MORE THAN HALF OF A CENTURY’S TRADITION THE LARGEST ... fileFrom 1980 RO AGROHEMIJA becomes a part...

Galenika-Fitofarmacija a.d. Annual Report 2013

Belgrade, March 2014 1/33

MORE THAN HALF OF A CENTURY’S TRADITION

THE LARGEST SERBIAN MANUFACTURER OF PLANT PROTECTIO N PRODUCTS

OUR VISION

WE STRIVE TO REACH THE PERFORMANCE ACHIEVED BY CONTEMPORARY EUROPEAN

FORMULATORS OF PLANT PROTECTION PRODUCTS AND INCREASE OUR EXPORT POTENTIAL

OUR MISSION

SUSTAINABLE PRODUCT PORTFOLIO. We are building our business success by continued adjustment of our

products to the customers’ demands and needs, as well as to standards and legal regulations governing

contemporary manufacture, sales and use of plant protection products.

MODERN TECHNOLOGY. We ensure high quality of our products and their compliance with requirements

regarding environment and optimal working conditions within manufacturing process by development and

implementation of modern formulation technologies.

RESPONSIBLE BUSINESS. We base our business policy on our responsibility to agricultural producers and

business partners, but most of all to the community we live in, the environment and the population coming in

contact with our products.



Company development timeline 1955 at the GALENIKA facility, the first plant protection preparation was manufactured - Monosan 1965 first exports to a foreign market (1,000 tons of Tritox, powder insecticide, exported to

Russian market) 1966 manufacturing performed at FEMOS site in Novi Beograd is moved to current location at

Batajnicki drum b.b. in Zemun 1970s integration with ”Sanohemija” from Obrenovac From 1980 RO AGROHEMIJA becomes a part of SOUR GALENIKA From 1991 Dependent company, part of the holding company GALENIKA HOLDING From 1997 Independent, socially-owned, company GALENIKA-FITOFARMACIJA From 1999 Corporation, with 83% of private capital and over 1900 shareholders 2001 Significant year for the operation, with three important characteristics: - First trade in shares of Galenika Fitofarmacija a.d. at the Belgrade Stock Exchange - Commencement of intensive investment activity - Ownership consolidation 2004 Certified quality management system in compliance with ISO 9001:2000

Homogenization of shares performed Total investments amounting to € 2.4 million

2005 New issue of shares from distribution of profits for 2004, increasing share capital by 89% Method of share trading at stock exchange changed to continuous trading 2007 The largest trading volume since the start of trading (about € 10.3 million), as well as the

largest market capitalization at December 31 (€ 60.8 million). 2008 Accredited laboratory for physical and chemical testing, in line with requirements of SRPS

ISO/IEC 17025:2006 standard Verified process of repayment of shares from the II round of ownership transformation, by

which the share of socially-owned capital was reduced to 0% 2011 A split of shares has been performed, without causing any change to the value of the

basic capital, by replacing each existing share with two new shares of a twice lower nominal value. The basic capital has been increased by 50% with an issue of new shares.

2012. The Company management form has been changed into unicameral with seven members Board of Directors. Certified environmental management system, in compliance with ISO 14001:2004.



2013 OVERVIEW

According to our assessment, the Serbian market of plant protection products in 2013 has stagnated compared to the previous year. There has been a general trend of price reduction, primarily due to the strong competition of foreign generic companies. Based on the research conducted in the largest market segment – maize – our estimate is that we have maintained the leading position in terms of volume of total sales as well as individual participation of our brands in the market.

The largest part of field and fruit crops had good crop in 2013 in Serbia and neighbouring countries resulting in demand and price reduction. Most growers could not achieve significant profit except those who have their own storage facilities thus having the possibility to wait for the right moment to sell their goods. Bearing in mind the generally poor financial effects of the season 2012, we expect that the season 2014 will be highly challenging for Serbian agriculture with the pronounced problem of illiquidity and insolvency.

Our sales of plant protection products in the domestic market in 2013 decreased by 7% compared to the sales in 2012. However, it should be noted that discount sales was conducted in December 2012 in the amount of 245 million RSD, and those were products which could be applied in spring 2013. In December 2013 we did not have a similar activity. In terms of seasons, sales for the season 2013 increased by 4% compared to the season 2012.

Sales of plant protection products in the domestic market is far lower than planned (by 24%), primarily due to the lack of discount sales in December 2013, but also due to the fact that the strong generic competition led to price reduction in all major market segments. Our aim in those circumstances was to maintain profitability, which we have largely managed to do, at the expense of sales volume. Moreover, it is should be emphasized that there was a decline in the maize-sown area in 2013, which is an important market segment for us.

Raspberries were one of the few fruit crops that had poor crop and whose purchase and export prices grew. In 2013 we continued the cooperation which had started in the previous year with a cold storage facility outside the Arilje region, thus we bought significantly greater amounts of raspberries than usual. Our sales dynamics was such that over 90% of the 2012 crop was sold in the first half of 2013, and about 50% of the 2013 crop was sold by the end of the same year. For this reason, cold storage facility had the record revenues of 2.5 million EUR in 2013.

In autumn 2013, we applied scientific farming methods on 655 hectares of our agricultural land and established agriculture. At the same time, we agreed joint crop and seed production on additional 1.097 hectares of land with our partners. Therefore, in 2014 we expect significant revenue from this activity. In December 2013, we bought 339 hectares of agricultural land in the territory of the municipality of Vrbas, which was leased.

As regards development, we had intensive activities related to the completion of registration files in accordance with the EU criteria for four files, while the fifth file is in the initial phase. All activities related to the EU registration files are being carried out in cooperation with foreign authorised companies. Submission of the first registration file to the EU regulatory authorities for assessment is expected by the end of 2014.

In summary, our operating results in 2013 include as follows: • Sales revenue increase by 7% (218 million RSD, i.e. 1.9 million €) • Operating profit decrease by 2% (13 million RSD, i.e. 121.000 €) • Decline in operating profit margin by one percentage point (from 24% to 23%) • Increase of gross profit before tax by 1% (5 million RSD i.e. 38.000 €) • Decline in net profit by 5% due to changes in tax regulations and increased tax liability.

In 2013 the final phase of implementation of occupational safety and health in accordance with the requirements of the standard BSI OHSAS 18001, was conducted. Pre-assessment of the system was successfully competed in December as a regular step in the certification process, and the final system certification was conducted in January 2014.

ENVIPACK d.o.o. had a successful year in which it significantly improved the system for collection and management of packaging waste from the plant protection products and expanded the range of its services to other types of waste (paints, varnishes, adhesives, etc.). The established system provides an opportunity to all manufacturers, importers and distributors of the plant protection products to meet legal obligations and needs of their customers in complying with the requests for waste packaging management, while it provides a specific solution to the end-users of products (farmers) for storage and disposal of packaging waste generated after the proper use of products. 125 tonnes of packaging waste was disposed in 2013, out of which 105 tonnes of packaging of plant protection products.



CONTENTS

1 ABOUT US .......................................... ........................................................................................................... 5

GENERAL INFORMATION ......................................................................................................................................... 5

COMPANY MANAGEMENT ....................................................................................................................................... 5

OWNERSHIP STRUCTURE........................................................................................................................................ 6

STATEMENT ON THE CORPORATE GOVERNANCE CODE’S IMPLEMENTATION .............................................................. 6

LOCATION ............................................................................................................................................................. 7

ORGANIZATION ...................................................................................................................................................... 8

EMPLOYEE QUALIFICATIONS ................................................................................................................................... 9

OUR VALUE CHAIN................................................................................................................................................ 10

2 MARKET FOR PLANT PROTECTION PRODUCTS .............. ..................................................................... 11

GLOBAL MARKET FOR PLANT PROTECTION PRODUCTS ............................................................................................ 11

SERBIAN MARKET FOR PLANT PROTECTION PRODUCTS ........................................................................................... 12

LEGISLATION REGARDING THE REGISTRATION OF PESTICIDES ................................................................................. 12

3 STRATEGY ................................................................................................................................................... 14

GENERAL BUSINESS POLICY ................................................................................................................................. 14

STRATEGIC DIRECTIONS ....................................................................................................................................... 14

RISK MANAGEMENT .............................................................................................................................................. 15

4 BUSINESS PERFORMANCE IN 2013 ...................... ................................................................................... 16

SALES REVENUES BY TYPE OF PRODUCT ............................................................................................................... 16

SALES OF PLANT PROTECTION PRODUCTS ............................................................................................................. 16

MANUFACTURING AND PRODUCT RANGE ............................................................................................................... 17

DEVELOPMENT ACTIVITIES .................................................................................................................................... 17

INVESTMENT ACTIVITIES ....................................................................................................................................... 18

ENVIRONMENTAL PROTECTION ............................................................................................................................. 18

SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES ............................................................................................. 19

OPERATION OF COLD STORAGE BRANCH .............................................................................................................. 20

OPERATION OF ENVIPACK ................................................................................................................................. 21

5 FIANANCIAL PERFORMANCE IN 2013 .................... ................................................................................. 22

MAIN INDICATORS ................................................................................................................................................ 22

STRUCTURE OF INCOME AND EXPENSES ................................................................................................................ 25

RATIO ANALYSIS .................................................................................................................................................. 27

6 SHARES OF GALENIKA - FITOFARMACIJA A.D. ........... ......................................................................... 28

SHARE TRADING STATISTICS IN LAST FIVE YEARS ................................................................................................... 28

INDICATORS ......................................................................................................................................................... 29

DIVIDEND PAID ..................................................................................................................................................... 29

7 BUSINESS PLAN FOR 2014 ............................ ........................................................................................... 30

OPERATING PLAN ................................................................................................................................................. 30

8 CURRENT OPERATIONS IN 2014 .............................................................................................................. 33



1 ABOUT US General information

Company name: GALENIKA – FITOFARMACIJA a.d., Batajnički drum bb, 11080 Beograd - Zemun

No. of Decision of Serbian Business Registers Agency: BD 307/2005 dated January 27, 2005

ID No.: 7725531

Tax ID No.: 100001046

Registered activity: Manufacture of agricultural chemicals, Activity Code 2020

Web site & email: www.fitofarmacija.rs; [email protected]

Share capital: RSD 1.755.600.000 at December 31, 2013

Number of issued shares: 1.320.000 (ordinary); ISIN No: RSFITOE21521; CFI code: ESVUFR; BELEX: FITO

Number of own shares: None

Branches: Cold Storage Branch, Stupčevići, Arilje Municipality, Activity Code 1039 Other processing and preserving of fruit and vegetables

Subsidiaries: ENVIPACK d.o.o., Belgrade, ID No 2080115, Activity Code 7022 Consultancy activities in connection with business and other management

Auditor: UHY REVIZIJA d.o.o., Belgrade, ID No.: 17082175

Company Management

Members of Board of Directors:

non-executive: Nedeljko Puhar, Chairman, owner of 6,14% of Company shares Mirjana Bogicevic, independent director, Branislav Medakovic, Dusan Mojsilovic, owner of Agromarket d.o.o.,

Zivorad Vojinovic, owner of 21,56% of shares, owner of 75% of Mikend d.o.o.

executive: Dragan Nenadovic, General Manager, owner of 5,69% of shares Slavica Pekovic, Chief Administrative Officer

Company Secretary: Lidija Brkic



Ownership structure

Information on ownership structure may be found at the web site of Central Securities Depository and Clearing House (www.crhov.rs). Ownership structure, at the time of preparation of this report:

local foreign local foreign local foreign0% to 5% 1.259 64 532.541 126.642 40,34% 9,59%

5% to 10% 2 0 156.571 0 11,86%10% to 25% 2 0 504.246 0 38,20%

Total: 1.327 1.320.000 100%

No. of shareholders by share in capital

No. of entities No. shares % of total issued

Type of shareholder No. shares %Owned by individuals 703.577 53,30%Owned by legal entities 448.254 33,96%Joint (custody) account 168.169 12,74%

Total: 1.320.000 100%

Top ten shareholders by number of shares and votes:

No. Shareholder No. shares %1. Vojinović Živorad 284.598 21,56%2. Agromarket d.o.o. 219.648 16,64%3. Puhar Nedeljko 81.096 6,14%4. Nenadović Dragan 75.475 5,72%5. Unicredit bank Srbija a.d. - kastodi račun 64.500 4,89%6. Mikend doo 50.277 3,81%7. Terra capital cayman 41.372 3,13%8. Herma investments co., ltd. 40.061 3,03%9. Komp. Dunav osiguranje a.d.o. 35.853 2,72%10. Raiffeisenbank ad Beograd - kastodi račun 31.455 2,38%

Total: 924.335 70,03% Statement on the Corporate Governance Code’s Implem entation Company implements own Corporate Governance Code, which is published on Company’s website in the section For investors / Corporate Governance / Company's Regulations. With its own Code of Corporate Governance, the Company established the principles of corporate governance practices and organizational culture in line with which the Company’s corporate governance holders are acting. Principles in particular regard to the openness and transparency of operations of the Company, exercising the shareholders’ rights, the framework and modus operandi of the Company’s corporate governance holders and control of their of work. The aim of the Code is to promote good business practices in the domain of corporate governance, which should ensure an effective system of control over the operations of the Company and increase confidence of investors and shareholders in the Company, with a view of securing a long-term business development of the Company. During 2013 there were no significant departures from established principles in the implementation of the Corporate Governance Code.



Location Company’s registered office is located within the Zemun industrial zone, at Batajnicki drum bb. In addition to the facilities at this location, Company also owns facilities at five other locations:

Location Area in m2

Manufacture Warehouse Offices Zemun, Batajnicki drum bb 6.462 8.040 2.200 Zemun, Masarikov trg 8a 760 Sremska Mitrovica, Stari Radinacki put 1.078 502 Novi Sad, Narodnog Fronta 73 129 Ruma, Industrijska zona bb 1.726 1.839 758 Arilje, the village of Stupcevici (cold storage) 569 129

The building in Ruma was bought at the beginning of 2007, in a procedure of enforced collection of tax debt from the taxpayer „Zorka – Zaštita bilja“ a.d. from Šabac, conducted by the Serbian Tax Administration – Branch of the Town of Ruma. The plant facility has not been put into operation. Land (including land covered with buildings):

Location Designated use Surface in m2 Note

Zemun, Batajnički drum bb Construction land 37.096 Right of use

Zemun, Masarikov trg 8a Construction land 511 Right of use

Sremska Mitrovica, Stari radinački put Land for cultivation 43.583 Ownership

Sremska Mitrovica, Stari radinački put Construction land 6.153 Ownership

Arilje, Grbavica, Stupčevići Land for cultivation 2.166 Ownership

Arilje, Grbavica, Stupčevići Construction land 9.455 Ownership

Ruma, Industrijska zona (Industrial zone) Construction land 61.200 Right of use

Ugrinovci, Zemun Municipality Land for cultivation 3.860.715 Ownership

Becmen, Surcin Municipality Land for cultivation 2.693.390 Ownership

Vrbas, Vrbas Municipality Land for cultivation 3.396.537 Ownership



Organization

SHAREHOLDERS

BOARD OF DIRECTORS

Internal Control

Production Department

Sales and Application Department

Marketing

Department Quality

Department Common Affairs

Department

Production Logistics Division Sales Logistics

Division Marketing Division

Laboratory of Physic-Chemical Testing

Financial and Accounting Division

Liquid Products Plant Regional Sales

Division Product Registration Division

EH&S Division General Affairs and HR Division

Powdered and Granular Products Plant

Application Division R&D Laboratory IT Division

Maintenance and Plastic Production Unit

Commercial Unit

Maintenance Division

Commercial Division

Plastic Packaging Production Division

Warehouse Division

Cold Storage



Employee qualifications The table below shows the qualification and age structure of employees as of 31 December 2013.

I II,III IV V,VI VII,VIII Total %

0 0 0 0 3 3 2%0 0 4 0 8 12 8%5 11 22 4 6 48 33%2 0 2 1 27 32 22%0 0 1 0 11 12 8%1 1 11 7 17 37 26%

F 0 0 11 7 33 51 35%M 8 12 29 5 39 93 65%

8 12 40 12 72 1446% 8% 28% 8% 50% 100%

39 39 45 49 42 43Average age

Org. unit / Qualifications

Quality Department

Common Affairs Department

GENDER

T O T A L%

Management activities

Production DepartmentSales and App. DepartmentMarketing Department

The table data do not present a realistic picture on gender representation in the Company. According to our policy, we do not employ women in production facilities due to the nature of our production activity. The chart below presents the average ratio between male and female employees in the last five years, with the exception of employees in the Liquid products plant, Powder products plant and the Department for plastic packaging production.



Our value chain Of all the socially-owned companies involved in manufacture of plant protection products at the end of last century in Serbia, our company was the only one to be successfully privatized, overcoming all the pitfalls and problems of a transition economy. By continued organic growth, we increasingly gained a larger market share, developing our own product portfolio and investing significant funds in extension of manufacturing capacity, modernization and reconstruction of equipment and facilities, as well as in improvement of controls and monitoring for the entire system. Today, Galenika Fitofarmacija a.d. is a modern company, the largest Serbian manufacturer of plant protection products, holding the single largest market share in sales of such products. Our internal strength is reflected in the quality value chain of all business activities which has been built and improved for many years. At each link of this chain, we demonstrate a high level of control and management, which was verified by a quality management system in line with requirements of ISO 9001:2000 standard. System is designed to provide the required and controlled level of quality at all stages in creating a product, from development, procurement of materials, to formulation and packaging process, to warehousing and shipping. Automation of the manufacture process at our company is at a high level. Special software system for automated production management (SCADA) has been integrated with the information system, and the quality control system is set to control required parameters at all significant stages of the manufacturing process. Quality control operations are performed by the laboratory for physical and chemical testing which accredited a part of its operations in accordance with requirements of SRPS ISO/IEC 17025:2006 standard. Efficient manufacturing process control system ensures cost control and, at the same time, enables the company to fully manage the traceability of its products, which represents one of basic requirements of modern manufacturing. Warehouse inventory management and control process is at a high level due to an ordered warehouse space organized in accordance with regulations on storage of hazardous materials and information system with implemented bar-code technology. Our sales power is reflected in the vast experience and reputation we earned after operating in this market for many years, as well as in competent people assigned to marketing and sales operations. We pay special attention to the education of end-users of our products by organizing various types of promotional activities, visiting their farms and providing advisory services. Past results in monitoring user satisfaction indicate that we have been performing these activities in the right manner. Our continued investment in development operations resulted in our employment of highly educated and specialized professionals who have mastered the formulation technology for almost all known types of formulations. Such a policy resulted in significant number of newly registered products by which we supplemented our product portfolio, increased sales revenues and operating profit, but also provided our company with a good strategic starting point for a durable operation in the market. Our insisting on responsible relationship with all stakeholders resulted in a reputation of a dependable partner among our customers and suppliers with which we have developed a “win-win” relationship. By implementing a responsible social policy, the company earned a reputation of a fair employer among our employees, which is further confirmed by their low turnover. In terms of responsible operation, we have to mention the systematic approach in the risk assessment and identification and implementation of all necessary measures with the purpose of risk reduction regarding all environmental aspects (water, air, waste, chemical accidents etc.). This is confirmed by the certified environmental management system in accordance with the requirements of ISO 14001 standard. The resulting development of our company speaks of an effective strategic management able to anticipate and adequately respond to all changes occurring within the surrounding environment. Efficient operational management enabled the improvement of management and control in all activities within a value chain, enabling us to gain significant competitive advantage. The quality and ability of management is best proved by the fact that the company has demonstrated the ability to maintain and repeat good performance, thus continuously increasing its shareholders’ wealth.



2 MARKET FOR PLANT PROTECTION PRODUCTS Modern agricultural production cannot be imagined without the use of agrochemical products, which provide high yields and high quality products. Increasing application of pesticides and other agrochemicals at the beginning of 1960s provided food security of all humanity. Benefits from chemicals use in agriculture experienced both developed and developing countries. Some of those countries managed to break the vicious circle of poverty of rural and agricultural population. Agrochemical industry is highly profitable and highly competitive industrial sector, which faces great challenges at the beginning of the 21st century. On the one hand, there is the constant need to provide sufficient food for the growing world population through the application of effective and high quality pesticides and mineral fertilizers and on the other hand, there is the endeavour to minimize the impact of chemicals on health of people and animals, as well as on the environment. Therefore, the regulation regarding revaluation of old and registration of new pesticides has become more severe. Global market for plant protection products Global market for plant protection products includes three different groups of products:

• Products under the patent; • Products with expired patent, which still do not have generic competition (off patent); • Products without patent protection, which are produced by other manufacturers as well i.e. generic

products. Global market for plant protection products is dominated by six main development and research companies, with about half the market share: BASF, Bayer CropScience, Dow AgroSciences, Du Pont, Monsanto, Syngenta. The greatest generic companies include: Amvac, Cheminova, Makhteshim Agan, Nufarm, United Phosphorus Limited (UPL), etc.

Structure of the global market for plant protection products in 20121

A preliminary assessment of value of the global market or plant protection products in 2013 is 51 billion $, which is an increase of 8% compared to the previous year. The largest consumers of agrochemicals are China, France, Germany, India and the United States. European market for plant protection products is estimated at approx. 26.5% of the global market value. EU countries have established strict set of rules for pesticides registration (Regulation 1107/2009, adopted in 2011).

1 The generic Agrochemical market - Phillips McDougall, july 2013



Serbian market for plant protection products Serbian market for plant protection products is completely open and competitive. The following companies are present at the Serbian market: six leading research and development companies, the greatest global generic companies, generic companies from the Far East (China and India) as well as domestic manufacturers of pesticides. Serbian agricultural production is still based on a modest level of agrotechnical measures, which results in lower yields of some crops and/or smaller scope than the potential. Therefore, we may conclude that the Serbian market for plant protection products has growth potential. It is estimated that the Serbian market for plant protection products remained at the same level in 2013 in terms of value and its approx. value is 90 million €. In addition to this, it is still equally divided between the generic and research and development companies in terms of value. It is difficult to precisely determine individual market shares of companies due to the fact that there are no available official data. The total number of registered pesticides in 2013 in the Serbian market was approx. 1100. The greatest number of registered products is owned by foreign generic companies (51%), then research and development companies (26%) and domestic manufacturers (23%). Our company, as the largest domestic manufacturer in the Serbian market participates with 114 products or with 45% of the total number of domestic registered products. Legislation regarding the registration of pesticide s The process of registration of active substance and finished products in EU is a strictly controlled and organized process whose basic purpose is to reduce environmental risks. Legislation specifies which data on active substance and finished products should be presented, the manner of data evaluation, risk assessment, protection of commercial information, public access to information on pesticides, maximum allowed pesticide residues in food etc. Active ingredients and products may be sold in the market only if the testing proves that the criteria established by the relevant regulations, are met. Registration of a finished product made of approved active substance is conducted in each member state individually. The company which registered the product is provided a certain period of exclusive protection of data based on which the registration has been made. This registration process takes from 5-10 years with estimated costs of up to several dozen million €, depending on the type of active substance and the area of product application. The process of creation of the registration file for generic product (based on already approved active substance, but from other manufacturer - source) is simpler and it is conducted in two phases:

° Proving the equivalence of the active substance source. This phase includes a series of physical, chemical and toxicological tests which should prove that the potential active substance is not more harmful and toxic than those already permitted for use.

° Product registration. At this phase physical and chemical characteristics of products are tested, as well as their biological efficiency. In addition to this, toxicological and eco toxicological tests are performed, but to a smaller extent than in the procedure of the first registration of a product (the already available data and test results are used, whenever possible).

When both phases are successfully completed, the product gets its registration file. The estimated value of creation of such a registration file is from 250,000 € to 800,000 €, depending on the type of active substance and the area of product application. The process of file completion lasts min. 3 years and the process of registration takes an additional year.

The registration process for pesticides in Serbia

Whereas the strategic goal of the Republic of Serbia is to join EU, the compliance process of domestic legislation with EU legislation has been conducted in the last few years. The Ministry of Agriculture, Forestry and Water Management and/or Plant Protection Directorate is responsible for registration and marketing of pesticides.



The applicable Law on Plant Protection Products (“Official Gazette of the Republic of Serbia” no. 41/09) adopted in June 2009 is a legal document that is in compliance with the applicable Directive 91/414/EC. The Plant Protection Directorate adopted this Law in a hasty and unnecessary manner, ignoring the fact that it is largely inapplicable in our circumstances. Following the initiative of local producers, the Directorate realized that the Articles 11-25 (related to registration of PPP) are hardly applicable, therefore the application of these articles was postponed until 31 December 2013. However, in the past four and a half years, the Directorate has neither improved its professional capacities, nor established appropriate institutions, therefore it is unable to perform the assessment of registration files in the manner prescribed by the Law in 2009. The current situation in this area in Serbia is such that it is impossible to register a new product or amend an existing registration of the plant protection products. We expect that the competent Ministry will soon take steps towards adapting the legislation to the actual possibilities and needs of all participants in the Serbian market for plant protection products. The Association of domestic manufacturers of plant protection products, which operates under the auspices of the Serbian Chamber of Commerce endeavours to be an equal and constructive partner to the Ministry in the compliance process. The Association particularly insists on the facts that Serbia is not obliged to apply the harmonized legislation in this area until it becomes a member of the EU and that there are justified economic reasons to act accordingly. At the same time, the Association welcomed the decision adopted by the Ministry on 31 December 2013, according to which the list of permitted active substances in Serbia has been complied with the list applicable in the EU. This decision has a positive effect on the safety of produced food and environmental protection, and ultimately, on the export potential of Serbian agriculture.



3 STRATEGY General business policy

Sustainable product portfolio

We strive to provide a wide product portfolio of quality plant protection products able to fully meet the needs of producers of various agricultural crops.

Our portfolio is dominated by our own brand, with a smaller share of products of global companies with which we do business through agency, cooperation and distribution.

Our own product range is based on active substances with expired patent terms, while ensuring its sustainability within European regulatory conditions. Selection of active substances is in line with substances allowed for use within the EU, with purities equal to or higher than permitted levels. In addition, selection of auxiliary substances included in our preparations has been brought in line with European legislation.

As a quality generic company, we have continuously raised the level of quality of our products by investing in development of new formulations and improvement of existing ones, as well as by providing highest possible quality of sources of active substances.

Responsible business operation

Since the business activity we are engaged in is a high risk activity, we use significant funds and efforts to implement the latest technologies and standards in every aspect of our business operation and thus efficiently manage the identified risks.

By using a manufacturing process for production of quality plant protection products, at adequate prices, in compliance with safety measures and health protection, as well as protection of the environment, we demonstrate our responsible treatment of agricultural producers, population, our employees, shareholders and the community we belong to.

Seasonal character of business

Plant protection products are mostly sold within the period of March to May, when they are mostly applied. By the end of June, the company usually earns 90% of the total annual sales of plant protection products.

The beginning and the end of season for use of plant protection products, as well as the intensity of their use, is directly influenced by the weather conditions. It may happen that adverse weather conditions during one year cause the lack of use of a preparation, whereas during the following year the same preparation is used to the fullest extent. For this reason, achieved performance and related trends should be viewed within a broader context.

Another limitation to the use of preparations is related to timeframe. Most preparations may be applied only until a certain point in the course of plant development, e.g. until the first leaf develops. If the preparation is not sold within this limited timeframe (and applied to the plants), it remains in stock until the following year.

Business cycle of the company starts in September, when the production for next seasons starts, and ends in August the following year. Due to above timeframes, our business policy requires that we start each season with ready inventories of finished products. For this reason, the last quarter of a calendar year is always marked by intensive procurement and manufacturing activities, which is why our stock levels at year-end are extremely high.

Strategic directions

Our primary strategic objective is to become a significant participant in the regional market of plant protection products. To achieve this, it is necessary to make interim registration files in accordance with the EU regulations for a selected group of products. This will create the conditions for export to the neighbouring countries, but at the same time ensure the survival in the domestic market, given that the European regulations concerning registration of the plant protection products should be applied in Serbia in the near future.



Strategic aim of our company to make an interim sustainable product portfolio in the EU environment, includes the following steps:

• Select about 20 own products that have a future from the perspective of quality of the active substance, market potential and profitability,

• Ensure registration files for the selected products, • Increase sources of income through export into the EU market.

A strategy formulated in this way requires high investments (about EUR 10 million) into a high risk and long term project of creating registration files. Such strategic commitment will certainly require significant changes in both our medium term and our operational business activities. Our production portfolio will gradually narrow down, as individual authorizations for selling of products for which we will not create registration files expire. Currently, the last selling authorizations expire in 2023.

Further development of the company in the domestic market we see in the diversification of our business in order to achieve synergy with the business activities of our customers and end-users of plant protection products. In other words, diversification will be applied only within agribusiness. Purchase of farming land and organization of agricultural production represent some of the possible forms of implementation of this strategy.

Risk management

Risk management process in our company is formally regulated by the Risk Management Programme, which is adopted by the Board of Directors. This programme defines the form and methodology of the risk management process, as well as the contents and methodology of the Risk register management. Risk portfolio included in the risk management process is designed so that the risks are classified into four main groups, according to the base model of company’s targets: strategic, reporting, compliance and operational targets.

The most significant inherent risks are those which are included in the risk management process and are subject to our intensive internal controls:

• Strategic o Amendment of legislation in the field of production and trade of plant protection products in Serbia; o Entry into the EU market (registration and commercial aspects); o Relations with customers in the domestic market (business linking trend)

• Operational o Risks in the production process – technological security and reliability, occupational safety,

environmental protection; o Risks in the application of our products – efficiency of products, safe use, environmental protection,

health protection of consumers of agricultural products; o Collection of receivables from customers; o Adequate staff and key employees.

Regardless of this process, the company has also established an internal audit function, with the aim of contributing to better risk management, assets protection and increase of the overall efficiency. Internal audit activities at our company are carried out in accordance with the Regulation on Internal Audit, and this function is supervised by the Audit Committee and the Board of Directors.



4 BUSINESS PERFORMANCE IN 2013 Sales revenues by type of product

Sales of plant protection products

Gross sales in 2013 by application:

APPLICATION tons % EUR %

INSECTICIDES 682 22% 7.391.361 25%

HERBICIDES 1.952 63% 15.440.256 53%FUNGICIDES 425 14% 5.918.465 20%

RODENTICIDES 14 0% 63.944 0%ADJUVANT 11 0% 92.778 0%

DDD 2 0% 92.319 0%

TOTAL 3.086 100% 28.999.125 100%

Gross sales in 2013 by brand:

BRAND tons % EUR %

OWN 2.894 94% 24.862.832 86%

PARTNERS 192 6% 4.136.293 14%

TOTAL 3.086 100% 28.999.125 100%

Gross sales in 2013 by market:

MARKET tons % EUR %

LOCAL 2.782 90% 27.391.538 94%

FOREIGN 304 10% 1.607.587 6%

TOTAL 3.086 100% 28.999.125 100%



Manufacturing and product range

Product range in 2013 by type of production:

Type of productionNo. of

preparations %

No. of packages in thousands

% tons %

OWN FORMULATIONS 62 82% 5.855 93% 3.206 96%FORMULATIONS WITH FOREIGN PARTNERS 2 3% 70 1% 24 1%FINISHED PRODUCTS OF FOR. PARTNERS 12 16% 394 6% 127 4%

Total 76 100% 6.319 100% 3.357 100%

Production in 2013 by plant:

Development activities

Registration of products in the domestic market

Development activities related to the domestic market include finding generic active substances which are sustainable in terms of the EU regulations and which have market potential, finding adequate sources (manufacturers), mastering the formulation of finished products based on these active substances under the laboratory conditions and preparation of necessary documents for the registration in Serbia.

Formulations for three new products were developed in 2013, which will be under the registration process in the domestic market in 2014. We obtained marketing authorization for 6 new products of our brands.

Herbicides: Basar (S-metolachlor 960 g/l, EC) Metak 700 SC (metamitron 700 g/l, SC) Velton WG (metribuzin 700 g/kg, WG) Velton WP (metribuzin 700 g/kg, WP)

Insecticides: Abastate 09 ME (abamectin 9 g/l, ME) Maska (diflubenzuron 480 g/l, SC)

Registration of products in the EU market

Work on the completion of the registration files in accordance with the EU criteria for our four products was intensified in 2013. Required tests were conducted in the accredited laboratories in Great Britain, France, the Netherlands and Germany, and field trials in Austria, Hungary, Slovenia and Romania. Presubmission meetings with the regulatory authorities of Austria and Slovenia, which are the reporting countries for these products, were held.

Preliminary examination of technical substance of the fifth product are being carried out, after which the sustainability and costs of registration file creation will be assessed and/or it will be decided whether the work on its completion shall be continued.

All the activities related to the EU registration files are carried out in cooperation with the authorized foreign companies, and the total costs on this bass in 2013 amounted to 550,000 €.

We expect that by the end of 2014, the first registration file will be submitted to the regulatory authorities of Slovenia.



Investment activities

As regards investment activities, the year of 2013 was marked by a new purchase of farming land, while the investments into the prevailing activity were on a smaller scale than usual.

622 ha of farming land near Belgrade was bought at the end of 2012 (Municipality of Surčin and Municipality of Zemun). 33 ha land was bought in the same territory in March 2013, at the same unit price (8,280 €/ha). The total land area in Ugrinovci and Bečmen which is in now in our ownership is 655 ha. The land is of medium quality (3,4,5 class).

According to the decision on stamp duty for the total area of this land of the Ministry of Finance, i.e. Tax Administration, estimated market value is 4 million RSD per hectare, and/or approx. 35.900 €/ha. Total amount of stamp duty we had to pay according to the above mentioned decision in May 2013 was 65.5 million RSD (590,000 €). If the actual purchase price of land had been accepted , the amount of stamp duty would be 15,5 million RSD (136.000 €). Our appeal to the second-instance authority (Tax Administration Belgrade) was rejected, therefore we initiated administrative proceedings before the Administrative Court in Belgrade demanding that this stamp duty should be reduced according to actual circumstances.

339 ha of farming land was purchased in the territory of Municipality of Vrbas in December 2013. The land is of good quality (mostly second class), with the necessary infrastructure for irrigation and suitable for agriculture. The total transaction values was 3.7 million €. According to the decision of the Tax Administration Vrbas, stamp duty is 10.6 million RSD (92,500 €), i.e. in accordance with the agreed price under the purchase and sale agreement.

The table below shows investments into farming land in terms of the amounts paid in 2013: purchase of 33 ha in Bečmen, stamp duty for 655 ha in Bečmen and Ugrinovci, stamp duty and land purchase in Vrbas.

Specification of investments in 2013: Agricultural land 4,658,000 € Production equipment 68,000 € Other equipment 36,000 € Infrastructure works 53,000 €

Total 4,815,000 €

Investments related to production equipment included repair and improvement of existing production capacities and did not have a significant value in 2013. Other equipment includes the equipment necessary for safe handling of goods, surveillance equipment, IT equipment, fire fighting equipment, etc.

Infrastructure works performed in 2013 did not have a significant value. The single largest investment refers to the purchase of one industrial tent for goods storage, in addition to the two existing ones, which were set on the paved area constructed in 2012. Environmental protection

Our company has established and certified Environmental Management System in accordance with the requirements of ISO 14001:2006 standard. This system is based on the identification of environmental aspects and defining of control procedures over any environmental impacts in order to reduce the risk to the lowest possible level.

All identified significant environmental aspects are the subject of regular monitoring and measurement, in accordance with legal regulations. Pursuant to the defined plans and programmes of monitoring in cooperation with the authorised companies, we conduct regular measurements of emissions of harmful substances into the air, ambient air quality testing, as well as wastewater testing.

Aim of the systematic approach in this area is to enable monitoring and measurement in a controlled manner in order to monitor the impact of environmental protection, control over operations and compliance with general and specific objectives, not only in the area of environmental protection, but also occupational safety and health and fire protection.

EMAS registration

As a part of the project “Law enforcement in the field of control of industrial pollution, prevention of chemical accidents and implementation of the EMAS system“ which is funded by the EU, and implemented by the Ministry of Energy, Development and Environmental Protection of the Republic of Serbia, our company is one of three Serbian companies, which were selected to participate in the project. The basic aim of the project is the preparation of companies for implementation and registration of the EMAS system. There is not any company in our country which has EMAS, nor is there an institutional framework for the registration in the country.



As a new experience, but also as a challenge, this will be an opportunity to improve already existing system of environmental protection management.

Protection from chemical accidents

In accordance with the prescribed criteria related to the type and quantity of hazardous substances, our company is classified in the group of SEVESO operators of higher order, thus we were obliged to prepare documents related to establishment of the system for Chemical Accident Management ( Report on safety and Accident Protection Plan).

The subject documents were completed and controlled in 2013. The supervision over the subject documents and implemented safety management system was performed by the Ministry of Energy, Development and Environmental Protection.

Our company is the first and so far the only SEVESO operator in Serbia which has fulfilled its legal obligations in this respect and its subject documents were approved by the competent Ministry.

Waste management

In the production process we generate a significant amount of non-hazardous and hazardous waste which is managed in accordance with the adopted Plan of waste management. This plan enables the proper waste management, which includes identification of waste types, method and place of its generation. Each type of waste is treated in accordance with its characteristics. The basic principle is that waste is sorted at the source. Non-hazardous waste is separately collected and recycled and hazardous waste is disposed of in an adequate manner in cooperation with the authorized operators.

Approx. 100 t of hazardous waste was disposed of in 2013 and 16 t of non-hazardous waste was recycled. There is no treatment (incineration) facility for hazardous waste, thus it is exported.

Management of packaging waste from the plant protection products

Indirect aspect and/or environmental impact of waste management is very important for all companies which are involved in the placement of plant protection products.

Our company generates a significant quantity of packaging in the Serbian market, mainly through shipment of finished products, thus the company recognized its role in solving this problem and founded the company ENVIPACK d.o.o. in order to establish the system for controlled collection and management of packaging waste from the plant protection products throughout the country.

In 2013 ENVIPACK collected and disposed of 25 t of packaging generated by our company.

Specification of direct costs related to environmental protection in 2013:

Monitoring and measurement of environmental aspects 5,000 € Export of hazardous waste for incineration 120,000 € Disposal of packaging waste from the field 35,000 € Regular fee for packaging waste management 4,000 €

Total 164,000 € Significant transactions with related parties During 2013, there were no significant transactions with related parties.



Operation of Cold Storage branch Cold Storage branch was registered in April 2007, with a registered office at the village of Stupcevici, in the Municipality of Arilje, after the cold storage facility, including facility grounds, was purchased from the previous owner. The primary business activity of this branch is frozen raspberry processing. The area surrounding Arilje (western Serbia) is famous for its quality raspberry, with an average yield far above both Serbian and European average. Current storage capacity of cold storages within this area equals about 25,000 tons, far above the production capacity (about 15.000 tons), which is why the competition for raw materials is strong and often unfair. Season for procurement of fresh raspberries in this area starts by mid June and ends in about 45 days. Our cold storage has two chambers, with a total storage capacity of about 440 tons of frozen fruit and two tunnels for freezing fresh fruit with a total capacity of about 20 tons/ 24h. Procured quantities are frozen and processed, most often in the form of “rollend” variety of raspberry (whole, undamaged berries) and “crumble” variety (ground frozen raspberry). Almost all of the processed products are exported to West European markets. Raspberries crop in Serbia in 2013 is somewhat better that the poor crop in 2012, but it is still below average. Therefore, the purchase price of fresh raspberries was high, especially in the Arilje region. Sale prices in the European market also increased, although to a lesser extent than the purchase price of fresh raspberries. Due to the cooperation with the cold storage facility outside the Arilje region, in 2013 we managed to purchase the amount which is greater than our average. The year of 2013 was our record year in sales revenues of frozen products (2,5 million €) due to several reasons:

• Due to the above managed business cooperation with the cold storage facility, we purchased the record amount of fruit in 2012. The agreed sales dynamics of frozen fruit of the 2012 crop was such that more than 90% of available quantities were shipped and invoiced in the first half of 2013.

• Sale prices of frozen raspberries of the 2012 crop in the European market were 10% higher compared to the three-year average.

• In 2013 the purchased quantity was greater than the average, and the agreed dynamics was such that approx. 50% of available quantity was shipped by the end of 2013.

• Due to the poor raspberries crop in Europe, sale prices of frozen raspberries of the 2013 crop in the European market were higher than those in 2012.

If the business year is viewed as a period from June of one year to May of next year, our cold storage revenues from sales of frozen fruit (in €) are as follows:

2009 2010 2011 2012 2013 Raspberry 970.000 896.500 580.000 1.665.000 1.830.000 Other fruits 140.00 8.800 5.000 35.000 250.000

Total(€) 1.110.000 905.300 585.000 1.700.000 2.080.000



Operation of ENVIPACK ENVIPACK, a limited liability company, operates as an operator with the integral license for collection and transportation of hazardous and non-hazardous waste. The company was founded in 2012 and it is 100% in our ownership. Since we generate a significant amount of packaging waste annually (mostly through sold finished products – plant protection products), and since in Serbia there was not any operator who was involved in disposal of this waste, we decided to found a company which would offer a systematic solution to this problem. In order to establish an efficient system for collection and disposal of packaging waste from the plant protection products, ENVIPACK defined the ECO model, which is based on the proper waste management in all phases of its use by all participants in the application chain of plant protection products (importers, producers, end-users). The starting point of the ECO model is the legislation, but also experience and recommendations of the EU and neighbouring countries were used. The ECO model is based on the procedure of triple-rinsing of containers during use, with the aim of maximum utilization of products. Through this procedure the packaging is transferred from hazardous into non-hazardous waste. Disposal of hazardous waste is much simpler and it may be organized in our country, therefore the management of this type of waste is cheaper. The effectiveness of the procedure of triple-rinsing of used containers of various plant protection products was confirmed by the Study which was done in cooperation with the Public Health Institute Belgrade. The basic objectives of ENVIPACK are as follows:

• Establishment of a large number of collection sites and their furnishing with container or special bags for collection of waste packaging,

• Collection of maximum quantity of generated packaging waste, • Increase of percentage of rinsed containers in the total amount of collected waste, • Raising environmental awareness of all participants in the chain.

The established system enables all manufacturers, importers and distributors of plant protection products to meet legal obligations and meet their customers’ needs regarding the transportation of packaging waste. Moreover, this system enables a specific solution for packaging waster management to the end-users of products i.e. farmers. The achieved results in 2013 are as follows:

• Completed Study on validation of the triple-rinsing procedure, which was done in cooperation with the Public Health Institute Belgrade, a reputable authorized company for waste testing. This Study practically confirmed the effectiveness of rinsing of used containers of various plant protection products, thus transferring it from hazardous into non-hazardous waste.

• Signed agreements with two important domestic clients, Chemical Agrosava d.o.o. (manufacturer of plant protection products) and Agromarket d.o.o. (importer and distributor of plant protection products). Galenika - Fitofarmacija a.d. is also a client of je ENVIPACK.

• Number of collection points was increased from 6, as there were in 2012, to 53. These points are equipped with special containers for temporary storage of empty containers and bags for separate collection of rinsed and non rinsed containers.

• Total of 125 t of packaging waste was collected and managed, out of which 105 t of packaging from pesticide substances (plant protection products and raw materials for their production).

• We obtained the license extension for collection and transport of various types of hazardous and non hazardous waste, thus providing the possibility for services provision to manufacturers and generators of other types of waste (paints, varnishes, adhesives, etc.).

Results achieved in 2013, as well as the services provided by ENVIPACK have justified existence of the system and advantage over other solutions in the market. ENVIPACK d.o.o. is still the only company which offers a systematic solution for packaging waste management from the plant protection products in our country. Further development and expansion of the system depends on the commitment of other manufacturers and importers of plant protection products to address this issue adequately, but also on the end-users and the proper handling of packaging in the application of plant protection products.



5 FIANANCIAL PERFORMANCE IN 2013

Excerpt from the Financial Report 2013 has not been audited by external auditors yet.

Main indicators

(in EUR)

2011 2012 2013ASSETS

Property, plant and equipment (PP&E) 7.455.321 11.805.411 16.033.752Intangible assets 96.077 62.051 42.400LT financial placements 203.247 177.206 152.735

Fixed assets 7.754.644 12.044.668 16.228.887

Prepaid tax, other expenses and accrued revenues 434.556 373.280 409.548Inventory and advanced payments 11.099.833 13.517.349 12.829.837Receivables 4.027.965 3.834.094 2.882.455Receivables for overpayed tax 153.075 356.737 0ST financial placements 10.962.089 11.101.794 10.225.656Cash and cash equivalents 1.600.795 564.996 4.023.603

Current assets 28.278.313 29.748.250 30.371.099

Deferred tax assets 93.330 148.603 196.576

Total assets 36.126.287 41.941.521 46.796.562Off-balance sheet assets 1.349.907 1.186.569 1.399.031

Property, plant and equipment have been increased for the value of purchased faming land and paid duty stamp, as explained in Chapter 4, Investment activities. The inventory structure is in accordance with the dynamics of procurement of raw materials and productions for seasons 2013 and 2014. Unlike the season 2013., which had an intensive procurement of raw materials in the fourth quarter of 2012, procurement of raw material for the season 2014 has been postponed to the first quarter of 2014. It is also important to note that more than 90 % of frozen raspberries of the 2012 crop were in stock at year-end 2012, whilst as much as 50 % of the 2013 crop quantity purchased from growers had been sold by year-end of 2013. Short-term financial placements are related to the term deposits in RSD and foreign currency.



(in EUR)

2011 2012 2013EQUITY AND LIABILITIES

Shareholders' equity 17.220.206 15.522.546 15.517.484Other equity 0 0 0Reserves 7.906.081 7.463.599 7.524.981Revaluation surplus 309.897 266.375 242.167Un-realized gains on shares trading 0 0 0Un-realized gains on shares trading 135.390 143.280 27Retained earnings 8.447.876 12.555.977 17.357.918

Equity 33.748.671 35.665.217 40.642.522

LT reserved funds 0 0 0LT Debt 0 699.576 0

Trade payables 2.181.432 2.186.932 1.220.238ST financial liabilities 0 2.316.826 3.744.941Tax payable 173.997 175.225 427.791Other ST liabilities 22.187 897.745 761.069

Current (ST) liabilities 2.377.616 5.576.729 6.154.040

Liabilities and reserved funds 2.377.616 6.276.304 6.154.040

Total equity and liabilities 36.126.287 41.941.521 46.796.562Off-balance sheet liabilities 1.349.907 1.186.569 1.399.031

Trade payables are significantly lower compared to 2012 mainly due to lower liabilities towards foreign suppliers, as a result of different dynamics of procurement of raw materials. ST financial liabilities are Company's liabilities under two loans taken for purchase of agricultural land (at the end of 2012 and at the end of 2013). Other ST liabilities are mostly related to liabilities towards employees, for payment of bonuses, which was implemented in 2014.



BALANCE SHEET

(in EUR)

2011 2012 2013

OPERATING REVENUESSales 28.349.505 27.208.559 29.126.015Other operating revenues 42.128 69.832 87.540Change in inventory value -1.242.050 2.288.181 1.408.904

Total operating revenues 27.149.583 29.566.572 30.622.458

OPERATING EXPENSESCost of goods sold (COGS) 3.656.989 2.993.156 4.108.076Cost of material 11.033.889 13.140.681 12.404.671

Salaries/Other personal expenses 2.243.266 3.086.534 3.219.127Amortization expense 777.803 775.447 727.543Other operating expenses 1.944.218 2.383.917 3.096.974

Total operating expenses 19.656.165 22.379.735 23.556.391

OPERATING PROFIT 7.493.418 7.186.837 7.066.068

Other revenues 3.740.441 4.554.872 4.727.715

Other expenses 3.224.728 4.332.246 4.346.195

Earnings before tax (EBT) 8.009.132 7.409.463 7.447.588

Tax 533.242 315.199 735.092

NET PROFIT 7.475.890 7.094.264 6.712.496 There was a change in tax legislation in Serbia in 2013. The rate of income tax was increased from 10% to 15%, and the amount of tax relief was reduced from 50% to 33% of the total tax value. Due to these changes, net income in 2013 has decreased by 42.9 million RSD (5%), although EBT was somewhat higher than in 2012.

2011 2012 2013 13/12Gross profit 12.458.705 13.432.734 14.109.711 105%Gross profit margin 46% 45% 46%Operating profit 7.493.418 7.186.837 7.066.068 98%Operating profit margin 28% 24% 23%EBITDA 8.271.221 7.962.283 7.793.611 98%EBITDA margin 30% 27% 25%EBT 8.009.132 7.409.463 7.447.588 101%Net profit 7.475.890 7.094.262 6.712.496 95%

PROFIT STRUCTUREIn EUR



Structure of income and expenses

2011 % 2012 % 2013 % 13/12OPERATING REVENUES 27.149.583 88% 29.566.572 87% 30.622.458 87% 104%Sales of products and services 24.388.798 23.596.313 24.545.016 104%

domestic market 22.210.721 21.926.030 20.326.101 93% foreign markets 1.237.675 1.122.387 1.714.189 153%

Cold-storage revenues 940.402 547.896 2.504.727 457%Sale of goods 3.960.706 3.612.246 4.580.999 127%Other operating revenues 42.128 69.832 87.540 125%Change in inventory value -1.242.050 2.288.181 1.408.904FINANCIAL REVENUES 1.726.062 6% 2.211.680 6% 1.074.406 3% 49%Interests received 711.829 751.185 488.824 65%Positive effects of the exchange rate changes 823.698 1.063.103 279.149 26%Revenues from currency clause 178.038 362.317 289.791 80%Other financial revenues 12.496 35.075 16.644 47%OTHER REVENUES 2.014.380 6% 2.343.192 7% 3.653.309 10% 156%Revenues from sale of property and equipment 70.662 12.997 7.487 58%Revenues from previous years 1.697.509 2.185.676 3.525.658 161%Surpluses 1.452 18 1.326 7498%Other revenues 244.757 144.500 118.838 82%TOTAL REVENUES 30.890.025 100% 34.121.443 100% 35.350.173 100% 104%

REVENUES STRUCTUREIn EUR

The main reason for lower revenues from sale of products in the domestic market is the lack of discount sale of the plant protection products, which we typically conducted in December and which was intended for the early positioning of our products for the coming agricultural season. The value of discount sales in December 2012 was 245 million RSD. Sales revenues of the plant protection products in the foreign market experienced growth thanks to the increase of export into the Republic of Srpska. Increase of sales revenues of plant protection products is the result of the dynamics of sales of frozen raspberries of the 2012 crop, as well as the continued business cooperation with the cold storage facility outside the Municipality of Arilje, as explained in Chapter 4, Operations of the Cold Storage Branch. Interest income are related to interest rates on term deposits in RSD and foreign currency in commercial banks. In 2013 we had less available assets in RSD which we could deposited, and the fact is that interest rates in 2013 were lower, thus we had significantly lower income on this basis than 2012. Fluctuations of the exchange rate of RSD towards EUR was far more stable in 2013 compared to the previous year, thus the effects of exchange rates and currency clause are not so pronounced as in 2012. Revenues from previous years in 2013 have the expected high value and amount to 93% impaired receivables at the end of 2012.



2011 % 2012 % 2013 % 13/12

OPERATING EXPENSES 19.656.165 86% 22.379.735 84% 23.556.391 84% 105%Cost of material 11.033.889 13.140.681 12.404.671 94%Cost of goods sold (COGS) 3.656.989 2.993.156 4.108.076 137%Other materials 224.983 184.978 171.695 93%Fuel and energy costs 280.333 278.179 331.634 119%Salaries, contributions 2.243.266 3.086.534 3.219.127 104%Production services 954.703 1.441.132 2.073.682 144%Amortization expense 777.803 775.447 727.543 94%Immaterial costs 437.381 439.620 466.302 106%Tax expense 46.817 40.009 53.661 134%FINANCIAL EXPENSES 747.494 3% 492.679 2% 304.339 1% 62%Interests paid 373 9.691 51.106 527%Negative effects of exchange rate changes 747.121 482.989 253.233 52%OTHER EXPENSES 2.477.234 11% 3.839.567 14% 4.041.855 15% 105%Disposals 36.606 6.605 3.633 55%Deficits 2.325 566 1.458 258%Impairment losses 2.393.016 3.807.710 3.845.465 101%Impairment of long term financial investments 0 0 164.562Other expenses 45.287 24.686 26.738 108%TOTAL EXPENSES 22.880.893 100% 26.711.981 100% 27.902.585 100% 104%

EXPENSES STRUCTUREIn EUR

The operating expenses include two items which we previously did not have:

• Award to members of the Board of Directors, paid according to the decision of Shareholders’ meeting, in the gross amount of 30 million RSD (265 thousands €), was recorded in expenditures related to Salaries and contributions. Previously this payment was treated as participation in the profits in accordance with the applicable legislation, and it was not charged from the profit.

• Expenses related to the agricultural works performed on our land were recorded under the Production services (31 million RSD and/or 274 thousand €).

Within the production services, there is a significant increase of expenses due to the completion of registration files in accordance with the EU criteria and expenses of waste management. Impairment of LT financial investments is related to the shares of bank Privredna banka Belgrade, which was owned by us and which was under the bankruptcy proceedings in 2013.



Ratio analysis

No. RATIO CALCULATION 2011 2012 2013Net profit

Shareholders' equityNet profit

Total Assets

Equity+long-term provisionsTotal equity and liabilities

Total debtTotal equity and liabilities

Equity+LT provisions+LT debt

Total equity and liabilities

Current AssetsCurrent Liabilities

Cash

Short-term Liabilities

Current assets - inventory

Current Liabilities

Current assets -Current LiabilitiesOperating incomeNet current assets

Total net sales

Receivables

Days in the year

Receivables turnover

Cost of goods sold

Inventory

Days in the year

Inventory turnover

Cost of goods sold

Inventory

Days in the year

Inventory turnover

19,9%

16,9%

85,0%

15,0%

86,7%

5,33

4,76

77

0,10

2,91

24.172

1,22

1,82

201

7,29

50

5,65

65

0,67

7,23

25.901

1,05

8,02

46

22,2%

20,7%

93,4%

6,6%

93,4%

11,89

1,85

19714Inventory turnover days ratio for produced goods (ITD)

15Inventory turnover ratio for other goods (IT)

16Inventory turnover days ratio for other goods(ITD)

12 Receivables turnover days (RTD)

13Inventory turnover ratio for produced goods (IT)

9 Net current assets (in 000 EUR)

10 Net current asset turnover

11 Receivables turnover ratio (RT)

7 First liquidity ratio

4 Total debt to equity and liabilities

8 Second liguidity ratio

3 Equity to equity and liabilities

5Long-term debt to total equity and liabilities

6 Current ratio

1 Return on equity (ROE)

2 Return on Assets (ROA)

1,26

8,67

42

1,52

242

4,68

78

16,5%

14,3%

86,8%

13,2%

86,8%

4,94

0,65

2,85

24.217



6 SHARES OF GALENIKA - FITOFARMACIJA A.D. Share capital of Galenika Fitofarmacija a.d. is divided into 1.320.000 ordinary shares (BELEX: FITO), with RSD 1.330,00 par value. FITO shares have been traded on the Belgrade Stock Exchange since 2001, firstly based on the prevailing price method, and then from 2005 based on the continuous method. Pursuant to the Decision of the Shareholders’ Assembly from October 28, 2011, a split of shares was performed in November 2011 by replacing the then 440,000 shares with a nominal value of 2,660 RSD with two new shares for each old one, with a nominal value of 1,330 RSD each. Due to that the following charts shall have changed values of all statistical data and indicators for the previous years that are directly related to the number of shares. Share trading statistics in last five years

Market capitalizationmax min avg shares RSD No. Shares price(RSD) at Dec 31 (EU R)

2009 3.600 1.275 2.354 52.572 123.730.111 880.000 3.318 30.450.2722010 3.475 2.501 3.031 28.620 86.755.140 880.000 3.475 28.986.2772011 4.150 1.500 3.483 100.333 349.480.960 1.320.000 1.820 22.958.5182012 2.820 1.820 2.130 86.759 184.774.906 1.320.000 2.500 29.018.6422013 3.300 2.350 3.053 73.935 225.750.925 1.320.000 2.961 34.093.235

Price per share (RSD) Trading volume At December 31



Indicators

INDICATOR NAME DESCRIPTION dec.31, 2011 dec.31, 2012 de c.31, 2013

3.908.520

575,33

5,15

0,85

16,52

3.483,46

607,85

4,11

0,82

19,89

3.055,86

3.300.000

EPS Earnings per shareEarnings per share (RSD)

PE Price-earings ratio Share market price / earnings per share

PB Price-book valueShare market price / ABV

ROE Return on equity Return on equity

ABV Adjusted book value in RSD

Market capitalization in 000 RSD

577,40

3,15

0,70

22,15

2.606,57

2.402.400

Dividend paid

RSD EURApril 14, 2004 2003 54,5 22.974.573 328.483June 10, 2005 2004 120 48.778.320 591.295 0,89June 23, 2006 2005 67,5 53.592.985 619.644June 22, 2007 2006 67,5 53.621.595 658.587 0,10June 20, 2008 2007 67,5 59.400.000 741.911June 23, 2009 2008 72,5 63.800.000 684.874June 18, 2010 2009 114 100.320.000 967.176June 17, 2011 2010 140 123.200.000 1.218.201

October 28, 2011 0,50June 25, 2012 2011 145 191.400.000 1.678.843June, 28, 2013 2012 160 211.200.000 1.849.849

TOTAL 928.287.473 9.338.863

new issue

TotalDate of Shareholders meeting

For year

RSD / share

Dividend in RSD is stated in gross amount. The column „new issue" is referring to the increase of capital from Company’s own resources, by converting part of the retained earnings into the share capital and by issuing new shares without a public offer, for distribution to existing shareholders. Expressed as a number of newly issued shares per existing share.



7 BUSINESS PLAN FOR 2014

Main directions of our business policy, which has until now proved to be very successful, will not be changed in the upcoming year either – our focus will remain on responsible business operations and typically high product quality.

In accordance with our strategy, we have defined the main business directions in which our operations will be conducted:

° “European direction” - creating registration files in accordance with EU criteria. ° “Local direction” – further improvement of business efficiency in the primary area of operations. ° Further expanding of subsidiary activities – agricultural production and operations of Cold Storage.

In accordance with our plans regarding the European market, for the year of 2014 we have planned the initiation of a new file with the continuation of the on-going projects. By the end of the year, the first file is expected to be submitted for assessment to the regulatory authorities of Slovenia. A conservative estimate of expenses in 2014 is 1 million €. For the coming year we also plan the activities for finding the appropriate business partners among the EU members. Increase of sale in the domestic market of 12% compared to 2013, is planned for 2014 (discount sale from December 2012 was attributed to the season 2013). This growth is planned in a group of products that are our own brand. If we take into consideration the calendar years, the planned sales growth is 23%. Due to the low margins on sales of frozen raspberries of the 2014 crop, only purchase and sale of raspberries on our cold storage facility was considered for the financial plan. A possible cooperation with cold storage facilities from other regions will be decided on before the start of the season (April - May 2014), after the more certain prognosis regarding the quality, purchase and sale prices. Organization of agricultural production is an activity which naturally arises as a solution to achieve further connection with business activities of our customers who are directly connected with the agricultural production (large farms, organizers of agricultural production). So far, we have agreed a joint crop and seed production with business partners on their land. In 2013 for the first time we organized agricultural production on 655 ha of our farming land.

Operating plan

Our business year lasts from September of the previous year until August the following year. That is why our plans for a calendar year have always had an element of uncertainty in planning for period September – December of the following year, because it directly depends on realization of sales in a season. In this plan, period September – December 2014 was planned under the assumption that sales plan for 2014 season has been achieved, i.e. that in September 2014 there is no stock of finished products to be carried forward into season 2015, but that everything needs to be produced.

There is a high probability that the production plan for period September – December 2014, and therefore the plan of respective costs, will undergo significant changes when it is finally defined, in July 2014.

The planned increase of sale revenues in 2014 is by 18%, with the following structure: • Products in the domestic market, 2.72 billion RSD. If the calendar year is taken into account it is 23%

increase, but if the season is taken into account, than the planned increase is by 12%. Revenues increase is mostly planned on the products of our own brand.

• Products in the foreign market in the amount of 1.5 million €. • Revenues from the cold storage facility, in the amount of 1.27 million €. This revenue was planned

based on the value of unsold frozen fruits of the 2013 crop and based on the assumption that in 2014 we will purchase raspberries only in the Arilje region, as mentioned at the beginning of this Chapter.

• Sale revenues from the agricultural products in the amount of 278 million RSD. This group includes agricultural products from our land, as well as the products which are the result of joint production with our partners (mercantile goods and seeds). It is planned that all agricultural products of the 2014 crop will be sold by the end of the calendar year.

• Sale revenues of goods in the amount of 567 million RSD. This group includes goods procured in barter transactions, in order to collect our receivables, as well as the products through which we finance our jointly funded agricultural production.



I t e m plan plan /2012 2013 2014 2013

OPERATION I. OPERATING REVENUES 29.566.568 30.622.458 31.417.364 103% 1. Sales of goods 3.612.246 4.580.999 4.752.631 104% 2. Sales of products and services 22.669.328 21.493.668 24.574.293 114% 3. Sales of cold - storage 547.896 2.504.727 1.272.096 51% 4. Sales of agricultural products 379.089 546.621 2.356.607 431% 5. Change in inventory value 2.288.177 1.408.904 -1.795.009 6. Other operating revenues 69.832 87.540 256.746 293%II. OPERATING EXPENSES 22.379.735 23.556.391 24.840.708 105% 1. Cost of goods sold (COGS) 2.993.156 4.108.076 4.164.828 101% 2. Cost of material 13.140.681 12.404.671 12.395.448 100% 3. Salaries/Other personal expenses 3.086.534 3.219.127 3.259.738 101% 4. Amortization expense 775.447 727.543 734.265 101% 5. Other operating expenses 2.383.917 3.096.974 4.286.428 138%III. OPERATING PROFIT 7.186.833 7.066.068 6.576.656 93%IV. OPERATING LOSSV. FINANCIAL REVENUES 2.211.680 1.074.406 1.114.407 104%VI. FINANCIAL EXPENSES 492.679 304.339 388.383 128%VII. OTHER REVENUES 2.343.192 3.653.309 3.291.771 90%VIII. OTHER EXPENSES 3.839.567 4.041.855 3.502.328 87%

IX. PROFIT FROM REGULAR OPERATIONS 7.409.459 7.447. 588 7.092.124 95% X. LOSS FROM REGULAR OPERATIONS 0 0 0B. EARNINGS BEFORE TAX (EBT) 7.409.459 7.447.588 7.092 .124 95%C. LOSS BEFORE TAX

D. TAX 315.199 735.092 712.758 97%E. NET PROFIT 7.094.260 6.712.496 6.379.365 95%F. NET LOSS

Change of value of inventory has been estimated based on the structure of the planned sales and production in 2014 and it will be subject to change, especially in the last quarter, when the final production plan for this period will be defined. Other operating expenses have been planned in proportion to the volume of production and sales, as well as the expected inflation for 2014. The important item in this group of costs, 141 million RSD, are production services for agricultural productions, which has been planned on a larger scale in 2014. Moreover, a significant item are also the expenses of creation of registration files, which are increased every year, and which have been planned in the amount of 1 million EUR for 2014. Financial and non-operating result are planned conservatively – lower interest income, lower foreign exchange gains, lower percentage collected on impaired receivables, higher foreign exchange losses, higher impairment of trade receivables.

Scenario analysis

Risks that may adversely affect the financial plan for 2014 are mainly those from the group of operational risks (failed sales plan, inadequate pricing, foreign currency risk, bad debt). The most significant impact on our business is certainly a failed sales plane of plant protection products in the domestic market, as well as the reduction of sale prices for this group of products due to the competitive pressure. The text below shos the illustrative impact of these two risks.



Option I

This option considers the plan achievement regarding domestic sales of pesticides in 90% value and quantity scope. Option II

This is the most pessimistic option – it considers achievement of the Option I scenario and average net prices 5% lower than the planned ones.

I t e m PLAN PLAN 3/2 PLAN 4/2

2013 2014 opt I % opt II %1 2 3 4

A. REVENUES AND EXPENSES FROM REGULAR OPERATIONI. OPERATING REVENUES 30.622.458 31.417.364 30.430.229 97% 29.392.941 94% 1. Sales of goods 4.580.999 4.752.631 4.752.631 100% 4.752.631 100% 2. Sales of products and services 21.493.668 24.574.293 22.269.209 91% 21.231.921 86% 3. Sales of cold-storage 2.504.727 1.272.096 1.272.096 100% 1.272.096 100% 3. Sales of agricultural products 546.621 2.356.607 2.356.607 100% 2.356.607 100% 4. Change in inventory value 1.408.904 -1.795.009 -477.059 -477.059 5. Other operating revenues 87.540 256.746 256.746 100% 256.746 100%II. OPERATING EXPENSES 23.556.391 24.840.708 24.840.708 100% 24.840.708 100% 1. Cost of goods sold (COGS) 4.108.076 4.164.828 4.164.828 100% 4.164.828 100% 2. Cost of material 12.404.671 12.395.448 12.395.448 100% 12.395.448 100% 3. Salaries/Other personal expenses 3.219.127 3.259.738 3.259.738 100% 3.259.738 100% 4. Amortization expense 727.543 734.265 734.265 100% 734.265 100% 5. Other operating expenses 3.096.974 4.286.428 4.286.428 100% 4.286.428 100%III. OPERATING PROFIT 7.066.068 6.576.656 5.589.522 85% 4.552.234 69%IV. OPERATING LOSSV. FINANCIAL REVENUES 1.074.406 1.114.407 1.114.407 100% 1.114.407 100%VI. FINANCIAL EXPENSES 304.339 388.383 388.383 100% 388.383 100%VII. OTHER REVENUES 3.653.309 3.291.771 3.291.771 100% 3.291.771 100%

VIII. OTHER EXPENSES 4.041.855 3.502.328 3.243.364 93% 3.124.076 89%

IX. PROFIT FROM REGULAR OPERATIONS 7.447.588 7.092.124 6.363.952 90% 5.445.952 77% X. LOSS FROM REGULAR OPERATIONS

B. EARNINGS BEFORE TAX (EBT) 7.447.588 7.092.124 6.363 .952 90% 5.445.952 77%C. LOSS BEFORE TAX (EBT)D. TAX 735.092 712.758 639.577 90% 547.318 77%

E. NET PROFIT 6.712.496 6.379.365 5.724.375 90% 4.898.634 77%F. NET LOSS

IN EUR

The said variant of business result should be taken as a rough illustration of influence of risk factors on company’s operating results. It is certain that, in case some of the identified risks should materialize, we would change our business policy in accordance with market conditions, and in this way try to minimize negative influences on our operations.



8 CURRENT OPERATIONS IN 2014 As of the date of this report, our operations were conducted within the scope of planned activities. As it was planned, in January 2014 occupational safety and health management system was certified by the certification company SGS Beograd. This system is in accordance with the requirements of BSI OHSAS 18001 standard, and it is based on identification of risks related to occupational safety and health and implementation of measures to eliminate or reduce the risk to employees and other interested parties who may be exposed to the above risks.

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