invoiced to the Group. No warrants As of December 31,2013 the Group had liability to were issued to AS Trigon Capital in 2013 or 2012 Board of Directors members in the amount of EUR (Note 17). 40 thousand (EUR 40 thousand as of December 31, 2012).
(b)Balances arising from sales/purchases of goods/services
Balances from sales/purchases of goods/services 31.12.2013 31.12.2012 Payable to AS Trigon Capital and its subsidiaries (Note 13) 12 15
34. FEES TO THE AUDITORS APPOINTED BY THE SHAREHOLDERS
The following fees have been paid to PricewaterhouseCoopers: in EUR thousand 2013 2012 Audit 332 483 Other assurance engagements 92 214 Tax advice and consultations 62 240 Other services 34 60 520 997
PricewaterhouseCoopers was not elected as the statutory auditor, and thus did not audit the annual report for the following companies: LLC Kaiu LT Kärla Farmers Cooperative Ltd Väätsa Agro LLC Dobruchi-2 LLC Trigon Export Vostok OJSC Yavkinskiy elevator OJSC Novomirgorodski elevator OJSC Plemennoy zavod Gashunskiy
Audit fees, other than fees to PricewaterhouseCoopers, amounted to EUR 14 thousand in 2013 (EUR 38 thousand in 2012).
TRIGON AGRI ANNUAL REPORT 2013 PAGE 93
35. EVENTS AFTER THE BALANCE SHEET DATE
As at the date of the current report, no damages to denominated in local currency and will decrease in the winter crops have been occurred and the euro terms when rouble and hryvna weaken necessity for the reseeding will be determined in against the euro. Additionally, part of the Group’s due course. costs decrease in euro terms when rouble and In February 2014 the Group finalised land hryvna weaken against the euro. A significant part purchases in amount of EUR 2,026 thousand for its of the Group’s revenues (cereals sales) are either dairy operations in Russia. Full consideration of denominated in foreign currencies or driven by EUR 2,026 thousand for the two transactions was prices in foreign currencies. already paid in 2013 and accounted for under non- For further information on the situation in Ukraine current prepayments on the balance sheet as at and potential impact on the Group, please refer to 31.12.2013. note 3.5. The Russian rouble and the Ukrainian hryvna have continued to devalue in 2014. The assets on the Group’s balance sheet in Russia and Ukraine are
TRIGON AGRI ANNUAL REPORT 2013 PAGE 94
36. FINANCIAL STATEMENTS OF THE PARENT COMPANY STATEMENT OF FINANCIAL POSITION OF THE PARENT COMPANY
Amended in EUR thousand Note 31.12.2013 31.12.2012 ASSETS
Current assets
Cash and cash equivalents 37.6 30 173 Trade and other receivables 37.8 19,208 4,713 19,238 4,886
Non-current assets
Investments in subsidiaries 37.7 132,028 159,645 Trade and other receivables 37.8 23,118 52,904 Intangible assets 37.9 - 199 155,146 212,748
Total assets 174,384 217,634
LIABILITIES
Current liabilities
Trade and other payables 37.10 4,902 9,371 Borrowings 37.11 2,343 2,393 7,245 11,764
Non-current liabilities
Long-term payables 74 - Borrowings 37.11 39,561 40,280 39,635 40,280
Total liabilities 46,880 52,044
EQUITY
Capital and reserves attributable to equity holders
of the Company Ordinary shares 37.12 64,814 64,814 Share premium 37.12 99,941 99,941 Retained earnings -37,251 835 Total equity 127,504 165,590
Total equity and liabilities 174,384 217,634
TRIGON AGRI ANNUAL REPORT 2013 PAGE 95
STATEMENT OF THE COMPREHENSIVE INCOME OF THE PARENT COMPANY
Amended Note 2013 in EUR thousand 2012 Revenues 5,128 4,703 Employee benefits expense 37.13 -960 -1,031 Other expenses -4,915 -2,693 Operating profit/loss -747 979 Gains/losses from exchange rate differences 1,297 -1,471 Finance income 37.14 3,387 66,558 Finance cost 37.14 -41,517 -65,309 Profit before income tax -37,580 757 Corporate income tax - - Net profit for the period -37,580 757 Other comprehensive income - - Total comprehensive income for the period -37,580 757
STATEMENT OF CHANGES IN EQUITY FOR THE PARENT COMPANY
Share Share Retained in EUR thousand Total capital premium earnings Balance at 31.12.2011 129,627 35,127 438 165,193 Reduction in share capital -64,814 64,814 - - Dividends - - -360 -360 Total comprehensive income for the period - - 757 757 Amended balance at 31.12.2012 64,814 99,941 835 165,590 Dividends - - -506 -506 Total comprehensive income for the period - - -37,580 -37,580 Balance at 31.12.2013 64,814 99,941 -37,251 127,504
TRIGON AGRI ANNUAL REPORT 2013 PAGE 96
STATEMENT OF CASH FLOWS OF THE PARENT COMPANY
In EUR thousand Note 2013 2012 Cash flows from operating activities Cash receipts from customers 3,384 3,574 Cash paid to suppliers and employees -6,015 -7,215 Interest received - 20 Proceeds from interest repayments from subsidiaries 4,374 - Net cash used in/generated from operating activities 1,743 -3,621
Cash flows from investing activities Acquisition of subsidiary, net of cash acquired
Investment into subsidiary -4,322 -29 Subsidiary share capital decrease 2,781 - Loan payments to subsidiaries -12,556 -18,928 Proceeds from loan repayments from subsidiaries 17,414 16,764 Purchase of intangible assets -21 -198 Intangible assets refund 57 - Net cash used in/generated from investing activities 3,353 -2,391
Cash flows from financing activities Dividends paid to company`s shareholders -506 -360 Interest paid -4,555 -4,582 Repayments of borrowings -15 -28 Lease repayments -162 - Interest paid to subsidiaries - -25 Net proceeds from loans from subsidiaries 75 428 Net cash used in financing activities -5,163 -4,567
Net increase in cash and cash equivalents -67 -10,579 Effects of exchange rate changes on cash and cash -76 40 equivalents Cash and cash equivalents at beginning of period 37.6 173 10,712 Cash and cash equivalents at end of period 37.6 30 173
TRIGON AGRI ANNUAL REPORT 2013 PAGE 97
37. NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY
37.1 GENERAL INFORMATION The Board of Directors has determined that the The Company was established on December 11, activities of the parent company form a single 2006. Trigon Agri A/S (‘the Company”) is the operating segment. The internal reporting reviewed parent company of the Trigon Agri Group. The by the Board of Directors is prepared using the Company is a limited liability company incorporated same accounting principles and format of and domiciled in Denmark. The address of its statement of financial position and statement of registered certificates of subscription office is comprehensive income as provided in these Sundkrogsgade 5, DK-2100 Copenhagen. separate financial statements. The Parent Company has in 2011 established a Dividend income branch "Trigon Agri Eesti Filiaal" in Estonia. The Dividend income is recognised when the right to branch employs the people of Tallinn office, that receive payment is established. Dividend income is were transferred to Trigon Agri Eesti Filiaal from recognised within Finance income in the Statement Trigon Agri subsidiary Trigon Farming, and who of the comprehensive income. perform overall management of the subsidiaries, 37.3 CRITICAL ACCOUNTING consolidation, legal, controlling etc. ESTIMATES The Company prepares its separate financial On each balance sheet date the management of statements in accordance with IFRS and the the parent company evaluates the investments and additional Danish requirements for annual reports. loans to subsidiaries. In 2012 impairment was The principal accounting policies applied in the recorded in investment in TC Farming Russia Ltd preparation of these financial statements are set due to disposal of its subsidiaries in Samara and out below. Stavropol cluster (Note 37.7 and 31). 37.2 ACCOUNTING PRINCIPLES 37.4 FINANCIAL RISK MANAGEMENT Basis of preparation of the financial statements of Financial risk management principles of Trigon Agri the parent company A/S correspond to the principles used for the whole The financial statements of Trigon Agri A/S have Group. For further information of the financial risk been prepared in accordance with International management principles used please refer to the Financial Reporting Standards, as adopted by the consolidated financial statements Note 3. For details EU (IFRS). The parent company has applied the concerning the parent company please refer to the same accounting policies as the Group, except for other Notes of the financial statements of the parent the investments in subsidiaries as described below. company. See Note 2 to the Consolidated Financial 37.5 CHANGES TO COMPARATIVES Statements, for the summary of significant Certain changes have been made to the accounting policies of the Group. presentation of taxes on dividends in the cash flow Long-term investments in subsidiaries and statement. Taxes on dividends in amount of EUR associate companies 97 thousand in 2012 have been reclassified from In the separate financial statements of the parent line item ‘Income tax paid’ to line item ‘Dividends company the investments in subsidiaries are paid to company’s shareholders’. recognised and measured at cost. Equity interests COMPLETION OF THE PROVISIONAL PURCHASE in foreign currencies are translated to the reporting PRICE ALLOCATION AS AT DECEMBER 31, 2012 currency using the historical exchange rate Certain changes have been made to the balance prevailing at the time of transaction. Where cost sheet as at December 31, 2012 in relation to the exceeds the recoverable amount, the carrying value completion of the provisional purchase price is written down to the recoverable amount. allocation as at December 31, 2012 for the Rostov Dividends from investments in subsidiaries, joint cluster business combination. ventures and associates are recognized as income in the financial year when the dividends are The initial provisional amounts recognised in the distributed. 2012 financial statements for the Rostov cluster business combination were determined only
provisionally and have been amended according to Segment reporting the exact balances of assets and liabilities
TRIGON AGRI ANNUAL REPORT 2013 PAGE 98
transferred. Below is the amended balance sheet as at December 31, 2012, listing all the adjustments made to the previous figures. For details please see Note 131.
COMPLETION OF THE PROVISIONAL PURCHASE PRICE ALLOCATION AS AT DECEMBER 31, 2012
Amended in EUR thousand Note 31.12.2012 Adjustments 31.12.2012 ASSETS Current assets Investments in subsidiaries 37.7 157,655 1,990 159,645 Total assets 157,655 1,990 159,645
LIABILITIES Current liabilities Trade and other payables 37.8 13,607 -4,236 9,371 Total equity and liabilities 13,607 -4 236 9,371
Amended in EUR thousand Note 31.12.2012 Adjustments 31.12.2012
Finance income 37.14 60,332 6,226 66,558 Profit before income tax 60,332 6,226 66,558 Total comprehensive income for the period 60,332 6,226 66,558
37.6 CASH AND CASH EQUIVALENTS OF THE PARENT COMPANY in EUR thousand 2013 2012 Cash at bank and on hand 30 173 30 173
As at December 31, 2013 there were no cash on The credit rating (Moody`s) of the banks where the bank deposits (31.12.2012: SEK 47,000 thousand cash was held was A1 and Baa2. bearing an annual interest rate of 1.7%).
37.7 LONG-TERM INVESTMENTS IN SHARES OF SUBSIDIARIES Breakdown of investments in subsidiaries by companies is given in the table below:
Amended in EUR thousand 2013 2012 TC Farming Ukraine Ltd. 40,513 55,512 TC Farming Russia Ltd. - 12,212 Arsetta Investments Ltd. 2 2 Laxio Ltd. - 406 United Grain (SUISSE) Ltd. 834 834 Ltd Trigon Dairy Farming 14,345 14,345 Llc Trigon Security 28 28 Trigon Farming Ltd. 2,187 2,187 Ennivolorous Holding Limited 74,119 74,119 132,028 159,645
TRIGON AGRI ANNUAL REPORT 2013 PAGE 99
During 2013 impairment in investment TC Farming due to disposal of its subsidiaries in Samara and Russia was recognised in amount of EUR 12,212 Stavropol cluster (Note 31). Additional adjustment thousand due to adjustment of Penza cluster of Ennivolorous Holding Limited acquisition investment value. In 2012 impairment in amounted to EUR 1,990 thousand (Note 31). investment in TC Farming Russia Ltd was recorded
As of December, 31 2013 the parent company owned directly the following companies:
Country of Ownership Legal registration Segment percentage Status TC Farming Ukraine Ltd. Cyprus - 100% Subsidiary TC Farming Russia Ltd. Cyprus - 100% Subsidiary Arsetta Investments Ltd. Cyprus - 100% Subsidiary United Grain (SUISSE) Ltd. Switzerland Trading 100% Subsidiary Ltd Trigon Dairy Farming Estonia Milk production 69% Subsidiary Llc Trigon Security Ukraine - 100% Subsidiary Trigon Farming Ltd. Estonia - 100% Subsidiary Ennivolorous Holding Limited Cyprus - 100% Subsidiary
As of December, 31 2012 the parent company owned directly the following companies:
Country of Ownership Legal registration Segment percentage Status TC Farming Ukraine Ltd. Cyprus - 100% Subsidiary TC Farming Russia Ltd. Cyprus - 100% Subsidiary Arsetta Investments Ltd. Cyprus - 100% Subsidiary Laxio Ltd. Cyprus - 100% Subsidiary Vilasmon Enterprises Ltd. Cyprus - 100% Subsidiary United Grain (SUISSE) Ltd. Switzerland Trading 100% Subsidiary Ltd Trigon Dairy Farming Estonia Milk production 53.00% Subsidiary Llc Trigon Security Ukraine - 100% Subsidiary Trigon Farming Ltd. Estonia - 100% Subsidiary
37.8 TRADE AND OTHER RECEIVABLES
in EUR thousand 2013 2012 Current receivables:
Receivables from subsidiaries 18,895 4,504 Short-term loans given to subsidiaries 180 - Other receivables 119 137 Total current receivables 19,194 4,641
Current prepayments:
Prepayments for indirect taxes 14 72 14 72
Total current receivables and prepayments 19,208 4,713
Non-current receivables:
Receivables from subsidiaries 139 - Loans to subsidiaries 22,883 52,904 Other non-current receivables 96 - Total non-current receivables 23,118 52,904 Total receivables and prepayments 42,326 57,617
TRIGON AGRI ANNUAL REPORT 2013 PAGE 100
Breakdown of the loans to subsidiaries by companies is given below:
in EUR thousand 31.12.2013 31.12.2012 TC Farming Ukraine Ltd. 182 13,744 TC Farming Russia Ltd. 15,931 22,210 Russian Agro Investors Ltd. 2,478 13,281 Surskoe Zerno Ltd. 508 474 Ltd Trigon Dairy Farming 3,784 3,195 OAO Plemennoy zavod Gashunsky 180 - Total loans to subsidiaries 23,063 52,904
During 2013 loans to group companies were thousand were reclassified to prepayments for impaired in amount of EUR 24,133 thousand to Rostov cluster acquisition. The completion of the reflect the losses in the Russia cluster, including acquisition was carried out in 4Q 2012. For more currency translation losses (Note 37.14). During information on the Rostov cluster acquisition please 2012, short-term loans in amount of EUR 6,000 refer to Note 31.
The ageing analysis of trade receivables is as follows:
in EUR thousand 31.12.2013 31.12.2012 Up to 3 months 14 36 Over 6 months 19,020 4,468
19,034 4,504 including receivables not due 19,034 4,504
The expected timing of proceeds from other receivables is as follows: in EUR thousand 31.12.2013 31.12.2012 Up to 3 months 23 29 Over 6 months 96 108 119 137
including receivables not due 119 137
The expected timing of proceeds from loan receivables is as follows:
in EUR thousand 31.12.2013 31.12.2012 including receivables not due 23,063 52,904
The effective interest rates on non-current receivables were as follows:
2013 2012 Loans to related parties 7.0-11.0% 7.0-11.0%
The carrying amounts of the trade and other receivables were denominated in the following currencies:
in EUR thousand 31.12.2013 31.12.2012 US dollar 507 501 Russian rouble 22 25 Euro 41,797 57,091
42,326 57,617
TRIGON AGRI ANNUAL REPORT 2013 PAGE 101
37.9 INTANGIBLE ASSETS As at December 31, 2013 investments under Refund for unfinished project was EUR 57 development amounting to EUR 164 thousand thousand. Intangible assets included investments were written down due to project termination. into consolidation software.
37.10 TRADE AND OTHER PAYABLES Amended in EUR thousand 31.12.2013 31.12.2012 Trade payables 146 4,982 Social security and other taxes 23 47 Accrued expenses 311 448 Amounts due to related parties 4,496 3,894
4,976 9,371
Less: non-current portion -74 -
4,902 9,371
As at December 31, 2012 trade payables in amount settled during year 2013. For more information on of EUR 4,863 thousand, related to the deferred the Rostov cluster acquisition please refer to Note payment of the Rostov cluster acquisition, that was 31.
Amended in EUR thousand 31.12.2013 31.12.2012 Euro 4,976 9,371 4,976 9,371
37.11 BORROWINGS As at December 31, 2013 borrowings in amount of borrowings from subsidiaries EUR 50 thousand and EUR 41,904 thousand (EUR 42,673 thousand as at finance lease in amount of EUR 96 thousand. The December 31, 2012) include liability for four-year bonds are nominated in SEK and are bearing SEK-nominated bonds with maturity date in June annual fixed interest rate of 11%. For further 29, 2015 in amount of EUR 38,977 thousand (EUR information please refer to consolidated financial 39,866 thousand as at December 31, 2012), statements Note 14. Finance lease is bearing 3- accrued interests in amount of EUR 2,197 thousand month EURIBOR interest rate and is due in 2016. (EUR 2,232 thousand as at December 31, 2012),
37.12 SHARE CAPITAL OF THE PARENT COMPANY Number of Ordinary Share Share in EUR thousand Total shares shares capital premium Balance at 31.12.2011 129,627,479 129,627,479 129,627 35,127 164,754
Reduction in share capital - - -64,814 64,814 - Balance at 31.12.2012 129,627,479 129,627,479 64,814 99,941 164,755 Balance at 31.12.2013 129,627,479 129,627,479 64,814 99,941 164,755
The Company was founded on December 11, 2006 On April 2, 2007, the Company issued 19,475,328 with total ordinary share capital at foundation of new ordinary shares with a par value of EUR 1 per 500,000 Danish kronas (EUR 67,018). At the share. For additional information regarding the foundation, the Company had only ordinary shares. share capital please see Note 116 in the As of March 27, 2007 the Company’s share capital consolidated financial statements. was changed to be EUR nominated, the share On May 10, 2007 the Company’s extraordinary capital was increased with issue of additional shareholder’s meeting made a resolution to 85,133 shares for cash. increase the share capital issuing 40,000,000 new shares with a par value of EUR 1 per share. The
TRIGON AGRI ANNUAL REPORT 2013 PAGE 102
new investors subscribed all 40,000,000 shares of Directors was authorised to acquire own shares with the price of EUR 1.25 per share. The payment on behalf of the company. The purpose of acquiring for the subscribed shares was made in cash. After the company’s own shares was to enhance the new share issue the share capital increased to shareholder value. EUR 59,627,479. As of December 31, 2008 the Company had Starting from May 18, 2007 the shares of Trigon purchased 10,700,100 shares and paid for the Agri A/S were listed in First North stock exchange shares EUR 4,246,067 whereas the amount of in Stockholm, an alternative market place part of unsettled trades as of December 31, 2008 was EUR the OMX Nordic Exchange. 30,580. On May 6, 2008 the Group’s extraordinary As of December 31, 2009 the Company had shareholder’s meeting made a resolution to purchased 12,857,000 shares and paid for the increase the share capital issuing 70,000,000 new shares EUR 5,757 thousand. The shares were shares with a par value of EUR 1 per share. The bought to provide additional value to the investors. new investors subscribed all 70,000,000 shares There were no unsettled trades at December 31, with the price of EUR 1.50 per share. The payment 2009. All treasury shares were sold in February for the subscribed shares was made in cash. After 2011 with the average price of EUR 0.765 per share. the share issue the share capital increased to EUR Total proceeds from the sales were EUR 9,638 129,627,479. thousand (net of fees paid to the brokers).
Based on the resolution of the Extraordinary Since December 8, 2010 the shares of Trigon Agri General Meeting of the shareholders, which was A/S are listed on main market of Small Cap segment held on 29 October 2008 in Copenhagen, the Board on NASDAQ OMX Stockholm.
37.13 EMPLOYEE BENEFITS EXPENSE Employee benefits expense in amount of EUR 960 expenses in amount of EUR 223 thousand (EUR thousand (EUR 1,031 thousand in 2012) includes 262 thousand in 2012). salary expenses in amount of EUR 737 thousand The average number of employees in 2013 was 21 (EUR 769 thousand in 2012) and social tax (21 in 2012).
in EUR thousand 2013 2012 Fees of Members of Board of Directors and Executive 184 191 Board Social security costs related to fees of Members of Board 27 59 of Directors and Executive Board 211 250
Wages and salaries 553 578 Social security costs 196 203 749 781
960 1,031
37.14 FINANCE INCOME AND FINANCE COSTS Amended in EUR thousand 2013 2012 Interest income 3,387 3,302 Dividend income from related party - 63,255 Other finance income - 1 3,387 66,558
Bond interests -4,719 -4,835 Other interests -21 -11 Loans impairment -24,133 - Write-down of subsidiaries -12,644 -60,277 Other finance costs - -186 -41,517 -65,309
TRIGON AGRI ANNUAL REPORT 2013 PAGE 103
37.15 RELATED PARTY TRANSACTIONS
2013 2012 Sales and purchases Sale of services to group companies 1,882 4,692 Purchase of management services - AS Trigon Capital and 3,231 - its subsidiaries Purchase of goods and services from AS Trigon Capital 198 393 and its subsidiaries
The following table sets forth the aggregate gross amounts of salaries and other remuneration to the Board of Directors and Executive Board in 2013 and in 2012.
Salary (incl social in EUR thousand security costs) Bonuses Total 2013 Members of Board of Directors 65 - 65 Members of the Executive Board 146 - 146
211 - 211 2012 Members of Board of Directors 106 - 106 Members of the Executive Board 144 - 144 250 - 250
Balances from sales/purchases of goods/services 31.12.2013 31.12.2012
Payable to AS Trigon Capital and its subsidiaries 12 15
37.16 FEES TO THE AUDITORS OF THE PARENT COMPANY
The following fees have been paid to PricewaterhouseCoopers: in EUR thousand 2013 2012 Audit 212 335 Other assurance engagements 29 198 Tax advice and consultations 38 67 Other services 34 58 313 658
TRIGON AGRI ANNUAL REPORT 2013 PAGE 104
MANAGEMENT’S STATEMENT ON THE ANNUAL REPORT
The Board of Directors and Executive Board have and of the results of the Group and Company today considered and adopted the Annual Report of operations and cash flows for the financial year 1 Trigon Agri A/S for the financial year 1 January – January – 31 December 2013. 31 December 2013. In our opinion, Management’s Review includes a The Annual Report is prepared in accordance with true and fair account of the development in the International Financial Reporting Standards (IFRS) operations and financial circumstances of the as adopted by the EU. Moreover, the Annual Report Group and the Company, of the results for the year is prepared in accordance with additional Danish and of the financial position of the Group and the disclosure requirements for listed companies. Company as well as a description of the most In our opinion, the Consolidated Financial significant risks and elements of uncertainty facing Statements and the Financial Statements give a the Group and the Company. true and fair view of the financial position at 31 We recommend that the Annual Report be adopted December 2013 of the Group and the Company at the Annual General Meeting.
Copenhagen, March 31, 2014
______Joakim Helenius Pertti Laine Erkk iRené Nyberg ______llarniemi
Chairman of the Member of the Member of the Board of Directors Board of Directors Board of Directors
______Raivo Vare David Mathew
Member of the Member of the Board of Directors Board of Directors
______Ülo Adamson Konstantin Kotivnenko
Chairman of the Member of the Executive Board Executive Board
TRIGON AGRI ANNUAL REPORT 2013 PAGE 105
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Trigon Agri A/S order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit Report on Consolidated Financial also includes evaluating the appropriateness of accounting Statements and Parent Company Financial policies used and the reasonableness of accounting estimates Statements made by Management, as well as evaluating the overall We have audited the Consolidated Financial Statements and the presentation of the Consolidated Financial Statements and the Parent Company Financial Statements (incorporated in note 36- Parent Company Financial Statements. 37) of Trigon Agri A/S for the financial year 1 January to 31 We believe that the audit evidence we have obtained is December 2013, which comprise statement of financial sufficient and appropriate to provide a basis for our audit position, income statement, statement of comprehensive opinion. income, statement of changes in equity, cash flow statement and notes, including summary of significant accounting policies, The audit has not resulted in any qualification. for the Group as well as for the Parent Company. The Opinion Consolidated Financial Statements and the Parent Company In our opinion, the Consolidated Financial Statements and the Financial Statements are prepared in accordance with Parent Company Financial Statements give a true and fair view International Financial Reporting Standards as adopted by the of the Group’s and the Parent Company’s financial position at EU and Danish disclosure requirements for listed companies. 31 December 2013 and of the results of the Group’s and the Management’s Responsibility for the Consolidated Parent Company’s operations and cash flows for the financial Financial Statements and the Parent Company Financial year 1 January to 31 December 2013 in accordance with Statements International Financial Reporting Standards as adopted by the Management is responsible for the preparation of Consolidated EU and Danish disclosure requirements for listed companies. Financial Statements and Parent Company Financial Statements Emphasis of Matter that give a true and fair view in accordance with International We draw your attention to Note 3.5 to the consolidated Financial Reporting Standards as adopted by the EU and Danish financial statements. The operations of the Group, and those of disclosure requirements for listed companies, and for such other entities in Ukraine, have been affected and may continue internal control as Management determines is necessary to to be affected for the foreseeable future, by the continuing enable the preparation of Consolidated Financial Statements uncertainties in Ukraine. This could also affect Group's liquidity. and Parent Company Financial Statements that are free from Our opinion is not qualified in respect of this matter. material misstatement, whether due to fraud or error. Statement on Management’s Review Auditor’s Responsibility Our responsibility is to express an opinion on the Consolidated We have read Management’s Review in accordance with the Financial Statements and the Parent Company Financial Danish Financial Statements Act. We have not performed any Statements based on our audit. We conducted our audit in procedures additional to the audit of the Consolidated Financial accordance with International Standards on Auditing and Statements and the Parent Company Financial Statements. On additional requirements under Danish audit regulation. This this basis, in our opinion, the information provided in requires that we comply with ethical requirements and plan and Management’s Review is consistent with the Consolidated perform the audit to obtain reasonable assurance whether the Financial Statements and the Parent Company Financial Consolidated Financial Statements and the Parent Company Statements. Financial Statements are free from material misstatement.
An audit involves performing procedures to obtain audit Copenhagen, March 31, 2014 evidence about the amounts and disclosures in the PricewaterhouseCoopers Consolidated Financial Statements and the Parent Company Statsautoriseret Revisionspartnerselskab Financial Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of Jens Otto Damgaard material misstatement of the Consolidated Financial Statements State Authorised Public Accountant and the Parent Company Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s Tue Stensgaard Sørensen preparation of Consolidated Financial Statements and Parent State Authorised Public Accountant Company Financial Statements that give a true and fair view in
TRIGON AGRI ANNUAL REPORT 2013 PAGE 106
DEFINITIONS
Acid test (Total current assets – Inventories(inventories including biological assets))/Total current liabilities. The acid test or quick ratio measures a company’s ability to use its near cash or quick assets to immediately extinguish or retire its short-term liabilities (liabilities due within the next twelve months). Current ratio Total current assets/Total current liabilities. The current ratio measures a company’s ability to meet short-term obligations (liabilities due within the next twelve months). Earnings per share Net result attributable to the shareholders of the Company/ weighted average number of common shares outstanding during the period (in accordance with IAS 33). Earnings/loss per share for profit attributable to the equity holders of the Company during the year, both basic and diluted. EBITDA EBITDA is calculated by adding to the operating profit the annual depreciation of the fixed assets and amortisation of land-related long-term prepayments EBITDA margin EBITDA/ Total revenue, other income and fair value adjustments. EBITDA is calculated by adding to the operating profit the annual depreciation of the fixed assets and amortisation of land-related long-term prepayments. EBITDA margin measures a company’s earnings after operational cash costs (i.e. excluding depreciation and amortisation) relative to its revenue, independent of the Company’s financing and tax position. Equity ratio Total equity/Total assets. Equity ratio measures financial leverage, demonstrating the capital structure of a company. Net profit margin Net profit attributable to the owners of the parent company/ Total revenue, other income and fair value adjustments. Net profit margin measures a company’s net profitability relative to its revenue. Return on assets (ROA) Net profit attributable to the owners of the parent company/Average total assets. Return on assets compares income with total assets measuring management’s ability and efficiency in using the firm’s assets to generate profits Return on equity (ROE) Net profit attributable to the owners of the parent company/Average equity excluding minority interest. Return on equity relates income with the equity capital measuring management’s ability and efficiency in generating return to the shareholders of the Company.
Book value per share Total Stockholders’ equity/ weighted average number of common shares outstanding during the period (in accordance with IAS 33).The book value per share measures the per share value of a company based on its equity available to shareholders. Dividends per share Dividends/ weighted average number of common shares outstanding during the period (in accordance with IAS 33). The total dividends paid out over an entire year divided by the number of outstanding ordinary shares issued.
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