JSC DITTON PIEVADIJĒŽU RŪPNĪCA Reg. No. 40003030187 Višiju St.17, Daugavpils, LV-5410, Latvia

Annual Report for the Year 2018 (Translation from Latvian)

and Corporate Governance Report PREPARED IN COMPLIANCE WITH THE LAW ON ANNUAL ACCOUNTS AND CONSOLIDATED ANNUAL ACCOUNTS

and Independent Auditors` Report (01.01.2018 – 31.12.2018)

Daugavpils 2019

JSC DITTON PIEVADĶĒŽU RŪPNĪCA ANNUAL REPORT FOR THE YEAR 2018 CONTENTS

	PAGE
Information about the Company………………………………………	3 - 5
Information on the Management Board and Council members …………	6
Report on Corporate Governance ………………………………………	7-9
Council report ……………………………………………………………	10-11
Management report ……………………………………………………	12-15
Financial statements:
Income statement …………………………………………………	16
Balance sheet ………………………………………………………	17-18
Cash flow statement …………………………………………	19
Statement of changes in equity ………………………….…………	20
Appendix to the annual report ………………………….…………	21-40
Independent auditor's report ……………………………………………	41- 43

INFORMATION ABOUT THE COMPANY

Joint Stock Company 40003030187 Rīga, 03.10.1991. Rīga, 29.08.2003.




28.15 Manufacture of bearings, gears, gearing and driving elements
Višķu St. 17, Daugavpils, LV-5410, Latvia
10 360 000 EUR 7 400 000 1.40 EUR
Jŭlija Lavrecka, p.c.010891-10200
01.01.2018. – 31.12.2018.
Potapoviča and Andersone Ltd. Reg. No. 40003612562 Ŭdens St. 12-45, Rīga, LV-1007 License No.99

Sworn auditor of the Republic of Latvia Kristīne Potapoviča

Persons in charge for drawing up of the financial report:

Mr. Boriss Matvejevs, phone +371 65402333, e-mail [email protected] Ms. Nataļja Redzoba, phone +371 65402333, e-mail [email protected]

INFORMATION ON SHARES AND SHAREHOLDERS

SHARE PRICE TRENDS

The Company's paid up share capital is EUR 10,360,000, divided into 7,400,000 bearer shares. Each share has a nominal value of EUR 1.40, and each share carries one voting right, the right to one dividend share and one liquidation quota of the total amount of dividends or liquidation quotas, which is equal to the total amount of the shares of this category. The Company's shares are financial instruments (i.e., transferable securities), the circulation of which is regulated by the Commercial Law of the Republic of Latvia (RoL), the Law on the Financial Instruments Market of the RoL and the regulations of the organizer of the regulated market of financial instruments.

SHAREHOLDERS OWNING MORE THAN 5% OF THE COMPANY'S TOTAL SHARE CAPITAL*

Given name, surname or Name	Shareholding,
	%
Vladislavs Drīksne	19,92
MAX Invest Holding SIA	13,63
Maleks S SIA	13,72
SIA "DVINSK MNG"	9,46

* Note: (1) The Company is not keeping a share owner and/or a shareholder register. The above information is provided and updated on the basis of the shareholder list for the general meeting of the shareholders of AS Ditton pievadķēžu rūpnīca held on 1 June 2018, which was received from Nasdaq CSD under the Commercial Law of the RoL and the Law on the Financial Instruments Market, taking into consideration the statements of shareholders on the acquisition or loss of their holdings submitted to the Company under Section 61 of the Law on Financial Instruments Market.

(2) At 31.12.2018, there was no information at the disposal of the Company regarding the allocation of the shares between the heirs of E. Zavadskis and the accounting entries in their financial instruments accounts under Section 125 of the Law on the Financial Instruments Market (20% in total).

There is no additional information and/or regulations governing the procedures specified therein at the disposal of the Management Board provided for in the rest of Section 56.1 "Additional Information to be Included in the Annual Report" of the Law of the Financial Instruments Market (Paragraph one, sub-clauses 2), 3), 4), 5), 6), 7), 8), 9), 10) and 11).

COMPANY BACKGROUND

Joint stock company AS Daugavpils pievadķēžu rŭpnīca was established as a result of the privatisation of the State Daugavpils Driving Chain Factory under the Cabinet Order.

No. 375-r of 9 August 1994 and the resolution of the Management Board of the state joint-stock company VAS Privatizācijas aģentŭra of 2 March 1995 (Minutes No. 25), by reorganising the stateowned company into a joint-stock company.

Upon registration in the Register of Enterprises on 30 August 1995 (registration number 000303018), the Company acquired the status of a public joint-stock company.

On 8 January 2002, AS Daugavpils pievadķēžu rŭpnīca was renamed as joint-stock company AS Ditton pievadķēžu rŭpnīca (registration No. 40003030187).

On 29 August 2003, AS Ditton pievadķēžu rŭpnīca was registered in the Commercial Register (uniform registration number 40003030187).

On 23 January 2015, the Company's share capital was denominated in accordance with the Law on the Procedure for Introducing the Euro of the LoR.

The Company is the successor of rights and obligations of the State Daugavpils Driving Chain Factory under the Terms and Conditions of Privatization, and it carries out its activity based on its Articles of Association.

Some of the types of activity the Company is engaged in are:

manufacture of parts and accessories for motor vehicles;
repair of fabricated metal products, mechanisms and equipment;
installation of production equipment and devices;
sale of motor vehicle parts and accessories;
sale, maintenance and repair of motorcycles, the parts and accessories thereof;
manufacture of metal constructions;
manufacture of metal tanks, reservoirs and containers;
forging, pressing, stamping and rolling of metal; powder metallurgy;
mechanical treatment of metals, treatment and coating of the surface;
manufacture of other fabricated metal products;
warehousing and storage facilities;
buying and selling of owned real estate;
leasing and facility management of owned or leased real estate;
activities with real estate on a contract or fee basis;
building facility management and operating activities;
and other.

INFORMATION ON THE MANAGEMENT BOARD AND COUNCIL MEMBERS

THE MANAGEMENT BOARD

Chairman of the Management Board Rolands Zarāns, appointed to the office on 15 January 2014. Member of the Management Board Nataļja Redzoba, appointed to the office on 29 August 2003.

Information about the shares held by the members of the Management Board

Members of the Management Board	Owned shares *
	Number	%
Rolands Zarāns, appointed to the office on 15	none	-
January 2014.
Nataļja Redzoba, appointed to the office on 29	none	-
August 2003.

COUNCIL

Chairman of the Council
Boriss Matvejevs, appointed to the office on 5 May 2005.
Deputy Chairman of the Council
Georgijs Sorokins, appointed to the office on 6 November 2000.
Members of the Council
Anželina Titkova, appointed to the office on 14 August 2009.
Genādijs Zavadskis, appointed to the office on 15 February 2017.
Vadims Kazačonoks, appointed to the office on 15 February 2017.

Information about the shares owned by the members of the Council

Members of the Council	Owned shares*
	Number	Number
Boriss Matvejevs	none	none
Georgijs Sorokins	5,678	5,678
Anželina Titkova	none	none
Genādijs Zavadskis	none	none
Vadims Kazačonoks	none	none

Information about the professional experience of the members of the Management Board and Council can be found on the website www.dpr.lv.

____________________

^* As at 01.06.2018.

STATEMENT ON CORPORATE GOVERNANCE

§ 1

In arranging for the Issuer's corporate governance, the Management Board and the Council are guided by the Corporate Governance Principles and Recommendations approved by AS Nasdaq Riga (formerly "AS Nasdaq OMX Riga"), which are effective from 1 June 2010, as well as take into consideration the resolutions by the general meetings of shareholders.

Information on the application of the principles referred to above and relating to the competence of shareholders is presented to the shareholders at the ordinary annual general meeting of shareholders, when approving the annual report. The shareholders have the opportunity to familiarise themselves with the information contained in the Corporate Governance Principles and Recommendations on the website of AS Nasdaq Riga: http://www.nasdaqbaltic.com/files/riga/corp\_gov\_May\_2010\_LV.pdf or by submitting the relevant request in writing to the Issuer.

Information on the principles and procedures of application of the Corporate Governance Principles, limitations, exceptions and the practice of the application thereof in 2018 is presented in Annex "Report on compliance with the corporate governance principles" hereof. The shareholders may familiarise themselves with the information presented in the notes to the annual report, on the website of NASDAQ CSD, under the section of the relevant Issuer, in the Official System for Central Storage of the Regulated Information, and on the Issuer's website.

§ 2

The internal control system, including internal audit required under the Law on the Financial Instruments Market and the Issuer's Articles of Association, is organised in accordance with the Corporate Governance Principles. The Council's report on the internal audit concerning the risk control and management procedures in the course of preparation of the annual report for 2018, is provided to the ordinary general meeting of shareholders and added to the file of the materials thereof.

Effectively, the Issuer has established a multi-tiered system for the preparation, control and risk management of the annual report:

Tier 1: Preparation of the annual report and internal control at the structural units of the Issuer;

Tier 2: Review and approval of the annual report on the part of the Management Board of the Issuer;

Tier 3: Audit of the annual report by a sworn auditor under the procedure prescribed in the Law on the Annual Financial Statements and Consolidated Financial Statements, the law On Accounting, the Commercial Law and the Law on the Financial Instruments Market of the Republic of Latvia;

Tier 4: The examination of the annual report of the Issuer's Council and reporting on the overall performance of the Management Board and the Issuer, which is presented in the report;

Tier 5: The examination of the annual report, the efficiency of the internal control and risk management, verification of the independence of the sworn auditors and elimination of deficiencies, which is carried out by the Company's Audit Committee, in accordance with the Law on the Financial Instruments Market, the Regulation (EU) No 537/2014 of the European Parliament and of the Council and the rules of procedure of the Company's Audit Committee, for reporting to the general meeting of shareholders;

Tier 6: Approving the annual report at the general meeting of shareholders of the Issuer.

It is obvious that the activity of the bodies specified in Tiers 3, 4, 5 and 6 is independent of the Management's Board of the Issuer and ensures the accuracy and objectivity of the annual report.

§ 3

Under the provisions laid down in Sections 56.1 and 56.2 of the Law on Financial Instruments Market, the Issuer is required to provide additional information as follows:

The following shareholders have a significant interest in the Issuer:

Vladislavs Drīksne – 19.92%
SIA MAX Invest Holding – 13.63%
SIA Maleks S – 13.72%
SIA DVINSK MNG – 9.46%

Note: (1) The Company is not keeping a share owner and/or a shareholder register. The above information is provided and updated on the basis of the shareholder list for the general meeting of the shareholders of AS Ditton pievadķēžu rūpnīca held on 1 June 2018, which was received from Nasdaq CSD under the Commercial Law of the RoL and the Law on the Financial Instruments Market, taking into consideration the statements of shareholders on the acquisition or loss of their holdings submitted to the Company under Section 61 of the Law on Financial Instruments Market.

The Issuer does not have any shareholders with special control powers or limited shareholder voting rights, which are carried by their shares.

The Issuer has put in place the principles and procedures of amending the foundation documents (Articles of Association) and making changes to the composition of the Management Board, including the rotation and/or removal thereof from the office, which are applied in accordance with the provisions of the Commercial Law, the Civil Law and the Labour Law of the RoL, the Law on the Enterprise Register of the Republic of Latvia, the Law on Legal Force of Documents, the declaration on the objectives of the activity, development objectives and mission of AS Ditton pievadķēžu rŭpnīca, and the assessment of the said processes, the rules of procedure of convening and holding the general meetings of shareholders, other laws and regulations as well as the internal documents of the Issuer.

The rights of the members of the Management Board of the Issuer are laid down in the Commercial Law of the Republic of Latvia and the Issuer's Articles of Association, as well as laid down in the scope of work of the Management Board. No additional powers, such as powers to issue or buy back shares have been conferred on the Board Members.

§ 4

The management bodies of the Issuer are:

The general meeting of shareholders,
The Council of the Issuer,
The Management Board of the Issuer.

Each of the bodies has the competence (powers), rights and duties of its own as laid down in the laws of the Republic of Latvia, the Corporate Governance Principles, the Issuer's Articles of Association and internal documents, including in the rules of procedure of the Council and the Management Board and in the resolutions of the general meetings of shareholders. The management bodies are independent bodies.

The independence of the resolutions passed by shareholders is ensured under the provisions (Sections 268; 273-286) of the Commercial Law of the RoL, the Law on the Financial Instruments Market (Sections 54, 54.1 - 54.5), the Corporate Governance Principles, the Issuer's Articles of Association, the Declaration of the activity, development objectives and mission of AS Ditton pievadķēžu rŭpnīca, and the assessment of these processes, the rules of procedure of convening and holding the general meetings of shareholders, other laws and regulations as well as the internal documents of the Issuer.

According to the Commercial Law, the Law on the Financial Instruments Market, the Articles of Association, the Declaration of the activity, development objectives and mission of AS Ditton

pievadkežu rūpnīca, and the assessment of the said processes, the rules of procedure of the Council and Management Board, other laws and regulations as well as the Issuer's internal documents, the members of the Council and Management Board are independent in discharging their duties and accountable to the shareholders in accordance with the requirements of the law.

The Issuer arranges for and implements the procedures related to the nomination of the candidates of the Council and Management Board and voting for the candidates of the Council and Management Board, as well as related to the appointment and registration of the Council and Management Board in the Register of Enterprises of the LoR in accordance with the provisions (Sections 268, 284, 292, 296 and 305) of the Commercial Law of the Republic of Latvia on the Law on the Financial Instruments Market (Sections 54, 542 and 546), the provisions of the rules of procedure of convening and holding the general meetings of the shareholders of the Issuer as well as the rules of procedure of the Council and Management Board. The internal documents of the Issuer are available on the Issuer's website www.dpr.lv.

The composition of the members of the Council and Management Board is specified on page 6 hereof, as well as on the Issuer's website www.dpr.lv.

Chairman of the Management Board AS Ditton pievadķēžu rūpnīca 24 April 2019

Rolands Zarans

REPORT OF THE COUNCIL on the annual report for 2018

Issued in accordance with the Commercial Law and the Articles of Association of the Company, and approved by the resolution of the Council of AS Ditton pievadķēžu rŭpnīca on 24 April 2019 (Minutes No. 218)

The Council of AS Ditton pievadķēžu rŭpnīca herewith declares that the report of the Management Board of the Company to the ordinary general meeting of shareholders and the submitted annual report for 2018 fairly represents the performance of the Company's commercial activity and the financial position thereof.

During the reporting period, the Management Board was engaged in managing the operational and production activities and represented the Company in accordance with the existing laws of the Republic of Latvia, the Articles of Association of the Company, the Declaration of the activity, development objectives and mission of AS Ditton pievadķēžu rŭpnīca, and the assessment of the said processes, the resolutions of the general meeting of shareholders and the recommendations of the Council.

No objections against the Management Board or the individual members thereof were raised and submitted either by the shareholders or the members of the Council. There is no information at the disposal of the Company on the violation of the principles of independence on the part of the members of the Management Board.

At the ordinary general meeting of the shareholders of the Company held for approving the annual report for 2017 on 1 June 2018, the performance of the Management Board in the previous period was rated as satisfactory and deemed appropriate for the Company's objectives and mission, as well as the actual market circumstances.

The Company's performance for 2018 reflected the actual situation of the Company's circumstances as well as the global economic conditions. The causes, circumstances and terms and conditions underlying these indicators are set out in the Management Report.

The Council of the Company, being the representative of the shareholders, shares the view of the Company's shareholders and members of the Management Board regarding the assessment of the current conditions of the global economy and its sectors, and is of the opinion that a reasonable and objective assessment of the Company's and market situation will help the updating of the Company's business plans as well as improve the Company's economic and production performance indicators.

The Council of the Company represented the interests of the shareholders in the periods between the general meeting of shareholders, and in accordance with the global economic conditions prevailing during the reporting period, and supervised the activity of the Management Board within the scope set forth in the Articles of Association of the Company and the laws of the Republic of Latvia.

All in all, five meetings of the Council were held during the reporting period. At three joint meetings of the Council and Management Board the Company's interim financial statements for three, six and nine months of 2018 were reviewed and approved.

At the meetings, the following matters were also examined by the Council, and the following resolutions were passed:

− Reviewing of the annual report for 2017 and approval of the Report of the Council;
− Reviewing the draft resolution on the agenda of the ordinary general meeting of shareholders (1 June 2018);
− Other matters related to the Company's activity and provided for in the Articles of Association and the laws of the Republic of Latvia.

In addition to the above-mentioned meetings, five Council meetings were held with the Council acting in the status of the Company's Audit Committee in accordance with the competences and powers conferred on the Audit Committee. Report on this particular scope of the Council's area of activity will be included in the report of the Audit Committee of AS Ditton pievadķēžu rŭpnīca to the ordinary general meeting of shareholders held for the approval of the Company's annual report for 2018.

On 1 June 2018, the ordinary general meeting of the shareholders of the Company rated the performance of the Council in the previous period as satisfactory and deemed it appropriate to the Company's objectives and mission.

The Council of the Company drew the attention of shareholders to the following important events.

In prior year reports (2013 - 2017), based on the opinion of an expert panel, the Council informed the shareholders about the objectivity of the annual reports and about the consistency thereof with the Company's actual circumstances, as well as systematically informed the shareholders about the market circumstances and the Company's future prospects because the Company is not isolates, but rather forms a part of the global business system and is dependent on the performance indicators of the said countries, in the markets of which due to their geographical position, logistics and actual presence the Company is represented.

In addition, the Company's actual sales figures in 2018 turned out, in general terms, as expected under the forecasts made by the Council in respect of the sales volumes of the Company's goods and services. Furthermore, overall, the Company maintained its standing in the global market, through retaining relationships with its counterparties, contracts and production growth prospects.

The Council of the Company rates its forecasts with regard to the global market outlook and demand for the Company's goods in the range of "moderately negative" to "moderately positive" in certain geographical market sectors and depending on the assortment of goods. The materialisation of the forecasts depends not only on the Company but also on the future development trends of the global economy. It is therefore not ruled out that due to unfavourable market factors, the Company's production volumes may decline or remain at the current level.

Previously, the Council drew the attention of the shareholders to the programme of the Management Board aimed at improving the Company's economic and financial performance indicators, through optimising the Company's costs and revenue and focusing on the manufacturing of goods and provision of services of top quality and added value. The Company's performance indicators, including profit, is suggestive of the potential of the programme.

In addition, the Council draws the attention of the Company's shareholders to the positive development of the Company's industral and technical park project in the Company's territory. The Council is of the view that this direction is both interesting and promising.

The Council took notice of other operational conditions relevant to the Company, which are set out in the Management report, found them justified and consistent with the actual circumstances and considers it necessary to inform the ordinary general meeting of shareholders about them in the Management report.

Considering the Company's performance in 2017 and in 2018 in particular, the Council shares the opinion of the Management about the usefulness of the partly implemented programme aimed at increasing the efficiency of business performance, which includes the optimisation of costs, production and technological processes, modernisation of equipmentation of energy and resource efficient technologies, and update and extend it through to 2021.

In the light of the foregoing and the Company's circumstances, the Council considers it appropriate to recommend that the Management Board should put forward the ordinary general meeting of shareholders to use the profit for 2018 to absorb the losses of prior periods as well as considers it appropriate to request the shareholders to support this proposal. Having regard to the economic indicators, the Council also considers it appropriate to recommend that the Board should respond to market changes more rapidly (especially in terms of pricing), immediately updating the plans and programme of the Company and optimising the items of operating expenses.

Chairman of the Council AS Ditton pievadķēžu rūpnīca 24 April 2019

Boriss Matvejevs

MANAGEMENT REPORT

On the operating performance of the Company in 2018

In the 12 months of 2018, net turnover amounted to EUR 5,400 thousand, down by EUR 237 thousand compared with the relevant 12 months indicator for 2017.

During the reporting period, the Company exported 89% of the goods manufactured by it and services to Eastern and Western markets, including 50% to Eastern markets and 39% - to Western markets, sales in Latvia amounted to 11% of the goods and services.

The Company's performance for 2018 was profit before tax of EUR 144.7 thousand.

In 2018, the average statistical number of employees at AS Ditton pievadķēžu rŭpnīca was 172. In 2018, the average wages in the Company was EUR 616, which was higher than the average wages in 2017 (ERU 550).

The performance of the Company and the Annual report with the financial statements (including Notes), this Management report and the Report on Corporate Governance (with Notes) was approved by the Company's Management Board (Minutes No. 01/2019 of the meeting of the Management Board of 24 April 2019).

Significant events. Market trends and the Company's development. Risks

General market trends

Based on the results of the analysis of the conditions, indicators and market circumstances of the Company's activity in 2018, the Company is of the view that the information set out in the Management Report contained in the reports of 2016 and 2017 is still completely current and relevant for the reporting year. It should also be pointed out that in the field of industrial production (metal processing and engineering), the desired growth trends are not being observed in the sector represented by the Company, which has translated in the Company's performance indicators for the reporting period.

The results of the analysis of the prior periods (2016 and 2017) included the following points which hold current at present.

In accordance with the performance indicators of the goods manufactured under the brand of AS Ditton pievadķēžu rŭpnīca, the sale thereof to final consumers is structurally categorised into the following main segments:

− "Western" market or mainly the market of European countries, and
− "Eastern" market, i.e., the Russian Federation market, the Customs Union, CIS and Ukrainian markets, as well as the market of Asian countries.

The Company forms an integral part of the production and economy of such countries which represent the above-mentioned market outlet segments for the goods of the Company irrespective of the procedures aimed at promoting the goods and systems in these markets. This way, all the trends, factors, risks, crises and other circumstances in the relevant markets have a direct impact on the Company, its activity and income to be derived from its activity.

Due to the need to be able to operate in the future as a going concern provides for a duty to be imposed on the Management Board of the Company to take all measures aimed at retaining both of the market segments, operate there consistently with their terms and conditions, seek compromises with the counterparties, including those which are not favourable to the Company, retain all market segments, including those with temporarily unfavourable factors or which undergo crisis, whereas terminating the cooperation with a counterparty in practice may occur only on the condition that the relevant production volumes are replaced by analogous volumes in other market segments or with other counterparties (the detailed analysis whereof is provided in the Management report contained in the Company's annual report for 2016 and 2017).

Western market segment

Based on the results of the analysis of the conditions, indicators and market circumstances of the Company's activity in 2018, the Company is of the view that the information set out in the Management Report contained in the reports of 2016 and 2017 is still completely current and relevant for the reporting year, too. It should also be pointed out that in the field of industrial production (metal processing and engineering), the desired growth trends are not being observed in the sector represented by the Company, which has translated in the Company's performance indicators for the reporting period.

The Company's sale revenue is suggestive of the lack of the growth trends in the fields where the Company's goods are used. The Management Board drew attention to the mentioned circumstances already in the previous Management reports, making moderately optimistic forecasts regarding the Company's performance indicators, and the said forecasts, the assessment of the trends in the market segments as well as information on other unfavourable factors affecting the Company's performance, have remained current at the present moment, too.

Drawing on the above statistics, it is doubtful that product sales in this segment would rise significantly. Such an increase in possible only as a result of implementing joint projects with the companies in the said countries in such areas and technologies, in which the Company is not currently represented.

Eastern market segment

Management provided a detailed analysis of the situation of this segment in the Company's annual reports in 2016 and 2017, highlighting the stages and processes in this segment.

Management views that the stabilisation of the rouble exchange rate within a predictable "corridor", which enables implementing a business planning management without increased exchange rate volatility was a positive factor in 2018.

Unfortunately, other adverse factors referred to by the Company's Management Board in the reports for 2016 and 2017 have been persisting and aggravating.

First, the ongoing "mutual sanctions policy" and the distinctive priorities of this market segment work well for Chinese manufacturers, whereas the Company is exposed to the risk of possible losses as well as the risk of the loss of customers and demand for the Company's products. This factor remains current and relevant.

Second, given the sanctions, such countries as the Russian Federation have been actively seeking to promote the internal businesses of the market segment, which have been launching the production of goods that are alternatives for the products manufactured by AS Ditton pievadķēžu rŭpnīca products. Against this background, there has been an increase in the manufacturing of fake products labelled with the Company's trademark. It is indicative of the top quality of the goods manufactured by the Company and the continuing demand for them. This, however, is also suggestive of the Company's losses incurred due to the marketing of the fakes manufactured by fictitious suppliers in this market segment.

Third, an unfavourable factor for the Company is the general EU policy on additional duties on the imports of metal products, primarily those manufactured in the Russian Federation. Given that the Company has been traditionally using the metal products sourced from Russia due their costeffectiveness and flexible delivery and payment terms, this factor has led to higher prices of goods across all market segments as well as to declining sales. Analogous metal goods produced in Europe are more expensive, and replacing metal goods sourced in Russia would not be a cost-effective solution and would result in an additional price increase.

This way, the risks and losses in this market segment are mainly related not to the Company but to the conditions beyond the Company's control and which cannot be eliminated by the Company with reasonable and affordable means.

Consequently, the Company considers it necessary to continue carrying out the activity in this market segment, taking into account investments in the market, acquired leads and contacts, being the manufacturer with a familiar brand name and the manufacturing of top-quality products. In addition, some optimism results from the increase of customer price-quality demands, where the Company has a clear competitive advantage.

Optimising the Company's production and costs

Between 2105 and 2018, the Company was implementing a loss minimisation programme, based on the optimisation of the internal structure, infrastructure, intellectual and human resources. The Company also sees its competitiveness in focusing on technologically sophisticated high added value goods, as well as driving an increase in the volume of services and works outside the core production activities.

This effort enabled the Management Board to focus its activity to a single consecutive direction, rendering it more structured, categorised in stages as well as enabled an optimal allocation of resources aimed at improving the Company's economic circumstances. The above helped achieve positive performance indicators. The Company's performance for 2017 and 2018 was a profit, owing to which the Company's expectations regarding its development is currently moderately positive. The Company intends to develop and detail the development forecast for the Company for the period from 2019 to 2020, having regard to the development of the programme and the performance of the Company.

Development of the industrial and technological park

The Company is seeking to render chargeable services from the programme related to the development of an industrial-technological park in its territory. Within the scope of this programme, the Company using the financing of the European Union (the project "Construction of the production facilities in the vacant production areas of AS Ditton pievadķēžu rŭpnīca" carried out the upgrading of its production facilities. This enabled the implementation of effective savings on the costs of maintenance of production facilities (for example, as a result of the upgrading of the phase I (until 2011), the natural gas consumption for heating dropped by 35%, whereas after the implementation of Stage II (up to 2015) it declined further 30%; the same indicators also apply to electricity consumption), as well as the creation of a commercial offer of the lease of a production facility equipped with the infrastructure necessary for production. In addition, in 2017, the territory of the Company together with the industrial and technical park was included in the Latgale Special Economic Zone, which will contribute to the implementation of the programme.

The results of the analysis of the Company's performance in 2017 and 2018 suggest that the Company's income from operating the industrial technological park would be of major significance in the Company's goods and services market segments.

Risks to which the Company is exposed

The activity of the Company is exposed to various financial risks: foreign exchange risk, interest rate risk, credit risk, and liquidity risk.

Foreign exchange (FX) risk

FX risk is the risk that the Company will incur a financial loss from adverse FX rate fluctuations. This risk arises when financial assets denominated in foreign currencies do not match the financial liabilities in the same currencies, therefore the Company is exposed to open currency positions.

Interest rate risk

Interest rate risk is the risk that the Company will incur a financial loss resulting from adverse interest rate movements. The Company is exposed to interest rate risk mainly due to non-current as well as current borrowings from credit institutions, which have variable interest rates or the term during which a fixed interest rate applies is shorter than the anticipated loan maturity date, or the interest on the borrowing includes a variable element or the terms of the loan agreement (see Note 16). The Company has no any other options, nor does it use tools to mitigate interest rate risk other than the maximum compliance with the terms of the relevant borrowing and cooperation with credit institutions.

Credit risk

Credit risk is the risk that the Company will incur a financial loss if a counterparty defaults on their obligations owed to the Company. Credit risk mainly arises from cash, trade receivables and advances to suppliers.

Cash

Credit risk arises in connection with money held in banks, and is managed by balancing the placement of financial assets to concurrently keep the option of selecting the most advantageous offers and minimize the possibility of losing financial assets.

This risk is managed, assessed and localized through working with the Company's counterparties, limiting or ceasing altogether the existing or future transactions with irresponsible partners as soon as the Company becomes aware that the counterparty is unable to meet their obligations.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to fully meet its liabilities as they fall due. Liquidity risk arises in case of a mismatch between the maturities of the financial assets and financial liabilities. The purpose of managing liquidity risk is to maintain an appropriate amount of cash and cash equivalents and ensuring adequately sufficient financing, using the lines of credit granted by the bank (see Note 17) so that the Company would be capable of meeting its liabilities when they fall due. The Company regularly reviews the matching between the maturities of the financial assets and liabilities, as well as the stability of the sources of long-term investment financing.

The management of the Company is of the opinion that the Company will have sufficient cash resources for its liquidity not be compromised (see also the information in the Note "Accounting principles and measurement methods", the section "Going concern basis").

Other significant conditions

In 2009, the Company entered into a lease agreement for eight years providing for leasing of a production territory for the purposes of the development needs of a counterparty that used the EU Fund co-financing.

The lease agreement was terminated in 2018.

The Company has nothing to do with the counter-party's project, regarding which the Company published notices on the websites of the stock exchange (currently NASDAQ), the Financial and Capital Market Commission and the Company during the period of its implementation from 2009 to 2011, and in 2019. Accordingly, the audit of the counterparty's use of the financing from EU funds is not related to the business activity of the Company.

In addition, the Company continuously assesses and analyses the situation, and consults on legal matters. If the rights of the Company or its shareholders are violated or infringed, the Company will immediately take the available and lawful right protection measures.

STATEMENT OF THE MANAGEMENT'S RESPONSIBILITY

According to the information at the disposal of the Management Board, the financial statements for the 12 months of 2017 have been prepared in accordance with the applicable requirements of the laws and regulations and give a true and fair view of the assets, liabilities, financial position and profit of AS Ditton pievadkēžu rūpnīca. The Management report contains true information.

Chairman of the Management Board AS Ditton pievadķēžu rūpnīca 24 April 2019

Rolands Zarans

INCOME STATEMENT FOR THE YEAR 2018

	Appendix	2018 ETOR	2017 ETR
Net turnover	1	5 400 289	5 636 931
Production cost of goods sold, purchase costs of goods sold or services rendered	2	(4 442 498)	(4 222 104)
Gross profit		957 791	1 414 827
Selling costs	3	(12 942)	(13 329)
Administrative expenses	4	(694 243)	(654 207)
Other income from operating activities	5	548 825	713 048
Other costs of operating activities	6	(429 945)	(376 064)
Interest payment and similar expenses	7	(224 804)	(116 184)
to other persons		(224 804)	(116 184)
Profit before corporate income tax		144 682	968 091
Corporate income tax for the reporting year	8
Profit for the reporting year		144 682	968 091
Profit per share		0,020	0.131

Appendices from page 21 till 40 are integral parts of these financial statements.

According to the Management Board meeting Protocol the financial statements have been signed on behalf of the Company on 24 April 2019 by

Rolands Zarāns Chairman of the Management Board

(signature)

JSC DITTON PIEVADĶĒŽU RŪPNĪCA ANNUAL REPORT FOR THE YEAR 2018 BALANCE SHEET AS AT 31.12.2018

ASSETS	Appendix	31.12.2018. EUR	31.12.2017. EUR
Long-term investments
Intangible investments
Concessions, patents, licenses, trademarks and
similar rights	9	11 277	16 110
Total intangible investments		11 277	16 110
Fixed assets
Immovable property:
Land		1 853 982	1 853 982
Buildings and structures and permanent crop		1 318 808	1 403 347
Investment property - land		88 628	88 628
Investment property - buildings		936 108	994 011
Technological equipment and devices		2 816 620	3 075 042
Other fixed assets and inventory		46 215	17 240
Fixed assets under construction		12 649	12 649
Total fixed assets	10	7 073 010	7 444 899
Long-term financial investments
Other securities and investments	11		67 160
Total long-term financial investments			67 160

TOTAL LONG-TERM INVESTMENTS		7 084 287	7 528 169
Current assets
Inventories
Raw materials, consumables and supplies		565 430	526 011
Work in progress		161 039	164 201
Finished products and goods for sale		237 699	213 112
Goods in transit		16 936	56 981
Advance payments for inventories	12	12787	19 811
Total inventories		993 891	980 116
Debtors
Trade receivables	13	628 083	791 325
Other debtors	14	50 921	281 035
Deferred expense		429
Total debtors		679 433	1 072 360
Cash		58 475	1378

TOTAL CURRENT ASSETS		1 731 799	2 053 854
TOTAL ASSETS		8 816 086	9 582 023

Appendices from page 21 till 40 are integral parts of these financial statements. According to the Management Board meeting Protocol the financial statements has been signed on behalf of the Company on 24 April 2019 by

Rolands Zarāns Chairman of the Management Board

(signature) (signature)

JSC DITTON PIEVADĶĒŽU RŪPNĪCA ANNUAL REPORT FOR THE YEAR 2018 BALANCE SHEET AS AT 31.12.2018

LIABILITIES	Appendix	31.12.2018. EUR	31.12.2017. EUR
Equity
Share capital	15	10 360 000	10 360 000
Reserves:
Other reserves		169 251	169 251
Retained loss brought forward from the previous
years		(9 372 899)	(10 340 990)
Profit of the reporting year		144 682	968 091
Total equity		1 301 034	1156 352

Creditors
Long-term creditors:
Loans from credit institutions	16	4 681 646	4 533 505
Deferred income	20	1 300 482	1 383 966
Total long-term creditors		5 982 128	5 917 471
Short-terms creditors:
Loans from credit institutions	16	313 375	883 198
Other loans	17		255 328
Prepayments received from purchasers		27 630	20 720
Accounts payable to suppliers and contractors		353 273	529 780
Taxes and State mandatory social insurance
payments	18	529 345	463 598
Other creditors	19	107 824	138 540
Deferred income	20	83 484	83 484
Accrued liabilities
	21	117 993	133 552
Total short-term creditors		1 532 924	2 508 200
Total creditors		7 515 052	8 425 671
TOTAL LIABILITIES		8 816 086	8 816 086

Appendixes from page 21 till 40 are integral parts of these financial statements.

According to the Management Board meeting Protocol the financial statements have been signed on behalf of the Company on 24 April 2019 by

Rolands Zarāns Chairman of the Management Board

(signature) (signature)

CASH FLOW STATEMENT FOR THE YEAR 2018

	Appendix	2018 EUR	2017 Adjusted EUR
I. Cash flows from operating activities
1. Profit before enterprise income tax		144 682	968 091
Adjustments for:
Depreciation of fixed assets	10	416 627	255 404
Depreciation of intangible assets	0	4 833	5 075
Change in provisions and accruals	5,6	127 025
EU funds income recognition	5	(83 484)	(83 484)
Interest payments and similar expenses	7	224 804	116 184
Income from trade union deductions	5	(50 871)
Income from sale of fixed assets		(2 000)	(300)
2. Profit before adjustments to current assets and		781 616	1260 970
short-term creditors
Adjustments for:
Decrease in accounts receivables		244 722	285 662
Decrease in inventories		750	1 266 312
Decrease in accounts payable to suppliers,
contractors and other creditors		(92 599)	(3 638 573)
Net cash flows from operating activities		934 489	(825 629)
II. Cash flows from investing activities
Purchases of fixed assets and intangible investments		(44 738)	(2 441 691)
Proceeds from sale of fixed assets		2 000	300
Interest received	5	67 160
Net cash flows from investing activities		24 422	(2 441 391)
III. Cash flows from financing activities
Net change in borrowings		(677 010)	3 377 595
Interest payments and similar expenses		(224 804)	(116 184)
Net cash flows from financing activities		(901 814)	3 261 411
Net decrease/increase in cash and cash
equivalents		57 097	(5 609)
Cash and cash equivalents at the beginning of the
reporting year		1378	6 987
Cash and cash equivalents at the end of fiscal
period Schoose from to many of 11 11 10 mm . " www.boom.com Callery		58 475	1378

Appendices from page 21 till 40 are integral parts of these financial statements.

According to the Management Board meeting Protocol the financial statements have been signed on behalf of the Company on 24 April 2019 by

Rolands Zarāns Chairman of the Management Board

(signature) (signature)

	Share capital	Reserves	Retained loss	Profit for the year	Total
	EUR	ETOTR	ENOIR	IBIO R	BOR
31 December 2016	10 360 000	169 251	(9 907 291)	17 921	639 881
Adjustment*			-	(451 620)	(451 620)
31 December 2016, adjusted*	10 360 000	169 251	(9 907 291)	(433 699)	188 261
Transfer of prior year's loss, adjusted* Profit for the year			(433 699)	433 699
adjusted*				968 091	968 091
31 December 2017	10 360 000	169 251	(10 340 990)	968 091	1 156 352
Profit distribution			968 091	(968 091)
Profit for the year				144 682	144 682
31 December 2018	10 360 000	169 251	(9 372 899)	144 682	1 301 034

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 2018

Appendices from page 21 till 40 are integral parts of these financial statements.

* See Appendices to the Annual report Accounting principles - Prior years adjustments According to the Management Board meeting Protocol the financial statements have been signed on behalf of the Company on 24 April 2019 by

Rolands Zarāns Chairman of the Management Board

(signature)

APPENDICES TO THE ANNUAL REPORT

Accounting principles and valuation methods

Fundamental principles of the preparation of the financial statements

The Annual report has been prepared in compliance with the Law on Accounting, Law on the Annual Accounts and Consolidated Annual Accounts and Regulation No.775 on rules of application of the Law on the Annual Accounts and Consolidated Annual Accounts of the Cabinet of Ministers. Income statement is prepared in accordance with format defined in the Appendix 3 of the Law on the Annual Accounts and Consolidated Annual Accounts, i.e., expenses are classified by their function. Under the Section 5 of Law on the Annual Accounts and Consolidated Annual Accounts, the Company is considered as a medium-sized enterprise. Financial statements of the Company are prepared pursuant to provisions of the Section 9 of the Law on the Annual Accounts and Consolidated Annual Accounts. The annual report is prepared in accordance with the requirements of Article 9 of "The Law of the Annual Accounts and Consolidated Annual Accounts". There have been no changes in accounting policies and valuation methods used in prior years. In cases when reclassification of comparatives with no effect on prior year profit and equity are performed, relevant explanations are provided in the Notes to the financial statements or accounting policies.

Items of the annual report are evaluated accordingly to the following accounting principles:

a) The accounting policies used by the Company are consistent with those used in the previous accounting period;
b) Measuring of the items has been carried out with due care, i.e.:
- only the profit accrued up to the balance sheet date has been included in the report;
  - all potential risks and losses incurred during the reporting year or in previous years have been taken into account, even in cases information on the noted risks and losses became known between the balance sheet date and date of preparation of these accounts;
  - all impairment, depreciation and amortisation amounts have been calculated and taken into account, regardless of whether the Company's performance for the reporting year is a profit or loss
c) The revenue and costs relating to the reporting year have been taken into account regardless of payment dates or invoice receipt or issue dates. Expenses have been matched with the revenue in the reporting year
d) The elements of asset and liability items have been measured separately;
e) Operating activities are identified according to their economic content and substance over their legal from.

In 2018, the bookkeeping was kept on united bookkeeping accounts, which have been approved on 13 May 1993, detailing the plan of accounts based on key aspect of the Company`s business operations.

The bookkeeping register based on synthetic accounts is the General ledger, which contains records on transactions from all the accounts. There are various kinds of analytical accounting registers, such as books, cards, lists etc.

The financial statements cover the period 1 January 2018 through 31 December 2018. Information requested by the law on the Company has been disclosed in separate part of this annual report, on page 3.

Going concern disclosure

These financial statements have been prepared under the going concern assumption. At 31 December 2018, the current assets of the Company exceeded its current liabilities by EUR 198 875 (as at 31 December 2017 the current liabilities exceeded current assets by EUR 454 346). On 22 February 2019 the Company concluded agreement with AS Citadele Banka on termination of loan agreement Nr CI2011-2.3/218 and restructuration of short-term liabilities based on the noted agreement in the amount of EUR 449 543, increasing long-term Loan agreement Nr. CI2010-2.3/1 liability to EUR 4 952 086 (see Appendix 16). Taking into account the restructuration performed, short term liabilities decreased below the value of short-term assets.

Going concern disclosure (continued)

The Company has managed to come to an agreement with some of its creditors on a deferred payment schedule. The Management of the Company has also submitted a deferred payment schedule offer to its other major creditors and is in negotiation with these creditors on the implementation of such options. The Company has a significant amount of overdue debts, which are only paid back within the terms of the oral agreement.

The Managament considers that it will be able to provide adequate funding to liquidity issues:

by constantly adjusting debt repayment conditions (dates, amounts and write-off options) based on an agreement with the creditors in order to avoid the request to open insolvency proceedings. It is expected that the Company will be able to pay all the past due payables in full within one or two years;
by reviewing contract terms with the current clients in order to raise sales prices and terminate burdensome contracts;
by launching new projects in order to tap into new markets, and, thus,to ensure positive cash flow from operating activities;
by making timely payments to credit institutions in order to avoid a situation in which the credit institution would require immediate and full repayment of the loan.

The Company's Management believes that the current situation is temporary and is taking steps to improve the Company's liquidity. The Management predicts that positive cash flow from operating activities will increase significantly within the next 12 months.

After the balance sheet date, the Board of the Company is actively engaged in defence of the interests of the Company and neutralisation the negative effects of misleading publications, as well as countering the effects of the activities of the law enforcement agencies related to the activities of one of its business partners.

Prior years adjustments

During the preparation of 2017 accounts a prior year mistake related to income and deferred income recognition in 2016 was discovered. In accordance with the implementation of the agreement Nr. L-IZI-14-0003 signed in 2014 with the Latvian Investment and Development Agency "On Development of Production Premises for AS "Ditton pievadķēžu rŭpnīcas" within the spare production space", project costs, based on project budget assessment, were recognised in the amount of EUR 459 275 less than initially planned. The difference of funding not received from the Agency was charged to the general contractor for construction works as compensation for funding not received, recognising income from other operating activities in the amount of EUR 459 275. In relation to the error, the auditor's report on 2017 accounts was qualified. In 2018 the Company made the decision to correct this error and recognise the income received in the result of compensation over the period of useful life of the assets constructed. In the result of adjustment, deferred income and retained loss as a t 31 December 2017 is increased by 428 657 EUR, and other income of 2017 is increased by EUR 22 964.

The effects of the adjustments made to the financial statements are as follows (EUR):

Income statement	Prior to adjustment 2017 EUR	Changes EUR	Post adjustment 2017 EUR
Other operating income	690 084	22 964	713 048
Profit before corporate income tax for the	945 127
year		22 964	968 091
Net profit for the year	945 127	22 964	968 091
Profit/diluted profit per share	0,128		0,131

Prior years adjustments (continued)

Balance sheet - liabilities	Prior to adjustment 2017 EUR	Changes EUR	Post adjustment 2017 EUR
Equity Retained loss Profit for the year	(9 889 370) 945 127	(451 620) 22 964	(10 340 990) 968 091
Total equity Creditors	1 585 008	(428 656)	1 156 352
Long-term creditors
Deferred income	978 274	405 692	1 383 966
Total long-term creditors Short-term creditors	5 511 779	405 692	5 917 471
Deferred income	60 520	22 964	83 484
Total short-term creditors	2 485 236	22 964	2 508 200
Total creditors	7 997 015	428 656	8 425 671
Cash flow	Prior to adjustment 2017	Changes	Post adjustment 2017
	EUR	EUR	EUR
Profit before corporate income tax Deferred income recognition in income	945 127	22 964	968 091
statement	(60 520)	(22 964)	(83 484)

Foreign currency revaluation

The monetary unit used for financial statements preparations is the European Monetary Unit - euro (EUR). All the monetary assets and liabilities are converted to euro applying the exchange rate of the European Central Bank on the balance sheet date.

31.12.2018	31.12.2017
1 USD = 0,8734 EUR	1 USD = 0,8338 EUR
1 RUB = 0,0125 EUR	1 RUB = 0,0144 EUR

The income and loss resulted from fluctuation of foreign currency exchange rate was included in the income statement of the appropriate period.

Long- and short-term items

The amounts received, paid or written off which are due later than a year after the reporting period, are included in long-term items. The amounts received, paid or written off during the year are displayed as short-term items.

Intangible assets

Intangible assets are listed at their cost of acquisition, which are depreciated in a straight-line basis. The depreciation period is 5 years. When events or changes in circumstances indicate that the carrying value of intangible assets may not be recoverable, the intangible assets are reviewed for impairment.

Loss from impairment is recognized when the carrying value of intangible assets exceeds its recoverable amount.

Fixed assets

In accordance with the Company's accounting policies the bookkeeping principles for fixed assets are used also for accounting for investment property assets (refer to section "Investment property").

Fixed assets are carried at their historical cost less accumulated depreciation and impairments. The initial value of fixed assets includes their acquisition cost, including import duties and as well as any other eligible costs regarding the preparation of the assets for their proper operation according to their intended purpose. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

	% a year
Land	Depreciation is not to be calculated
Buildings and engineering structures	5 - 10
Technological equipment and devices	6 - 33
Other fixed assets and inventory	20 - 70

Depreciation is calculated starting with the following month after the asset is put into operation or engaged in commercial activity.

When events or changes in circumstances indicate that the carrying value of tangible assets may not be recoverable, the fixed assets are reviewed for impairment. If there are signs, that the value is not recoverable, and if the carrying values exceeds the estimated recoverable amount, the asset or cashgenerating unit are written down to its recoverable value. The recoverable amount is higher than asset`s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The loss from impairment is recorded in profit and loss account.

An asset is de-recognized upon its disposal, or when no future economic benefits can be expected from its use. The gain or loss on de-recognition calculated as the net disposal proceeds, minus the asset's carrying value is recorded in the income statement in the year when the asset is de-recognized.

Tenant improvement allowance is recorded as a fixed asset and depreciated using the straight-line method over the shortest time spread of the useful life of the capital improvements and lease.

Investment property

Investment property include land, buildings, engineering structures or their parts, which the Company holds as an owner in order to gain rent or in anticipation of a future increase in price (value) and not for product manufacturing or provision of services, for administrative purposes or resell in the ordinary course of business. Investment property is shown separately from other real estate in order to present a more meaningful information to the financial statements' users. The Company initially recognises investment property at acquisition cost.

The value of the investment property embodies the prime value of the constructions in progress, as well as borrowing costs and other directly attributable to funding of the appropriate object during the period of its preparation as a new object for its intended use.

Capitalisation of borrowing costs for investment property is terminated when no active development of the property is performed during the accounting period. The current repair and maintenance costs of the investment property are included into income statement for the period in which they incurred.

Investment property (continued)

Land is not subject to depreciation. Buildings recognised as investment properties are depreciated by the straight-line method over their useful life, in order to write off the acquisition value of the building to its estimated residual value at the end of the useful life period by using the following rates set by the Management:

	% a year
Buildings and engineering structures	5 - 10

Trade and other receivables

Trade receivables are accounted and reflected in the balance according to original invoiced amount less provisions for doubtful debts. The company creates provisions for unsecured accounts receivable, on the basis of an individual assessment of the accounts receivable. Debts are written off when the retrieval is considered as impossible.

Inventories

Raw materials, consumables and supplies are valued at acquisition cost, plus incidental costs of acquisition, on a strict lower-of-cost-or-market basis. Adequate write-downs have been applied at net selling price due impairment, full or partial outdating of inventories or when production or selling costs of inventories jumped up significantly. Inventories are valued using the FIFO method. Work in progress is valued at the direct cost of materials used. The cost of finished goods is carried at the cost of manufacture, which includes adequate material and labour costs in addition to direct material and production overheads, e.g., energy, ancillary materials, equipment and maintenance costs, depreciation and general manufacturing costs – service costs related to production.

Cash

Cash and cash equivalents comprise cash at bank. The cash flow statement has been compiled based on indirect method.

Accounts payable to suppliers and contractors

Accounts payable to suppliers are recorder at their nominal value.

Loans and borrowings

Loans and borrowings are initially recognized at cost, being the fair value of the proceeds received plus/net of issue costs associated with the borrowing. After initial recognition, borrowings are subsequently measured at amortized cost. Any difference between proceeds (less issue costs associated with the borrowing) and the redemption value is recognized in the income statement over the period of borrowings.

Borrowing costs

Borrowing costs are expensed in the period they occur and disclosed in the income statement as interest or similar expense.

Contingencies

Contingent liabilities are not recognised in these financial statements, as these liabilities are accepted only when as assumption of an outflow of resources has been confirmed. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognised in this financial report but disclosed until an inflow of economic benefits is probable. Contingent liabilities and assets are revealed when they are of essential matter.

Investments in capital of other parties

Investments in capital of other parties are recorded on the basis of initial cost method. The cost method is investment accounting method when investments are accounted at its purchase costs. Investor recognizes income only when investor receives from investee distribution of accrued profit resulting after the date of acquisition. In cases when the value of the investment has significantly decreased as a result of conditions which cannot be considered temporary, the accounting value of the investment is decreased to the recoverable value.

Revenue recognition

Revenue is recognised under the assumption of economic benefits, which might flow to the Company, and to the extent, that the revenue can be reliably measured less value added tax and sales-related discounts. Revenue is recognized on an accrual basis. Revenue is recognized at the moment of acquisition when the ownership is transferred to the buyer. Income from interests is accounted on a time spread based on the accrual basis.

Expense recognition

Expenses are recognised in the period they are associated with irrespective of the date of payment.

Accruals for unused vacations

The amount of accrued liabilities is calculated by multiplying employee's average salary (including social tax) of the reporting year and the number of accrued unused vacation days as at the balance sheet day.

Provisions

The provisions are present (legal or constructive) obligations of the Company arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits and amount of which can be reliably estimated.

Donations and funding received

Income from donations and funding received is not recognized until the Company has obtained a reasonable assurance on meeting eligibility rules to receive donations of funding available. Income from donations or funding received is recognized in income statement on a systematic bases and matched with the expense for compensation of which donation or funding is received. Therefore, financial aid granted for long-term investment development purposes, is recorded in the balance as deferred income and included in the income statement on a systematic basis linked to the period of useful life of the fixed assets developed.

Corporates income tax

Corporate income tax for the reporting period is included in the financial statements based on the management's calculations prepared in accordance with Latvian Republic tax legislation.

JSC DITTON PIEVADĶĒŽU RŪPNĪCA ANNUAL REPORT FOR THE YEAR 2018 Application of estimates and key assumptions

The Law of the Republic of Latvia requires that when preparing the financial statements, the management of the Company is expected to share estimates and assumptions that affect the reported and off-balance sheet assets and liabilities on the day of preparation, as well as presented income and expenses of the reporting period. Actual results may differ from these estimates.

Critical judgments and key assumptions concerning the future as well as other uncertainties on the balance sheet date in view of the fact that there exists a substantial risk of the material adjustments to assets and liabilities in next financial years are listed as following.

When assessing accounts receivable and loans, the Company evaluates their retrieval and creates provisions for doubtful accounts receivable and loans, if necessary. After the management of the Company has assessed accounts receivable and loans, it has taken a decision to create additional provisions as of 31 December 2018 (refer to Appendix 14).
At the end of each reporting year, the Company reviews the useful lives of fixed assets. This assessment and the calculated depreciation may vary.
The Company evaluates advance payments to assess their recoverability and, if necessary, makes provisions for irrecoverable advances. The management of the Company has reviewed the advances paid and believes that there is no necessity for additional provisions as at 31 December 2018.

Related parties' transactions

Related parties transactions are disclosed in accordance with the legal requirements set for medium-sized companies and refers to the instances when such transactions are performed with the shareholders of the Company, its subsidiaries and associates, as well as with the Management (Board and Council members) of the Company, if these transactions are material and outside the standard business scope of the Company.

(1) Net turnover

Net turnover is income gained during the year from sale of produced and purchased products of the Company, as well as income from services net of VAT and less discounts.

Breakdown of net turnover by geographical markets:

	2018 EUR	2017 EUR
Market
Eastern countries	2 694 010	2 572 149
Western countries	2 091 137	1 558 576
Latvia	615 142	1 506 206
TOTAL:	5 400 289	5 636 931

(2) Production cost of goods sold, purchase cost of goods sold or services rendered

	2018 EUR	2017 EUR

Material costs
Salary costs for production staff	1 834 466	1 979 519
Electricity costs	786 004	673 997
Depreciation of fixed assets*	488 849	498 590
Depreciation of investment property*	341 794	181 518
Current repair expenses	57 904	57 904
State mandatory social insurance payments	365 602	308 552
Material delivery costs	187 668	157 969
Other production costs	198 430	182 785
TOTAL:	181 781	181 270
	4 442 498	4 222 104

* Refer to Appendix 10.

(3) Selling expenses

	2018	2017
	EUR	EUR
Advertisement costs	10 645	6 859
Other sales costs	2 297	6 470
TOTAL:	12 942	13 329

(4) Administrative expenses

	2018	2017
	EUR	EUR
Administrative staff salaries	441 194	415 546
State mandatory social insurance payments	105 119	96 887
Security expenses	44 400	43 987
Business travel expenses	24 148	23 485
Depreciation and amortisation	21 762	21 057
Professional fees	12 135	12 925
Other administration costs	45 485	40 320
TOTAL:	694 243	654 207

(5) Other income from operating activities

	2018 EUR	2017 EUR
Decrease in provisions*	317 023	600 636
Assignment of Structural Funds to income (see
Appendix 21)	60 520	60 520
Construction cost compensation (See Appendix 21)	22 964	22 964
Income from exchange rate fluctuations	21 129	22 889
Net income from sale of fixed assets	2 000	300
Income from sale of shares	67 160	-
Income from trade union deductions	50 871	-
Decrease in vacation provision	6 655	-
Other income	503	5 739
TOTAL:	548 825	713 048

* Of which EUR 301 495 (2017: EUR 594 422) represents income from decrease of prior year provisions for doubtful receivables made and EUR 15 528 (2017: EUR 6 214) is decrease in provisions for inventories with low turnover rate due to stock sale.

(6) Other costs of operating activities

	2018 EUR	2017 EUR
Penalties	46 020	64 348
Real estate tax	63 356	61 127
Increase in slow-moving inventories provisions (see
Appendix 13)	30 053	30 409
Other operating expense	9 030	65 996
Net loss on foreign exchange rate fluctuations	13 119	14 016
Net loss on decrease of foreign exchange rates	47 917	44 176
Increase in vacation provision	-	31 007
Increase in bad debt provisions (see Appendix 14)	153 290	64 985
Decrease in value of financial investments	67 160	-
TOTAL:	429 945	376 064

(7) Interest payment and similar expenses

	2018 EUR	2017 EUR
Interest payment for loans	224 804	116 184
TOTAL:	224 804	116 184
(8) Corporate income tax
	2018	2017
	EUR	EUR
Corporate income tax for the reporting year	-	-
TOTAL:	-	-

On 31 December 2018, accumulated losses for provisions of enterprise income tax were EUR 3 662 497 (in 2017 EUR 6 123 081). The usage time limit as at 31 December 2018 extends to 4 years.

(9) Intangible investments

	Concessions, patents, licenses, trademarks and similar rights EUR
At 31 December 2016
Initial value	58 875
Accumulated amortisation and
deprecation	(37 690)
Book value at 31 December	21 185
The year of 2017
Book value at 1 January	21 185
Purchase	-
Amortisation	(5 075)
Book value at 31 December	16 110
At 31 December 2017
Initial value	58 875
Accumulated amortisation and
deprecation	(42 765)
Book value at 31 December	16 110

The year of 2018
Book value at 1 January	16 110
Purchase	-
Amortisation	(4 833)
Book value at 31 December	11 277
At 31 December 2018
Initial value	58 875
Accumulated amortisation and
deprecation	(47 598)
Book value at 31 December	11 277

All fixed assets of the Company are pledged in favour of JSC Citadele Banka, refer to Appendix 16.

(10)	Fixed assets
		Land plots, buildings and engineering structures, adjusted*	Investment properties land and buildings, adjusted*	Technological equipment and machinery	Other fixed assets	Fixed assets under construction	TOTAL
		EUR	EUR	EUR	EUR	EUR	EUR
At 31 December 2016
Initial value		14 749 647	1 246 700	6 066 320	478 037	12 649	22 553 353
	Accumulated amortisation
and deprecation Book value at 31		(11 407 781)	(106 157)	(5 327 698)	(453 102)	-	(17 294 738)
December		3 341 866	1 140 543	738 622	24 935	12 649	5 258 615
The year of 2017
Book value at 1 January		3 341 866	1 140 543	738 622	24 935	12 649	5 528 615
Purchased		-		2 437 549	4 142	-	2 441 691
Initial value of disposed
fixed assets		-	-	(16 401)	(1 181)	-	(17 582)
	Accumulated depreciation
of disclosed fixed assets		-	-	16 401	1 181	-	17 582
	Accumulated depreciation
of disclosed fixed assets		(84 537)	(57 904)	(101 129)	(11 837)	-	(255 407)
Disposal		3 257 329	1 082 639	3 075 042	17 240	12 649	7 444 899
Book value at 31
December		3 257 329	1 082 639	3 075 042	17 240	12 649	7 444 899
At 31 December 2017
Initial value		14 749 647	1 246 700	8 487 468	480 994	12 649	24 977 458
and deprecation	Accumulated amortisation
Book value at 31		(11 492 318)	(164 061)	(5 412 426)	(463 754)	-	(17 532 559)
December		3 257 329	1 082 639	3 075 042	17 240	12 649	7 444 899
The year of 2018
Book value at 1 January		3 257 329	1 082 639	3 075 042	17 240	12 649	7 444 899
Purchased		-		-	44 813	-	44 813
Initial value of disposed
fixed assets		-	-	(83 995)	(12 865)	-	(96 820)
	Accumulated depreciation
of disclosed fixed assets		-	-	83 955	12 791	-	96 746
Disposal		(84 538)	(57 903)	(258 422)	(15 764)	-	(416 627)
Book value at 31
December		3 172 791	1 024 736	2 816 620	46 215	12 649	7 073 011
At 31 December 2018
Initial value		14 749 648	1 246 700	8 403 512	512 942	12 649	24 925 451
	Accumulated amortisation
and deprecation		(11 576 857)	(221 964)	(5 586 892)	(466 727)	-	(17 852 440)
Book value at 31 December
		3 172 791	1 024 736	2 816 620	46 215	12 649	7 073 011

All fixed assets of the Company are pledged in favour of JSC Citadele Banka, refer to Appendix 16, but the equipment purchased in 2017 is encumbered in relation to the investigative activities of the partner.

* On 14 March 2014, the Company signed with the Investment and Development Agency of Latvia an Agreement No.L-IZI-14-0003 on implementation of the project "Construction of industry premises in the free industrial area of JSC DITTON Driving Chain Factory". The project was launched on 14 March 2014 and completed on 7 July 2015. The total costs of the project amounted to EUR 3,376,313, including eligible costs EUR 2,796,430. Ditton Bŭve Ltd. has performed construction works within the project due to the Construction works contract No. DPR/2014/01 dated 25 July 2014. In accordance with the statement of completion and final acceptance of work dated 25 February 2015, construction works costed EUR 2,750,704. On 29 December 2015, the Company received the aid EUR 1,159,833 EUR from the Investment and Development Agency of Latvia (LIAA).

(10) Fixed assets (cont.)

** The significant part of production premises of the Company is held for rent. Before 2017 property for rent was recorded as fixed assets. Starting from 2017, the value of Company`s property for rent (land and buildings) is recognized as investment property. Retrospective reclassification of cost, accumulated depreciation and depreciation expense of the relevant assets has been performed.

Fixed assets include the land on which the infrastructure facilities of the Company are located and which has been historically purchased on instalment from a commercial company registered in Latvia and pledged in a commercial bank registered in Latvia as collateral security for the seller's loan. The title to the mentioned plot shall be completely transferred to the Company upon the payment of the purchase amount in full and registration in the Land Registry is practically impossible while the collateral exists. At the time of drawing up the Annual report, the biggest part of the loan and purchase amount have been paid and the remaining loan amount does not exceed EUR 150 thousand. Under the terms of the purchase agreement, the seller is not entitled to request the cancellation of the land purchase agreement.

The Company's management has assessed the value in use of its fixed assets and investment assets in the balance sheet and considers that their recoverable value is not lower than their carrying value.

(11) Participation in the capital of related companies

	31.12.2018 EUR	31.12.2017 EUR
Participation in the capital of the Ditton Chain Ltd. 15% from the fixed capital	-	67 160
TOTAL:	-	67 160

Ditton Chain Ltd., registration number 41503030309, legal address Vishku Street 17, Daugavpils, LV-5410, Latvia, was founded on 17 July 2002 and is administrated by two members. In 2018 the Company sold its investment in Ditton Chain Ltd to the majority shareholders.

(12) Inventories

	31.12.2018. EUR	31.12.2017. EUR
Raw materials, consumables and supplies	615 283	572 006
Provisions for slow-moving items	(49 853)	(45 995)
Raw materials, consumables and supplies, net	565 430	526 011
Work in progress	167 931	171 093
Provisions for slow-moving items	(6 892)	(6 892)
Work in progress, net	161 039	164 201
Finished products and goods for resale	265 156	220 004
Provisions for slow-moving items	(27 457)	(6 892)
Finished products and goods for resale, net	237 699	213 112
Goods in transit	16 936	56 981
Advances for inventories	660 912	667 963
Provisions for slow-moving items	(648 125)	(648 152)
Advances for inventories, net	12 787	19 811
TOTAL:	993 891	980 116

(12) Inventories (continued)
Provisions for slow-moving items:
At the beginning of the year	(69 651)	(45 455)
Increase/decrease (Appendices 5 and 6)*	(14 551)	(24 196)
At the end of the year	(84 202)	(69 951)
* Provided inventories – sold during the period.
(13) Trade receivables
	31.12.2018.	31.12.2017.
	EUR	EUR
Book value of trade receivables	781 373	1 431 121
Provisions for doubtful accounts receivable	(153 290)	(639 796)
TOTAL:	628 083	791 325
Provisions for doubtful accounts receivable:
At the beginning of the year	639 796	1 169 234
Write-off	(405 499)	-
Recovered provisions (Appendix 5)	(234 297)	(594 422)
Increase in provisions (Appendix 6)	153 290	64 985
At the end of the year	153 290	639 797
(14) Other debtors
	31.12.2018.	31.12.2017.
	EUR	EUR
Input value added tax receivable (VAT)	50 921	281 035
TOTAL:	50 921	281 035

(15) Share capital

The share capital of the Company is EUR 10,360,000 with nominal value of EUR 1,40 per share and a total paid shares of 7,400,000.

The shareholders owning over 5 p% of the shares of the whole capital of the Company as at 31.12.2018 and as at 31.12.2017:

NAME	Shares owned, % 31.12.2018	Shares owned, % 31.12.2017
Eduards Zavadskis*	20,00	20,00
Vladislavs Drīksne	19,92	19,92
MAX Invest Holding SIA	13,63	13,63
SIA "Maleks S"	13,72	14,22
SIA "DVINSK MNG"	9,46	9,46

* Note: As at 31 December 2018, the Company has no information at its disposal on distribution of stocks (20%) among heirs of E. Zavadskis and their records in financial instruments accounts pursuant to the section 125 of the Financial Instruments Market Law.

(16) Loans from credit institutions

31.12.2018	31.12.2017
	-
	4 533 505
	4 533 505

	31.12.2017
	388 049
	495 149
	883 198

	5 416 703

	31.12.2017
	883 198
	4 533 505
	5 416 703
	452 612 4 229 034 4 681 646 31.12.2018 313 375 - 313 375 4 995 021 31.12.2018 313 375 4 681 646 4 995 021

Information on loans received by the JSC Citadele banka as at 31.12.2018 is as follows:

Number and date of the	Currency	Interest	Limit	Repayment
contract		rate		term
Long-term loan No.CI2010- 2.3/1 dated 10.09.2010	EUR	4%+6M EURIBOR	4 533 505 EUR	15.11.2020
Credit line No.CI2011- 2.3/218 dated 25.11.2011	EUR	4%+6M EURIBOR 1% for reservation	600 000 EUR	28.01.2019.*

The loan is secured by the commercial pledge on all of the Company's assets, including intangible assets, fixed assets, investment assets, inventories, claim rights and Company`s financial instruments on bank accounts in JSC Citadele banka, as a pool of things at the moment of exercising the pledge right.

The guarantees of individual shareholders of the Company and commercial pledges, as well as guarantees of several cooperation partners and real estate pledge serve as an additional collateral security for loan repayment.

(16) Loans from credit institutions (continued)

The Loan agreements contain covenants upon breach of which the JSC Citadele bank may request the pre-schedule loan repayment or increase the interest rate by 1%. The information available at the moment of preparation of these financial statements shows, that, upon calculation of the ratios set, based on interpretation of specific covenants, the ratios may be or may not be breached, inclusive of accumulated DSCR ratio for the past 12 months, if one-off past loan repayments are not subtracted, is less than 1, as well as the Company has not managed to employ or contract the services of a finance consultant for the purposes of control over the financial information and preparation of such information. The Company is working with the Bank on close terms and does not have any information that might indicate that the Bank might exercise the above noted rights to require pre-mature repayment of the loans granted.

* On 22 February 2019 the Company concluded agreement with AS Citadele Banka on termination of loan agreement Nr CI2011-2.3/218 and restructuration of short-term liabilities based on the noted agreement in the amount of EUR 449 543, increasing long-term Loan agreement Nr. CI2010-2.3/1 liability to EUR 4 952 086 (see Appendix 16). Taking into account the restructuration performed, short term liabilities decreased below the value of short-term assets.

(17) Other borrowings

Short-term:		Repayment term	31.12.2018.	31.12.2017.
Borrowing from the owner of the			-	249 528
Company*	EUR	31.12.2018.
Other Borrowings**	EUR	31.01.2018.	-	5 800
TOTAL short-term borrowings from other persons:				255 328

* Borrowing currency - EUR. Fixed annual percentage rate - 4.75%. ** Borrowing currency - EUR. Fixed annual percentage rate - 3%.

(18) Taxes and State mandatory social insurance payments

	31.12.2018.	31.12.2017.
	EUR	EUR
Property tax	291 828	247 682
Personal income tax	65 954	70 548
State mandatory social insurance payments	73 556	56 448
Nature resources tax	225	192
Penalties	97 724	88 609
Risk duty	58	119
TOTAL:	529 345	463 598

(19) Other creditors

	31.12.2018.	31.12.2017.
	EUR	EUR
Salaries	103 936	66 003
Trade union membership fee	-	51 525
Debts for purchased shares	-	19 636
Other creditors	1 294	812
Receivables arising in favour of the personnel	2 594	564
TOTAL:	107 824	138 540
(20) Deferred income
		31.12.2018. 31.12.2017.
	EUR		EUR
			Adjusted
Long-term:
VA "LIAA" funding Nr.L-IZI-14-0003		917 754	978 274
Construction cost compensation		382 728	405 692
	1 300 482		1 383 966
Short-term
VA "LIAA" funding Nr.L-IZI-14-0003		60 520	60 520
Construction cost compensation		22 964	22 964
		83 484	83 484
TOTAL:	1 383 966		1 467 450

On 14 March 2014, the Company signed an agreement with the Investment and Development Agency of Latvia No.L-IZI-14-0003 on implementation of the project "Construction of industry premises in the free industrial area of JSC DITTON Driving Chain Factory". The project was launched on 14 March 2014 and completed on 7 July 2015. The total cost of the project amounted to EUR 3,376,313, including eligible costs EUR 2,796,430. Under the Construction works contract No. DPR/2014/01 dated 25 July 2014 the Ditton Bŭve Ltd. has performed construction works within the project. In accordance with the statement of completion and final acceptance of work dated 25 February 2015, the construction cost amounted to EUR 2,750,704.

On 29 December 2015, the Company received aid in the amount of EUR 1,159,833 EUR from the Investment and Development Agency of Latvia (LIAA) under a 5-year period ban on disposal. The Investment and Development Agency of Latvia (LIAA) has started correspondence with the Company in respect of the fulfilment of the clauses of the agreement No.L-IZI-14-0003.

In accordance with the implementation of the agreement Nr. L-IZI-14-0003 signed in 2014 with the Latvian Investment and Development Agency "On Development of Production Premises for AS "Ditton pievadķēžu rŭpnīcas" within the spare production space", project costs, based on project budget assessment, were recognised in the amount of EUR 459 275 less than initially planned. The difference of funding not received from the Agency was charged to the general contractor for construction works as compensation for funding not received. Income from compensation is recognised over the useful life of the asset developed.

(21) Accumulated liabilities

	31.12.2018. EUR	31.12.2017. EUR
Accrued liabilities for goods and services	41 339	50 243
Vacation accrual	76 654	83 309
TOTAL:	117 993	133 552
(22) Number of employees in the Company	2018	2017
Average number of employees of the Company during	172	165
the year:
- Council members	5	5
- Management Board members	2	2
- Other employees	165	158

(23) Report on remuneration of Council and Management Board members

	Council	Management Board	TOTAL
	EUR	EUR	EUR
Salaries and remuneration	24 699	36 811	61 510
State mandatory social
insurance payments	5 945	8 865	14 815
TOTAL:	30 649	45 676	76 325

(24) Financial risk management

The Company's activity is subject to a variety of financial risks: foreign currency risk, interest rate risk, credit risk and liquidity risk.

Foreign currency risk

Foreign currency risk is the risk that the Company might have financial loss due to unfavourable fluctuations in exchange rates. This risk arises when financial assets in foreign currency do not match with financial liabilities in the same currency; herewith the Company has open currency positions.

Interest rate risk

Interest rate risk is the risk that the Company might have financial loss due to unfavourable fluctuations in interest rates. The Company experiences such interest rate risk of long- and short-term loans from credit institutions due to variable fixed rates, or when fixed interest period is less than the planned time of the loan repayment, or when credit interest is based on variables, or due to terms of the Loan agreement (refer to Appendix 16). The Company does not have any other choice and does not use any tools to mitigate the interest rate risk other than to fulfil loan-borrowing conditions in full and to cooperate with credit institutions.

(24) Financial risk management (continued)

Credit risk

Credit risk is the risk that the Company might have financial loss due to business partner who failed to comply with his obligations towards the Company. Cash, trade receivables and advance payments mainly cause the credit risk.

Cash

Credit risk related to cash at banks is managed by balancing the financial asset allocation in order to maintain the possibility of choosing the best offers and minimizing the loss of financial resources at the same time.

The Company oversees, assesses and mitigates this risk by appropriate work with Company's partners, for example, limiting or suspending the ongoing and future transactions with unfavourable partners, when the Company receives information about partners` possible problems with meeting their obligations.

Liquidity risk

Liquidity risk is the risk that the Company may be unable to meet its obligations timely and in full. Liquidity risk appears, when repayment terms of financial assets and liabilities do not match. The aim of the Company's liquidity risk management is to maintain an adequate amount of cash and cash equivalents, and ensure appropriate sufficient funding through credit lines issued by the banks (refer to the Appendix 16) so that the Company fulfils its obligations within the set time limits. The Company regularly monitors financial assets and liabilities mismatches, as well as stability of funding sources for long-term investments.

In the opinion of the Company's management, the Company will have sufficient cash resources to secure its liquidity.

(25) Contingent liabilities, pledges and guarantees

In order to provide collateral securities to commitments of the cooperation partner Ditton Chain Ltd., under registration number 41503030309, within the Loan agreement No. CI2010-2.3/2 dated 10 September 2010 with JSC Citadele Banka the Company signed Pledge Agreement on Company's real estate, signed Commercial Pledge Agreement over Company's movable property and signed Financial Collateral Agreement secured by Company`s cash in bank accounts, as well as provided a guarantee.

As at 31 December 2017, the Ditton Chain Ltd. fulfilled all its loan obligations mentioned above against the JSC Citadele Banka, therefore the collateral securities of the Company described above are released by the 1 January 2018. The de-registration process regarding securities mentioned above in all the Latvian public registries shall be done within time periods agreed with JSC Citadele Banka. Similarly, the Company plans to complete the formalities and documentation needed for release of a guarantee granted to a third party.

(26) Related Person Transactions

The Company has no significant transactions with related persons to report on.

(27) Distribution of profit proposed by the Board

The board of the Company proposes to retain the profit for the year 2018 in order to cover loss of previous years.

jsc ditton Pievadķēžu rūpnīca ANNUAL REPORT FOR THE YEAR 2018

(28) Subsequent events

There are no subsequent events other than noted in other Appendices of these financial statements since the last date of the reporting year, which would have a significant effect on the financial position of the Company as at 31 December 2018.

According to the Minutes of the Management Board meeting the financial statements have been signed on behalf of the Company on 24 April 2019 by

Rolands Zarāns Chairman of the Management Board

(signature)

Independent Auditor's Report

To the shareholder of JSC Ditton pievadķēžu rūpnīca

Our Qualified Opinion on the Financial Statements

We have audited the accompanying financial statements of JSC Ditton pievadkēžu rūpnīca ("the Company") set out on pages 16 to 40 of the accompanying annual report, which comprise:

· the balance sheet as at 31 December 2018,
· the profit and loss statement for the year then ended,
· the statement of changes in equity for the year then ended,
· the statement of cash flows for the year then ended, and

· the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of JSC Ditton pievadkežu rūpnīca as at 31 December 2018, and of its financial performance and its cash flows for the year then ended in accordance with the 'Law On the Annual Reports and Consolidated Annual Reports' of the Republic of Latvia.

Basis for Opinion

In accordance with the Law on Audit Services of the Republic of Latvia we conducted our audit in accordance with International Standards on Auditing adopted in the Republic of Latvia (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and independence requirements included in the Law on Audit Services of the Republic of Latvia that are relevant to our audit of the financial statements in the Republic of Latvia. We have also fufilled our other professional ethics responsibilities and objectivity requirements in accordance with the IESBA Code and Law on Audit Services of the Republic of Latvia.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report:

Response

Audit matter

Recognition of real estate

1.The Company's balance sheet includes land, where infrastructure which is important for the Company's operations is situated. However property rights for this land have not been fully transferred to the Company. Information on these matters is presented in appendix 10 "Fixed assets" in the financial statements.

We consider this as important matter due to the fact that this asset is crucial for the Company' operations and it's value is material in the context of the Company's balance sheet.

On the course of the audit, among other procedures:

we obtained information on the legal status of the land plot under consideration, the terms of acquisition, encumbrances and the expected future scenario;
we assessed the actual and potential use of the property by substance and evaluated the Company's chances to release the encumbrances;
In the context of the results of operations for 2018 and the future projections we assessed the recoverable value of the asset, including it's value in use as part of the relevant cash generating unit;
· We corroborated all the evidence available to us we came to a conclusion that the land plot under consideration is presented according to it's actual use and allocation of risks and rewards.

Ūdens iela 12-45, Rīga, LV-1007, Latvija T. +371 67607902, www.p-a.lv

POTAPOVIČA ANDERSONE

Audit matter Adherence to loan covenants

Response

The Company has undertaken substantial loan liabilities towards a commercial bank registered in Latvia. Loan agreements include covenants in respect of specific financial ratios, as well as in respect of certain actions. In 2018 the Company has partly met the covenants.

We consider this matter to be significant, since stability of financing is critical to sustainable operations and, consequently, the applicability of a going concern basis in preparation of the financial statements.

During the audit we:

performed detailed analysis of loan agreements and adherence to covenants specified therein;
performed reconciliations of accounts and off-balance . sheet items in written form;
analysed communications with the bank and postbalance sheet amendments to loan agreements;
evaluated co-operation between the Company and the bank and discussed it with representative of the bank;
obtained lawyer's advice in order to assess legal risk aspects;
based on aggregate information at our disposal we came to conclusion that information in respect of loans and relevant covenants in the financial statements is presented fairly.

Reporting on Other Information

The Company management is responsible for the other information. The other information comprises:

the Management Report, as set out on pages 12 to 15 of the accompanying Annual Report,
· the Statement on Management Responsibility, as set out on page 15 of the accompanying Annual Report,
· the Statement of Corporate Governance, as set out on pages 7 to 9 of the accompanying Annual Report.

Our opinion on the financial statements does not cover the other information included in the Annual Report, and we do not express any form of assurance conclusion thereon, except as described in the Other reporting responsibilities in accordance with the legislation of the Republic of Latvia section of our report.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed and in light of the knowledge and understanding of the entity and its environment obtained in the course of our audit, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Other reporting responsibilities in accordance with the legislation of the Republic of Latvia

In addition, in accordance with the Law on Audit Services of the Republic of Latvia with respect to the Management Report, our responsibility is to consider whether the Management Report is prepared in accordance with the requirements of the 'Law On the Annual Reports and Consolidated Annual Reports' of the Republic of Latvia. Based solely on the work required to be undertaken in the course of our audit, in our opinion:

· the information given in the Management Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
· the Management Report has been prepared in accordance with the requirements of the 'Law On the Annual Reports and Consolidated Annual Reports' of the Republic of Latvia.

In accordance with the Law on Audit Services of the Republic of Latvia with respect to the Statement of Corporate Governance, our responsibility is to consider whether the Statement of Corporate Governance includes the information required in section 56.1, first paragraph, clause 3, 4, 6, 8 and 9, as well as section 56.2, second paragraph, clause 5, and third paragraph of the Financial Instruments Market Law and if it includes the information stipulated in section 56.2 second paragraph, clause 1, 2, 3, 4, 7 and 8 of the Financial Instruments Market Law.

In our opinion, the Statement of Corporate Governance includes the information required in section 56.1, first paragraph, clause 3, 4, 6,, 8 and 9, as well as section 56.2, second paragraph, clause 5, and third paragraph of the Financial Instruments Market Law and it includes the information stipulated in section 56.2 second paragraph, clause 1, 2, 3, 4, 7 and 8 of the Financial Instruments Market Law.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with the 'Law On the Annual Reports and Consolidated Annual Reports' of the Republic of Latvia and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibility for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit finding any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with a statement that we have complied with relevant ethical requirements regarding independence and objectivity, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with governance, we determine those matters that were of most significance in the audit of the financial statement period and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The responsible certified audit resulting in this independent auditors' report is Kristīne Potapoviča.

On behalf of SIA Potapoviča un Andersone. Udens street 12-45, Riga, LV-1007 Certified Auditors Company licence No. 99

Kristīne Potapoviča Responsible Certified Auditor Certificate No. 99 Chairman of the Board

24 April 2019

AI Terminal

Ditton pievadkezu rupnica

2232_rns_2019-04-25_374f819c-ffb9-4f95-8520-22ee6327a47c.pdf

JSC DITTON PIEVADIJĒŽU RŪPNĪCA Reg. No. 40003030187 Višiju St.17, Daugavpils, LV-5410, Latvia

JSC DITTON PIEVADĶĒŽU RŪPNĪCA ANNUAL REPORT FOR THE YEAR 2018 CONTENTS

INFORMATION ABOUT THE COMPANY

INFORMATION ON SHARES AND SHAREHOLDERS

SHARE PRICE TRENDS

SHAREHOLDERS OWNING MORE THAN 5% OF THE COMPANY'S TOTAL SHARE CAPITAL*

COMPANY BACKGROUND

INFORMATION ON THE MANAGEMENT BOARD AND COUNCIL MEMBERS

THE MANAGEMENT BOARD

Information about the shares held by the members of the Management Board

COUNCIL

Information about the shares owned by the members of the Council

STATEMENT ON CORPORATE GOVERNANCE

§ 1

§ 2

REPORT OF THE COUNCIL on the annual report for 2018

MANAGEMENT REPORT

On the operating performance of the Company in 2018

Significant events. Market trends and the Company's development. Risks

General market trends

Western market segment

Eastern market segment

Optimising the Company's production and costs

Development of the industrial and technological park

Risks to which the Company is exposed

Foreign exchange (FX) risk

Interest rate risk

Credit risk

Liquidity risk

Other significant conditions

STATEMENT OF THE MANAGEMENT'S RESPONSIBILITY

INCOME STATEMENT FOR THE YEAR 2018

JSC DITTON PIEVADĶĒŽU RŪPNĪCA ANNUAL REPORT FOR THE YEAR 2018 BALANCE SHEET AS AT 31.12.2018

JSC DITTON PIEVADĶĒŽU RŪPNĪCA ANNUAL REPORT FOR THE YEAR 2018 BALANCE SHEET AS AT 31.12.2018

CASH FLOW STATEMENT FOR THE YEAR 2018

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 2018

APPENDICES TO THE ANNUAL REPORT

Accounting principles and valuation methods

Fundamental principles of the preparation of the financial statements

Going concern disclosure

Going concern disclosure (continued)

Prior years adjustments

Foreign currency revaluation

Long- and short-term items

Intangible assets

Fixed assets

Investment property

Investment property (continued)

Trade and other receivables

Inventories

Cash

Accounts payable to suppliers and contractors

Loans and borrowings

Borrowing costs

Contingencies

Investments in capital of other parties

Revenue recognition

Expense recognition

Accruals for unused vacations

Provisions

Donations and funding received

Corporates income tax

JSC DITTON PIEVADĶĒŽU RŪPNĪCA ANNUAL REPORT FOR THE YEAR 2018 Application of estimates and key assumptions

Related parties' transactions

(1) Net turnover

(2) Production cost of goods sold, purchase cost of goods sold or services rendered

* Refer to Appendix 10.

(3) Selling expenses

(4) Administrative expenses

(5) Other income from operating activities

(6) Other costs of operating activities

(7) Interest payment and similar expenses

(9) Intangible investments

(10) Fixed assets (cont.)

(11) Participation in the capital of related companies

(12) Inventories

(15) Share capital