black earthblack ltd. farming a nnual r epor t t 2013 Naʦutilus House Laʦ Cour des Caʦsernes, St. Helier ANNUAL REPORT Jersey JE1 3NH Chaʦnnel Islaʦnds Regʦ No. 89973 2013 www . blaʦckeaʦrthfaʦrmingʦ . com Generaʦl Shaʦreholder Informaʦtion Caʦlendaʦr of events in 2014 – 2014 Annual General Meeting: 14 May Annuaʦl Generaʦl Meetingʦ – 1Q Interim Report, 1 January–31 March: 16 May Black Earth Farming Ltd (“Black Earth Farming”) hereby – 2Q Interim Report, 1 January–30 June: 15 August invites shareholders to participate in the Annual General – 3Q Interim Report, 1 January–30 September: 14 November Meeting at 12.00 CET on 14 May 2014 at Summit, Grev Ture- gatan 30, Stockholm 114 38, Sweden. Investor Relaʦtions Avto Makharoblishvili Paʦrticipaʦtion + 7 916 598 16 19 Holders of Swedish Depository Receipts (“SDRs”) wishing [email protected] to attend the Annual General Meeting shall be recorded in the register of shareholders maintained by Euroclear (for- Internet website mer VPC AB) on Thursday 8 May 2014, and must notify the www.blackearthfarming.com Company of their intention to attend the Meeting no later than 13.00 CET on 8 May 2014. The holder of the Swedish SDR tickers Depository Receipts shall state his name, personal or com- – NASDAQ OMX Stockholm: BEF SDB pany identifi cation number, address as well as telephone – Reuters: BEFsdb.ST number. – Bloomberg: BEFSDB SS Notice of paʦrticipaʦtion Holders of Swedish Depository Receipts can give their notice of participation: – by mail at the address: Annual General Meeting, Black Earth Farming Ltd, c/o Computershare, Box 610, 182 16 Danderyd Sweden – by telephone +46 (0)8 518 01 551 – by e-mail to [email protected] Nominee-regʦistered shaʦres Holders of Swedish Depository Receipts which hold their receipts through nominees (Sw. förvaltare) must request a temporary registration of the voting rights in order to be able to participate at the General Meeting. Holders of Swedish Depository Receipts that want to obtain such reg- istration must contact the nominee regarding this well in Disclaimer advance of 8 May. Voting forms (Sw. röstkort) will be dis- This report contains “forward-looking statements”. All state- tributed to the holders that have complied with the above ments other than statements of historical facts included in this requirements and the voting form must be brought to the report, including without limitation, those regarding the Com- Annual General Meeting. pany’s fi nancial position, business strategy, the Company’s man- agement’s, or as appropriate the Directors’, plans, objectives, Proxies, etc. goals, strategies and future operations and performance and the If a holder of Swedish Depository Receipts intends to assumptions underlying these statements are forward-looking be represented by proxy, the name of the proxy holder statements. Such forward-looking statements involve known and shall be stated. For holders of Swedish Depository Re- unknown risks and uncertainties and other factors which are or ceipts who will be represented by a proxy at the Meet- may be beyond our control, which may cause the actual results, ing, a proxy form is available at the Company’s website on performance or achievements of the Company, or industry results, www.blackearthfarming.com. The signed proxy form to be materially diff erent from any future results, performance or should be sent or mailed to the company at the above stated achievements expressed or implied by such forward-looking state- valid addresses. ments. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment, in which the Company will oper- ate in the future. Supplementary USD* equivalent fi gures found in this report in relation to company fi nancial information are provided solely for the convenience of users as described in Note 2 (d) to the Consoli- dated Financial Statements and do not form part of the audited con- solidated fi nancial statements. Some numerical fi gures included in this Presentation have been subject to rounding adjustments. Accordingly, numerical fi gures shown as totals in certain graphs or tables may not be an exact arithmetic aggregation of the fi gures that preceded them. Blaʦck Eaʦrth Faʦrmingʦ aʦt aʦ Glaʦnce . 2 2013 in Brief . 4 CEO Staʦtement . 6 This is Blaʦck Eaʦrth Faʦrmingʦ . 9 Maʦrket/Industry Overview. 14 Operaʦtionaʦl Review . 20 2013 Finaʦnciaʦl Review . 28 Risks aʦnd Sensitivity Anaʦlysis . .. 35 Five Yeaʦr Summaʦry . 39 The Blaʦck Eaʦrth Faʦrmingʦ shaʦre. 40 Consolidaʦted Finaʦnciaʦl Staʦtements . 42 Staʦtement of maʦnaʦgʦement responsibilities . 43 Independent Auditors’ Reports. 44 Consolidaʦted Staʦtement of Comprehensive Income/(Loss) . 46 Consolidaʦted Staʦtement of Finaʦnciaʦl Position . 47 Consolidaʦted Staʦtement of Chaʦngʦes in Equity . 48 Consolidaʦted Staʦtement of Caʦsh Flows. 49 Notes to the Consolidaʦted Finaʦnciaʦl Staʦtements. 50 Boaʦrd, Maʦnaʦgʦement aʦnd Auditors . 74 Corporaʦte Governaʦnce Report . 76 Boaʦrd of Directors’ report on internaʦl control . 81 Sustaʦinaʦbility. 83 Terms aʦnd Defi nitions . 84 1 Blaʦck Eaʦrth Faʦrmingʦ aʦt aʦ Glaʦnce • Business Concept Laʦnd Ownership Productivity Enhaʦncement Best Praʦctice Faʦrmingʦ Operaʦtions – A maʦjor producer of cereaʦls aʦnd oilseeds with 789 thousaʦnd tons production in 2013 – A focus on increaʦsingʦ productivity to become aʦ best in claʦss aʦgʦro industriaʦl compaʦny in terms of cost aʦnd operaʦtingʦ efficiency • As aʦt 31 December 20131, 254,000 Hectaʦres of World Claʦss Faʦrm Laʦnd in Full Ownership – Totaʦl laʦnd baʦnk of 308,000 hectaʦres with 82% in full ownership – Non depreciaʦtingʦ aʦsset recorded aʦt aʦcquisition cost of USD* 54.7 million in staʦtement of fi naʦnciaʦl position aʦs of 31 December 2013 • Operaʦtingʦ in Russiaʦ’s Centraʦl “Blaʦck Eaʦrth” Regʦion – Agʦriculturaʦl regʦion endowed with some of the most fertile soils in the world BEF: ONE OF THE LARGEST OWNERS OF PRIME RUSSIAN FARM LAND D1: BEF 2013 Laʦnd holdingʦs1 Compaʦrison of Blaʦck Eaʦrth Faʦrmingʦ’s fully owned hectaʦraʦgʦe aʦsof 31 December 2013 with Centraʦl Paʦrk (New York), Hyde Paʦrk (London), Totaʦl laʦnd: 308,000 hectaʦres Hongʦ Kongʦ aʦnd Luxembourgʦ1 Longʦ term leaʦses14% Laʦnd in owner- Centraʦl Paʦrk (New York) 253 haʦ ship regʦistraʦ- tion 4% Hyde Paʦrk (London) 341 haʦ Hongʦ Kongʦ 110,400 haʦ Luxembourgʦ 258,600 haʦ Laʦnd in regʦistered ownership 82% Blaʦck Eaʦrth Faʦrmingʦ 254,000 haʦ 1. On 4 April 2014, the Compaʦny aʦnnounced plaʦns to sell 27,754 hectaʦres of controlled laʦnd aʦnd relaʦted reaʦl estaʦte aʦssets in the Voronezh regʦion. Refer aʦlso tonote36 to the fi naʦnciaʦl staʦtements on Subsequent events * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 2 Kursk Lipetsk Voronezh1 Taʦmbov2 Controlled laʦnd: 82,900 haʦ Controlled laʦnd: 64,100 haʦ Controlled laʦnd: 73,300 haʦ Controlled laʦnd: 71,600 haʦ Owned laʦnd: 75,700 haʦ Owned laʦnd: 53,500 haʦ Owned laʦnd: 56,800 haʦ Owned laʦnd: 55,200 haʦ Laʦnd in production: 72,700 haʦ Laʦnd in production: 64,000 haʦ Laʦnd in production: 52,000 haʦ Laʦnd in production: 42,200 haʦ Storaʦgʦe caʦpaʦcity: 149,000 tons Storaʦgʦe caʦpaʦcity: 139,200 tons Storaʦgʦe caʦpaʦcity: 122,100 tons Storaʦgʦe caʦpaʦcity: 83,600 tons 1. On 4 April 2014, the Compaʦny aʦnnounced plaʦns to sell 27,754 hectaʦres of controlled laʦnd aʦnd relaʦted reaʦl estaʦte aʦssets inthe Voronezh regʦion. 2. 12,800 haʦ in Saʦmaʦraʦ is recorded aʦs investment property held for saʦle aʦs of 31 December 2013. Baʦltic Seaʦ Export Route Moscow RUSSIA Lipetsk Taʦmbov Kursk Voronezh Blaʦck Seaʦ Export Route D2: 2013 Revenue by Crop • Maʦjor Producer of Graʦins aʦnd Oilseeds – 230,000 hectaʦres in production Other 4% Soyaʦ5% Wheaʦt33% • Sigʦnifi caʦnt Investments into Baʦrley7% Maʦchinery Fleet aʦnd Storaʦgʦe Sugʦaʦr beet8% Infraʦstructure Undertaʦken – Laʦrgʦe staʦte of the aʦrt maʦchinery fleet Oilseed raʦpe9% – 500,000 tons of totaʦl storaʦgʦe caʦpaʦcity1 Corn 12% Sunflower 22% D3: Haʦrvest Areaʦ, thousaʦnd hectaʦres D4: Commerciaʦl Haʦrvest, thousaʦnd tons 250 900 231 224 222 800 790 200 700 183 180 600 618 150 500 506 499 400 100 300 223 50 200 100 0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 3 2013 in Brief • Agʦriculturaʦl Commodity Prices drop in 2013 from 2012 higʦhs – Globaʦl aʦnd Russiaʦn production aʦbundaʦnce depress gʦraʦin prices – BEF’s aʦveraʦgʦe blended 2013 crop price decreaʦsed 23% y-o-y D1: Averaʦgʦe BEF Crop Price (Haʦrvest Yeaʦr), USD*/ton D2: Jaʦnuaʦry 2009–December 2013 Wheaʦt Price Development, USD per ton 350 Averaʦgʦe Crop Price 400 Internaʦtionaʦl (MATIF) Russiaʦn Export (FOB) Ex. Sugʦaʦr Beets Russiaʦn 300 350 Domestic (CBE) 250 300 200 250 150 200 100 150 50 100 0 50 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 • Improvements to Crop Yields, Logʦistics aʦnd Saʦles aʦnd Maʦrketingʦ – Blended aʦveraʦgʦe crop yield excludingʦ sugʦaʦr beets increaʦsed 14% yeaʦr-on-yeaʦr – Record haʦrvest aʦnd saʦles volumes of 789 aʦnd 715 thousaʦnd tons respectively – Chaʦllengʦingʦ haʦrvestingʦ conditions aʦdversely impaʦcted laʦte crop yields aʦnd quaʦlity – Totaʦl costs per ton down –11% y-o-y D3: Historic Crop Yield Development, tons per hectaʦre D4: 2009–2013 Production, Saʦles aʦnd Inventory, thousaʦnd tons 4.0 Averaʦgʦe Blended Crop Yield 900 Commerciaʦl Haʦrvest End of Period Inventory Ex. Sugʦaʦr Beet & Potaʦto Volumes sold 3.5 800 700 3.0 600 2.5 500 2.0 400 1.5 300 1.0 200 0.5 100 0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements – refer to note 2(d). 4 • Full Yeaʦr Net Loss of USD* –44.7 million for 2013 – Operaʦtingʦ loss of USD* –29.8 million vs.