Akciju sabiedriba "VEF"

Annual Report • Mar 22, 2018

Rīgā

(Latvian Unified registration number 40003001328) Joint Stock Company VEF

ANNUAL REPORT

for year ended 31 December 2017 in accordance with the Law of the Republic of Latvia

Audited

2018 Riga

CONTENTS

		Lpp.
Information about the company		3
Management report		4
Report on the Management Board's responsibility		5
Profit and loss calculation		6
Balance : Assets Liabilities		7 8
Cash Flow		9
Report of changes in Equity Capital		10
Financial report appendixes:	Accounting policy Profit and loss calculation Balance	11 14 17
Auditors opinion		24

INFORMATION ABOUT THE COMPANY

Company name Legal status	Joint Stock Company "VEF" Joint Stock Company
Registration number, place and date	On April 15, 1991 in the Register of Enterprises of the Republic of Latvia, re-registred on December 7, 2000 with Nbr. 000300132
	On April 14, 2004 registered in the Commercial Register, Nbr. 40003001328
Legal address Post address NACE code	Brivibas str.8, Riga, LV-1039, Latvia Brivibas str.8, Riga, LV-1039, Latvia 68.20; 35.13;
Chairman of the Board	Gints Fenuks
Member of the Board	Martins Cauna Tamara Kampane
Members of the Council	Gints Lipins Modris Zommers Laila Liduma Modris Zommers Ervins Kampans
Financial year Information about shareholders	from till 2017.01.01 2017.12.31 The total paid-up and reģistered share capital is EUR 2 722 492 as od 31 December 2017, it consists of 32% bearer shares and 68% of registered shares.
Auditor:	Qualified (sworn) auditor Gunta Darkevica Certificate No. 165 Qualified auditors company Ltd. "BDO AUDIT "
	Licence No. 176

Managemen Report

Joint stock venture VEF is a publicly traded company that is doing business by managing its own real estate property, renting business spaces, and also electricity distribution services for businesses located in VEF territory.

Net turnover of the joint venture at the end of the reporting year is 1 299 520 EUR. Despite the increase of net turnover, the management of the company has executed cost saving activities and as the result the company finished the year with a profit amounting 252 572 EUR.

From the last day of reporting until the day of signing off the report no major events happened that could have any substantial impact on the evaluation of the financial report. Therefore, the decision has been taken to call the Annual General Meeting on April 23, 2018.

Currently the Company continues to provide full set of services and is in preparations for planned renovation of its real estate that is required since buildings are in use for more than fifteen years. Renovation plans are in the phase of approval and will require substantial investments which the Company is planning to cover from own revenues executing renovation activities in many consecutive steps within following three years.

The Company is preparing to reconstruct premises previously used for production and convert these premises into office spaces to successfully attract new customers. To cover investments required for these activities the Company is planning partly to use its own resources – but mainly bank financing will be attracted.

As of planned works for the next reporting period the Company is planning to invest in improving of roads and energy efficiency that are important for existing and new potential customers.

Board of JV VEF holds to the strategic plans of the company according to economic developments in the country and following to the trends of the real estate rent and electricity distribution markets.

Company operations are influenced by various financial risks including credit risk and interest rate volatility. Company's management tries to minimize potential negative impacts of financial risks. Financial resources that potentially expose the Company towards acknowledged levels of credit risks, are mainly free cash and debtor and creditor debts. Debtor and creditor debts are stated as recoverable amounts. Company's partners in cash transactions are local financial institutions. Company adheres to strict management of liquidity risks ensuring meeting credit obligations within set due dates. Company's management believes that the Company will generate enough cash in order not to jeopardize its liquidity.

Board recommends the profit of 252 572 EUR to use by covering losses of previous years.

Results of financial activities for the coming years depends from inflation and also from real estate market trends.

Company's equity is 2 722 492 EUR. Company's equity consists of 623 528 bearer shares and 1 321 109 registered shares. Nominal value of each share is 1.40 EUR.

Customers renting the Company's real estate are attracted because of location, representative conditions of buildings, and legendary "good fame" of the Company. Company growth depends on real estate market trends and bank financing policies.

Gints Feņuks Chairman of the Management Board

Tamara Kampane Member of the Management Board

Martins Cauna

Member of the Management Board

Report on the Management Board's responsibility to the audited annual Report of JSC "VEF" for the twelve months of 2017

Management Board of JSC "VEF" (hereinafter – the Company) is responsible for preparation of the financial statements of the Company. The financial statements audited.

Financial statements are prepared based on justifying documents and represent true and clear overview on the Company's Assets and Equity and Liabilities, its financial standing and results of activity as well as cash flows within the reporting period ended on December 31, 2017.

Accounting principles used in preparation of the financial statements have not been changed comparing to the previous reporting period. During preparation of the financial statements decisions taken by the Management Board and estimations made have been cautious and well-founded. The information included in the management's report is true.

The Management Board of the Company is responsible for ensuring the corresponding accounting system, securing the assets of the Company, as well as for prevention and exposure of fraud and other violation within the Company.

Gints Feņuks Chairman of the Management Board

Tamara Kampane Member of the Management Board

Martins Cauna Member of the Management Board

PROFIT AND LOSS CALCULATION FOR THE PERIOD, WHICH ENDS ON THE 2017.12.31 (classified by cost function )

	Appendix	2017	2016
		EUR	EUR
Net turnover		1 299 550	1 297 712
from other principial activities	2	1 299 550	1 297 712
Costs of goods sold and services rendered	3	-826 878	-890 635
Gross profit or loss		472 672	407 077
Administrative expenses	4	-104 510	-110 503
Other operating income	5	25 886	148 590
Other operating expenses	6	-30 211	-19 862
Interest expenses and similar expenses :		-105 483	-120 317
for other parties	7	-105 483	-120 317
Profit or loss after corporate tax		258 354	304 985
Corporate income tax	8	-5 782	0
Profit or loss of the financial year		252 572	304 985
	EPS	0.13.	0.16.

Appendix from

11 till 23 page is an integral part of this financial statement.

Gints Feņuks	21.March 2018
Chairman of the Management Board
Tamara Kampane	21 March 2018
Member of the Management Board
Martins Cauna
Member of the Management Board	21 March 2018

BALANCE SHEET ON THE

2017.12.31

ASSETS	Appendix	2017		2016
		EUR		EUR
Fixed assets
Intangible assets
Concessions, patents, licences,			49	56
Intangible assets total	9		49	56
Tangible (fixed) assets
Land and buildings			5530695	5469001
Other fixtures and fittings, tools and equipment			27393	32621
Total tangible assets	10		5558088	5501622
Fixed Assets total			5558137	5501678
Current assets
Debtors
Trade debtors	11		11488	73367
Other debtors	12		20073	9144
Deferred expenses	13		5318	4805
Accrued income			49728	60230
Total debtors			86607	147546
Cash funds	14		212060	120368
Current Assets total			298667	267914
Total assets			5856804	5769592

BALANCE SHEET ON THE 2017.12.31

LIABILITIES	Appendix	2017	2016
		EUR	EUR
Equity capital
Company capital	15	2722492	2722492
Long term investment adjustment reserve	16	665655	673774
Other reserves		44477	44477
Undistributed profit/losses:	17
a) losses from prior years		-570644	-875629
b) profit of financial year	17	252572	304985
Equity capital total		3114552	2870099
Creditors
Long term creditors
Borrowings from credit institutions	18	2432612	2572955
Advance payments from customers	20	30547	30547
Other borrowings	19	0	0
Deferred income tax liabilities	21	0	0
Long term creditors total		2463159	2603502
Short term creditors
Borrowings from credit institutions	18	140343	140343
Other borrowings	19	5075	23670
Debts to supliers of goods and services	22	50320	54625
Advance payments from customers	20	16353	20472
Taxes and contributions to social security	23	32782	27297
Other creditors	24	9234	10083
Accrued liabilities	25	24986	19501
Short term creditors total		279093	295991
Creditors total		2742252	2899493
Total liabilities		5856804	5769592

Appendix from 11 till 23 page is an integral part of this financial statement.

Gints Feņuks
Chairman of the Management Board	21 March, 2018
Tamara Kampane
Member of the Management Board	21 March, 2018
Martins Cauna

CASH FLOW FOR THE PERIOD, WHICH ENDS ON THE 2017.12.31 (indirect method)

	Appendix	2017 EUR	2016 EUR
Cash flow from operating activities
Profit or loss from operating activity before extraordinary items and taxes Adjustments:		258 354	304 985
tangible asset depreciation and amortization (+)	10	70 739	-45 085
intangible asset depreciation (+)	9	7	116
interest payable and similar charges	7	105 483	120 317
Profit or loss before adjustments of current assets and short term liabilities		434 583	380 333
Adjustments:
adjustments of debtors: increase (-); decrease (+)		60 939	-49 395
adjustments of creditors: increase (-); decrease (+)		-12 204	-8 472
Cash flow from operating activities		483 318	322 466
Interest paid Cash flow before extraordinary items	7	-105 483 377 835	-120 517 202 149
Net operating cash flow		377 835	202 149
Investing cash flow (expenses "-"):
Acquisition of fixed and intangible assets	10	-127 205	-5 722
Net investing cash flow		-127 205	-5 722
Financing cash flow (expenses "-"):
Repaid borrowigs		-140 343	-140 343
Expenditure on lease liabilities		-18 595	-19 350
Net financing cash flow		-158 938	-159 693
Net cash flow of financial year		91 692	36 734
Cash and its equivalents at beginning of period		120 368	83 634
Cash and its equivalents at end of period	14	212 060	120 368

Appendix from10 till 22 page is an integral part of this financial statement.

Gints Fenuks Chairman of the Board
	signature

21 March, 2018

Member of the Board signature Tamara Kampane

21 March, 2018

REPORT OF CHANGES IN EQUITY CAPITAL 2017.12.31

for period ending on

	Company capital	Other reserves	Long term investment adjustment reserve	Profit or losses from prior years	Profit or losses of financial year	Equity capital total
	EUR	EUR	EUR	EUR	EUR	EUR
2016.12.31 2016 financial year result moved to profit or losses from prior years	2 722 492	44 477	805 396	-1 069 412		2 502 953
	0		0	498 768	0	498 768
Profit or losses of financial year	0		0			0
Long-term revaluation increase			-131 622			-131 622
Reserves				0		0
2016.12.31	2 722 492	44 477	673 774	-570 644	0	2 870 099
2017 financial year result moved to profit or losses from prior years	0		0	252 572		252 572
Profit or losses of financial year	0		0			0
Long-term revaluation decrease			-8 119			-8 119
2017.12.31	2 722 492	44 477	665 655	-318 072	0	3 114 552

Appendix from 11 till 23 page is an integral part of this financial statement.

Gints Fenuks Chairman of the Board	signature	21 March, 2018
Tamara Kampane		21 March, 2018
Member of the Board	signature
Martins Cauna	signature	21 March, 2018
Member of the Board

ACCOUNTING POLICIES

General principles

The Finacial Report are prepared in accordance with the law of the Republic of Latvia " On Accounting " and "Annual Reports and Consolidates Annual Reports Law ", as well in accordance with Cabinet of Ministers Regulations No.775 "Regulations on Application of Annual Reports and Consolidated Annual Reports Law " and Cabinet of Ministers Regulations No.399 " Regulations on Electronic Copy of Prepared Financial Statements or Consolidated Finacial Statements " and other regulatory legislative acts on accounting and annual reports.

Profit and loss statement is classsified by function of expense.

The cash flow statement prepared on the operating cash flow as measured by indirect method.

Revenue recognition and net sales

Net turnover is the total value of the sold production (services) during the year without discounts and value added tax.

Other revenues are recognized as follows: revenue from rents - as they were incurred;

revenue from penalties and default fees - at the time of receipt.

Fixed assets

Fixed assets are presented in the acquisition or revaluation cost less depreciation. Depreciation is calculated on a straightline method over the asset's useful period of usage. The following rates of depreciation is set by management, to write down fixed asset value to its estimated residual value at the useful end of period:

	(the year)
Buildings and structures	58-100
Other fixtures and fittings, tools and vehicles	4

The increase in value because of revaluation is reflected in equity capital item "Long term investment adjustment reserve ", but decrease in value is written-off from the increase of this reserve made in previous years regarding the corresponding fixed asset, the excess is included in profit or loss statement of the period.

Debtors

Accounts receivable in balance sheet are stated in net worth from the initial value minus reserves for doubtful and bad debts. Specific provision for doubtful and bad debts are created when management believes that the recovery of these specialy segregated receivables are doubtful.

Corporate income tax

The year of account corporate income tax expenses are calculated in accordance with Latvia laws and regulations. Deferred tax is calculated according to the liability method according to all temporary differences between assets and liabilities in the financial statements and their values for the tax calculation purposes. In deferred tax calculations is used the tax rate which is expected during periods when temporary differences levels off. Temporary differences arise mainly from using different rates of depreciation of fixed assets, as well as from the tax losses to be carried over to future tax periods. In cases where the total deferred tax result would be reflected in the balance sheet assets, its included in financial statements only if there is prospective that there will be available taxable profits, which will be subject to the deductible temporary differences that created deferred tax assets.

Estimated time of using fixed assets

Fixed assets are presented in the acquisition or revaluation cost less depreciation. Depreciation is calculated on a straightline method over the asset's useful period of usage. The following rates of depreciation is set by management, to write down fixed asset value to its estimated residual value at the useful end of period.

Provisions

Provision for doubtful debtors is formed as an calculation, applying to each debtor's individual valuation method or use the percentage assessment method depending on when the debt was incurred.

Provision for employee leave is formed as an calculation, based on unused vacation time of the reporting year and norms of social security contributions.

Foreign currency revaluation in lats

Accounting in company is made in lats. All transactions in foreign currencies are revaluated into lats by the Bank of Latvia official exchange rate at the date of the transaction.

Cash and cash equivalents

Cash and cash equivalents in cash flow statement consists of cash in hand, current account balances.

The annual review key points is assessed accounting to principles:

• - The assumption is that the company will operate in the future.
• - Used the same methods as used in the previous year.
• - Assessment carried out with the proper precautions:
  • report includes only the profit on the balance sheet date;
  • is taken into account all the expected risks and the losses incurred in the reporting year or previous years, even if they become known during the period between the annual reports ending date and the date of making the annual report;
  • calculated and taken into consideration any reduction in value and depreciation amounts, regardless of whether the reporting year is closed with profit or losses.
• - Taken into consideration with the current year revenues and related expenses, regardless of the date of payment and receipt of an invoice or the date of the statement. Cost-ordinated with revenues during the reporting period.
• - Active and passive components of items valued separately.
• - Beginning balance for the year coincides with the previous year's closing balance sheet.
• - Listing all items that materially affect the annual general users of the assessment or decision-making, minor items are combined and the detail provided in the annex.
• - Economic transactions in the annual report presented in the light of their economic substance and nature, rather than legal form.

Long-term investments

• - Evaluated according to their initial value, that is the purchase cost or production cost.
• - Acquisition or production costs of the investment object is gradually written off (depreciated) for intended use period, if administration period of object is limited. A plot of land acquisition costs are not subject to write-off (amortization).

Current assets

• - Asset evaluation based on the purchase or production cost.
• suitable for the evaluation of the balance sheet date are evaluated according to the lowest market price or production cost
• - Debt balances on the balance sheet is shown accordingly to appropriate supporting documents and accounting records, and they are coordinated with their own accounts receivable records at the date of making balance sheet. In dispute cases balances in balance sheet is shown according to the records. The accruals is made for a questionable amount of doubtful debts.

Reporting Period

Reporting period is	12	months from	2017.01.01	till	2017.12.31
---------------------	----	-------------	------------	------	------------

Long-term and short-term positions

Long-term liabilities is recognized if receipt, payment, or retirement shall be the later of one year after the year end. Amounts receivable, payable or depreciable during the year is presented as a short-term positions.

Net turnover

Turnover consists of revenues that the Company gained in the first six months of 2017 from its core business-service provision without VAT

Activity	2017 EUR	2016 EUR
Office rent	646 464	658 376
Facilities management and utilities	314 785	321 264
Electricity distribution and servicing	338 301	318 072
Ferrous and non-ferrous metal trading income
Total	1 299 550	1 297 712
Allocation of salesmarkets
State	2017	2016
Latvia	EUR 1 299 550	EUR 1 297 712
Total	1 299 550	1 297 712

(3) Costs of goods sold and services rendered

	2017	2016
	EUR	EUR
Utility services expenses (energy and other services)	408 685	422 728
Personnel costs and social tax	172 673	171 490
Depreciation	70 739	86 537
Other operating costs	117 312	169 980
Transport expenses	10 870	9 550
Charges for land rent	7 173	7 173
Insurance costs (building)	5 155	5 221
Expenses for telecommunication	1 514	1 443
Depreciation of license	7	116
Bank service	313	255
Real estate tax (buildings, land)	30 888	16 036
Bizness travel expenses	1 426	0
Personnel training	123	106
Total	826 878	890 635

(4) Administrative expenses

	2017	2016
	EUR	EUR
Salaries and social tax for administration	73 933	80 939
Transportation expenses for administration	10 870	9 550
Annual fee NASDAQ RIGA	7 120	7 120
Expenses for telecommunication	1 514	1 443
Office expenses	955	1 412
Lawyers' service fees	6 820	6 143
Audit costs	3 140	3 800
represent costs (40%)	158	96
Total	104 510	110 503

(5) Other operating income

	2017	2016
	EUR	EUR
Fines	1 723	620
Long-term revaluation decrease	8 119	131 622
Proceeds from creditor write-off	0	2 036
Other income	2 044	1 256
Municipal co-financing of building as a cultural monument preservation	14 000	0
Income from savings for vacations reduction	0	13 056

Total 25 886 148 590

(6) Other operating expenses

	2017	2016
	EUR	EUR
Fines payment of income tax	564	526
Insurance compensation	1 411	1 380
Fines by electric energy distribution networks	0	640
Offerings to Latvian orphans fund	204	1 201
Bad debts write-off costs	5 847	0
Vacation accrual reserve increase	21 846	15 701
Other expenses	54	240
represent costs ( 60%)	285	174
Total	30 211	25 712

Interest expenses and similar expenses :

	2017	2016
	EUR	EUR
Bank interest	105 121	119 427
Leasing interest	362	890
Total	105 483	120 317

(9) Intangible assets

	Concessions,	Intangible
	patents,	assets total
	licences, brand
	names and
	other rights
	EUR	EUR
Aquisition cost
2016.12.31	2 207	2 207
2017.12.31	2 207	2 207
Depreciation
2016.12.31	2 151	2 151
Calculated depreciation	7	7
2017.12.31	2 158	2 158
Balance sheet on 2016.12.31	56	56
Balance sheet on 2017.12.31	49	49

(10) Tangible (fixed) assets

	Land and buildings **	Tangible assets costs	Other fixtures and fittings, tools and equipment	Total tangible assets
	EUR	EUR	EUR	EUR
Acquisition cost
2016.12.31	6 155 499		258 597	6 414 096
Acquisitions	119 106	0	8 099	127 205
Overvalued	0	0	-6 402	-6 402
2017.12.31	6 274 605	0	260 294	6 534 899
Depreciation
2016.12.31	686 498	0	225 976	912 474
Calculated depreciation	57 412	0	13 327	70 739
Overvalued	0	0	-6 402	-6 402
2017.12.31	743 910	0	232 901	976 811
Balance sheet on 2016.12.31	5 469 001	0	32 621	5 501 622
Balance sheet on 2017.12.31	5 530 695	0	27 393	5 558 088

** īpašuma kadastrālā vērtība paņemta no paziņojuma par nekustamā īpašuma nodokli 2013.gadu.

(11) Trade debtors

	2017	2016
	EUR	EUR
Trade debtors	11 488	73 367
Balance value	11488	73367

2017	2016
EUR	EUR
11 488	73 367
11488	73367

(12) Other debtors

	2017	2016
	EUR	EUR
VAT on advances	7 263	8 181
Advance purchase of fuel	528	963
Advance services provider	1 256	0
Other debors	11 026	0
URDVN tax overpaid	0	0
Total	20 073	9 144

(13) Deferred expenses

	2017	2016
	EUR	EUR
Ground rent for the 1st quarter in 2018	1 793	1 793
Insurance payments	2 753	2 233
Subscriptions 2015.	772	779
Total	5 318	4 805

(14) Cash funds (31.12.2017)

Allocation of currency:	2017	2016
	EUR	EUR
EUR	212 060	120 368
Total	212060	120368

(15) Company capital

Company capital is divided on shares	1 944 637
per value each EUR	1,4
	2 722 492

(16) Long term investment adjustment reserve

2017	2016
EUR	EUR
665 655	673 774
665655	673774

(17) Undistributed profit/losses:

Losses of previous years (31.12.2016 )	-570 644 EUR
Profit of financial year	252 572 EUR
Losses of financial year	-318 072 EUR

(19) Borrowings from credit institutions

Allocation of currency:		2017		2016
		EUR		EUR
EUR (long term)		2 432 612		2 572 955
EUR (short-term)		140 343		140 343
Total		2 572 955		2 713 298
Main points of agreement/contract
Company name / name, surname	Principal amount, EUR	% rate	%	Term
SEB Banka	4 466 086	1.936%	105 121	22.05.2020.

(22) Advance payments from customers

	2016	2016
	EUR	EUR
Long term	30 547	30 547
Short term	16 353	20 472
	46 900	51 019

(23) Taxes and contributions to social security

Type of tax	Residual	Calculated	Paid	Residual
	2016.12.31			2017.12.31
	EUR	EUR	EUR	EUR
Value added tax	14052	146 708	146 586	14174

Total	27297	296 574	291089	32782
Company car tax	0	1644	1644	0
Corporae incom ax	0	5782		5782
State duties	6	69	69	6
Real estate tax (buildings,land)	0	30 888	30 888	0
Personal income tax	7170	43 462	44 067	6565
Social security contributions	6069	68 021	67 835	6255

During the financial year has been calculated and paid payment penalty: PIT- 524 EUR.

Inter alia:	2017		2016
	EUR		EUR
Tax overpayment	32 782		27 297
(24) Other creditors
		2017	2016
		EUR	EUR
Salaries for December		9 234	10 083
Total		9 234	10 083
(27) Other borrowings
		2016	2016
		EUR	EUR
Swedbanka leasing		0	3 716
long term		0	0
short term		0	3 716
SEB Leasing		5 075	19 954
long term		0	0
short term		5 075	19 954
Total		5075	23670
(28)		2016	2016
Average amount of company's emploees during year		17	17

(29) Information about remuneration to Members of the Board and executives

The remuneration of Member of the Board during year 2017 was 13 692 EUR.

(28) Financial risk management

The significant financial tools of Company are borrowings from credit institutions, legal persons and related parties, finance lease, money and short-term deposits. The main task of these financial tools is to provide Company's economic activity with funding. The Company also faces with other financial tools, such as trade debtors, other debtors, debts to suppliers and other creditors, which result directly from economic activity.

Interest rate risk

The Company has interest rate risk mainly because of its borrowings.

Credit risk

The Company has credit risk due to its trade debtors, given short-term loans and money and its equivalents. Company controls its credit risk by evaluating constantly debt repayment history of clients and by setting individual terms for each client. Moreover the Company follows non-stop the rest of debtors debts to diminish the possibility of irrecoverable debt emergence.

Liquidity risk

Company controls its liquidity risk by keeping appropriate amount of money or money equivalents.

(29) Information about off- balance liabilities and pledged assets

None.

(30) Details of the lease or rent agreements, mortgages, guarantees and other contracts that have an important role for the Company

The Joint Stock Company "VEF" is a publicly traded company, dealing with management and administration of its real estate, rendering space rental and electrical services to consumers on the VEF territory.

There were signed with the major customers long-term rental agreement.

As well as the Company has rent:

land in the Brivibas str. 214, rental agreement with JSC "Privatizācijas aģentūra" .

Pledge agreement No.KD03702/2 AS SEB banka, registered No.100093834 on 07.07.2015 - the claim secured in amount of EUR 5 386 000.

(31) Information about remuneration to auditor

Concluded agreement with BDO AUDITS Ltd. for 3140 EUR (not including VAT).

Gints Fenuks		21 March, 2018
Chairman of the Board	signature
Tamara Kampane		21 March, 2018
Member of the Board	signature