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GROUP OF COMPANIES HLIBNI INVESTITSII

COMBINED FINANCIAL STATEMENTS

For the year ended 31 December 2013

Together with independent auditors report

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CONTENTS

STATEMENT OF MANAGEMENTS RESPONSIBILITY FOR THE PREPARATION AND APPROVAL OF THE COMBINEDFINANCIAL STATEMENTS....................................................................................................................................................................... 3

Independent auditors report ............................................................................................................................................................................ 4

COMBINED STATEMENT OF FINANCIAL POSITION ................................................................................................................................... 6

COMBINED STATEMENT OF COMPREHENSIVE INCOME ...................... ..................... ...................... ...................... ..................... .............. 7

COMBINED STATEMENT OF CASH FLOWS .................................................................................................................................................. 8

COMBINED STATEMETN OF CHANGES IN EQUITY .................................................................................................................................... 9

........................................................................................... 10

1. GENERAL INFORMATION ..................................................................................................................................................................... 10

2. BASIS FOR PREPARATION OF THE COMBINED FINANCIAL STATEMENTS ..................... ...................... ..................... ............... 11

3.

BASIC ACCOUNTING ESTIMATES AND ASSUMPTIONS ...................... ...................... ...................... ...................... ..................... .... 12

4. BASIC ACCOUNTING PRINCIPLES ....................................................................................................................................................... 13

5.

NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT EFFECTIVE YET ...................... ..................... ...................... .... 20

6. FIRST TIME IFRS ADOPTION................................................................................................................................................................. 23

7. PROPERTY, PLANT AND EQUIPMENT AND CAPITAL INVESTMENTS .................... ...................... ...................... ..................... .... 27

8.

INVENTORIES .......................................................................................................................................................................................... 28

9. TRADE AND OTHER ACCOUNTS RECEIVABLE ...................... ...................... ...................... ...................... ..................... ................... 28

10.

TAX AND DUTIES RECEIVABLE .......................................................................................................................................................... 29

11. CASH AND CASH EQUIVALENTS ........................................................................................................................................................ 29

12. OTHER NON-FINANCIAL ASSETS ........................................................................................................................................................ 29

13.

STATUTORY CAPITAL ........................................................................................................................................................................... 29

14.

LOANS AND BORROWINGS .................................................................................................................................................................. 30

15. FINANCE LEASE LIABILITIES .............................................................................................................................................................. 31

16. TRADE AND OTHER ACCOUNTS PAYABLE ...................................................................................................................................... 31

17. OTHER TAX PAYABLE ........................................................................................................................................................................... 32

18.

COST OF SALES ....................................................................................................................................................................................... 32

19. ADMINISTRATIVE EXPENSES .............................................................................................................................................................. 33

20. COMMERCIAL EXPENSES ..................................................................................................................................................................... 33

21.

OTHER INCOME ....................................................................................................................................................................................... 33

22. OTHER EXPENSES ................................................................................................................................................................................... 33

23. FINANCIAL EXPENSES ........................................................................................................................................................................... 34

24.

DEFERRED TAX AND INCOME TAX .................................................................................................................................................... 34

25. RELATED PARTY TRANSACTIONS ..................................................................................................................................................... 35

26.

COMMITMENTS AND CONTINGENCIES ............................................................................................................................................. 36

27. FINANCIAL RISKS MANAGEMENT POLICIES ................................................................................................................................... 37

28.

SUBSEQUENT EVENTS ........................................................................................................................................................................... 42

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STATEMENT OF MANAGEMENTS RESPONSIBILITY FOR THE PREPARATION ANDAPPROVAL OF THE COMBINED FINANCIAL STATEMENTS

As at 31 December 2013

The following statement, which should be read in conjunction with the independent auditors responsibilities stated in theindependent auditors report set out on pages 4-5, is made with a view to distinguishing the respective responsibilities ofmanagement of the Group of companies Hlibni Investitsii (further the Group) and those of the independent auditors inrelation to the combined financial statements of the Group.

The GroupsManagement is responsible for the preparation of the combined financial statements that present fairly, in allmaterial aspects, the financial position of the Group as at 31 December 2013, it performance results and cash flows andchanges in equity for the year then ended, in accordance with International Financial Reporting Standards (furtherIFRS).

In preparing the combined financial statements, the Companys management is responsible for:

Selecting suitable accounting principles and applying them consistently;

Making reasonable assumptions and estimates;

Compliance with relevant IFRS and disclosure of all material departures in Notes to the financial statements;

Preparing the financial statements on a going concern basis, unless it is inappropriate to presume that theCompany will continue in business for the foreseeable future.

Management is also responsible for:

Designing, implementing and maintaining an effective and sound system of internal controls, throughout theGroup;

Maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial positionof the Group, and which enable them to ensure that the financial statements of the Group comply with IFRS;

Taking such steps as are reasonably available to them to safeguard the assets of the Group; and

Preventing and detecting fraud and other irregularities.

The Groups combined financial statements for the fiscal year ended 31 December 2013 had been approved by itsManagement on _____________:

General director _____________________________ /

Financial director _____________________________ /

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Matters that affect our opinion

We did not observe the stock-taking of inventories and property, plant and equipment as at 31December, as this date precedes our appointment as the Group auditors. We were not able toverify on the quantity of inventories and property, plant and equipment at that date using thealternative audit procedures.

Opinion

In our opinion, the combined financial statements present fairly, in all material aspects, thefinancial position of the Group as at 31 December 2013, and its financial results, cash flows for theyear then ended, in accordance with IFRS.

Emphasis of matters

Without changing our opinion, we draw your attention to Note 28, where we disclose the fact thatthe Group functions in adverse environment related by political and economical crisis Theseconditions indicate the existence of a material uncertainty, which may affect the Group's ability tocontinue its activities on a continuous basis. Improvement of economic situation in the countrydepends on the policies and actions of the government with regard to administrative, fiscal, legaland economic reforms. These financial statements do not include any adjustments that would benecessary, should the Group be unable to continue as a going concern. Such adjustments will benotified if they will be known and can be reliably estimated.

Kyiv,

BDO LLC

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COMBINEDSTATEMENTOFFINANCIALPOSITIONas at 31 December 2013(in thousand UAH)

Note 31.12.2013 31.12.2012

ASSETSNon-current assets

Property, plant and equipment 6 249 414 227 026Intangible assets 54 10Deferred tax assets 24 774 525

Total non-current assets 250 242 227 561

Current assets

Inventories 7 39 866 48 937Trade and other accounts receivable 8 29 540 33 652Advances made 11 768 20 314Income tax settlements 105 162Accounts receivable for taxes and duties 9 130 3 583Cash and cash equivalents 10 4 909 3 686Other non-financial current assets 11 2 772 2 513

Total current assets 89 090 112 847

TOTAL ASSETS 339 332 340 408

EQUITY AND LIABILITIES

EquityStatutory capital 12 39 453 35 393Treasury shares (14 000) -Retained earnings 35 949 29 612

Equity attributable to the Group participants 61 384 65 005Non-controlling participants 24 029 28 638

Total equity 85 413 93 643

Long-term liabilitiesLoans and borrowings 13 73 476 55 208Financial lease 14 13 245 3 516Trade and other accounts payable 15 249 735Other taxes payable 16 162 264Deferred tax liabilities 24 13 510 10 997

Total long-term liabilities 100 642 70 720

Current liabilities

Loans and borrowings 13 42 968 65 130Financial lease 14 6 128 2 625Trade and other accounts payable 15 86 711 82 433Income tax payable 545 401

Other taxes payable 16 7 914 4 823Advances received 9 011 20 633

Total current liabilities 153 277 176 045

TOTAL EQUITY AND LIABILITIES 339 332 340 408

Combined financial statements for the financial year ended 31 December 2013 were approved on behalf of the Groupmanagement:

____________________/(General director)

_____________________/(Chief accountant

Notes on pages 10-43 are an integral part of these combined financial statements.

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COMBINEDSTATEMENTOFCOMPREHENSIVEINCOMEFor the year ended 31 December 2013(in thousand UAH)

Note 2013 2012

Revenues 17 659 160 571 798Cost of sales 18 (441 053) ( 391 425)

Gross income 218 107 180 373

Administrative expenses 19 (38 339) (32 282)Commercial expenses 20 (108 206) (89 092)Other income 21 1 087 1 660Other expenses 22 (12 770) (4 307)Financial income 1 369Financial expenses 24 (23 182) (21 688)

Profit before tax 36 698 35 033

Income tax expenses 24 (6 731) (3 135)

PROFIT FOR THE PERIOD 29 967 31 898

Profit for the period attributable to:

Participants 31 507 32 795Non-controlling shares (1 540) (897)

Profit for the period 29 967 31 898

Other comprehensive income - -

TOTAL COMPREHENSIVE INCOME FOR THE

PERIOD 27 574 31 898

Comprehensive income attributable to:

Participants 31 507 32 795Non-controlling shares (1 540) (897)

TOTAL COMPREHENSIVE INCOME FOR THE

PERIOD 29 967 31 898


____________________/

(General director)

_____________________/

(Chief accountant

Notes on pages 10-43 are an integral part of these combined financial statements.

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COMBINEDSTATEMENTOFCASHFLOWSFor the year ended 31 December 2013(in thousand UAH)

Note 2013 2012

PROFIT BEFORE TAX 36 698 35 033

Adjustments

Financial expenses 23 23 182 21 688Financial income (1) (369)Amortization 6 32 715 29 528Foreign exchange differences 22 529 59Provision for doubtful debts 19 1 346 115Loss from disposal of PPE 6 1 464 5 573Writing-off outdated payables 21 (43) (169)

Changes in current assets / liabilities:

Inventories 9 073 (26 855)Accounts receivable 2 766 9 223Advances made 8 546 4 802Other taxes payable 8 840 (3 405)

Other non-financial assets / liabilities (259) (3 000)Trade and other accounts payable 15 597 23 371Advances received (11 622) 5 584

Net cash flows from operating activities 128 831 101 178

Income tax paid (5 014) (5 906)

Cash flows from investment activitiesAcquisition of PPE (40 050) (38 134)Acquisition of intangible assets (45) (1)Realization of PPE - 302Interest income received 1 4Group restructuring 1 (10 242) (13 534)

Net cash flows used in investment activities (50 336) (51 363)

Cash flows from finance activities

Loans received 122 656 79 833Loans paid (140 055) (70 850)Interests paid (21 115) (20 003)Financial lease settlements (5 789) (1 122)Dividends (27 955) (32 128)

Net cash flows used in finance activities (72 258) (44 270)

Net cash inflow / (outflow) 1 223 (361)

CASH AND CASH EQUIVALENTS AT THE

BEGINNING OF THE PERIOD 10 3 686 4 047

CASH AND CASH EQUIVALENTS AT THE PERIOD

END 10 4 909 3 686




Notes on pages 10-43 are an integral part of these combined financial statements

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COMBINEDSTATEMETNOFCHANGESINEQUITYFor the year ended 31 December 2013(in thousand UAH)

Note

Capital attributable to the Group owners

TOTAL

Non-

controlling

participants

TOTAL

EQUITYStatutory

capital

Treasury

stock

Retained

earningsCAPITAL AS AT

31.12.2011 48 927 - 28 945 77 872 29 535 107 407

-

Profit - - 32 795 32 795 (897) 31 898

Total comprehensive

income for the period - - 32 795 32 795 (897) 31 898

-

Dividends - - (32 128) (32 128) - (32 128)

Group restructuring 1 (13 534) - - (13 534) - (13 534)

CAPITAL AS AT

31.12.2012 35 393 - 29 612 65 005 28 638 93 643

Profit - - 31 507 31 507 (1 540) 29 967

Total comprehensive

income for the period - - 31 507 31 507 (1 540) 29 967

Dividends - - (27 955) (27 955) - (27 955)

Group restructuring 1 4 042 (14 000) 2 785 (7 173) (3 069) (10 242)

CAPITAL AS AT

31.12.2013 39 435 (14 000) 35 949 61 384 24 029 85 413




Notes on pages 10-43 are an integral part of these combined financial statements

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NOTES TO THE COMBINED FINANCIAL STATEMENTS

As at 31 December 2013 and for the year then ended(in thousand UAH)

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1. GENERAL INFORMATION

These combined financial statements represent a combination of the financial statements of the Group companies Hlibni

Investitsii (hereinafter - the Group).

Group's principal activity is the production of bread, bakery and pastry, trade in food products.

As of 31 December, 2012-2013 the Group members are as follows:

CompanyMethod of enclosure to the

financial statementsCombination basis

Share as at

31.12.2013 31.12.2012

LLC Holding CompanyHlibni Investitsii - Parent company - -

LLC First Capital BreadFactory

Consolidation (as at31.12..2012combination)

Parent company has control

over the company, thefinancial and operatingpolicies 100,00% 100,00%

PJS Teremno-Hlib Combination

Parent company has controlover the company, thefinancial and operating

policies 48,50% 48,50%

PJS Ivano-Frankivkybread factory Combination

Holding company hascontrol over the company,the financial and operating

policies 92,50% 92,50%

PJS Tsar hlib Combination

Parent company has controlover the company, thefinancial and operating

policies 99,90% 99,90%

PJS Berdychivsky breadfactory Consolidation Subsidiary company 100,00% 100,00%

PJS Chernovetsky breadfactory Consolidation Subsidiary company 94,00% 93,00%

The ultimate owners of the Group are individuals (hereinafterthe Group owners).The Group is in the process of restructuring (redistribution of shares of the owners), which will lead to the emergence of aclear vertical structure:

As of 31 December, 2012 Capital LLC First Capital Bread Factory in the amount of 10,012 thous. UAH fullyattributable to the Group owners and has been included in the financial statements under method of combination.During the reporting period the Parent company purchased 100% of LLC First Capital Bread Factory, thus as at 31December 2013 this capital has been included in the financial statements at consolidation method.

As of 31 December, 2012 the capital of PJS Tsar Hlib in amount of 67.58% was attributable to the ParentCompany, 37.32% - to the Group owners (99.90% of control). During the reporting period the share in theauthorized capital was purchased from the Parent company PJS Tsar Hlib in amount of 46.16% (14 000 thous.UAH) with a view to resale to the owners of the Group.

During the reporting period, the Group owner acquired share in PJS Chernovetsky Bread Factory in amount of 54thous. UAH.

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2. BASIS FOR PREPARATION OF THE COMBINED FINANCIAL STATEMENTS

Statement of compliance

These consolidated financial statements are prepared in compliance with International Financial Reporting Standards(further - IFRS).

Basis of preparation

These combined financial statements were prepared on the historical value basis, except for some objects of property, plantand equipment being assessed at fair value accepted as historical cost at the date of transition to IFRS (1 January 2012).

Functional and Presentation Cur rency

Functional and presentation currency of the Group is the national currency of UkraineUkrainian Hryvnia. Transactions in

other currencies are treated as transactions in foreign currencies, which are translated to the functional currency at theexchange rates prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies aretranslated to the functional currency at the exchange rates prevailing at the reporting date.

Non-monetary items in foreign currencies recorded at historical cost are translated at the exchange rate at the date of thetransaction. Non-monetary items in foreign currencies that are measured at fair value are translated at the exchange rates

prevailing at the date of the determination of fair value.

Exchange differences are recognized in the combined statement of comprehensive income for the period.

Going Concern Assumption

Stability of the Ukrainian economy is strongly influenced by the effects of the global economic crisis, which manifested

itself in a significant reduction in production in many sectors of the Ukrainian economy and the devaluation of the nationalcurrency. At the same time the improvement of the Ukrainian economy will to a great extend depend upon theefficiency of fiscal and other measures taken by the Ukrainian government. These financial statements show themanagements current estimate of the possible impact of economic conditions on the operations and financial position ofthe Group. Future conditions may differ from management's estimates. These combined financial statements do not includeany adjustments that might occur as a result of this uncertainty. Such adjustments will be made aware if they becomeknown and can be reliably estimated.

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Basis of combination

The combined financial statements include the financial statements of the companies as of 31 December, 2013.

The combined financial statements of companies under common control, but not related to formal ownership structure arecombined by consociation of the appropriate elements of the financial statements at their book value, adjusted only as aresult of harmonization of accounting policies. Totals of intra-group transactions and intra-group balances, as well as theamount of unrealized gains and losses on intragroup transactions are eliminated.

Non-controlling interest represents the interest in profit or loss or equity not owned by the Group and is presentedseparately in the statement of comprehensive income for the period, as well as in the equity attributable to participants inthe combined statement of financial position separately from the equity attributable to shareholders of the Group.

3. BASIC ACCOUNTING ESTIMATES AND ASSUMPTIONS

The Group has a number of estimations and assumptions about its future activities. These estimations and assumptions areregularly based on past experience of the management as well as other factors, including such expectations of the futureevents, which are considered to be grounded in existing circumstances. In future, actual results might differ from theseestimations and assumptions. The most significant estimations and assumptions, which can be effected by significant risksof adjustments of carrying amounts of assets and liabilities during the next financial year, are set forth below.

Useful lives of intangible assets and property, plant and equipment. Depreciation or amortization ofintangibles and property, plant and equipment is accrued during their useful lives. Useful lives are based uponmanagement estimates of the period during which an asset is going to generate profit. These estimates are

periodically reviewed for their further compliance.

Inventories. The Group examines net realizable value and demand for its inventories quarterly in order toascertain that accounted inventories are assessed at the least of cost or the net realizable value. The factors thatmay affect an estimated demand and selling price are computation of time and success of future technologicalinnovations, competitors actions, prices ofsuppliers and economic trends.

Litigation. In compliance with IFRS, the Group recognizes the provision only when there is current liability (legalor resulting from the practice) related to the prior event, the outflow of economic benefits required to repay theliabilities is probable, and reliable valuation of the liabilities is received. In case of failure to meet theserequirements, the information on the contingent liability can be disclosed in notes to the financial statements. Therealization of any contingent liability, which was not recognized or disclosed in financial statements for thecurrent moment, can considerably affect the Groups financial position. Application of these principles regardinglitigation requires managements estimations of different actual and legal issues that are beyond its control. TheGroup revises unsettled litigation, following the events of the litigation for each statement of financial positiondate to estimate the necessity for provisions in its financial statements. Among the factors considered whenmaking a decision about a provision charge, there are the following: nature of the litigation; requirements orestimations; legal process and the potential level of losses in the jurisdiction of the litigation, requirement orestimation (including litigation subsequent to the date of financial statements preparation, but before theirapproving); opinions of legal advisers; experience acquired in connection with similar cases; any decision of theGroup management regarding its reaction on the litigation, requirement or estimation.

Accounts receivable. The Group believes that probability of collection of accounts receivable is based on analysis

of individual settlements. Considered factors include ageing analysis of trade accounts receivable in comparisonto terms of loans provided to clients, as well as the financial position and history of collection of amounts duefrom clients. In case when factual collections are lower than the managements estimates, the Group shouldconsider additional expenses for impairment. First the Group estimates the objective signs of impairment for eachamount, which separately is material one, and then on aggregative basis by amounts that separately are notmaterial. If no objective signs of impairment are available for separately estimated receivables, regardless ofwhether it is material or not, such receivables are included in the group and this group is estimated for impairmenton aggregative basis. Receivables that are estimated for impairment individually, and for which there is orcontinues to incur a loss from impairment are not included into aggregative estimation for impairment.

Control existence. The reason for including in the statements of PJS Teremno Hlib is that the LLC HoldingCompany Hlibni Investitsii and the Group owner have de facto (actual) control over the entity - namely, quitesignificant participation (48.50%), they are exposed to the risks of variable income from participation in the

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Teremno Hlib, have the opportunity to use their powers in respect of the investment object in order to influencethe amount of their income.

All assumptions are reviewed at each reporting date. To determine the appropriate discount rate, the managementtakes into account current interest rates on government bonds.

4. BASIC ACCOUNTING PRINCIPLES

The accounting policies set out below have been applied consistently to all periods presented in these combined financialstatements by all the Group companies.

I nfl ation accounting

Up to the year 2001 Ukraine was considered to be a hyperinflationary economy. In order to comply with IAS 29, Financial

Reporting in Hyperinflationary Economies, financial statements had to be expressed in terms of the measuring unit currentas of the reporting date. With effect from 1 January 2001 the economy of Ukraine was no longer considered to be ahyperinflationary economy. Amounts expressed in the measuring unit current at the end of 2000 have been used as the

basis for the carrying amounts in the financial statements of subsequent periods. Given report includes coefficients ofrecalculation solely with regard to the Groupsshare capital (Note 13).

Property, plant and equipment

Property, plant and equipment are stated at revaluated cost, net of depreciation and accumulated loss from impairment.

Depreciation of PPE is calculated on the straight-line basis over the estimated useful life of assets as follows:

Usefu l li fe (years)

Land

Buildings and constructions 20-50

Machinery and equipment 10-20

Vehicles 5-15

Instruments, tools, equipment 5-15

Other PPEs 1-20

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When each major inspection is performed, its cost is recognized in the carrying amount of an item of property, plant andequipment as replacement if the recognition criteria are satisfied:

It is probable that the Group will generate future economic benefits associated with the object;

The cost of this property can be measured reliably

The Group capitalizes borrowing costs that are directly attributable to the acquisition, construction or production ofqualifying assets as part of the cost of that asset. Other borrowing costs are recognized as expenses when incurred.

An item of PPE is derecognized at disposal or in case no economic benefits are expected from its use. The gain or loss ondisposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) isincluded in the statement of comprehensive income for the period in which the asset is derecognized.

The asset's depreciated value, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at eachfinancial year end.

Capital investment includes the cost of construction and reconstruction of PPEs. Capital investment at the date of thefinancial statements are stated at cost less any accumulated impairment losses. Capital investments are not amortized until

the asset is ready for use.

I ntangible assets

The Group's intangible assets include mainly software and licenses for the licensable types of activity.

The acquired licenses for software are capitalized on the basis of the software acquisition and implementation expenses.The capitalized software is regularly amortized during the expected useful life period, which comprises 5 years, and thelicensesduring their validity term.

Impairment of non-fi nancial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any suchindication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset'srecoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value, less coststo sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that arelargely independent from other assets or groups of assets. Cash generating unit (CGU) is the smallest identifiable group ofassets that provides for cash inflows which are largely independent of the cash inflows from other assets or groups ofassets. The group identified CGU for each of the activities - wholesale and retail trade of fuel, LNG trade. Where thecarrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to itsrecoverable amount. In assessing the value in use, the estimated future cash flows are discounted to their present valueusing a pretax discount rate that reflects current market assessments of the time value of money and risks specific to theasset. Impairment losses are recognized in the Statement of comprehensive income for the period in those expensecategories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairmentlosses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A

previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine theasset's recoverable amount since the last impairment loss was recognized. If that is the case the carrying amount of the assetis increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have beendetermined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal isrecognized in the Statement of comprehensive income for the period. After such a reversal, future depreciation charge isadjusted to amortize the asset's revised carrying amount, less any depreciated value, on regular basis over its remaininguseful life.

Recogni tion of f inancial instruments

The Company recognizes financial assets and liabilities in its statement of financial position when, and only when, itbecomes a party to the contractual provisions of the instrument. Financial assets and liabilities are recognized using tradedate accounting.

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Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is alegally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize theasset and settle the liability simultaneously.

Financial assets.

Financial assets and financial liabilities of the Company loans and receivables, as well as cash and cash equivalents.

When a financial asset or financial liability is recognized initially, it is measured at its fair value plus, in the case of afinancial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable tothe acquisition or issue of the financial asset. When the Group becomes a contractual party, it determines embeddedderivatives in the contract, if any. Embedded derivatives are separated from the host contract that is not assessed at fairvalue through profit or loss in case the economic character and risks of embedded derivatives materially differ from similarquotients of the host contract. The Group determines the classification of its financial assets after initial recognition and,where allowed or appropriate, reevaluates this designation at each financial year-end.

All acquisition or sale transactions related to financial assets on standard terms are recognized at the transaction date, i.e.at the date when the Group undertakes an obligation to acquire an asset. Acquisition or sale transactions on standard

terms mean acquisition or sale of financial assets that requires supplying an asset within the term determined by legislationor rules accepted in a certain market.

Loans and accounts receivable

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in theactive market. Such assets are reflected at amortized cost using the effective interest method after their initial evaluation.Amortized cost is calculated taking into account all discounts or bonuses that arose at acquisition and includes commissions

being an integral part of the efficient interest rate as well as transaction costs. Gains and expenses are recognized in thestatement of comprehensive income for the period when assets are derecognized or impaired, as well as through theamortization process.

After initial recognition, extended loans are measured at fair value of the funds granted that is determined using theeffective market rate for such instruments, if they materially differ from the interest rate on such loan granted. In future

loans are measured at amortized cost using the effective interest rate method. Difference between the fair value of the fundsgranted and loan reimbursement amount is reported as interest receivable during the whole period of the loan. Amortizedcost is calculated taking into account all transaction expenses and discounts or bonuses that arose at repayment.

Loans that mature over 12 months after the combined statement of financial position date are included into non-currentassets.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bankoverdrafts that are repayable on demand and form an integral part of the Group's cash management, are a component ofcash and cash equivalents for the purposes of the combined statement of cash flows.

Financial liabilties

According to IAS 39 Financial Instruments: Recognition and Measurement, financial liabilities are classified into thefollowing categories:

financial liabilities at fair value through profit or loss at fair value

other financial liabilities measured at amortized cost using the effective interest method.

As at 1 January and 31 December 2013 the Group had no financial liabilities that could be attributed to those estimated atfair value through profit and loss.

Group's financial liabilities include trade and other payables, finance leases, loans and borrowings are initially recognizedat fair value and subsequently measured at amortized cost using the effective interest method.

Financial lease

Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leaseditem, are capitalized at the inception of the lease at the fair value of the leased property or, if the total is less - the presentvalue of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease

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liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are recognizedimmediately in the statement of comprehensive income.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Groupwill obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of

the asset and the lease term.

Trade and other accounts payable

Trade and other accounts payable are initially recorded at fair value, and afterwards at amortized cost under the effectiveinterest rate method.

Loans and borrowings

Loans and borrowings are initially recognized at their fair value, which includes obtained proceeds, less any transactioncosts incurred. After initial recognition, all loans and borrowings are stated at amortized cost using the effective interestmethod.

Impairment of fi nancial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group offinancial assets is impaired.

Assets reported at amortized cost

If there is objective evidence that an impairment loss has been incurred in loans and accounts receivable that are reported atamortized cost, the amount of the loss is measured as the difference between the assets carrying amount and the presentvalue of estimated future cash flows (excluding future expected credit losses that have not yet been incurred) discounted atinitial effective interest rate for such financial asset (i.e. at the effective interest rate calculated at initial recognition). Thecarrying amount of the asset is reduced directly or using the reserve. The loss amount is recognized in the statement ofcomprehensive income for the period.

The Group initially assesses individually whether objective evidence of impairment exists individually for financial assetsthat are individually significant, or collectively for financial assets that are not individually significant. If the Groupdetermines that no objective evidence of impairment exist for an individually assessed financial asset, whether significantor not, it includes the asset into a group of financial assets with similar credit risk characteristics and collectively assessesthem for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continuesto be, recognized are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the estimated impairment loss decreases because of an event occurring after theimpairment was recognized, the previously recognized impairment loss is recovered. Any subsequent loss recovery isrecognized in the statement of comprehensive income for the period in the amount that the carrying amount of an assetshould not exceed its amortized cost at the recovery date.

Provision for impairment of receivables is charged in case there is objective evidence (e.g. a possibility of the debtor'sinsolvency or other financial difficulties) that the Group might not gain all amounts due to the delivery terms. Carrying

amount of receivables is then reduced through the allowance account. Impaired debts are derecognized as soon as they areconsidered to be bad.

De-recognition of fi nancial assets and l iabil iti es

Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) isderecognized where:

the rights to receive cash flows from the asset have expired;

the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full

without material delay to a third party; or The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially

all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and

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rewards of the asset, but has transferred control over the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retainedsubstantially all the risks and rewards of the asset or transferred control over the asset, the asset is recognized to the extentof the Groups continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over thetransferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Group could be requested to repay.

Financial liabilities

A financial liability is derecognized when it is settled, cancelled, or expired.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or theterms of an existing liability are substantially modified, the original liability is derecognized and a new liability is reportedwith recognition of the difference in the respective carrying amounts in the statement of comprehensive income for the

period.

I nventori es

Inventories are stated at the lower of cost or net realizable value. Retired inventories are assessed using the FIFO method.Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion andthe estimated costs necessary to make the sale.

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Page 18of 42

Pension li abili ties

The Group does not have any pension arrangements separate from the State pension system of Ukraine, which requirescurrent contributions by the employer calculated as a percentage of current gross salary payments; such expense is charged

to the statement of comprehensive income in the period the related salaries are earned. In addition, the Group has no post-retirement benefits or significant other compensated benefits requiring accrual.

Borr owing costs

The Group capitalizes borrowing costs relating directly to acquisition, construction or production of qualified assets as thepart of value of such asset. Other borrowing costs are recognized as expenses as they occur.

Contingencies

Contingent liabilities are not recognized in the financial statements unless it is probable that an outflow of economic

resources embodying economic benefits will be required to settle the obligation and it can be reasonably estimated. Theyare disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. As at 31 December2013 and 2012 the Group had no such liabilities.

Share capital

Financial instruments issued by the Company are classified as equity to the extent they comply with a financial liability orfinancial asset definition.

Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it isprobable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliableestimate can be made of the amount of the obligation. Where the Company expects some or all provisions to be reimbursed,for example under an insurance contract, the reimbursement is recognized as a separate asset but only when thereimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensiveincome net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using acurrent pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, theincrease in the provision due to the passage of time is recognized as finance costs.

Revenue recogniti on

Revenue is recognized when the economic benefits the Group assessed as probable, and the revenue can be reliably

measured, regardless of the time of payment. Revenue is measured at the fair value of the consideration received orreceivable, taking into account contractually defined terms of payment and excluding taxes or duties. For revenuerecognition must also meet the following criteria:

Revenues from the sale of goods are normally recognized at the goods delivery, when significant risks andrewards of ownership of the goods are transferred to the buyer.

Revenues from rendering services is recognized in the period when the services were rendered and accepted by thecustomer through signing the act of acceptance, provided that there is reasonable assurance of such receivablesrepayment.

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I ncome tax

Current tax

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered fromor paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted orsubstantially enacted by the reporting date.

Deferred tax

Deferred income tax is provided using the combined balance-sheet liability method on temporary differences at thereporting date- between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except for:

Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in atransaction that is not a business combination and, at the time of the transaction, affects neither the accounting

profit nor taxable profit or loss; and

In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests injoint ventures, where the timing of the reversal of the temporary differences can be controlled by the parentcompany and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unusedtax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporarydifferences, and the carry-forward of unused tax credits and unused tax losses can be utilized except for:

where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of anasset or liability in a transaction that is not a business combination and, at the time of the transaction, affectsneither the accounting profit nor taxable profit or loss; and

in respect of deductible temporary differences associated with investments in subsidiaries, associates and interestsin joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporarydifferences will reverse in the foreseeable future and taxable profit will be available against which the temporary

differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each combined statement of financial position date and reducedto the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferredtax assets to be utilized. Unrecognized deferred tax assets are reassessed at each combined statement of financial positiondate and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to

be realized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when theasset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or (substantially enacted) atthe combined statement of financial position date. Income tax relating to items recognized directly in net assets attributableto participants is recognized in the net assets attributable to participants, rather than in the statement of comprehensiveincome. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current taxassets against current tax liabilities and they relate to income taxes imposed by the same taxation authority on the sameentity.

In December 2010, the new Tax Code was adopted in Ukraine that became effective beginning from January 2011, for thecorporate income tax beginning from April 2011. The Tax Code provides, among others, for the financial and taxaccounting approaching.

To calculate the corporate income tax the following tax rates will be applied:

beginning from 1 January 2013 to 31 December 201319%;

from 1 January 201418%

In these financial statements, the Group presented the impact of the new Tax Code on current and deferred income taxesrelated to the change in the income tax rates, as well as due to changes in the tax book value of fixed assets. Whencalculating deferred tax assets and liabilities, the Group used the tax rates that are expected to apply in the period of

reversal of temporary differences resulted in the rise of relavant deferred tax assets and liabilities.

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5. NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT EFFECTIVE YET

At the moment of the preparation of these reporting, there is a number of new standards, amendments and interpretations tothem that are not effective yet and therefore were not applied to these combined financial statements. The following beloware the standards, which can potentially affect the financial statements.

Amendment to IAS 1, Presentation of Financial StatementsPresentation of Items of Other Comprehensive Income changes grouping of items presented in other comprehensive income. Items that could be reclassified to profit or loss atsome point in the future (for example, upon derecognition or settlement) should be presented separately from items thatwill never be reclassified. The amendment affects presentation only and will not affect the financial position or results ofoperations of the Group.

Amendments to IAS 19 Employee Benefits. Under the amendments, a change was introduced in the recognition ofactuarial gains and losses, as well as past service cost and curtailment of pension plans; definition of "severance pay" is

changed. Actuarial gains and losses can not be transferred to future periods using the corridor method and recognized inprofit or loss. Past service cost is recognized in the period in which the change in the conditions of the pension plan;benefits to which the employee has no right yet from now on will not be distributed to the entire period of service in thefuture. Also the additional disclosure requirements were introduced, as well as the risks that arise from defined benefit

plans and plans implemented by more than one employer. The amendments did not affect the financial condition and theresults of operations.

Amendments to IFRS 1 Government loans. According to the amendment, the first-time adopter is to apply therequirements of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance prospectively totheir loans granted by the state and existing at the date of transition to IFRS. The amendment has no impact on the Group'sfinancial statements.

Amendments to IFRS 7, Disclosures - Offsetting Financial Assets and Financial Liabilities. Companies are required todisclose information about the rights to offset and appropriate netting agreements (for example, collateral arrangements).

New disclosure requirements apply to all recognized financial instruments that are offset in accordance with IAS 32,Financial Instruments: Presentation. The amendments do not affect the financial condition or results of operations of theGroup.

IFRS 10, Consolidated Financial Statements IAS 27 Separate Financial Statements as amended in 2011 includes therequirements for the preparation of the separate financial statements for the companies that make up the consolidatedfinancial statements. IFRS 10 introduces a single consolidation model, according to which the concept of control is definedas a basis for consolidation for all types of companies. This standard specifies the requirements for cases where thedefinition of control is complicated, including for cases of potential voting rights, legal relationship of principal and agent,the control of specific assets and the circumstances under which the right to vote is not the dominant factor in determiningcontrol. In addition, IFRS 10 introduces a special guidance on relations of principal and agent. The standard also includesrequirements for the accounting and consolidation procedures, which are transferred from IAS 27 and remain unchanged.IFRS 10 replaces the consolidation requirements in SIC-12 Consolidation - Special Purpose Entities and IAS 27

Consolidated and Separate Financial Statements. Requirements for the preparation of the consolidated financial statementsmoved to the new standard IFRS 10. The adoption of the standard did not affect the Groups financial condition and resultsof operations.

IFRS 11 Joint Arrangements, IFRS 12 Disclosure of investments in other companies. IAS 28 Investments in Associates andJoint Ventures in the 2011 edition combines the demands of IAS 28 in the previous edition and IAS 31 Joint Operations,which has been decided to keep in force and not include IFRS 11 and IFRS 12 to the new standards.

IFRS 11, Joint Arrangements improves joint arrangements accounting by introducing a method which requires the partiesto a joint agreement recognizing their rights and obligations arising from this agreement. Classification of generalarrangement is determined by assessing the rights and obligations of the parties arising from this arrangement. Standardoffers only two types of joint arrangements - joint operations and joint activities. IAS 11 also eliminates the proportionateconsolidation method of accounting as joint agreements. IFRS 11 supersedes IAS 31 "Interests in Joint Ventures" and SIC-13 Jointly Controlled Entities - Non-monetary Contributions by the Venturers. Application of IAS 11 did not affect the

Groups financial condition and results of operations.

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IFRS 12, Disclosure of Interests in Other Entities is a new comprehensive standard, inclues requirements for thedisclosure of information on all types of investments in other companies, including subsidiaries, joint arrangements,associates and unconsolidated structured entities. IAS 12 is effective for annual periods beginning on or after 1 January,2013. Early application is allowed. Application of IAS 12 did not affect the Groups financial condition and results of

operations.IFRS 13, Fair Value Measurement combines in one standard all guidance on fair value measurement under IFRS. IFRS13 does not change the definition of when to use fair value, and provides guidance on measuring fair value under IFRSwhen its use is required or permitted by other IFRS. IFRS 13 also requires additional disclosures. Application of IAS 13had no material effect on the measurement of fair value, which is determined by the Group. Where necessary, additionalinformation is disclosed in the notes to the individual assets and liabilities for which the fair value was determined.

The listed below IFRS improvements did not have any effect on the Groups financial statements:

IFRS 1, First-time Adoption of International Financial Reporting Standards. This improvement clarifies that an entitywhich has ceased to apply IFRS in the past and decided or is obliged to prepare IFRS reporting, has the right to apply IFRS1 again. If IFRS 1 is not applied repeatedly, the company must retrospectively recalculate its financial statements as if ithad never stopped to apply IFRS.

IAS 1, Presentation of Financial Statements. This improvement clarifies the difference between additional comparativeinformation provided on a voluntary basis and the minimum of required comparative information. Generally, the minimumrequired comparative information is the information for the previous reporting period.

IAS 16, Property, Plant and Equipment .This improvement clarifies that the main spare parts and auxiliary equipmentmeet the definition of fixed assets and are not inventories.

IAS 32, Financial Instruments: Presentation.This improvement clarifies that the income tax relating to payments for thebenefit of shareholders is recorded in accordance with IAS 12, Income Taxes.

IAS 34, Interim Financial Reporting.This improvement brings into compliance the requirements for disclosure in theinterim financial reporting of the information about the total amount of segment assets to the disclosure requirements aboutsegment liabilities. According to this explanation, disclosures in interim financial statements must also comply with thedisclosures in the annual financial statements.

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The Group did not apply the following IFRSs and Interpretations to IFRSs and IASs that were issued but did not come intoforce:

Amendments to IAS 32 - Financial assets and financial liabilities discribe how to properly apply the criteria foroffsetting in IAS 32 in respect of payment systems (such as a single clearinghouse system), which are used within the

mechanisms of gross payments. It is assumed that these amendments will have no impact on the Groups financial positionor results of operations. The amendments are effective for annual periods beginning on or after 1 January, 2014.

Amendments to IAS 36 - Disclosure of recoverable non-financial assets. This amendment reduces the circumstancesunder which the recoverable assets or cash-generating units should be disclosed, and introduced an explicit requirement todisclose the discount rate when determining the impairment loss (or reversal of impairment), where the recoverable amount(based on fair value less costs of disposal) is determined using discounting. The amendments are effective for annual

periods beginning on or after 1 January, 2014. It is assumed that these amendments will have no impact on the Groupsfinancial position or results of operations.

IFRS 9, Financial Instruments: Classification and Measurement was issued in November 2009. The standard replaces IAS39, Financial Instruments: Recognition and Measurement in the classification and measurement of financial instruments. Itwas planned to come into force the standard for annual reporting periods beginning on or after 1 January 2015, butsubsequently the date was postponed. The Group is assessing the effect of the standard on its financial statements.

Amendments to IFRS 10, IFRS 12 and IFRS 27 - Investment Groups are effective for annual periods beginning on orafter 1 January, 2014 and provide exemption from consolidation for companies that meet the definition of investmentGroup in accordance with IFRS 10. The exemption from consolidation requires that investment Groups accountsubsidiaries at fair value through profit or loss. These amendments will have no impact on the Groups financial position orresults of operations.

Amendments to IAS 39 - Novation derivatives and hedge accounting continued. This amendment provides anexception from the requirement to cease hedge accounting when innovation derivatives designated as a hedging instrumentmeets the criteria. These amendments are effective for annual periods beginning on or after 1 January, 2014. The Groupexpects that this amendment will have no impact on the financial position or results of operations.

IFRIC 21 Compulsory payments. The Interpretation clarifies that the company recognizes obligation of mandatorypayments when an action entailing their payment takes place. In case of mandatory payment, the payment of which is

required when there is a minimum threshold, the interpretation prohibits recognition of an alleged obligation to achieve theminimum threshold. IFRIC 21 becomes effective for annual periods beginning on or after 1 January, 2014. Thisinterpretation will have no impact on the Groups financial statements.

Annual IFRS improvements Program. A number of changes to the standards adopted in the framework of programs onthe annual Improvements to IFRSs, effective for annual periods beginning on or after 1 July, 2014. These amendments aremostly clarifying nature that will remove some of the uncertainty in the wording and so on. The adoption of theseimprovements will have no impact on the Group's financial statements.

Amendments to IFRS 7, Disclosures - Offsetting Financial Assets and Financial Liabilities . Pursuan to theseamandments companies are required to disclose the rights to offset and related arrangements (such as the agreements for

provisions). Due to these requirements, users will have the information that is useful to assess the impact of nettingagreements on the financial position of the company. New disclosure requirements apply to all recognized financial

instruments offset in accordance with IAS 32, Financial Instruments: Presentation. Requirements for disclosure ofinformation also apply to recognized financial instruments that are subject to a legally enforceable master nettingagreement or similar agreement, regardless of their eligibility for offset in accordance with IAS 32. The amendments willnot affect the Groups financial position or performance. The amendments are effective for annual reporting periods

beginning on or after 1 January 2013.

IFRS 9 Financial Instruments: Classification and Measurement . IFRS 9 as issued reflects the first phase of the IASBto replace IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined inIAS 39. Initially it was assumed that the standard will come into force for annual periods beginning on or after 1 January,2013, but by the release of the amendments to IFRS 9 The date of mandatory application of IFRS 9 and transitionaldisclosure requirements information published in December2011, the date of mandatory application was postponed to 1January, 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets.Application of the first phase of IFRS 9 affects the classification and measurement of Groups financial assets, but will

have no impact on the classification and measurement of financial liabilities. To represent a complete picture, the Groupwill assess the impact of this standard to the amounts in the financial statements in conjunction with the other phases, whenissued.

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IFRS 10, Consolidated Financial Statements IFRS 10 replaces the portion of IAS 27 Consolidated and SeparateFinancial Statements, which addresses the accounting in the consolidated financial statements. It also includes the issuesthat are raised in SIC-12 Consolidation - Special Purpose Group. IFRS 10 introduces a single consolidation model,whereby the definition of control is defined as the basis for consolidation for all types of companies, including the Groups

of special purpose. The changes introduced by IFRS 10 will require management to exercise significant judgment todetermine which entities are controlled, and therefore should be consolidated by a parent, compared with the requirementsof IAS 27. Preliminary analysis showed that the IFRS 10 will have no impact on the investments held by the Group at thistime. The standard is effective for annual periods beginning on or after January 1, 2013.

IFRS 11, Joint Ventures replaces IAS 31, Interests in Joint Ventures and SIC-13 Jointly controlled Groups non-monetary contributinos by participants. IFRS 11 removes the option to account for jointly controlled entities using

proportionate consolidation. Instead, the Group's jointly controlled entities that meet the definition of joint ventures areaccounted for using the equity method. The application of this standard will have no impact on the financial position of theGroup. The standard is effective for annual periods beginning on or after 1 January, 2013.

IFRS 12, Disclosure of Interests in Other Entitiespublished in May 2011 is a new comprehensive standard that includesrequirements for disclosure of information on all types of interests in other entities, including subsidiaries, jointarrangements, associates and unconsolidated structured companies. IFRS 12 is effective for annual reporting periods

beginning on or after 1 January 2013. Earlier application is allowed. IFRS 12 does not have any effect on the financialcondition and results of operations of the Group.

IFRS 13 Fair Value Measurement unifies in one standard all guidance on estimating fair value under IFRS. IFRS 13 doesnot change determining of when to use fair value, and provides guidance on measuring fair value under IFRS when its useis required or permitted by other IFRSs. The Group currently assesses the effect of given standard application to itsfinancial position and its financial performance, however, the preliminary analysis has shown that no material impact fromapplication of given standard is expected

The standard is effective for annual periods beginning on or after 1 January, 2013.

Amendments to IAS 19Employee Benefits. In June 2011, the IASB published a revised version of IAS 19 EmployeeBenefits. IAS 19 is effective for annual periods beginning on or after 1 January 2013. Early application is allowed. TheGroup is currently assessing the impact of IAS 19 on its financial position or performance results.

IAS 27 Separate Financial Statements. In consequence of the new standards IFRS 10 and IAS 12, IAS 27 in the newedition is limited to accounting for subsidiaries, jointly controlled entities and associates in separate financial statements.Group does not present separate financial statements. The amendment is effective for annual periods beginning on or after1 January, 2013.

IAS 28 Investments in associates and joint ventures of the Group (as revised in 2011).In consequence of the new IFRSstandards IFRS 11 and IFRS 12, IAS 28 was renamed to IAS 28 Investments in associates and joint ventures of the Groupand describes the application of the equity method, not only in respect of investments in associated companies, but also forinvestments in joint ventures. The amendment is effective for annual periods beginning on or after 1 January, 2013.

Amendments to IFRS (IAS) 32, Offsetting of financial assets and financial liabilities. As part of these amendments, themeaning of currently has a legally enforceable right to offset the implementation is clarified. The amendments alsodescribe how to properly apply the netting criteria in IAS 32 with regard to settlement systems (such as the system of asingle clearinghouse), in which mechanisms are used non-simultaneous gross payments. It is expected that these

amendments will have no impact on the Groups financial position or results of operations. The amendments are effectivefor annual periods beginning on or after 1 January, 2014.

6. FIRST TIME IFRS ADOPTION

For all periods up to and including the year ended 31 December 2011, the Group prepared its financial statements inaccordance with national accounting standards (the NAS). The financial statements for the year ended 31 December, 2012,were for the first time prepared in accordance with International Financial Reporting Standards (IFRS). Accordingly, as isdescribed in the accounting policy how the Group has prepared financial statements that comply with IFRS requirementsthat are applicable to annual reporting periods beginning on or after 1 January 2012. When preparing these financialstatements, an opening balance was prepared as of 1 January, 2012 - the date of the Group's transition to IFRS. This noteexplains the principal adjustments made by the Group in terms of statement of financial position prepared as at 31

December 2011 in accordance with the NAS.

Application of exemptions

IFRS 1 "First-time Adoption of International Financial Reporting Standards" relieves first-time adopters of IFRS from

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Reconciliation of Companys equityas at 1 January 2011 (IFRS transition date):

31.12.2011

NASAdjustment

31.12.2011

IFRS

ASSETS

Non-current assetsPPE and capital investments A 134 648 80 222 214 870Intangible assets 21 - 21Long-term financial investments B 4 410 (4 410) -Deferred tax assets C 7 611 618

Total non-current assets 139 086 215 509

Current assets

Inventories D 26 390 (127) 26 263

Trade and other receivables E 44 685 (1 393) 43 292Advances made F 26 456 (1 340) 25 116Income tax settlements 34 - 34

Other tax and duties receivable 2 626 - 2 626Promissory notes received G 373 (373) -Cash and cash equivalents H 2 340 1 707 4 047

Total current assets 102 904 101 378

TOTAL ASSETS 241 990 316 887

EQUITY AND LIABILITIES

EquityStatutory capital I 50 617 1 355 51 972Retained earnings (3 303) 58 738 55 435

Capital attributable to the Group owners

Non-controlling participants

Total equity 47 314 107 407

Long-term liabilities

Loans 75 456 - 75 456Financial lease J 5 275 (4 149) 1 126Other tax payable K 469 (102) 367Deferred tax liabilities - 11 887 11 887

Total long-term liabilities 81 200 88 836

Current liabilities

Loans H 33 864 1 707 35 571Financial lease J - 1 207 1 207

Trade and other payables L 44 908 3 326 48 234Advances received 26 217 26 217Income tax payables M 1 953 604 2 557Other tax payable N 6 047 324 6 371Other liabilities 487 - 487

Total current liabilities 113 476 120 644

TOTAL EQUITY AND LIABILITIES 241 990 316 887

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Adjustment A.Reflection of PPEs at fair value (83,306 thousand UAH), writing off objects that do not meet the criteriafor theis recognition as PPEs (-2,942 thousand UAH and - 142 thousand UAH).

Adjustment B. Writing-off investments that do not meet the criteria for their recognition as assets.

Adjustment C. Reflection of deferred tax calculated in accordance with IFRS.

Adjustment D.Adjustment of the Group due to the untimely reporting of asset movement transactions.

Adjustment E.Reflection of provision for doubtful receivables.

Adjustment F. Write-off prepayments that do not meet the criteria for their recognition as assets

Adjustment G.Write-off promissory notes received that do not meet the criteria for their recognition as assets

Adjustment H. Reclassification of overdrafts received.

Adjustment I.Effect of hyperinflation in Ukraine starting from the date of the contribution to the statutory capital before 1January 2001.

Adjustment J. Reclassification of current portion of finance lease obligations (1 207 thousand UAH); cancellation ofobligations, does not meet the criteria for their recognition as finance leases (- 2 942 thousand UAH)

Adjustment K.Reclassification of current portion of long-term liabilities for other taxes.

Adjustment L.Provision for Vacation of employees.

Adjustment M. Adjustment of the Group reporting due to the untimely recorded income tax liabilities.

Adjustment N. Adjustment to the financial statements due to untimely recorded other taxes liabilities (222 thousandUAH), a reflection of the current portion of long-term liabilities other taxes (102 thousand UAH).

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7. PROPERTY, PLANT AND EQUIPMENT AND CAPITAL INVESTMENTS

Property, plant and equipment of the Group and their movement are stated as follows:

HISTORICAL COST 31.12.2013 31.12.2012Land 479 479Buildings and structures 261 633 255 755Equipment 181 597 144 234Vehicles 34 443 24 929Implements 4 208 3 492Other 3 785 3 247Capital investments 12 945 13 529

TOTAL 499 090 445 665

DEPRECIATIONLand - -

Buildings and structures (134 390) (127 888)Equipment (94 594) (74 713)Vehicles (14 775) (11 096)Implements (2 560) (2 085)Other (3 357) (2 857)Capital investments - -

TOTAL (249 676) (218 639)

CARRYING AMOUNT 249 414 227 026

Land

Buildingsand

structures

Equipment

Vehicles

Implements

Other

Capital

investments

TOTAL

CARRYING AMOUNT,

31.12.2011 479 126 107 56 203 6 610 1 094 966 23 411 214 870

Acquisition - - - - - - 47 246 47 246Commissioning - 9 236 34 090 11 615 858 1 328 (57 128) (1)Disposal - (1 952) (5 750) (3 288) (619) (996) - (12 605)Depreciation charge - (6 484) (18 580) (3 041) (465) (946) - (29 516)Depreciation retirement - 960 3 558 1 937 539 38 - 7 032

CARRYING AMOUNT,31.12.2012 479 127 867 69 521 13 833 1 407 390 13 529 227 026

Acquisition - - - - - - 56 567 56 567Commissioning - 5 991 38 842 10 881 781 656 (57 151) -Disposal - (113) (1 479) (1 367) (65) (118) - (3 142)Depreciation charge - (6 547) (21 038) (3 974) (533) (623) - (32 715)Depreciation retirement - 45 1 157 295 58 123 - 1 678

CARRYING AMOUNT,

31.12.2013 479 127 243 87 003 19 668 1 648 428 12 945 249 414

Cost of property, plant and equipment used by the Group under finance lease agreements, as at 31 December 2013comprised 26 514 thousand UAH, as at 31 December 2012 10 970 thousand UAH. Acquisition of PPE during the yearincludes PPE received under finance leases in amount of 16 517 thousand UAH.

As at 31 December 2013, the cost of pledged PPE (Note 13) was 133 215 thousand UAH, as at 31 December 2012 183 478 thousand UAH.

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8. INVENTORIES

As at 31 December inventories included:

31.12.2013 31.12.2012

Goods and finished products 18 405 29 655Raw materials and supplies 13 531 12 517Tare 4 982 3 662Spare parts 696 507Other inventories 2 252 2 596

TOTAL 39 866 48 937

Inventories written-off to expenses in 20132012 comprised 325 558 and 311 087 thousand UAH, respectively.

9. TRADE AND OTHER ACCOUNTS RECEIVABLE

As at 31 December, trade and other accounts receivable are stated as follows:

31.12.2013 31.12.2012

LOANS AND ACCOUNTS RECEIVABLETrade receivables 20 677 23 573Other receivables 11 241 11 208Provision for doubtful debts (2 378) (1 129)

TOTAL 29 540 33 652

As at 31 December 2013, accounts receivable at the nominal value of 5 269 thousand UAH (as at 31 December 2012 1 129 thousand UAH) were fully impaired. Changes in the provision for impairment of accounts receivable (in the

provision for doubtful debts) are stated as follows:

31.12.2013 31.12.2012

OPENING BALANCE (1 129) (1 371)

Impairment loss (Note 19) (1 346) (115)Reversed losses - -Used provision for doubtful debts 97 357

CLOSING BALANCE (2 378) (1 129)

The Group does not enter into deferred payment contracts; it is assumed that the receivables will be repaid during 3 monthsupon origination. Credit quality of the accounts receivable can be analyzed as follows:

31.12.2013 31.12.2012

Not outstanding and not impaired 17 866 22 584Outstanding not impaired 11 673 11 068including:

121-180 days 6 799 4 905

181-365 days 1 778 2 248

over 365 days 3 098 3 915

TOTAL 26 622 33 652

All accounts receivable are stated in the functional currency.

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10.TAX AND DUTIES RECEIVABLE

Receivables on settlements with budget as at 31 December include:

31.12.2013 31.12.2012

VAT - 3 403Insurance 99 100Other taxes 31 80

TOTAL 130 3 583

11.CASH AND CASH EQUIVALENTS

Cash and cash equivalents are represented as balances on current bank accounts and cash on hand. As at 31 December cashis stated as follows:

31.12.2013 31.12.2012Cash on current accounts 3 088 131Cash in transit 1 251 2 995Cash on hand 570 560

TOTAL 4 909 3 686

The Group places free cash on short-term bank deposits for the period of up to 3 months at 9-15 % per annum. As at 31December, there are no balances of short-term deposits.

Cash in transit includes collected EOB cash, which was not carried to the bank account at the date of the financialstatements.

All cash and cash equivalents are stated in the functional currency.

12.OTHER NON-FINANCIAL ASSETS

Other non-financial assets are represented as the value added tax credit. As at 31 December 2013, the cost of other non-financial assets comprised 2 772 thousand UAH, as at 31 December 2012 - 2 513 thousand UAH.

13.

STATUTORY CAPITAL

As at 31 December, statutory capital attributable to the Group Owners by entities is stated as follows:

31.12.2013 31.12.2012

LLC Holding company Hlibni Investitsii 7 500 7 500LLC Pervy Stolichni Hlebozabod - 10 012PJSC Tsar Hleb 25 519 11 519PJSC Teremno Hleb 2 475 2 475PJSC Ivano-Frankovski hlebokombinat 3 862 3 862PJSC Chernovetski hlebokombinat 79 25

TOTAL 39 435 35 393

Amount of the statutory capital includes an adjustment (1 355 thousand UAH), which reflects the hyperinflationary effectexisted in Ukraine, beginning from the date of contributions to the statutory capital before 1 January 2001 (Note 4).

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14.LOANS AND BORROWINGS

As at 31 December, liabilities on loans and borrowings can be classified as follows:

31.12.2013 31.12.2012INTEREST LOANS AND BORROWINGS

Long-term loans 73 476 55 208Current loans 42 968 65 130

Including

Current portion of long-term loans 12 011 7 098

Short-term loans 30 957 57 713

Interest liabilities - 319

TOTAL 116 444 120 338

Currencies of the loans and borrowings can be stated as follows:

31.12.2013 31.12.2012

UAH () 116 444 112 530USD ($) - 7 808TOTAL 116 444 120 338

Interest loans and borrowings by creditors are stated as follows:

31.12.2013

creditorcurre

ncyInterest rate Loan type

Maturity

date

The

principal

Interest

liabilities

PJSC Raiffeisenbank Aval 15-21 Overdraft 31.03.2014 1 888 -PJSC CB Privatbank 17-20 Overdraft 31.07.2014 435 -PJSC Kredobank 18-25 Overdraft 29.12.2014 61 -

PJSC Ukreximbank 18,5 Credit line 01.04.2014 4 976 -PJSC Raiffeisenbank Aval 18-20 Credit line 31.05.2017 95 788 -

PJSC Kredobank 15-19,5 Credit line 30.12.2016 13 296 -

116 444 -

31.12.2012

creditorcurre

ncyInterest rate Loan type

Maturity

date

The

principal

Interest

liabilities

PJSC Proinvestbank 20-23 Overdraft 08.08.2013 491 -PJSC CB Privatbank 23-36 Overdraft 11.04.2013 473 -PJSC Kredobank 14,25-15 Overdraft 31.12.2013 4 428 -

PJSC Raiffeisenbank Aval 12,5-19,5 Overdraft 31.03.2014 9 406 242PJSC Ukreximbank 18-19,5 Overdraft 25.04.2013 4 265 -

PJSC Raiffeisenbank Aval $ 9 Credit line 01.05.2013 4 835 -

PJSC Ukreximbank $ libor+6,5 Credit line 31.10.2013 2 973 -

PJSC Kredobank 19,4 Credit line 28.05.2017 8 479 77

PJSC Raiffeisenbank Aval 21 loan 25.09.2016 84 669 -

TOTAL 120 019 319

Loan interest rates are fixed; interest rates on received overdrafts are variable.

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15. FINANCE LEASE LIABILITIES

The Group has entered into finance leases and installment purchase of various equipment, mainly, vehicles. Lease providefor the transfer to the Group of ownership rights for the asset at the end of the lease term. As of 31 December, the Group'sliabilities under finance leases include:

31.12.2013 31.12.2012

INTEREST LOANS AND BORROWINGSLong-term part of leasing liabilities 13 245 3 516Current part of leasing liabilities 6 128 2 625

TOTAL 19 373 6 141

31.12.2013 31.12.2012

Future minimum lease payments 26 407 8 027Interest expenses (7 034) (1 886)

PRESENT VALUE OF FUTURE MINIMUM LEASEPAYMENTS 19 373 6 141

Maturities of future minimum lease payments and the present value under finance leases not subject to long-termtermination and concluded for more than one year are presented as follows:

31.12.2013

Less

than one

year

Less than

three

years

Less than

five yearsTotal

Future minimum lease payments 9 051 12 192 5 164 26 407

Net of: interest expenses (2 923) (3 174) (937) (7 034)

PRESENT VALUE OF FUTURE MINIMUM LEASE

PAYMENTS 6 128 9 018 4 227 19 373

31.12.2012

Less

than one

year

Less than

three

years

Less than

five yearsTotal

Future minimum lease payments 3 564 4 463 - 8 027

Net of: interest expenses (939) (947) - (1 886)

PRESENT VALUE OF FUTURE MINIMUM LEASE

PAYMENTS 2 625 3 516 - 6 141

All finance lease liabilities are stated in the functional currency.

16.TRADE AND OTHER ACCOUNTS PAYABLE

As at 31 December, trade and other accounts payable included:

31.12.2013 31.12.2012

ACCOUNTS PAYABLE

Long-term liabilities

Trade accounts payable 249 735

Current liabilities

Trade accounts payable 42 931 64 757

Other accounts payable 34 731 9 199Payables to personnel 9 049 8 477

TOTAL 86 960 83 168

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Long-term accounts payable are payables for the acquired in 2012 PPE with a maturity of up to 28 May 2015. Current tradeand other payables are generally repaid on average for 3 months.

Included in other accounts payable are settlements with related parties. As at 31 December 2013, such payables comprised28 436 thousand UAH, as at

Отчетность МСФО 18 09 214 Eng

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