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TOPLIFIKACIJA GROUP

ANNUAL REPORT

2012

CONTENT

REVIEW OF 2012 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1

KEY NUMBERS TOPLIFIKACIJA GROUP - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -2

INFORMATION FOR THE INVESTORS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10

PRICE OF THE HEAT ENERGY- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 14

FINANCIAL STATEMENTS FOR TOPLIFIKACIJA GROUP- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -16

CORPORATE GOVERNANCE- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - -25

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REVIEW OF 2012

Year 2012 for Toplifikacija Group was fulfilled with challenges especially in the regulated businesses

production, distribution and heat supply.

Even though the legislative according to which Toplifikacija AD, Distribucija na toplinata DOOEL,

Snabduvanje Centar DOOEL, Snabduvanje Istok DOOEL, Snabduvanje Zapad DOOEL and Skopje Sever

AD are working guaranties realization of income from the business, adequate for covering the

operational costs as well as gaining profit form the invested assets, profit that covers the cost for

invested capital, however in 2012 Toplifikacija Group failed to achieve the approved regulated

return on capital by the Energy Regulatory Commission.

The reasons for this were the decisions of the Energy Regulatory Commission issued in July 2012 with

which the regulated business production of heat was damaged for approx. 132 million denars. This

amount is not approved based on three points. The Energy Regulatory Commission didn’t approve

purchased heat energy from TE-TO AD in amount of 52 million denars without VAT, also ERC

approved fuel oil costs for 2012 reduced for 5% of the actual cost (cca amount of 35 million denars)

and reduced income inamount of cca 45 million denars as surplus of income earned in 2011.

The companies’ parts of Toplifikacija Group which are performing this regulated businesses are

taking all legal measures to solve these problems.

During 2012 Toplifikacija bought heat from the independent producer TE-TO AD Skopje in January,

February and March 2012. The price of this heat is for 5% lower than the price of the heat produced

by the regulated producer based only on the price of the fuel. This enables cost reduction and

ultimately lowering the cost of heat for the end user.

Toplifikacija AD in August 2011 returned the license for heat production, and for the distribution and

supply of heat the licenses were returned in November 2012.

Detailed information for the business plan in the upcoming 5 years for Toplifikacija AD and the

reasons for returning the licenses for the regulated businesses are published on the web site of the

Macedonian Stock Exchange and on the web site of Toplifikacija AD Skopje.

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KEY NUMBERS TOPLIFIKACIJA GROUP

Key Ratios (in denars)

2012 2011 2010 2009 2008 2007

Net Income Per Share 85.41 19.71 277.07 66.25 11.55 261.56

P/E ratio 24.80 173.33 13.56 59.09 738.23 41.10

Operating CF Per Share 316.51 -256.20 495.26 -217.53 -32.81 -12.32

P/CF ratio 6.69 n.a 7.58 n.a. n.a. n.a

Book Value Per Share 3712.64 3695.86 3651.96 3514.21 3529.71 3705.26

P/Book ratio 0.57 0.92 1.03 1.11 2.40 2.90

Dividend Per Share n.a n.a 44.44 33.33 n.a. 55.56

Dividend Yield n.a n.a 0.01 0.01 n.a. 0.01

Statement of comprehensive income (in million denars)

2012 2011 2010 2009 2008 2007

Sales Revenue 2,593.5 2,358.5 2,047.1 1,569.0 1,798.5 1,495.3

EBITDA 191.5 178.5 362.9 229.2 61.8 23.0

EBIT 36.4 44.9 240.4 134.2 -7.4 -222.8

EBT 46.4 14.9 133.5 30.5 7.8 136.7

Comprehensive income before minority

interest 38.4 8.9 124.9 29.8 5.2 117.7

Comprehensive income after minority

interest 38.4 8.9 124.9 29.8 5.2 117.7

Statement of financial position (in million denars)

2012 2011 2010 2009 2008 2007

Total Assets 3,727.4 3,947.2 3,558.7 3,879.2 3,278.4 2,554.7

Accounts Receivables 910.3 1,064.1 751.5 790.6 918.3 757.5

Short-term Liabilities 1,582.5 1,872.1 1,269.1 1,847.8 1,292.1 849.2

Total Capital 1,670.7 1,632.3 1,643.4 1,581.4 1,578.5 1,598.3

Leverage 53.7% 58.2% 53.8% 59.2% 51.9% 37.4%

Cash Flow (in million denars)

2012 2011 2010 2009 2008 2007

Operating cash flow 142.4 -115.3 222.9 -97.9 -14.8 -5.5

Investment cash flow 7.1 -139.8 234.0 -783.5 -711.2 -19.4

Key numbers for 2012, 2011 and 2010 refer to Toplifikacija Group, unlike for the previous period

when they apply for Toplifikacija AD-Skopje.

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Toplifikacija Group consists of 11 companies in which Toplifikacija AD – Skopje is parent company.

Name of the company Area of business 2012

Share

Toplifikacija AD - Skopje Production of heat

Distribucija na toplina DOOEL - Skopje Distribution of heat 100.00%

Snabduvanje Centar DOOEL - Skopje Heat supply 100.00%

Snabduvanje Istok Heat supply 100.00%

Snabduvanje Zapad Heat supply 100.00%

Proizvodstvo na toplina DOOEL - Skopje Production of heat 100.00%

Skopje Sever AD - Skopje Production, distribution and supply of heat 99.74%

Toplifikacija - Inzenering DOOEL - Skopje Designing, engineering, trade, transport and etc. 100.00%

Servisi za greenje DOOEL - Skopje Maintainance of heat instalation 100.00%

Toplifikacija - Bitola DOO - Skopje Heat supply 98.34%

Gas Trade DOOEL - Skopje Trade and distribution of gas and gas fuels 100.00%

Toplifikacija AD

Toplifikacija AD – Skopje in 2012 operated the heat production. It is the parent company of all other

companies in the Toplifikacija Group. In August 2011 Toplifikacija AD returned the license for heat

production and the employees of Toplifikacija AD were transferred in the new formed company

Proizvodstvo na toplina DOOEL Skopje.

Key numbers

Statement of comprehensive income

In (000) denars 2012 2011

Total Revenue 1,755,960 2,187,267

EBITDA 28,502 64,190

EBIT -39,118 7,840

EBT 29,763 2,720

Net Profit/Loss 28,292 1,753

Total comprehensive income/Loss 28,292 1,753

Number of employees 0 0

Statement of financial position

In (000) denars 2012 2011

Total Assets 3,403,826 3,789,166

Accounts Receivables 630,613 911,724

Total Liabilities 1,793,509 2,207,041

Long-term Liabilities 716,167 641,917

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Proizvodstvo na topline DOOEL Skopje

Proizvodstvo na topline DOOEL is limited liability company established in 2011. During 2012, in the

second part of the heating season i.e October-December 2012, the company had operated with the

regulated business heat production.

Key numbers


In (000) denars 2012 2011

Total Revenue 839,183 24,841

EBITDA 33,411 30

EBIT 33,411 30

EBT 33,163 29

Net Profit/Loss 32,898 28

Total comprehensive income/Loss 32,898 28

Number of employees 180


In (000) denars 2012 2011

Total Assets 304,714 12,749


Total Liabilities 271,481 12,414

Long-term Liabilities / /

Distribucija na toplina DOOEL Skopje

Distribucija na toplina DOOEL – Skopje in 2012 operated with the business distribution of heat i.e. it

takes the produced heat from the producer and it distributes to the supplier of heat energy. The

company was formed in May 2009 and the employees that worked in this regulated businesses in

Toplifikacija AD, were transferred to the new company.

In 2012 the number of employees was 97.

Key numbers


In (000) denars 2012 2011


EBITDA 14,928 20,052

EBIT -3,383 2,034

EBT 5,205 10,358




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In (000) denars 2012 2011

Total Assets 577,786 486,375




Snabduvanje Centar DOOEL

Snabduvanje Centar DOOEL – Skopje is limited liability company for supply of heat. The company is

established in November 2008 by Toplifikacija AD as single founder.

Snabduvanje Centar DOOEL in 2012 preformed the regulated activity heat supply to the consumers.

The company operates i.e. supplies heat in municipality Centar, municipality Kisela Voda,

Municipality Cair and part of municipality Aerodrom.

As a licensee, the Company is responsible for providing heat and distribution capacity for delivery of

heat, measuring, reading and billing of the delivered heat.

Key numbers


In (000) denars 2012 2011

Total Revenue 1,236,056 1,090,764

EBITDA 57,256 41,642

EBIT 46,504 24,346

EBT 49,658 26,842





In (000) denars 2012 2011

Total Assets 444,233 470,998




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Snabduvanje Istok DOOEL

Snabduvanje Istok DOOEL – Skopje is limited liability company for supply of heat. The company is

established in November 2008 by Toplifikacija AD as single founder.

The Company was established to liberalize the heat market and to improve the quality of the services

to the consumers and it begins to work actively from February 2009 with the resources which were

previously used for performing the activity supply of heat.

Key numbers


In (000) denars 2012 2011


EBITDA 21,033 14,156

EBIT 10,161 1,361

EBT 8,831 619

Net Profit/Loss 7,754 -613

Total comprehensive income/Loss 7,754 -613



In (000) denars 2012 2011

Total Assets 156,062 197,412



Long-term Liabilities 0 0

Snabduvanje Zapad DOOEL

Snabduvanje Zapad DOOEL is limited liability Company for heat supply. The company was established

in November year 2008 by Toplifikacija AD as single founder.

By obtaining the license for heat supply issued by the Energy Regulatory Commission, Snabduvanje

Zapad DOOEL operates in the municipality Gorce Petrov, municipality Karpos, and part of

municipality Centar.

In 2012 Snabduvanje Zapad performed its regulated business in accordance with its own business

strategy realizing the following activities: invoicing the heat to the consumers; delivery of invoices;

collection of receivables; contracts with existing and new consumers; communication,

correspondence and reporting to customers; determining the quality of the delivery of heat at level

of the consumer and other activities.

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Key numbers


In (000) denars 2012 2011


EBITDA 23,185 16,741

EBIT -5,722 -1,823

EBT -6,920 -3,850

Net Profit/Loss -9,786 -5,692

Total comprehensive income/Loss -9,786 -5,692



In (000) denars 2012 2011

Total Assets 196,544 249,440




Skopje Sever AD

Skopje Sever AD – Skopje is shareholder company established in year 1998. From year 2001 performs

regulated activities production, distribution and supply of heat. The regulated activities are

performed in the municipality Butel and part of municipality Cair.

In year 2012 the company operated with 16 employees.

Key number


In (000) denars 2012 2011


EBITDA 15,609 18,118

EBIT -2,672 7,683

EBT 1,491 12,887

Net Profit/Loss 573 12,829

Total comprehensive income/Loss 573 12,829



In (000) denars 2012 2011

Total Assets 264,085 268,729



Long-term Liabilities 0 0

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Toplifikacija Inzenering DOOEL

Toplifikacija Inzenering DOOEL – Skopje is a company for designing and engineering services of

distribution network, development and designing of measuring control equipment, reconstruction of

substations, as well as engineering services in heating and air conditioning.


Key numbers


In (000) denars 2012 2011


EBITDA 3,931 4,375

EBIT 3,719 4,203

EBT 4,359 4,763





In (000) denars 2012 2011





Servisi za greenje DOOEL

Servisi za greenje DOOEL is limited liability company founded by Toplifikacija AD – Skopje for

performing maintenance on heat installations and other activities. The company is established in

May 2011 with its location on Londonska bb, Skopje.


Key numbers


In (000) denars 2012 2011


EBITDA -3,321 940

EBIT -3,456 940

EBT -3,622 940

Net Profit/Loss -3,649 940

Total comprehensive income/Loss -3,649 940

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In (000) denars 2012 2011





Toplifikacija Bitola DOO

Toplifikacija Bitola DOO - Skopje is a company for heat supply in the town Bitola in Republic of

Macedonia. In 2012 the company didn’t operate, i.e. it didn’t supply its customers with heat energy.

The company currently works for the collection of debts from its customers. The number of

employees in the company was 1.

Key numbers


In (000) denars 2012 2011

Total Revenue 472 352

EBITDA -1,928 -614

EBIT -3,167 -614

EBT -2,713 -302

Net Profit/Loss -2,713 -302

Total comprehensive income/Loss -2,713 -302



In (000) denars 2012 2011





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INFORMATION FOR INVESTORS

The shares of Toplifikacija Group are registered for trade on Macedonian stock exchange. They are

classified on the official market in the segment of Super quotation – ordinary shares under the

symbol of TPLF.

The share of Toplifikacija Group is a part of the MBI 10 index and is one of the most liquid shares on

the Macedonian stock market.

A total of 450,000 ordinary shares have been issued after the nominal value of 51.13 euro. Out of

them, 884 are treasury shares, while the others are available for trade.

Stock-market performance

Table 1 – Trading data (price, value and capitalization are in denars)

month Average Number of

transactions

Traded Traded

Quantity

Market

Capitalization price values

January 2,313 46 2,244,166 974 944,766,000

February 2,278 116 6,245,098 2,730 1,072,174,500

March 2,074 50 1,790,851 903 810,000,000

April 1,786 74 3,095,766 1,717 895,882,500

May 1,983 90 5,265,167 2,611 1,116,900,000

June 2,424 101 7,998,304 3,203 900,000,000

July 2,408 134 6,362,054 2,608 1,064,812,500

August 2,239 70 3,648,349 1,614 1,013,071,500

September 2,097 51 3,837,058 1,838 937,741,500

October 1,837 32 1,141,448 621 708,975,000

November 1,685 29 1,029,486 619 765,000,000

December 1,537 6 123,220 80 688,500,000

Total 2,118 799 42,780,967 19,518 688,500,000

In 2012 a total of 19,518 ordinary shares of Toplifikacija Group were traded on the Macedonian stock

market, which represents 4.34% of the total number of issued shares. The total traded value

amounted to 42,780,967 denars and it was realized in 799 transactions.

In average, about 24 shares per transaction were traded.

During the trade in 2012, the highest realized price was in the amount of 2,798 denars on the other

hand, the lowest realized price was 1,530 denars .

The comparison of the movement of the main stock exchange index MBI 10 of the Macedonian stock

market and the price of the share of Toplifikacija Group is shown in the following chart.

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Graph 1 – Comparison of the movement of the MBI 10 and TPLF in 2012

The movement of the price of the share of Toplifikacija Group is shown in the following figure.

Graph 2 – Movement of the price of TPLF in 2012 in denars

The following chart shows the realized average price and quantity of trade per months in 2012.

Graph 3 – Quantity and average price of trading by months in 2012

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(den.)

Key ratios

Table 2 – Key ratios

Ratio 2012 2011 Change

2010 2009 2008 %

EBITDA Per Share (in denars) 425.57 396.66 7.3% 806.49 509.35 137.30

EBIT Per Share (in denars) 80.93 99.70 -18.8% 534.22 298.24 n.a.

Basic Earnings Per Share (in denars) 85.41 19.71 333.3% 277.07 66.25 11.55

Diluted Earnings Per Share (in

denars) 85.41 19.71 333.3% 277.07 66.25 11.55

Return on Assets (ROA) 2.23% 0.52% 325.4% 7.50% 1.85% 0.40%

Return on equity (ROE) 5.17% 1.19% 333.8% 17.43% 4.19% 0.73%

Book Value Per Share (in denars) 3712.64 3695.86 0.5% 3651.96 3514.21 3529.71

P/E ratio 24.80 173.33 -85.7% 13.56 59.09 738.23

P/Bоок ration 0.57 0.92 -38.3% 1.03 1.11 1.11

Dividend Per Share n.a. n.a. n.a. 44.44 33.33 n.a.

Dividend Payout ratio n.a. n.a. n.a. 16.04% 50.31% n.a.

Dividend Yield n.a. n.a. n.a. 1.18% 0.85% n.a.

The key numbers for 2012,2011 and 2010 are referring for Toplifikacija Group, unlike previous

periods when they referred for Toplifikacija AD –Skopje.

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Shareholder structure

The shareholders’ structure of Toplifikacija AD – Skopje is diversified to a great extent. The biggest

shareholder is KARDICOR INVESTMENTS LIMITED from Cipar with 16.44% (date taken from the

Shareholders’ Book of Toplifikacija AD – Skopje on 31.12.2012). All other shareholders participate

with 1.8% or less in the equity.

The total number of shareholders with the balance on 31.12.2012 was 2,704.

Their structure is shown in the following chart.

Graph 4 – Shareholder structure as on 31.12.2012

75%

25%

natural legal

18%

82%

foreign domestic

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PRICE OF HEAT

The activities from public interest production of heat, distribution of heat and supply of heat during

2012, were carried out by Toplifikacija AD, Distribucija na toplina DOOEL, Snabduvanje Istok DOOEL,

Snabduvanje Centar DOOEL and Snabduvanje Zapad DOOEL, in compliance with the Energy Law of

Republic of Macedonia. These activities are regulated by the independent body of the Energy

Regulatory Commission of Macedonia (ERC) on the basis of a Rule Book on the manner and the

conditions for regulation of prices for heat energy used for heating.

From 1st

of January 2010 the price of heat energy is given separately for all activities for each

company, in compliance with Tariff system for district heating sale. The price of heat energy for tariff

consumers is given separately under the Decisions for the heat supply companies.

The following table shows the price of the heat energy for tariff consumers in 2012:

TARIFFS

Unit Price from Price from

measure 01.01.2012 01.08.2012

Category HOUSEHOLDS

1 Heat capacity denars/kW/year 1,001.4692 665.2155

2 Delivered Heat denars/kWh 2.9403 3.3755

Category OTHERS

1 Heat capacity denars/kW/year 2,022.9384 1,330.4310

2 Delivered Heat denars/kWh 5.8806 6.7511

Changes in the heat price

The price of the heat energy for heating was corrected two times in 2012, in compliance with the

decisions of the Energy Regulatory Commission of Macedonia.

On 30th

December 2011 Energy Regulatory Commission issued decisions for approval of regulated

maximum revenue and tariffs for regulated period with validity from 1st

January 2012;

On 27th

July 2012 Energy Regulatory Commission issued decisions for approval of regulated

maximum revenue and tariffs for regulated period with validity from 1st

August 2012;

Submitted documentation for heat price

The documentation for price of heat energy was submitted two times for 2012, in compliance with

the Rule Book on the manner and the conditions for regulation of prices for energy used for heating:

In November 2011 documentation was submitted as request for maximum allowed income and price

for year 2012 for all three regulated businesses.

In June 2012 by five companies that perform three regulated activities was submitted economic -

technical documentation to the ERC for regular control of the approved cost/price of heat.

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Discrepancies

During 2012 there were discrepancies with the Energy Regulatory Commission regarding the

requirements of the regulated companies, which affected negative the approved price of the heat

energy. The reason for these discrepancies is the decision from July 2012 made by Energy Regulatory

Commission in which ERC didn’t approve purchased heat energy from TE-TO AD in amount of 52

million denars without VAT, also ERC approved fuel oil costs for 2012 reduced for 5% of the actual

cost (cca amount of 35 million denars) and reduced income in amount of cca 45 million denars as

surplus of income earned in 2011.

There are still discrepancies with the ERC in regard to cost of the write-off the receivables from

consumers. The Energy Regulatory Commission in compliance with the Rulebook on the manner and

conditions for regulations of the prices of district heating, in article 7 has obligated the companies

with regulated activities for the application of International accounting standards, but it does not

recognize the cost of writing-off of the receivables from the consumers, which is in accordance with

these standards. Also, due to lack of Property List of the heat plant “11 October”, the Energy

Regulatory Commission does not take into consideration the fixed assets in determining the return of

capital, although these assets are registered in Book Inventory of the company.

All companies have appealed against the Decisions of Energy Regulatory Commission since July 27th

2012 to Commission for resolving appeals in the area of energy of Macedonia. The appeals were

rejected by the Commission. Next step for the companies is starting all necessary legal proceeding

for the mentioned problems.

Licenses

In August 2011 Toplifikacija AD had returned the license for production of heat to Energy Regulatory

Commission. The reasons for the return of the license are the problems with the methodology for

price calculation of produced heat and the decisions issued by the Energy Regulatory Commission

which have negative effect on the financial results of the company i.e. creating operational losses in

the business. In November 2012 the company Distribucija na topline Dooel Skopje has returned the

license for distribution of head, also the companies Snabduvanje Zapad Dooel, Snabduvanje Istok

Dooel and Snabduvanje Centar Dooel returned the licenses for supply of heat.

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FINANCIAL STATEMENTS FOR TOPLIFIKACIJA GROUP

Consolidated statement of comprehensive income

2012 2011

во (000) ден. во (000) ден.

Revenues 2,593,459 2,358,494

Cost of sales 2,034,340 1,888,419

GROSS PROFIT (LOSS) 559,119 470,075

Other operating income 97,385 123,518

Employees expenses 229,397 219,812

Depreciation 84,554 81,568

Impairment losses on bad receivables 70,534 52,063

Other operating expenses 235,599 195,287

OPERATING PROFIT (LOSS) 36,420 44,863

Financing income 177,757 115,033

Income from investments - -

Financing expenses 167,816 144,978

PROFIT (LOSS) BEFORE TAXATION 46,361 14,918

Income tax 7,928 6,048

NET PROFIT (LOSS) FOR THE YEAR 38,433 8,870

Other comprehensive income:

Gains on revaluation on fixed assets - -

Total other comprehensive income - -

TOTAL COMPREHENSIVE INCOME 38,433 8,870

Attributable to:

Owners of the parent 38,476 8,842

Non-controlling interests in subsidiaries -43 28

38,433 8,870

Basic earnings (loss) per share (In MKD) 86 20

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Consolidated statement of financial position - assets

31.12.2012 31.12.2011

во (000) ден. во (000) ден.

ASSETS

Non-current assets

Property, plant and equipment 1,174,066 1,240,992

Long-term loans 45,822 879,984

Investments in associates 462 462

Investments available-for-sale 5,319 5,319

Total non-current assets 1,225,669 2,126,757

Current assets

Inventories 84,963 99,749

Trade receivables 910,281 1,021,758

Receivables for advances 15,229 14,694

Other current assets 63,709 48,564

Short-term loans 1,377,745 471,591

Bank deposits 25,073 64,669

Cash and cash equivalents 24,733 99,442

Total current assets 2,501,733 1,820,467

TOTAL ASSETS 3,727,402 3,947,224

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Consolidated statement of financial position - equity and liabilities

EQUITY AND LIABILITIES 31.12.2012 31.12.2011

во (000) ден. во (000) ден.

Equity

Shareholders capital 1,394,100 1,394,100

Treasury shares (-) -1,257 -1,257

Reserves 111,976 109,600

Revaluation reserves 3,675 3,675

Accumulated profit (loss) 162,396 126,295

1,670,890 1,632,413

Non-controlling interests -203 -159

Total equity 1,670,687 1,632,254

Long -term borrowings 474,201 442,917

Current liabilities

Trade payables 432,687 489,544

Payables for advances 2,983 3,495

Short term borrowings 840,159 1,138,553

Current portion of long-term borrowings 241,965 199,000

Other short term liabilities and accrued expenses 64,720 41,461

Total current liabilities 1,582,514 1,872,053

Total liabilities 2,056,715 2,314,970

TOTAL EQUITY AND LIABILITIES 3,727,402 3,947,224

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Consolidated cash flow statement - operating activities

2012

000 денари

Cash flows from operating activities

Profit (loss) before taxation 46,361

Adjustments for:

Depreciation of property, plant and equipment 84,554

Impairment expenses for bad and doubtful

trade receivables 70,534

Interest expenses (income), net 108,109

Income and expenses from heating

network agreement, net 0

Income from write-off trade payables and

inventory surpluses -2,100

Caring amount of disposal of fixed assets 0

Profit (loss) before adjustments in working capital 307,458

Trade receivables 40,943

Receivables for advances -535

Other short term assets and accrued expenses -18,316

Inventories 14,786

Trade payables -54,757

Payables for advances -512

Other short term liabilities and prepaid expenses 23,952

Net cash used in ordinary business 313,019

Paid interest -165,394

Collected (paid) income tax -5,194

Net cash flows from operating activities 142,431

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Consolidated cash flow statement - investment and financing activities and net cash flow

Cash flows from investing activities

Bank deposits collected (given) 39,596

Long-term loans collected (given) -14,882

Property, plant and equipment additions -17,628

Net cash flows from investing activities 7,086

Cash flows from financing activities

Proceeds (repayment) from short term borrowings, net -298,394

Proceeds (repayment) of long-term borrowings, net 74,249

Paid dividends -81

Net cash flows from financing activities -224,226

Net increase (decrease) of cash and cash equivalents -74,709

Cash and cash equivalents at the beginning of the year 99,442

Cash and cash equivalents at the end of the year 24,733

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Notes to the consolidated financial statement

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Realized financial result

The profit before taxation for 2012 is in amount of 46,361 thousand denars, income tax is in amount

of 7,928 thousand denars and net profit is in the amount of 38,433 thousand denars, i.e. total

comprehensive income is in amount of 38,433 thousand denars.

Operating profit for 2012 amounts to 36,420 thousand denars.

Revenues from sale

Revenues from sale for 2012 are in amount of 2,593,459 thousand denars. This income is related to

revenues from sale of heat energy towards the end consumers according to the approved tariffs from

Energy Regulatory Commission divided in two categories households and other users.

Other operating income

Other operating income in 2012 is in amount of 97,385 thousand denars. It consists of income from

investment in maintenance and expansion of the distribution network, income from projects, income

from written off value receivables, income from other services, extraordinary income and other

incomes. The biggest part in this category is income in the amount of 39,659 mostly composed of

income of projects, income from performing of projects, sale of equipment. Second biggest income is

income from investment in maintenance and expansion of the distribution network in the amount of

38.850 thousand denars.

Cost of service sold

Cost of service sold in 2012 amounts of 2,038,340 thousand denars. These include the cost of fuel

(fuel oil and natural gas), costs for supplied heat, costs for electricity and cost for consumed water.

In 2012 total cost for fuel is in amount of 1,527,951 thousand denars, out of which 626,366 thousand

denars for fuel oil and 901,585 thousand denars for gas. Costs for supplied heat are in amount of

416,324 thousand denars of which 52 milion denars are contentious because ERC didn’t recognized

that amount of cost/quantity or purchased heat.

Costs for electricity for 2012 is in amount of 73,380 thousand denars, while total costs for consumed

water is in amount of 16,685 thousand denars.

Employees’ costs

Employees’ costs are in amount of 229,397 thousand denars. In 2012 the gross salaries of employees

were paid in amount of 214,088 thousand denars, the rest of the costs are referring to other costs

associated with employees in the Toplifikacija Group.

Depreciation

Depreciation of Toplifikacija Group for 2012 is 84,554 thousand denars. It is calculated by straight line

method for long-term assets adopted by the Group.

Impairment losses on bad receivables

In 2012 impairment losses on bad receivables is in amount of 70,534 thousand denars.

Other operating expenses

The other operating expenses in 2012 are in amount of 235,599 thousand denars. These includes

costs for provisions for payment and bank services, costs for loan provisions and bank guarantees,

costs for fee for pledged shares, services for investment and current maintenance, costs of sold goods

and services, costs for material and spare parts, telephone and internet costs, cost for investment

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maintenance of the distribution network, expenses for use of distribution network, , costs for

projects, costs for court fees, various types of services, contributions, dues and other expenses.

In the following chart is shown the participation of each group of expenses out of total amount of

costs.

Graph 1 – Participation by each group of costs for 2012

Financial income

Financial income in 2012 is in amount of 177,757 thousand denars. It consists of income from

interests by end consumers, income of loans given to the unrelated companies, income from positive

exchange rates and income from bank interests.

Financial expenses

Financial expenses in 2012 are in amount to 167,816 thousand denars. The biggest cost in this

category includes interest from banks on taken loans for realization of investment in the gas plant for

combined production of electricity and heat energy TE-TO AD – Skopje in amount of 61,783 thousand

denars, then interests from bank loans taken for reparation for old debt in amount of 50,166thousand

denars and loans for current operations in amount of 42,918 thousand denars. Other expenditures in

this category are interests from suppliers and loss of negative exchange rate differences.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Total assets

Total assets in 2012 are in amount of 3,727,402 thousand denars. They are composed of current and

non-current assets.

Total non-current assets are in amount of 2,571,299 thousand denars. They are composed of material

assets and long term financial loans.

Material assets

Material assets are in amount of 1,174,066 thousand denars, and this category is composed of total

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movable and immovable properties owned by the Toplifikacija Group

Long-term loans

In the long term loans, the biggest category are the loans given to TE-TO AD – Skopje as investment in

building a gas plant for combined production of electricity and heat energy TE-TO AD – Skopje. Long-

term loans are in amount of 1,423,567 thousand denars. The loans with due date after 31.12.2013

are in the group non-current assets and are in amount of 45,822 thousand denars.

Total current assets are in the amount of 2,501,733 thousand denars. They are composed of cash

equivalents, trade receivables, receivables from loans, receivables for advances, other current assets,

paid expenses for future periods and inventories.

Trade receivables

Trades receivables of Toplifikacija Group are in amount of 910,281 thousand denars and here the

biggest category are receivables from sale of heat energy towards the end customers.

Receivables from loans

These are receivables from loans given as investment in building a gas plant for combined production

of electricity and heat energy TE-TO AD – Skopje. These are receivables that are due or the due date is

during 2013 in amount of 1,337,745 thousand denars.

Equity

Equity of Toplifikacija Group is in amount of 1,670,687 thousand denars. It is composed of

shareholders capital in amount of 1,394,100 thousand denars, reserves in amount of 111,976

thousand denars, revaluation reserves in amount of 3,675 thousand denars and accumulated profit in

the amount of 162,396 thousand denars, deducted for treasury shares and non-controlling interests.

Liabilities

Liabilities in 2012 are in amount of 2,056,715 thousand denars. They are composed of current and

non-current liabilities.

Long-term borrowings

Long-term borrowings are in amount of 474,201 thousand denars.

Total current liabilities are in amount of 1,582,514thousand denars. They are composed from

liabilities of trade payables, payables for advanced, short term borrowing, current portion of long-

term borrowing, and other short term liabilities and accurate expenses.

Trade payables

Trade payables are in amount of 432,687 thousand denars. Most of these categories are liabilities

towards fuel suppliers (fuel oil and natural gas), supplier of heat, suppliers for materials and fixed

assets.

Short term borrowings

Short term borrowings in 2012 are in amount of 840,159 thousand denars. They are completely taken

by Toplifikacija AD – Skopje and they are used for operating activities.

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CONSOLIDATED CASH FLOW STATEMENT

Cash flow from operating activities

Cash flow from operating activities for 2012 is positive and it is in amount of 142,431 thousand

denars. In order to calculate the cash flow from operating activities, the income before tax is adjusted

for depreciation, impairment receivables and write-off of liabilities income, interest expenses and

interest income. Profit before adjustments in current assets is 307,458 thousand denars. In the cash

flow from operating activities major positive category are trade receivables arising from more

receivables paid in the year of receivables made for the same period. The paid amount of interest as a

negative category is 165,394 thousand denars.

Cash flows from investing activities

Cash flows from investing activities are positive in amount of 7,086 thousand denars. Given loans are

in amount of 14,882 thousand denars while outflow for bought assets and equipment is in amount of

17,628 thousand denars.

Cash flows from financing activities

Net cash flows from financial activities in 2012 are in amount of 227,226 thousand denars (negative).

During 2012 the Group has net returned more short-term borrowings in the amount of 298,394

thousand denars. Here, positive category are long term loans net inflow in amount of 74,249

thousand denars.

Cash and cash equivalents at the end of the year amounted to 24,733 thousand denars.

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CORPORATE GOVERNANCE

Managing structure

The management is organized on the basis of a two-level system.

The highest managerial body is the Shareholders’ Assembly. The shareholders with their votes elect

the members of the Supervisory Board through the Shareholders’ Assembly. In compliance with the

legal regulations during the year one regular Assembly is hold on which the results achieved in the

past year are discussed. If deemed necessary, as well as following the initiative of the shareholders,

special Assemblies may be hold.

In 2012 one regular Shareholders’ Assembly was held where the Financial statements, the Annual

Report of the company for the year 2011 and the Report for the work of the Management and

Supervisory Board of Toplifikacija AD – Skopje were reviewed and adopted, also it has been taken a

decision for non-distribution of profit.

The Supervisory Board in 2012 consists of the following 5 members:

• Ljupco Sandrevski, President of the Supervisory Board, mandate until May 2015

• Zoran Kovacevski, member of the Supervisory Board, mandate until May 2015

• Grozdan Delidinkov, member of the Supervisory Board, mandate until May 2015

• Skubin Gorazd, member of the Supervisory Board, mandate until May 2015

• Goshelj Janez, independent member of the Supervisory Board, mandate until May 2015

The Management Board is composed of 7 members:

• Dr.Ec.Sci. Dimitar Hadimisev, President of the Management Board - mandate until May 2015

• Hristo Kirovski, member of the Management Board - mandate until May 2015

• Gorgi Ninevski, member of the Management Board - mandate until May 2015

• Dine Iliev, member of the Management Board - mandate until May 2015

• Aleksandra Maroevik, member of the Management Board - mandate until May 2015

• Bisera Krstevska, member of the Management Board - mandate until May 2015

• Emilija Jakimovska Miseva, member of the Management Board - mandate until May 2015

During 2012 the Management Board held 45 meetings.

Risk management at the operation of the company

On the basis of the acquired experience and the problems which it faces in everyday operation,

provoked by the influence of the internal and external factors, the company has identified 7 main

risks:

• Organizational risk

• Technological risk

• Operational risk

• External risk

• Financial risk

• Liquid risk

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• System risk

There is an elaborated and adopted risk management procedure for the management of these risks.

In the discussions in the frames of the meetings of the Management Board, it was emphasized that

two risks are dominant:

• Liquid risk

• System risk

The liquid risk in the company may influence the regular and timely fulfillment of the liabilities

towards its creditors, employees and shareholders and the same may appear due to:

• Non-fulfillment of the norms in the part of the collection of the invoiced realization

• Inadequate and untimely approved price of heat energy by the regulatory body - ERC

• Limiting the financial assets of the company for the main inputs, i.e. for fuel for very short

periods of maturity

The system risk results from the determination of the price of the heat energy in the part of the

activities of supply of heat by the regulatory body – ERC.

Code on corporate governance

Toplifikacija AD – Skopje organizes its operation and management in compliance with the Code on

corporate management of joint stock companies listed on the Macedonian stock market of

securities.

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