AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 December 2012,
prepared in accordance with International Financial Reporting Standards,
as adopted by the European Union,
presented together with Independent Auditor's Report

ERNST & YOUNG

UAB „Ernst & Young Baltic"
Subaflaus gl. 7
LT-01302 Vilnius
Lietuva
Tel.: (8 5) 274 2200
Faks.: (8 5) 274 2333
[email protected]
www.ey.com/l
Juridinis asmens kodas 110878442
PVM mokėtop kodas LT108784411
Juridinis asmens registras

Ernst & Young Baltic UAB
Subaflaus SLi7
LT-01302 Vilnius
Lithuania
Tel.: +370 5 274 2200
Fax: +370 5 274 2333
[email protected]
www.ey.com/l
Code of legal entity 110878442
VA" payer code LT108784411
Register of Legal Entities

Independent auditor's report to the shareholders of AB City Service

Report on the Financial Statements

We have audited the accompanying financial statements of AB City Service, a public limited liability company registered in the Republic of Lithuania (hereinafter “the Company”), and the consolidated financial statements of AB City Service and its subsidiaries (hereinafter “the Group”), which comprise the statements of financial position as at 31 December 2012, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes (comprising a summary of significant accounting policies and other explanatory information).

Management's Responsibility for the Financial Statements

The Company’s management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, 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.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as set forth by the International Federation of Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of AB City Service and the Group as at 31 December 2012, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Report on Other Legal and Regulatory Requirements

Furthermore, we have read the accompanying consolidated Management Annual Report for the year ended 31 December 2012 and have not noted any material inconsistencies between the financial information included in it and the financial statements for the year ended 31 December 2012.

UAB ERNST & YOUNG BALTIC
Audit company’s licence No. 001335

Jonas Akelis
Auditor’s licence
No. 000003

The audit was completed on 8 April 2013.

AB CITY SERVICE, company code 123905633, Konstitucijos Ave. 7, Vilnius, Lithuania

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

Statements of financial position

	Notes	Group		Company
		As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
ASSETS
Non-current assets
Goodwill	4	45,121	69,072	-	-
Other intangible assets	5	76,580	78,692	3	1,186
Property, plant and equipment	6	88,205	52,751	419	4,044
Investment property		370	382	-	-
Investments into subsidiaries	7	-	-	162,045	127,913
Investment into associate	1	588	578	-	-
Non-current receivables	10, 11, 31	2,018	10,960	395	6,733
Deferred income tax asset	26	10,149	9,243	452	736
Total non-current assets		223,031	221,678	163,314	140,612
Current assets
Inventories	8	5,119	4,040	1	701
Prepayments	9	12,269	8,911	174	252
Trade receivables	10	118,015	76,725	29,158	20,558
Receivables from related parties (including loans granted)	31	950	1,511	55,084	35,284
Other receivables	10	6,797	5,065	331	2,580
Prepaid income tax		2,513	1,845	1,922	1,500
Other current assets		814	206	-	116
Cash and cash equivalents	11	32,914	25,050	129	216
Total current assets		179,391	123,353	86,799	61,207
Total assets		402,422	345,031	250,113	201,819

(cont'd on the next page)

The accompanying notes are an integral part of these financial statements.

AB CITY SERVICE, company code 123905633, Konstitucijos Ave. 7, Vilnius, Lithuania

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

Statements of financial position (cont'd)

	Notes	Group		Company
		As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
EQUITY AND LIABILITIES
Equity
Share capital	1	31,610	31,610	31,610	31,610
Share premium	12	73,830	73,830	73,830	73,830
Reserves	12, 2.2.	6,993	7,348	9,161	9,161
Retained earnings		71,259	63,451	32,949	33,087
Equity attributable to equity holders of the parent		183,692	176,239	147,550	147,688
Non-controlling interests		2,307	2,231	-	-
Total equity		185,999	178,470	147,550	147,688
Liabilities
Non-current liabilities
Non-current borrowings	13	29,716	18,497	29,716	18,417
Financial lease obligations	15	6,255	6,207	253	1,596
Deferred income tax liability	26	13,398	15,306	-	-
Provisions for employee benefits	17	512	419	28	143
Non-current payables	14	4,085	6,232	362	360
Total non-current liabilities		53,966	46,661	30,359	20,516
Current liabilities
Current loans	13	18,913	856	34,950	3,148
Current portion of non-current borrowings	13	9,498	8,103	9,418	7,116
Current portion of financial lease obligations	15	2,749	3,859	62	569
Trade payables and payables to related parties	18, 31	86,160	72,247	25,117	17,893
Advances received	19	17,936	14,513	1,691	1,490
Income tax payable		2,082	821	-	-
Provisions for employee benefits	17	896	331	-	185
Other current liabilities	20	24,223	19,170	966	3,214
Total current liabilities		162,457	119,900	72,204	33,615
Total equity and liabilities		402,422	345,031	250,113	201,819

The accompanying notes are an integral part of these financial statements.

General Manager Žilvinas Lapinskas
Finance Director Jonas Janukėnas

8 April 2013

AB CITY SERVICE, company code 123905633, Konstitucijos Ave. 7, Vilnius, Lithuania

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

Statements of comprehensive income

	Notes	Group		Company
		2012	2011	2012	2011
Sales	3, 21	534,554	547,843	53,068	115,556
Cost of sales	22	(424,924)	(434,595)	(42,352)	(84,447)
Gross profit		109,630	113,248	10,716	31,109
General and administrative expenses	23	(104,600)	(75,883)	(10,865)	(19,879)
Other operating income	24	29,513	6,617	4,258	625
Other operating expenses	24	(4,638)	(8,456)	(2,429)	(539)
Profit from operations		29,905	35,526	1,680	11,316
Finance income	25	1,544	1,220	19,609	4,795
Finance expenses	25	(9,220)	(2,821)	(13,720)	(2,574)
Share of profit of associates		10	15	-	-
Profit before tax		22,239	33,940	7,569	13,537
Income tax	26	(5,991)	(4,453)	(437)	(1,434)
Net profit		16,248	29,487	7,132	12,103
Other comprehensive income
Exchange differences on translation of foreign operations		(355)	(112)	-	-
Total comprehensive income for the year, net of tax		15,893	29,375	7,132	12,103
Net profit attributable to:
The shareholders of the Company		15,078	28,725	7,132	12,103
Non-controlling interests		1,170	762	-	-
		16,248	29,487	7,132	12,103
Total comprehensive income attributable to:
The shareholders of the Company		14,723	28,613	7,132	12,103
Non-controlling interests		1,170	762	-	-
		15,893	29,375	7,132	12,103

Basic and diluted earnings per share (LTL) 27 0.48 0.91

The accompanying notes are an integral part of these financial statements.

General Manager Žilvinas Lapinskas 8 April 2013

Finance Director Jonas Janukėnas 8 April 2013

AB CITY SERVICE, company code 123905633, Konstitucijos Ave. 7, Vilnius, Lithuania

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

Statements of changes in equity

Group	Notes	Equity attributable to equity holders of the parent							Non-controlling interest	Total
		Share capital	Share premium	Legal reserve	Foreign currency translation reserve	Other reserves	Retained earnings	Subtotal
Balance as of 1 January 2011		31,610	73,830	2,455	(1,712)	6,000	43,346	155,529	1,396	156,925
Net profit for the year		-	-	-	-	-	28,725	28,725	762	29,487
Other comprehensive income		-	-	-	(112)	-	-	(112)	-	(112)
Total comprehensive income		-	-	-	(112)	-	28,725	28,613	762	29,375
Transfer to legal reserve		-	-	717	-	-	(717)	-	-	-
Acquisition of subsidiary	4	-	-	-	-	-	-	-	73	73
Dividends declared	28	-	-	-	-	-	(7,903)	(7,903)	-	(7,903)
Balance as of 31 December 2011		31,610	73,830	3,172	(1,824)	6,000	63,451	176,239	2,231	178,470
Net profit for the year		-	-	-	-	-	15,078	15,078	1,170	16,248
Other comprehensive income		-	-	-	(355)	-	-	(355)	-	(355)
Total comprehensive income		-	-	-	(355)	-	15,078	14,723	1,170	15,893
Acquisition of subsidiary	4	-	-	-	-	-	-	-	(22)	(22)
Disposal of subsidiary	4	-	-	-	-	-	-	-	(1,072)	(1,072)
Dividends declared	28	-	-	-	-	-	(7,270)	(7,270)	-	(7,270)
Balance as of 31 December 2012		31,610	73,830	3,172	(2,179)	6,000	71,259	183,692	2,307	185,999

(cont'd on the next page)

The accompanying notes are an integral part of these financial statements.

AB CITY SERVICE, company code 123905633, Konstitucijos Ave. 7, Vilnius, Lithuania

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

Statements of changes in equity (cont'd)

Company	Notes	Share capital	Share premium	Legal reserve	Other reserves	Retained earnings	Total
Balance as of 1 January 2011		31,610	73,830	2,444	6,000	29,604	143,488
Net profit for the year		-	-	-	-	12,103	12,103
Total comprehensive income		-	-	-	-	12,103	12,103
Transfer to legal reserve		-	-	717	-	(717)	-
Dividends declared	28	-	-	-	-	(7,903)	(7,903)
Balance as of 31 December 2011		31,610	73,830	3,161	6,000	33,087	147,688
Net profit for the year		-	-	-	-	7,132	7,132
Total comprehensive income		-	-	-	-	7,132	7,132
Dividends declared	28	-	-	-	-	(7,270)	(7,270)
Balance as of 31 December 2012		31,610	73,830	3,161	6,000	32,949	147,550

The accompanying notes are an integral part of these financial statements.

General Manager Žilvinas Lapinskas

Finance Director Jonas Janukėnas

8 April 2013

AB CITY SERVICE, company code 123905633, Konstituccijos Ave. 7, Vilnius, Lithuania

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

Statements of cash flows

	Notes	Group		Company
		2012	2011	2012	2011
Cash flows from (to) operating activities
Net profit		16,248	29,487	7,132	12,103
Adjustments for non-cash items:
Income tax expenses	26	5,991	4,453	437	1,434
Depreciation and amortisation	5, 6	13,121	12,699	265	1,529
Impairment and write-off of accounts receivable	23	11,472	5,946	(841)	641
Gain from bargain purchase	24	(22,965)	(1,156)	-	-
Loss (gain) on disposal of property, plant and equipment	24	(358)	(636)	(13)	(3)
Dividend (income)	25	-	-	(18,578)	(2,957)
Loss from sale of investments	25	6,906	-	-	-
Impairment of goodwill	3	19,139	-	-	-
Impairment of investments into subsidiaries	7	-	-	11,940	789
Interest (income)	25	(337)	(717)	(936)	(1,757)
Interest expenses	25	1,415	1,724	1,646	1,664
Reversal of discounting effect on long-term trade payables		686	-	-	-
Other financial activity result, net		(821)	-	-	-
Share of net profit of associate		(10)	(15)	-	-
		50,487	51,785	1,052	13,443
Changes in working capital:
(Increase) decrease in inventories		221	(506)	700	(172)
(Increase) decrease in trade receivables, receivables from related parties, other receivables and other current assets		(46,681)	25,269	(17,131)	24,971
(Increase) decrease in prepayments		(4,834)	2,596	78	(9)
Increase (decrease) in trade payables and payables to related parties		18,727	(23,206)	7,111	(4,759)
Income tax (paid)		(6,061)	(4,318)	(599)	(2,650)
Increase (decrease) in advances received and other current liabilities		6,383	(177)	(4,206)	(4,953)
Net cash flows from (to) operating activities		18,242	51,443	(12,995)	25,871
Cash flows from (to) investing activities
(Acquisition) of non-current assets	5, 6	(4,540)	(7,951)	(197)	(843)
Proceeds from sale of non-current assets		1,398	636	2	37
(Acquisition) of investments in subsidiaries (net of cash acquired in the Group)	1, 4, 7	(23,890)	(7,453)	(21)	(707)
Disposal of investments in subsidiaries	1	4.187	-	-	-
Interest received		55	55	78	76
Prepayments for investments		(4,237)	-	-	-
Dividends received		-	-	18,578	2,957
Loans (granted)	31	-	(249)	(42,144)	(3,656)
Net cash flows (to) investing activities		(27,027)	(14,962)	(23,704)	(2,136)

(cont'd on the next page)

The accompanying notes are an integral part of these financial statements.

AB CITY SERVICE, company code 123905633, Konstitucijos Ave. 7, Vilnius, Lithuania

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

Statements of cash flows (cont'd)

Note	Group		Company
	2012	2011	2012	2011
Cash flows from (to) financing activities
Dividends (paid)	(7,270)	(7,903)	(7,270)	(7,903)
Proceeds from loans	38,489	4,861	54,125	4,861
Financial lease (payments)	(5,148)	(5,343)	(1,850)	(736)
Loans (repaid)	(8,103)	(18,817)	(7,116)	(18,386)
Interest (paid)	(1,319)	(1,664)	(1,277)	(1,651)
Net cash flows from financing activities	16,649	(28,866)	36,612	(23,815)
Net increase (decrease) in cash and cash equivalents	7,864	7,615	(87)	(80)
Cash and cash equivalents at the beginning of the year	25,050	17,435	216	296
Cash and cash equivalents at the end of the year	32,914	25,050	129	216
Supplemental information of cash flows:
Non-cash investing activity:
Property, plant and equipment acquisitions financed by finance leases	5,527	6,115	55	1,892
Non-cash increase in share capital of subsidiaries	1	-	3,100	-

The accompanying notes are an integral part of these financial statements.

General Manager	Žilvinas Lapinskas	8 April 2013
Finance Director	Jonas Janukėnas	8 April 2013

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

Notes to the financial statements

1 General information

AB City Service (hereinafter the Company) is a public limited liability company registered in the Republic of Lithuania on 28 January 1997.

The Company's registered office:
Konstitucijos Ave. 7,
Vilnius, Lithuania.

The Company's address of residence:
Smolensko Str. 12,
Vilnius, Lithuania.

The Group is engaged in facility management, administration of commercial buildings and dwelling-houses, renovation and maintenance of thermal systems, installation and maintenance of thermal installations. The Board of the Company in its meeting of 29 December 2011 adopted the decision that the Company activity shall be a holding enterprise – public company which controls facility management, maintenance, waste management companies in Lithuania and in other countries.

As of 31 December 2012 the number of employees of the Group was 3,959 (as of 31 December 2011 – 3,434).

As of 31 December 2012 the number of employees of the Company was 71 (as of 31 December 2011 – 855).

The shares of AB City Service are traded in the main list of NASDAQ OMX stock exchange since 8 June 2007.

As of 31 December 2012 and 2011 the shareholders of the Company were:

	2012		2011
	Number of shares held	Owned percentage of the share capital and votes, %	Number of shares held	Owned percentage of the share capital and votes, %
UAB ICOR	20,205,595	63.92 %	20,205,595	63.92 %
AB East Capital Asset Management	3,167,722	10.02 %	3,167,722	10.02 %
Genesis Asset Managers LLP	1,644,183	5.20 %	1,644,183	5.20 %
Other private and institutional shareholders	6,592,500	20.86 %	6,592,500	20.86 %
Total	31,610,000	100 %	31,610,000	100 %

The ultimate parent of the Company is UAB Lag&d, a holding company registered in Lithuania.

The parent of AB City Service, UAB ICOR, has pledged part of the Company's shares, i.e. 13,486,275 units, which constitutes 42.66% of the authorised capital of the Company, to a bank. The right to transfer, pledge or dispose of the abovementioned shares otherwise has been restricted. All other property and non-property rights of UAB ICOR, as the shareholder, are free from any encumbrances or restrictions.

Share capital of the Company

The share capital of the Company was LTL 31,610 thousand as of 31 December 2012 and 2011. It is divided into 31,610,000 ordinary registered book-entry shares with the nominal value of LTL 1 each.

All shares of the Company are fully paid. The Company does not have any other classes of shares than ordinary shares mentioned above, there are no restrictions of share rights or special control rights for the shareholders set in the articles of association of the Company. No shares of the Company are held by itself or its subsidiaries. No convertible securities, exchangeable securities or securities with warrants are outstanding; likewise, there are no outstanding acquisition rights or undertakings to increase share capital as of 31 December 2012 and 2011.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

1 General information (cont'd)

Structure of the Group

On 31 December the AB City Service group consists of AB City Service and the following directly and indirectly controlled subsidiaries (hereinafter – the Group):

Company	Country	Share of the stock held by the Group as of 31 December 2012	Share of the stock held by the Group as of 31 December 2011	Main activities
UAB Antakalnio büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Aukštaitijos büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Baltijos büstos priežiūra	Lithuania	100%	100%	Administration of dwelling-houses
UAB Baltijos liftai	Lithuania	100%	100%	Elevator installing & tech. support
UAB Baltijos NT valdymas	Lithuania	100%	-	Real estate management
UAB Baltijos pastatų valdymas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Büstos administravimo agentūra	Lithuania	100%	100%	Administration of dwelling-houses
UAB Dainavos büstas	Lithuania	100%	-	Dormant
UAB Danės büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Economus	Lithuania	100%	100%	Administration of dwelling-houses
UAB Ecoservice	Lithuania	100%	100%	Collection and removal of waste
UAB Justiniškių büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Jūros büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Kauno centro büstas	Lithuania	100%	-	Dormant
UAB Karoliniškių büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Komunalinių įmonių kombinatas	Lithuania	99.71%	99.71%	Collection and removal of waste
UAB Lazdynų büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Mano büstas LT	Lithuania	100%	100%	Commercial real estate management and building maintenance
UAB Mano sauga	Lithuania	51%	-	Security services
UAB Namų priežiūros centras	Lithuania	100%	100%	Administration of dwelling-houses
UAB Naujamiesčio büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Nemuno büstos priežiūra	Lithuania	100%	-	Dormant
UAB Pagėgių savivaldybės komunalinis ūkis	Lithuania	66%	66%	Dormant
UAB Pašilaičių büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Pempininkų büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Radviliškio büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Sinsta	Lithuania	100%	-	Dormant
UAB Skolos LT	Lithuania	100%	100%	Debt collection services
UAB SKT Environmental Services Klaipėda	Lithuania	100%	-	Collection and removal of waste
UAB Specialus autotransportas	Lithuania	100%	100%	Collection and removal of waste
UAB Šiaulių büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Šiaulių liftas	Lithuania	100%	100%	Elevator installing & tech. support
UAB Šilutės büstas	Lithuania	99.84%	99.84%	Administration of dwelling-houses
UAB Tvar.com	Lithuania	100%	100%	Collection and removal of waste
UAB Vėtrungės büstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Vilkpėdės büstas	Lithuania	100%	100%	Administration of dwelling-houses

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

UAB Vingio būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Viršuliškių būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Žaidas	Lithuania	99.33%	99.33%	Administration of dwelling-houses
UAB Žardės būstas	Lithuania	100%	100%	Administration of dwelling-houses
UAB Žirmūnų būstas	Lithuania	100%	-	Administration of dwelling-houses
SIA Riga City Service	Latvia	100%	100%	Facility management
City Service Poland Sp. z.o.o	Poland	100%	-	Dormant
INTERBUD MAX Sp. z.o.o	Poland, Krakow	100%	100%	Dormant
Zespół Zarządców Nieruchomości WAM Sp. z o.o.	Poland	100%	-	Administration of dwelling-houses
ТОВ Київ Сіті Сервіс	Ukraine	100%	100%	Administration of dwelling-houses
ОАО Сити Сервис / ОАО City service	Russia, St. Petersburg	100%	100%	Administration of dwelling-houses
ЗАО Сити Сервис / ZAO City service	Russia, St. Petersburg	100%	100%	Administration of dwelling-houses
ОАО Специализи-рованное ремонтно-наладочное управление	Russia, St. Petersburg	100%	100%	Construction and engineering
ООО Жилкомсервис № 3 Фрунзенского района	Russia, St. Petersburg	80%	80%	Administration of dwelling-houses
ООО Жилкомсервис № 2 Невского района	Russia, St. Petersburg	-	80%	Administration of dwelling-houses
ООО «Чистый дом»	Russia, St. Petersburg	100%	100%	Maintenance and cleaning of territories
ООО «Управляющая компания -1»	Russia, Stavropol	76%	76%	Administration of dwelling-houses
ООО «ПРОМИНТЕР - управление проектами»	Russia, Stavropol	100%	100%	Administration of dwelling-houses
ООО «Управляющая компания -2»	Russia, Stavropol	76%	76%	Administration of dwelling-houses
ООО «Управляющая компания -3»	Russia, Stavropol	76%	76%	Administration of dwelling-houses
ООО «Управляющая компания -4»	Russia, Stavropol	76%	76%	Administration of dwelling-houses
ООО «Управляющая компания -5»	Russia, Stavropol	76%	76%	Administration of dwelling-houses
ООО «УК -5»	Russia, Stavropol	100%	100%	Administration of dwelling-houses
ООО «Управляющая компания -6» (legal entity code 2635085674)	Russia, Stavropol	76%	76%	Administration of dwelling-houses
ООО «Управляющая компания -6» (legal entity code 2635105070)	Russia, Stavropol	100%	100%	Administration of dwelling-houses
ООО «Жилищная Управляющая компания № 6»	Russia, Stavropol	100%	100%	Administration of dwelling-houses
ООО «Объединенная управляющая компания – 7»	Russia, Stavropol	100%	100%	Administration of dwelling-houses
ООО «Обслуживающая управляющая компания-7»	Russia, Stavropol	100%	100%	Administration of dwelling-houses
ООО «Управляющая компания – 8» (legal entity code 2635085459)	Russia, Stavropol	-	76%	Administration of dwelling-houses
ООО «Управляющая компания – 8» (legal entity code 2635105218)	Russia, Stavropol	100%	100%	Administration of dwelling-houses
ООО «Управляющая компания – 10»	Russia, Stavropol	100%	100%	Administration of dwelling-houses

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

1 General information (cont'd)

Changes in the Group in 2012

In 2012 the Group acquired several new subsidiaries and sold two:

On 26th of September the Group acquired 100 % shares of Žirmūnų būstas UAB, legal entity code 121483222. The acquired company maintains services of administration of dwelling-houses in Vilnius city (Lithuania).
On 1st of October 51 % of Mano sauga UAB, legal entity code 302628213, shares have been acquired. Mano sauga UAB provides security services in Lithuania.
On 17th of December the Group acquired 100% shares of Zespół Zarządców Nieruchomości WAM Sp. z o.o. (hereinafter ZZN). ZZN provides residential apartment building management services, also acts as producer and supplier of heat in Poland.
On 20th of December the Company's subsidiary Specialus autotransportas UAB acquired 100 % shares of SKT Environmental Services Klaipėda UAB, legal entity code 110734883. SKT Environmental Services Klaipėda UAB provides services of collection and removal of waste in Klaipeda region (Lithuania).
On 31 of August 2012 the Company's subsidiary OAO Сити Сервис sold the shares of the company operating in Nevskij district of St. Petersburg OOO Жилкомсервис № 2 Невского района. Information about the disposed subsidiary is summarized in the table below:

| Date of disposal | ООО Жилкомсервис № 2
Невского района
31 August, 2012 |
| --- | --- |
| Goodwill | 8,924 |
| Non-current assets other than goodwill | 11,683 |
| Current assets other than cash and cash equivalents | 19,907 |
| Cash and cash equivalents | 538 |
| Non-current and current liabilities | (28,909) |
| Total net assets disposed of | |
| attributable to equity holders of the parent | 11,071 |
| attributable to non-controlling interests | 1,072 |
| Currency translation reserve realized on sales | 735 |
| Total consideration received, all consisting of cash and cash equivalents | 4,720 |

The Group recorded the net loss of LTL 6,675 thousand from the sale of shares of the subsidiary.

On 20 of November 2012 the Company's subsidiary OAO Сити Сервис sold the shares of the company operating in the city of Stavropol OOO Управляющая компания-8. Information about the disposed subsidiary is summarized in the table below:

| Date of disposal | ООО Управляющая компания-8
20 November, 2012 |
| --- | --- |
| Goodwill | 324 |
| Non-current assets other than goodwill | 602 |
| Current assets other than cash and cash equivalents | 30 |
| Cash and cash equivalents | 3 |
| Non-current and current liabilities | (727) |
| Total net assets disposed of | |
| attributable to equity holders of the parent | 232 |
| Total consideration received, all consisting of cash and cash equivalents | 9 |

The Group recorded the net loss of LTL 231 thousand from the sale of shares of the subsidiary.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

1 General information (cont'd)

Changes in the Group in 2012 (cont'd)

In addition, in 2012 there were several reorganizations (changes in the legal structure of the Group) performed as outlined below:

On 10-12 January 2012 the Company established three new subsidiaries – Nemuno büsto priežiūra UAB, Baltijos NT valdymas UAB and Neries būstas UAB (now Dainavos būstas UAB). Establishment of the companies is related to planned expansion in Lithuania.
On 27 March 2012 share capital of Saulės valda UAB (now Šiaulių būstas UAB) was increased by LTL 3.1 million by additional ordinary share issue of 3,100 thousand shares. The share capital was increased by netting off with the receivable from the subsidiary. At the date of issue of these financial statements the share capital of Šiaulių būstas UAB amounts to LTL 3,761,214.
In May the Company continued the process of brand unification in secondary companies. The names of the companies operating in Šiauliai and Radviliškis were changed. Saulės valda UAB and Radviliškio Komunalinės Paslaugos UAB were changed to Šiaulių būstas UAB and Radviliškio būstas UAB respectively.
During the first half of the year 2012 the Company has transferred the commercial real estate management, maintenance activities and all the subsidiaries which manage residential facility in Lithuania and perform other activities related with the residential facility management, except for Lazdynų būstas UAB which shares are the object of the litigation, to the subsidiary of the Company City Service LT UAB (legal entity code 300883806 now – Mano būstas LT UAB) direct control. The transfer has been made by implementing the decision of the Board of the Company, adopted on 29 December 2011. The above mentioned internal transfer had no impact towards financial position of the Group.
On 3rd of July two newly established companies ANVO Baltic UAB (now Kauno centro būstas UAB) and ANV Capital UAB (now Sinsta UAB) have been acquired.
On 22 November the new subsidiary „City Service Poland“ Sp .z.o.o. was established. This decision is related to the expansion of Group's business activities in Poland.
Following the provisions of Heat Sector law related to building heating and hot water systems supervision, from 1 July 2012 the Company's subsidiaries do not render the above mentioned services in the multi-apartment buildings in the territories (Vilnius, Kaunas and Klaipeda cities) where the law forbids the mentioned activity. Agreements with the subjects who satisfy law requirements where concluded and at the moment the activity do not violate the law.

More information on the subsidiaries acquired and disposed in 2012 is presented in Note 4 and Note 7.

Changes in the Group in 2011

In 2011 the Group acquired several new subsidiaries in Lithuania, Russia and Poland:

During January – February 2011 the Group acquired a group of private companies in the city of Stavropol, Russia. The group consists of 15 separate companies. The value of the contract is RUB 68.5 million (equivalent of LTL 5,871 thousand). The acquired companies manage approximately 2 million square meters of residential buildings.
On the 1 February 2011 the Company's subsidiary „Eco holding“ UAB has acquired 100 % shares of .A.S.A. Vilnius UAB (now Tvar.com UAB), legal entity code 300730461, which provides services of collection and removal of waste. Acquisition cost of the subsidiary is LTL 91 thousand.
On 1 July 100 % of OOO «Чистый дом», legal entity code 7804437890, shares were acquired. OOO «Чистый дом» provides services of maintenance and cleaning of territories in St. Petersburg city (Russia). The value of the contract is RUB 10 thousand (equivalent of LTL 1 thousand at the date of acquisition).
As of 31 December 2010 the Company owned 37.2% of shares of Büsto Administravimo Agentūra UAB (acquisition cost of LTL 221 thousand). On 27 July 2011 City Service AB has acquired 5,676 (49.92 %) shares of Büsto Administravimo Agentūra UAB. The shares were acquired after receipt of authorization from the Competition Council of the Republic of Lithuania under the share purchase agreement. On 19th of September, 2011 City Service AB has acquired the remaining part of Büsto Administravimo Agentūra UAB shares (12,88 percent). The total amount of shares acquired in 2011 is LTL 689 thousand. Currently City Service AB owns 100 % of Büsto Administravimo Agentūra UAB shares. Büsto Administravimo Agentūra UAB manages 220 thousand sq. m. of apartment buildings in Kaunas city (Lithuania).
On the 2 November 2011 the Company's subsidiary has acquired 100 % shares of Lazdijų komunalinis ūkis UAB, legal entity code 265102040, which provides services of collection and removal of waste in Lazdijai district. Acquisition cost of the subsidiary is LTL 1,539 thousand.
On 28 December 100 % of INTERBUD MAX SP. Z.O.O, legal entity code 122420503, shares were acquired. The acquired company is registered in Krakow (Poland). The value of the contract is the PLN 6.5 thousand (equivalent of LTL 5 thousand at the date of acquisition).

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

1 General information (cont'd)

Changes in the Group in 2011 (cont'd)

In addition, in 2011 there were several reorganizations (changes in the legal structure of the Group) performed as outlined below:

During December 2011 the names of the five companies of the Group have been changed. Antakalnio ūkis UAB, Fervéja UAB, Litmilma UAB, Pašilaita UAB and Vilko pėda UAB have been renamed respectively into Antakalnio būstas UAB, City Service LT UAB, Justiniškių būstas UAB, Pašilaičių būstas UAB and Vilkpėdės būstas UAB.
During December 2011 reorganization of Eco holding UAB group which is controlled by the Company was completed. As a result, Eco holding UAB was merged into its wholly owned subsidiary Ecoservice UAB. On 4 January 2012 Eco holding UAB was removed from the company register, whereas all the rights and obligations were taken over by Ecoservice UAB.
During November-December 2011 reorganization of recently acquired Lazdijų komunalinis ūkis UAB was performed. As a result, Lazdijų komunalinis ūkis UAB was merged into Trakų komunalinių įmonių kombinatas UAB. On 23 January 2012 Lazdijų komunalinis ūkis UAB was removed from the company register, whereas all the rights and obligations were taken over by Trakų komunalinių įmonių kombinatas UAB. On 20 January 2012 the title of Trakų komunalinių įmonių kombinatas UAB has been changed into Komunalinių įmonių kombinatas UAB.

Investment into associate

The Group's and the Company's investment in an associate as of 31 December 2012 included an investment in Marijampolės butų ūkis UAB (34% of the share capital), which was acquired on 16 May 2011. The value of the contract is LTL 563 thousand.

The Group accounted for the associate's results attributable to the Group amounting to respectively LTL 10 thousand and LTL 15 thousand in the statement of comprehensive income for the year ended 31 December 2012 and 2011.

Summarized financial information of associate as of 31 December (unaudited):

	UAB Marijampolės butų ūkis	UAB Marijampolės butų ūkis
	2011	2012
Assets	1,596	1,497
Liabilities	946	819
Net assets	650	678
Revenue	2,346	2,360
Net profit	44	28

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies

2.1. Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (hereinafter the EU).

The Company's management authorised these financial statements on 8 April 2013. The shareholders of the Company have a statutory right to either approve these financial statements or not approve them and require the management to prepare a new set of financial statements.

Financial statements of the Group and the Company have been prepared on a historical cost basis.

Adoption of new and/or changed IFRSs and IFRIC interpretations

During the year the Group and the Company has adopted the following IFRS amendments:

amendment to IFRS 7 Financial Instruments - Enhanced Derecognition Disclosure Requirements,
amendment to IAS 12 Income tax - Deferred tax - Recovery of Underlying Assets.

The amendments did not impact the financial statements of the Group and the Company, because the Group and the Company did not have items or transactions addressed by these changes.

Standards issued but not yet effective

The Group and the Company has not applied the following IFRS and IFRIC interpretations that have been issued as of the date of authorisation of these financial statements for issue, but which are not yet effective:

Amendment to IAS 1 Financial Statement Presentation - Presentation of Items of Other Comprehensive Income (effective for financial years beginning on or after 1 July 2012)

The amendments to IAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or 'recycled') to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Group's and Company's financial position or performance. The Group and the Company have not yet evaluated the impact of the implementation of this amendment.

Amendment to IAS 19 Employee Benefits (effective for financial years beginning on or after 1 January 2013)

There are numerous amendments to IAS 19, they range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The Group and the Company have not yet evaluated the impact of the implementation of this amendment.

Amendment to IAS 27 Separate Financial Statements (effective for financial years beginning on or after 1 January 2014)

As a result of the new standards IFRS 10, IFRS 11 and IFRS 12 this standard was amended to contain accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 Separate Financial Statements requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instruments. The implementation of this amendment will not have any impact on the financial statements of the Group and the Company.

Amendment to IAS 28 Investments in Associates and Joint Ventures (effective for financial years beginning on or after 1 January 2014)

As a result of the new standards IFRS 10, IFRS 11 and IFRS 12 this standard was renamed and addresses the application of the equity method to investments in joint ventures in addition to associates. The implementation of this amendment will not have any impact on the financial statements of the Group and the Company.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.1. Basis of preparation (cont'd)

Amendment to IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (effective for financial years beginning on or after 1 January 2014)

This amendment clarifies the meaning of "currently has a legally enforceable right to set-off" and also clarifies the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The Group and the Company have not yet evaluated the impact of the implementation of this amendment.

Amendment to IFRS 7 Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (effective for financial years beginning on or after 1 January 2013)

The amendment introduces common disclosure requirements. These disclosures would provide users with information that is useful in evaluating the effect or potential effect of netting arrangements on an entity's financial position. The amendments to IFRS 7 are to be retrospectively applied. The Group and the Company have not yet evaluated the impact of the implementation of this amendment.

IFRS 9 Financial Instruments (effective for financial years beginning on or after 1 January 2015, once endorsed by the EU)

IFRS 9 will eventually replace IAS 39. The IASB has issued the first two parts of the standard, establishing a new classification and measurement framework for financial assets and requirements on the accounting for financial liabilities. The Group and the Company have not yet evaluated the impact of the implementation of this standard.

IFRS 10 Consolidated Financial Statements (effective for financial years beginning on or after 1 January 2014)

IFRS 10 establishes a single control model that applies to all entities, including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled and, therefore, are required to be consolidated by a parent. Examples of areas of significant judgment include evaluating de facto control, potential voting rights or whether a decision maker is acting as a principal or agent. IFRS 10 replaces the part of IAS 27 Consolidated and Separate Financial Statements related to consolidated financial statements and replaces SIC 12 Consolidation — Special Purpose Entities. The Group and the Company have not yet evaluated the impact of the implementation of this standard.

IFRS 11 Joint Arrangements (effective for financial years beginning on or after 1 January 2014)

IFRS 11 eliminates proportionate consolidation of jointly controlled entities. Under IFRS 11, jointly controlled entities, if classified as joint ventures (a newly defined term), must be accounted for using the equity method. Additionally, jointly controlled assets and operations are joint operations under IFRS 11, and the accounting for those arrangements will generally be consistent with today's accounting. That is, the entity will continue to recognize its relative share of assets, liabilities, revenues and expenses. The Group and the Company have not yet evaluated the impact of the implementation of this standard.

IFRS 12 Disclosures of Interests in Other Entities (effective for financial years beginning on or after 1 January 2014)

IFRS 12 combines the disclosure requirements for an entity's interests in subsidiaries, joint arrangements, investments in associates and structured entities into one comprehensive disclosure standard. A number of new disclosures also will be required such as disclosing the judgments made to determine control over another entity. The Group and the Company have not yet evaluated the impact of the implementation of this standard.

Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment Entities (effective for financial years beginning on or after 1 January 2014, once endorsed by the EU)

The amendments apply to entities that qualify as investment entities. The amendments provide an exception to the consolidation requirements of IFRS 10 by requiring investment entities to measure their subsidiaries at fair value through profit or loss, rather than consolidate them. The implementation of this amendment will not have any impact on the financial statements of the Group and the Company, as the Group and the Company are not investment entities.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.1. Basis of preparation (cont'd)

IFRS 13 Fair Value Measurement (effective for financial years beginning on or after 1 January 2013)

The main reason of issuance of IFRS 13 is to reduce complexity and improve consistency in application when measuring fair value. It does not change when an entity is required to use fair value but, rather, provides guidance on how to measure fair value under IFRS when fair value is required or permitted by IFRS. The Group and the Company have not yet evaluated the impact of the implementation of this standard.

Improvements to IFRSs (effective for financial years beginning on or after 1 January 2013, once endorsed by the EU)

In May 2012 IASB issued omnibus of necessary, but non-urgent amendments to its five standards:

IFRS 1 First-time adoption of IFRS;
IAS 1 Presentation of Financial Statements;
IAS 16 Property, Plant and Equipment;
IAS 32 Financial instruments: Presentation;
IAS 34 Interim Financial Reporting.

The adoption of these amendments may result in changes to accounting policies but will not have any impact on the financial position or performance of the Group and the Company.

IFRIC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine (effective for financial years beginning on or after 1 January 2013)

This interpretation applies to stripping costs incurred in surface mining activity during the production phase of the mine ('production stripping costs'). Interpretation will have no impact on the Group's and the Company's financial statements, as the Group and the Company are not involved in mining activity.

The Group and the Company plans to adopt the above mentioned standards and interpretations on their effectiveness date provided they are endorsed by the EU.

2.2. Measurement and presentation currency

The amounts shown in these financial statements are presented in the local currency of the Republic of Lithuania, Litas (LTL), rounded to LTL thousand, unless otherwise stated.

The functional currency of the Company and its subsidiaries operating in Lithuania is Litas. The functional currencies of foreign subsidiaries are the respective foreign currencies of the country of residence. Items included in the financial statements of these subsidiaries are measured using their functional currency.

Transactions in foreign currencies are initially recorded in the functional currency as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange as at the date of the statement of financial position.

The assets and liabilities of foreign subsidiaries are translated into Litas at the reporting date using the rate of exchange as of the date of the statement of financial position, and their statements of comprehensive income are translated at the weighted average exchange rates for the year. The exchange differences arising on this translation are recognised in other comprehensive income. On disposal of a foreign subsidiary, the deferred cumulative amount recognised in other comprehensive income relating to that foreign operation is recognised in the income statement.

Non-current receivables from or loans granted to foreign subsidiaries that are neither planned nor likely to be settled in the future are considered to be a part of the Company's net investment in the foreign operation. In the Group's consolidated financial statements the exchange differences recognized in the separate financial statements of the subsidiary in relation to these monetary items are reclassified to other comprehensive income. On disposal of a foreign subsidiary, the deferred cumulative amount recognised in other comprehensive income relating to that foreign operation is recognised in the income statement.

Starting from 2 February 2002, Lithuanian Litas is pegged to Euro at the rate of 3.4528 Litas for 1 Euro, and the exchange rates in relation to other currencies are set daily by the Bank of Lithuania.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.3. Principles of consolidation

The consolidated financial statements of the Group include AB City Service and its subsidiaries as well as associated companies. The financial statements of the subsidiaries are prepared for the same reporting year, using consistent accounting policies.

Subsidiaries are consolidated from the date from which effective control is transferred to the Company and cease to be consolidated from the date on which control is transferred out of the Group. All intercompany transactions, balances and unrealised gains and losses on transactions among the Group companies have been eliminated. The equity and net income attributable to non-controlling interests are shown separately in the statement of financial position and the statement of comprehensive income.

From 1 January 2010 losses of a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. Prior to 1 January 2010 losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to nil. Any further excess losses were attributed to the parent, unless the non-controlling interest had a binding obligation to cover these losses. Losses prior to 1 January 2010 were not reallocated between non-controlling interests and the parent shareholders.

Acquisitions and disposals of non-controlling interest by the Group are accounted as equity transaction: the difference between the carrying value of the net assets acquired from/disposed to the non-controlling interests in the Group's financial statements and the acquisition price/proceeds from disposal is accounted directly in equity.

Investments in associated companies where significant influence is exercised by AB City Service are accounted for using the equity method in the Group's consolidated financial statements. Impairment assessment of investments in associates is performed when there is an indication that the asset may be impaired or the impairment losses recognised in prior years no longer exist.

Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed.

If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses (tested annually). For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.4. Investments in subsidiaries and associates (the Company)

Investments in subsidiaries and associates in the Company's stand-alone financial statements are carried at cost, less impairment.

Financial guarantees provided for the liabilities of the subsidiaries during the initial recognition are accounted at estimated fair value as the investment into subsidiaries and financial liability in the statement of financial position. Subsequent to initial recognition this financial liability is amortised and recognised as income depending on the related amortisation / repayment of the subsidiary's financial liability to the bank. If there is a possibility that the subsidiary may fail to fulfil its obligations to the bank, a financial liability of the Company is accounted for at the higher of amortised value and the value estimated according to IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

2.5. Intangible assets other than goodwill

Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Intangible assets are recognised if it is probable that future economic benefits that are attributable to the asset will flow to the enterprise and the cost of asset can be measured reliably.

The useful lives of intangible assets are assessed to be either finite or indefinite.

After initial recognition, intangible assets with finite lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised on a straight-line basis over their useful lives:

Contractual investments	6 years
Customer relationships	10-40 years
Other intangible assets	3-10 years

Intangible assets, other than goodwill, are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

The useful lives, residual values and amortisation method are reviewed annually to ensure that they are consistent with the expected pattern of economic benefits from items in intangible assets other than goodwill.

The Group and the Company do not have any intangible assets with infinite useful life other than goodwill.

2.6. Property, plant and equipment and investment property

Property, plant and equipment, including investment property, are stated at cost less accumulated depreciation and impairment losses.

The initial cost of property, plant and equipment and investment property comprises its purchase price, including non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment is ready for its intended use, such as repair and maintenance costs, are normally charged to the statement of comprehensive income in the period the costs are incurred.

Depreciation is computed on a straight-line basis over the following estimated useful lives:

Buildings (including investment property)	20 – 62,5 years
Vehicles	4 – 10 years
Other property, plant and equipment	3 – 6 years

The useful lives, residual values and depreciation method are reviewed annually to ensure that they are consistent with the expected pattern of economic benefits from items in property, plant and equipment and investment property.

An item of property, plant and equipment and investment property is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised.

Construction in progress is stated at cost. This includes the cost of construction, plant and equipment and other directly attributable costs. Construction-in-progress is not depreciated until the relevant assets are completed and put into operation.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.7. Financial assets

According to IAS 39 "Financial Instruments: Recognition and Measurement" the Group's and the Company's financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets, as appropriate. All purchases and sales of financial assets are recognised on the trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Financial assets at fair value through profit or loss

The category financial assets at fair value through profit or loss includes financial assets classified as held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in statement of comprehensive income.

The Group and the Company does not have any financial instruments at fair value through profit or loss.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group / the Company has the positive intention and ability to hold to maturity. Investments that are intended to be held-to-maturity are subsequently measured at amortised cost. Gains and losses are recognised in statement of comprehensive income when the investments are derecognised or impaired, as well as through the amortisation process.

The Group and the Company does not have any held-to-maturity investments as of 31 December 2012 and 2011.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Receivables are initially recorded at the fair value of the consideration given. Loans and receivables are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in the statement of comprehensive income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Allowance for doubtful receivables is evaluated when the indications leading to the impairment of accounts receivable are noticed and the carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised (written off) when they are assessed as uncollectible.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition available-for-sale financial assets are measured at fair value with unrealized gains or losses (except impairment and gain or losses from foreign currencies exchange) being recognised in other comprehensive income until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in other comprehensive income is included in the income statement.

2.8. Derecognition of financial assets and liabilities

Financial assets

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

the rights to receive cash flows from the asset have expired;
the Group / the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass through' arrangement; or
the Group / the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.8. Derecognition of financial assets and liabilities (cont'd)

When the Group / the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group / the Company could be required to repay.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of comprehensive income.

2.9. Inventories

Inventories are valued at the lower of cost or net realisable value, after impairment evaluation for obsolete and slow moving items. Net realisable value is the selling price in the ordinary course of business, less the costs of completion, marketing and distribution. Cost of raw materials that are not ordinarily interchangeable and are segregated for specific projects is determined using specific identification method; cost of other inventory is determined by the first-in, first-out (FIFO) method. Unrealisable inventory is fully written-off.

2.10. Cash and cash equivalents

Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and in current bank accounts as well as deposits in bank with original term equal to or less than 3 months.

2.11. Borrowings

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur.

The Group and the Company capitalise borrowing costs for all qualifying assets where construction was commenced on or after 1 January 2009. However, there were no borrowing costs matching the capitalisation criteria in 2012 and 2011.

Borrowings are initially recognised at fair value of proceeds received, less the costs of transaction. They are subsequently carried at amortised cost, the difference between net proceeds and redemption value being recognised in the net profit or loss over the period of the borrowings (except for the capitalised part). The borrowings are classified as non-current if the completion of a refinancing agreement before the date of the statement of financial position provides evidence that the substance of the liability at the date of the statement of financial position was long-term.

2.12. Financial and operating leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.12. Financial and operating leases (cont'd)

Financial lease

The Group and the Company recognise financial leases as assets and liabilities in the statement of financial position at amounts equal at the inception of the lease to the fair value of the leased property or, if lower, to the present value of the minimum lease payments. The rate of discount used when calculating the present value of minimum payments of financial lease is the interest rate of financial lease payment, when it is possible to determine it, in other cases, Company's incremental interest rate on borrowings applies. Directly attributable initial costs are included into the asset value. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.

The depreciation is accounted for financial lease assets. The depreciation policy for leased assets is consistent with that for depreciable assets that are owned. The leased assets cannot be depreciated over the period longer than lease term, unless the Group or the Company, according to the lease contract, gets transferred their ownership after the lease term is over.

Operating lease

Leases where the lessor retains all the risk and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term.

2.13. Provision for employee benefits

According to the requirements of Lithuanian Labour Code, each employee leaving the Company at the age of retirement is entitled to a one-off payment in the amount of 2 months salary. According to the requirements of Polish law, each employee leaving the Group at the age of retirement is entitled to a one-off payment in the amount of 1 month salary.

Current year cost of employee benefits is recognised as incurred in the statement of comprehensive income. The past service costs are recognised as an expense on a straight-line basis over the average period until the benefits become vested. Any gains or losses appearing as a result of curtailment and/or settlement are recognised in the statement of comprehensive income as incurred.

The above mentioned employee benefit obligation is calculated based on actuarial assumptions, using the projected unit credit method. Obligation is recognized in the statement of financial position and reflects the present value of these benefits on the preparation date of the statement of financial position. Present value of the non-current obligation to employees is determined by discounting estimated future cash flows using the discount rate which reflects the interest rate of the Government bonds of the same currency and similar maturity as the employment benefits. Actuarial gains and losses are recognized in the statement of income as incurred.

2.14. Provisions

Provisions are recognised when the Group and the Company has a present obligation (legal or constructive) as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The Group / the Company re-evaluates provisions at each date of the statement of financial position and adjusts them in order to present the most reasonable current estimate. If the effect of the time value of money is material, the amount of provision is equal to the present value of the expenses, which are expected to be incurred to settle the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.15. Income tax

The Group companies are taxed individually, irrespective of the overall results of the Group. Income tax charge is based on profit for the year and considers deferred taxation. The charge for taxation included in these financial statements is based on the calculation made by the management in accordance with tax legislation of the Republic of Lithuania, the Republic of Latvia, the Republic of Ukraine and Russian Federation.

The standard income tax rate in Lithuania was 15 % in 2012 and 2011. Income tax rate in 2012 and 2011 in Ukraine, Russia, Latvia and Poland was 25 %, 20 %, 15 % and 19%, respectively.

Tax losses in Lithuania can be carried forward for indefinite period, except for the losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the Company changes its activities due to which these losses incurred except when the Company does not continue its activities due to reasons which do not depend on Company itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature.

Comparatively, tax losses in Russia can be carried forward for ten years.

Deferred taxes are calculated using the liability method. Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at the date of the statement of financial position.

Deferred tax assets have been recognised in the statement of financial position to the extent the management believes it will be realised in the foreseeable future, based on taxable profit forecasts. If it is believed that part of the deferred tax is not going to be realised, this part of the deferred tax asset is not recognised in the financial statements.

2.16. Revenue recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably. Sales are recognised net of VAT and discounts.

The Group and the Company recognises revenue from projects on renovation of thermal systems and installation of thermal components (i.e. customer specific contracts) based on the method of percentage of completion: completion percentage is estimated by the proportion of actual costs incurred to the total estimated costs of the project. Changes in profit rates are reflected in current earnings as identified. Contracts are reviewed regularly and in case of probable losses, provisions are recorded.

Revenue from sales of goods is recognised when delivery has taken place and transfer of risks and rewards has been completed.

Revenue from services is recognised when services are rendered.

Dividend income from subsidiaries is recognised in the Company's stand-alone financial statements when the dividends are declared by the subsidiary.

Interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or liability. It is included in finance income or expenses in the statement of comprehensive income.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.17. Impairment of assets

Financial assets

Financial assets are reviewed for impairment at each date of the statement of financial position.

For financial assets carried at amortised cost, whenever it is probable that the Company will not collect all amounts due according to the contractual terms of loans or receivables, an impairment or bad debt loss is recognised in the statement of comprehensive income. The reversal of impairment losses previously recognised is recorded when the decrease in impairment loss can be justified by an event occurring after the write-down. Such reversal is recorded in the statement of comprehensive income. However, the increased carrying amount is only recognised to the extent it does not exceed the amortised cost that would have been had the impairment not been recognised.

Other assets (excluding goodwill)

Other assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the statement of comprehensive income. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. The reversal is accounted for in the same caption of the statement of comprehensive income as the impairment loss.

2.18. Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with International Financial Reporting Standards requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingencies. The significant areas of estimation used in the preparation of the accompanying financial statements relate to depreciation (Note 2.6. and Note 6), amortization (Note 2.5 and Note 5), percentage of completion evaluation for customer specific contracts (Note 2.16. and Note 21), provision for employee benefits (Note 2.13 and Note 17), impairment evaluation of goodwill, including allocation of Group assets to cash generating units (Note 2.3. and Note 4), other assets (Note 2.17., Note 5, Note 7, Note 8, Note 9 (for the Group) and Note 10) and contingencies related to foreign and local subsidiaries (Note 30). Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effect of any changes in estimates will be recorded in the financial statements, when determinable.

At the date of preparing these financial statements, the underlying assumptions and estimates were not subject to a significant risk that from today's point of view it is likely that the carrying amounts of assets and liabilities will have to be adjusted significantly in the subsequent fiscal year, except for the estimated useful life of customer relationships intangible assets, which are accounted for under other intangible assets and their acquisition value amounts to LTL 85,070 thousand as of 31 December 2012 and LTL 83,908 thousand as of 31 December 2011 (Note 5). The management amortises these customer relationship intangible assets over the estimated validity period of existing contracts, which is 10-40 years. The management estimated the expected validity term of customer relationships based on the current development of the operations, i.e. already concluded contracts as well as current rate of terminated contracts, which is insignificant. Should the circumstances change in the future, the estimate may need to be revised and the size of such revision cannot be reasonably estimated at the date of these financial statements. The net book value of these intangible assets of the Group amount to LTL 75,033 thousand as of 31 December 2012 and LTL 76,879 thousand as of 31 December 2011.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

2 Accounting policies (cont'd)

2.19. Contingencies

Contingent liabilities are not recognised in the financial statements, except for contingent liabilities associated with business acquisitions. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

A contingent asset is not recognised in the financial statements but disclosed when an inflow or economic benefits are probable.

2.20. Subsequent events

Subsequent events that provide additional information about the Group's / the Company's position at the date of statement of financial position (adjusting events) are reflected in the financial statements. Subsequent events that are not adjusting events are disclosed in the notes when material.

3 Segment information

For management purposes, the Group is organized into business units based on services provided and have three reportable segments as follows:

Heating infrastructure renovation
Buildings' administration
Waste management

Segment of Heating infrastructure renovation includes services of renovation, modernisation of heating infrastructure and equipment. Since 1 January 2012 the Group is no longer involved in these activities.

Segment of Buildings' administration includes services of administration and maintenance of commercial and residential buildings. The segment also includes services of maintenance of heat and water systems and supply of heating energy and water to educational institutions. The segment information is presented as analysed by chief operating decision maker of the Group (the Board), i.e. allocated to Baltic states, CIS states and Poland.

Segment of Waste management includes services of collecting and processing of waste.

No operating segments have been aggregated to form the above reportable operating segments.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

3 Segment information (cont'd)

Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, financing (including finance costs and finance income) and income taxes of the Group are managed on a group basis and are not allocated to operating segments.

Transfer prices between operating segments are based on the prices set by the management, which management considers to be similar to transactions with third parties.

Operating Segments

The following tables present revenue, profit and certain asset and liability information regarding the Group's reportable operating segments:

| Year ended
31 December 2012 | Buildings' administration | | Waste management | Total |
| --- | --- | --- | --- | --- |
| | Baltic states | CIS states | | |
| Revenue | 200,545 | 293,645 | 39,455 | 533,645 |
| Unallocated income | | | | 909^{1} |
| Total revenue | | | | 534,554 |
| Segment results | 17,301 | 8,320 | 3,709 | 29,330 |
| Negative goodwill and goodwill impairment charges, net | | | | 3,826^{4} |
| Unallocated expenses | | | | (3,251)^{2} |
| Profit from operations | | | | 29,905 |
| Net financial income | | | | (7,666)^{3} |
| Profit / (loss) before income tax | | | | 22,239 |
| Income tax expenses | | | | (5,991)^{3} |
| Net profit for the year | | | | 16,248 |
| Other segment information | | | | |
| Capital expenditure | 5,005 | 863 | 2,213 | 8,081 |

Unallocated income includes other income not attributable to either of the listed segments, namely IT services and other.
Unallocated expenses include general and administrative expenses (LTL 3,251 thousand) identifiable as costs managed on a group basis.
Financing of the Group and income taxes are managed on a group basis and are not allocated to operating segments.
The amount comprises LTL 19,139 thousand of goodwill impairment (allocated to waste management segment) and gain of LTL 22,965 thousand from a bargain purchase in Poland (Note 4).

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

3 Segment information (cont'd)

| Year ended
31 December 2011 | Heating
infrastructure
renovation | Buildings' administration | | Waste
management | Total |
| --- | --- | --- | --- | --- | --- |
| | | Baltic states | CIS states | | |
| Revenue | 6,748 | 154,915 | 337,395 | 47,537 | 546,595 |
| Unallocated income | | | | | 1,248^{1} |
| Total revenue | | | | | 547,843 |
| Segment results | 372 | 22,627 | 12,111 | 4,354 | 39,464 |
| Unallocated expenses | | | | | (5,094)^{2} |
| Profit from operations | | | | | 34,370 |
| Net financial income | | | | | (430)^{3} |
| Profit / (loss) before income tax | | | | | 33,940 |
| Income tax expenses | | | | | (4,453)^{3} |
| Net profit for the year | | | | | 29,487 |
| Other segment information | | | | | |
| Capital expenditure | - | 6,783 | 2,180 | 5,114 | 14,077 |

Unallocated income includes other income not attributable to either of the listed segments, namely IT services (LTL 1,148 thousand) and other (LTL 100 thousand).
Unallocated expenses include general and administrative expenses (LTL 5,094 thousand) identifiable as costs managed on a group basis.
Financing of the Group (including finance costs and finance income as well as share of result of associate) (LTL 430 thousand) and income taxes (LTL 4,453 thousand) are managed on a group basis and are not allocated to operating segments.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

3 Segment information (cont'd)

Geographical information

The following tables present Group's geographical information on revenue based on the location of the customers and non-current assets information based on the location of the Group's assets:

2012	Poland	Baltic states	CIS states	Total
Revenue
Sales to external customers	-	240,909	293,645	534,554
Segment revenue	-	240,909	293,645	534,554
2011		Baltic states	CIS states	Total
Revenue
Sales to external customers		210,448	337,395	547,843
Segment revenue		210,448	337,395	547,843

The major part of sales in the Baltic States comprises of sales in Lithuania, in CIS – the main area of the Group's sales is Russia.

2012	Baltic states	Poland	CIS states	Total
Non-current assets
Segment assets	137,327	46,454	39,250	223,031
Total assets	137,327	46,454	39,250	223,031
2011		Baltic states	CIS states	Total
Non-current assets
Segment assets		169,948	51,730	221,678
Total assets		169,948	51,730	221,678

Non-current assets for this purpose consist of property, plant and equipment, investment property, intangible assets, non-current financial assets and deferred income tax asset.

All the Company's revenues are derived in Lithuania as well as its assets are located in Lithuania.

Revenue from the largest customer amounted to LTL 40,024 thousand in 2012 (LTL 32,535 thousand in 2011), arising from sales to Vilnius Municipality and is accounted in the buildings' administration segment. Sales to this customer exceed 10% of sales of the Company, but compose only approximately 7% in the Group. There are no other individual customers exceeding 10% of segment sales.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

4 Goodwill

Cost:	Group
Balance as of 1 January 2011	64,474
Additions	4,991
Exchange differences	(103)
Balance as of 31 December 2011	69,362
Additions	4,436
Disposals	(9,248)
Balance as of 31 December 2012	64,550
Impairment:
Balance as of 1 January 2011	290
Impairment for the year	-
Balance as of 31 December 2011	290
Impairment for the year	19,139
Balance as of 31 December 2012	19,429
Net book value as of 31 December 2012	45,121
Net book value as of 31 December 2011	69,072

Acquisitions during 2012

As described in Note 1, during 2012 the Group acquired the following entities:

Name of entity acquired	Acquisition cost	Notes
Žirmūnų būstas UAB	LTL 9.9 million	All paid in cash and included in the cost of investment
Mano sauga UAB	LTL 1	All paid in cash and included in the cost of investment
SKT Environmental Services Klaipėda UAB	LTL 3.4 million	All paid in cash and included in the cost of investment
Zespol Zarządców Nieruchomości Sp. z.o.o.	PLN 45 million	All paid in cash and included in the cost of investment

All the costs related to acquisitions above have been expensed, in total amount of LTL 1,768 thousand. At the acquisition of these subsidiaries a provisional goodwill of LTL 4,436 thousand has been accounted for. The goodwill appears due to expected synergies, which are expected to be derived from vertical expansion of business.

Also a provisional gain of LTL 22,965 thousand from a bargain purchase as well as goodwill impairment of LTL 19,139 thousand was recognised in the Group's statement of comprehensive income in 2012. Gain from a bargain purchase appeared because of low competition in a public privatisation tender for Zespół Zarządców Nieruchomości WAM Sp. z.o.o. resulting from mix of different activities within the company. Goodwill impairment was recognised because of decreasing operating margins in the waste management business resulting from increase in landfill gate fees not being adequately compensated within waste management tariff structure.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

4 Goodwill (cont'd)

The Group has elected to measure the non-controlling interest in the acquiree at the proportionate share of the acquiree's identifiable net assets. The provisional (due to not finalised real estate valuations) fair values of the assets acquired, liabilities and contingent liabilities assumed at the date of acquisitions made during 2012 were as follows:

Fair value of assets, liabilities and contingent liabilities	Žirmūnių būstas UAB	Mano sauga UAB	Zespól Zarządców Nieruchomości WAM Sp. z.o.o.	SKT Environmental Services Klaipėda UAB
Date of acquisition	26 September	1 October	17 December	20 December
Intangible assets	2,077	287	9,824	358
Property, plant and equipment	2,032	7	34,804	1,764
Other non-current assets	161	9	1,826	557
Trade receivables	2,023	10	6,982	751
Other current assets	3,305	8	20,657	719
Total assets	9,598	321	74,093	4,149
Interest bearing financial liabilities	-	-	-	42
Deferred tax liability	576	-	-	54
Trade payables	455	320	7,385	422
Other current liabilities	2,873	46	5,950	404
Total liabilities	3,904	366	13,335	922
Total identifiable net assets at fair value	5,694	(45)	60,758	3,227
attributable to equity holders of the parent	5,694	(23)	60,758	3,227
attributable to non-controlling interests	-	(22)	-	-

The carrying values of the acquired assets and liabilities assumed were as follows:

Book value	Žirmūnių būstas UAB	Mano sauga UAB	Zespól Zarządców Nieruchomości WAM Sp. z.o.o.	SKT Environmental Services Klaipėda UAB
Date of acquisition	26 September	1 October	17 December	20 December
Intangible assets	6	287	79	-
Property, plant and equipment	263	13	50,619	1,764
Other non-current assets	161	-	448	557
Trade receivables, gross	2,945	10	7,134	973
Valuation allowance for trade receivables	(922)	-	(152)	(222)
Other current assets	3,305	61	20,362	719
Total assets	5,758	371	78,490	3,791
Interest bearing financial liabilities	-	-	-	42
Deferred tax liability	-	-	-	-
Trade payables	455	320	7,385	422
Other current liabilities	1,876	45	5,567	404
Total liabilities	2,331	365	12,952	868

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

4 Goodwill (cont'd)

The differences between the amounts paid and the provisional fair values of assets acquired, liabilities and contingent liabilities assumed on the acquisitions of 2012 were as follows:

	Žirmūnų būstas UAB	Mano sauga UAB	Zespół Zarządców Nieruchomości WAM Sp. z.o.o.	SKT Environmental Services Klaipėda UAB
Date of acquisition	26 September	1 October	17 December	20 December
Fair value of acquired assets, liabilities and contingent liabilities attributable to the Group	5,694	(45)	60,758	3,227
Non-controlling interests	-	22	-	-
Goodwill (Note 24)	4,236	23	(22,965)	155
Total purchase consideration	9,930	-	37,793	3,382
Cash acquired	3,232	4	15,544	88
Total purchase consideration, net of cash acquired	6,698	(4)	22,249	3,294

All the purchase consideration has been settled in cash (except for 8.3 million, which was netted with accounts receivable), with no contingent payments.

	Žirmūnų būstas UAB	Mano sauga UAB	Zespół Zarządców Nieruchomości WAM Sp. z.o.o.	SKT Environmental Services Klaipėda UAB
Date of acquisition	26 September	1 October	17 December	20 December
Profit (loss) incurred since acquisition date to 31 December 2012	80	85	-	-
Total revenue since acquisition date to 31 December 2012	2,966	475	-	-
Total revenue for the year 2012	9,581	475	32,242	4,478
Total net result for the year 2012	183	85	7,771	184

As it is disclosed further in the financial statements, in 2012 the Group's management finalized the purchase price allocation of UAB Būsto administravimo agentūra acquired on 27 July 2011. In previous year this purchase price allocation was accounted for provisionally, however this fact wasn't mentioned in the financial statements for the year ended 31 December 2011. As a result of finalization of purchase price allocation the following corrections in fair value of assets and liabilities assumed were recorded:

	Provisional fair value recognized on acquisition	Effect of finalization of purchase price allocation	Final fair value recognized on acquisition
Property, plant and equipment	103	-	103
Intangible assets	347	-	347
Other assets	753	(449)	304
Total assets	1,203	(449)	754
Non-current and current liabilities	(403)	(466)	(869)
Total identifiable net assets at fair value:	800	(915)	(115)
attributable to equity holders of the parent	800	(915)	(115)
attributable to non-controlling interests	-	-	-

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

4 Goodwill (cont'd)

The differences between the amounts paid and the fair values of assets acquired and liabilities and contingent liabilities assumed for Busto administravimo agentūra according to finalized purchase price allocation are as follows:

	Provisional fair value recognized on acquisition	Effect of finalization of purchase price allocation	Final fair value recognized on acquisition
Fair value of acquired assets, liabilities and contingent liabilities attributable to the Group	800	(915)	(115)
Non-controlling interests	-	-	-
Goodwill	110	915	1,025
Total purchase consideration	910	-	910
Cash acquired	293	-	293
Total purchase consideration, net of cash acquired	617	-	617

In these financial statements comparative figures for 2011 have been amended as outlined above due to finalization of the purchase price allocation of UAB Busto administravimo agentūra.

Disposals in 2012

As described in Note 1, during 2012 the Group disposed the company operating in Nevskij town of St. Petersburg district OOO Жилкомсервис № 2 Невского района and the company operating in the city of Stavropol OOO Управляющая компания-8. The sales value of the contracts is RUB 54 million (LTL 4.7 million equivalent) and RUB 100 thousand (LTL 9 thousand equivalent) respectively, all paid in cash.

Acquisitions during 2011

As described in Note 1, during 2011 the Group acquired the following entities:

Name of entity acquired	Acquisition cost	Notes
A group of private companies in the city of Stavropol, Russia	RUB 68.5 million	All paid in cash and included in the cost of investment
A.S.A. Vilnius UAB (currently Tvar.com UAB)	LTL 91 thousand	All paid in cash and included in the cost of investment
ООО «Чистый дом»	RUB 10 thousand	All paid in cash and included in the cost of investment
Būsto Administravimo Agentūra UAB	LTL 689 thousand	All paid in cash and included in the cost of investment
Lazdijų komunalinis ūkis UAB	LTL 1,539 thousand	All paid in cash and included in the cost of investment
INTERBUD MAX SP. Z.O.O	PLN 6.5 thousand	All paid in cash and included in the cost of investment

All the costs related to acquisitions above have been expensed, in total amount of LTL 110 thousand. At the acquisition of these subsidiaries goodwill of LTL 5,065 thousand has been accounted for. The goodwill appears due to expected synergies, which are expected to be derived from vertical expansion of business.

Also a gain of LTL 1,156 thousand from a bargain purchase was recognised in the Group's statement of comprehensive income in 2011. Gain from a bargain purchase appeared because the acquired subsidiaries were loss making.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

4 Goodwill (cont'd)

The Group has elected to measure the non-controlling interest in the acquiree at the proportionate share of the acquiree's identifiable net assets. The fair values of the assets acquired, liabilities and contingent liabilities assumed at the date of acquisitions made during 2011 were as follows:

Fair value of assets, liabilities and contingent liabilities	Group of companies in Stavropol 1 February	.A.S.A. Vilnius UAB 1 February	OOO «Чистый дом» 1 July	Būsto administravimo agentūra UAB 27 July	Lazdijų komunalinis ūkis UAB 2 November	Interbud Max Sp. Z.o.o 28 December
Date of acquisition
Intangible assets	5,978	28	-	347	-	-
Property, plant and equipment	143	1,045	-	103	1,937	-
Other non-current assets	1,177	697	-	96	-	-
Trade receivables	2,644	1,005	137	-	291	-
Other current assets	1,814	110	-	208	358	5
Total assets	11,756	2,885	137	754	2,586	5
Interest bearing financial liabilities	96	1,416	-	21	157	-
Deferred tax liability	1,196	-	-	51	-	-
Trade payables	5,942	278	-	198	201	-
Other current liabilities	2,617	362	136	599	271	-
Total liabilities	9,851	2,056	136	869	629	-
Total identifiable net assets at fair value	1,905	829	1	(115)	1,957	5
attributable to equity holders of the parent	1,832	829	1	(115)	1,957	5
attributable to non-controlling interests	73	-	-	-	-	-

The carrying values of the acquired assets and liabilities assumed were as follows:

Book value	Group of companies in Stavropol 1 February	.A.S.A. Vilnius UAB 1 February	OOO «Чистый дом» 1 July	Būsto administravimo agentūra UAB 27 July	Lazdijų komunalinis ūkis UAB 2 November	Interbud Max Sp. Z.o.o 28 December
Date of acquisition
Intangible assets	-	28	-	6	-	-
Property, plant and equipment	143	1,045	-	103	1,937	-
Other non-current assets	1,177	697	-	96	-	-
Trade receivables, gross	3,890	1,530	137	925	291	-
Valuation allowance for trade receivables	(1,246)	(525)	-	(569)	-	-
Other current assets	1,814	110	-	301	358	5
Total assets	5,778	2,885	137	862	2,586	5
Interest bearing financial liabilities	96	1,416	-	21	157	-
Deferred tax liability	-	-	-	-	-	-
Trade payables	5,942	278	-	198	201	-
Other current liabilities	2,617	362	136	133	271	-
Total liabilities	8,655	2,056	136	352	629	-

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

4 Goodwill (cont'd)

The differences between the amounts paid and the fair values of assets acquired, liabilities and contingent liabilities assumed on the acquisitions of 2011 were as follows:

| Date of acquisition | Group of companies in Stavropol
1 February | .A.S.A. Vilnius UAB
1 February | OOO «Чистый дом»
1 July | Būsto administravimo agentūra UAB
27 July | Lazdijų komunalinis ūkis UAB
2 November | Interbud Max Sp. Z.o.o
28 December |
| --- | --- | --- | --- | --- | --- | --- |
| Fair value of acquired assets, liabilities and contingent liabilities attributable to the Group | 1,832 | 829 | 1 | (115) | 1,957 | 5 |
| Non-controlling interests | 73 | - | - | - | - | - |
| Goodwill | 3,966 | (738) | - | 1,025 | (418) | - |
| Total purchase consideration | 5,871 | 91 | 1 | 910 | 1,539 | 5 |
| Cash acquired | 964 | 53 | - | 293 | 4 | - |
| Total purchase consideration, net of cash acquired | 4,907 | 38 | 1 | 617 | 1,535 | 5 |

All the purchase consideration has been settled in cash, with no contingent payments.

| Date of acquisition | Group of companies in Stavropol
1 February | .A.S.A. Vilnius UAB
1 February | OOO «Чистый дом»
1 July | Būsto administravimo agentūra UAB
27 July | Lazdijų komunalinis ūkis UAB
2 November | Interbud Max Sp. Z.o.o
28 December |
| --- | --- | --- | --- | --- | --- | --- |
| Profit (loss) incurred since acquisition date to 31 December 2011 | 249 | 484 | 796 | (53) | (99) | - |
| Total revenue since acquisition date to 31 December 2011 | 32,799 | 4,203 | 2,320 | 656 | 741 | - |
| Total revenue for the year 2011 | 32,799 | 4,410 | 3,301 | 1,550 | 2,770 | - |
| Total net result for the year 2011 | 249 | 1,295 | 796 | (45) | (68) | - |

Goodwill allocation

For the purpose of impairment evaluation, the goodwill as of 31 December 2012 and 2011 was allocated to the following cash generating units (CGU):

Cash generating unit	Carrying value of allocated goodwill as of 31 December 2012	Carrying value of allocated goodwill as of 31 December 2011
Subsidiaries operating in Klaipėda (administration of dwelling-houses in Klaipėda)	4,894	4,894
Subsidiaries operating in Kaunas (administration of dwelling-houses in Kaunas)	3,169	3,169
Subsidiaries operating in Vilnius (administration of dwelling-houses in Vilnius)	20,704	16,424
Subsidiaries operating in Šiauliai (administration of dwelling-houses in Šiauliai)	1,022	1,022
Subsidiaries operating in Russia (administration of dwelling-houses in cities of St. Petersburg and Stavropol)	7,436	16,683
Subsidiaries involved in waste management activities (Ecoservice subgroup)	7,896	26,880
	45,121	69,072

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

4 Goodwill (cont'd)

The recoverable amount of each cash generating unit as of 31 December 2012 and 2011 was determined based on the value in use calculation using cash flow projections based on the five-year financial forecasts prepared by the management. Significant assumptions used for the assessment of the value in use in 2012 are described further.

The forecasted revenues for CGU involved in administration of dwelling houses were estimated based on the area of the dwelling-houses administered as of 31 December 2012 and 2011 assuming that the area administered will remain the same in the future years and the growth in revenue will be derived from a service fee increase, which was forecasted to be in line with the estimated inflation rate. The forecasted revenues of waste management CGU was estimated based on the current and expected contracts for waste collection, assuming that volumes of the waste will remain approximately the same in the future years and the growth in revenue will be derived from a service fee increase, which was forecasted to be in line with the estimated inflation rate.

In 2012 the assessed revenue from additional services for CGU's operating in the territory of Lithuania are forecasted to decrease for several years to come because of the existing economic conditions in Lithuania. The costs were projected based on the actual cost level taking into account estimated inflation. Cash flows beyond the five-year period were extrapolated using 2 % growth rate (same in 2011) that reflects the best estimate of the management based on the current situation in the respective industry. The post-tax discount rate used by the management was estimated for each individual cash generating unit as a weighted average cost of capital for that particular cash generating unit and is equal to 12 % for cash generating units located in Lithuania (12 % in 2011), and 15 % for locations in Russia (St. Petersburg and Stavropol) (same in 2011).

In the opinion of the Group's management, the most important and most change-like assumptions are the level of reinvestments and discount rate. Based on management's estimations, a reasonable change in these assumptions may result in impairment of goodwill, i.e. 1 % change in discount rate used would result in impairment consisting of 4 % from total goodwill net balance sheet value as of 31 December 2012 (4 % as of 31 December 2011). At the moment of preparing these financial statements the management of the Group did not expect any significant changes in the assumptions used.

UAB Ecoservice goodwill impairment was tested based on 2013 forecasted results extrapolated over the five years period with zero growth rate applying weighted average cost of capital equal to 11 %. Cash flows beyond the five-year period were extrapolated using 1.5 % growth rate that reflects the best estimate of the management based on the current situation in the respective industry. After the goodwill impairment test, due to the decreasing operating margins in the waste management business resulting from increase in landfill gate fees not being adequately compensated within waste management tariff structure, the goodwill impairment of LTL 19,139 thousand was accounted in 2012 (Note 23).

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

5 Other intangible assets

Movement of other intangible assets in 2012 and 2011 is presented below:

	Group	Company
Cost:
Balance as of 1 January 2011	79,468	1,156
Additions arising from acquisitions of subsidiaries	6,353	-
Additions	634	221
Disposals	(161)	(2)
Retirements	(168)	(17)
Reclassifications	684	313
Balance as of 31 December 2011	86,810	1,671
Additions arising from acquisitions of subsidiaries	12,562	-
Additions	311	45
Disposals of subsidiaries	(12,472)	-
Disposals	(8)	(2)
Retirements	(189)	-
Reorganisation effect (Note 1)	-	(1,699)
Balance as of 31 December 2012	87,014	15
Accumulated amortisation:
Balance as of 1 January 2011	4,810	372
Charge for the year	3,334	130
Disposals	(1)	-
Retirements	(25)	(17)
Balance as of 31 December 2011	8,118	485
Charge for the year	3,402	18
Disposals	-	(1)
Disposals of subsidiaries	(987)	-
Retirements	(99)	-
Reorganisation effect (Note 1)	-	(490)
Balance as of 31 December 2012	10,434	12
Net book value as of 31 December 2012	76,580	3
Net book value as of 31 December 2011	78,692	1,186

The main part of other intangible assets consists of customer relationship intangible assets, which are amortised during the period of 10-40 years. As of 31 December 2012 net book value of such intangible assets constituted LTL 75,033 thousand (LTL 76,879 thousand as of 31 December 2011).

The Group and the Company have not capitalised any internally generated intangible assets. Amortisation expenses of intangible assets are included within general and administrative expenses in the statement of comprehensive income.

Part of the other intangible assets of the Group and the Company with the acquisition value of LTL 502 thousand and LTL 8 thousand, respectively, as of 31 December 2012 was fully amortised but still in use (LTL 1,302 thousand and LTL 330 thousand, respectively, of the Group and the Company as of 31 December 2011).

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

6 Property, plant and equipment

Movement of property, plant and equipment in 2012 and 2011 is presented below:

Group	Buildings	Vehicles	Other property, plant and equipment	Construction in progress	Total
Cost:
Balance as of 1 January 2011	23,621	21,240	10,978	1,567	57,406
Additions arising from acquisitions of subsidiaries	507	1,215	1,506	-	3,228
Additions	897	6,817	5,581	148	13,443
Disposals	(929)	(1,038)	(497)	-	(2,464)
Exchange differences	(1)	(83)	(70)	(6)	(160)
Retirements	-	(414)	(2,039)	(29)	(2,482)
Reclassifications	610	592	-	(1,632)	(430)
Balance as of 31 December 2011	24,705	28,329	15,459	48	68,541
Additions arising from acquisitions of subsidiaries	15,902	1,530	20,896	280	38,607
Additions	281	3,347	4,142	-	7,770
Disposals	-	(1,944)	(1,069)	-	(3,013)
Exchange differences	-	119	34	2	155
Retirements	-	(1,530)	(3,028)	(1)	(4,559)
Balance as of 31 December 2012	40,888	29,851	36,433	329	107,502
Accumulated depreciation:
Balance as of 1 January 2011	2,571	5,297	1,724	-	9,592
Charge for the year	1,097	4,184	4,072	-	9,353
Disposals	(213)	(896)	(315)	-	(1,424)
Exchange differences	-	(29)	(14)	-	(43)
Retirements	-	(260)	(1,487)	-	(1,747)
Reclassifications	59	-	-	-	59
Balance as of 31 December 2011	3,514	8,296	3,980	-	15,790
Charge for the year	1,120	4,249	4,338	-	9,707
Disposals	-	(1,645)	(890)	-	(2,535)
Exchange differences	-	43	17	-	60
Retirements	-	(1,124)	(2,602)	-	(3,726)
Balance as of 31 December 2012	4,634	9,819	4,843	-	19,296
Net book value as of 31 December 2012	36,254	20,032	31,590	329	88,205
Net book value as of 31 December 2011	21,191	20,033	11,479	48	52,751

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

6 Property, plant and equipment (cont'd)

Company

	Vehicles	Other property, plant and equipment	Construction in progress	Total
Cost:
Balance as of 1 January 2011	3,864	2,868	242	6,974
Additions	2,110	606	71	2,787
Disposals	(123)	(21)	-	(144)
Retirements	-	(214)	-	(214)
Reclassifications	-	-	(313)	(313)
Balance as of 31 December 2011	5,851	3,239	-	9,090
Additions	55	116	-	171
Disposals	(62)	(16)	-	(78)
Reorganisation effect (Note 1)	(5,230)	(3,034)	-	(8,264)
Balance as of 31 December 2012	614	305	-	919
Accumulated depreciation:
Balance as of 1 January 2011	2,274	1,700	-	3,974
Charge for the year	798	601	-	1,399
Disposals	(102)	(11)	-	(113)
Retirements	-	(214)	-	(214)
Balance as of 31 December 2011	2,970	2,076	-	5,046
Charge for the year	142	105	-	247
Disposals	(12)	(11)	-	(23)
Reorganisation effect (Note 1)	(2,816)	(1,954)	-	(4,770)
Balance as of 31 December 2012	284	216	-	500
Net book value as of 31 December 2012	330	89	-	419
Net book value as of 31 December 2011	2,881	1,163	-	4,044

The depreciation charge of the Group's and the Company's property, plant and equipment for the year 2012 amounts to LTL 9,707 thousand and LTL 247 thousand, respectively (LTL 9,353 thousand and LTL 1,399 thousand in the year 2011, respectively). Amounts of LTL 3,928 thousand and LTL 247 thousand for the year 2012 (LTL 3,590 thousand and LTL 1,377 thousand for the year 2011) have been included into general and administrative expenses in the Group's and the Company's statement of comprehensive income, respectively. The remaining depreciation expenses of property, plant and equipment have been included into the cost of sales.

Property, plant and equipment of the Group and the Company with an acquisition cost of LTL 12,345 thousand and LTL 279 thousand, respectively, were fully depreciated as of 31 December 2012 (LTL 8,601 thousand and LTL 2,103 thousand as of 31 December 2011, respectively), but were still in active use.

As of 31 December 2012 buildings of the Group with a net book value of LTL 17,136 thousand (LTL 16,671 thousand as of 31 December 2011) were pledged to banks as collateral for the loans (Note 13).

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

7 Investments into subsidiaries

The Company's investments into subsidiaries as of 31 December 2012 and 31 December 2011 are as follows:

	2012	2011
Cost of investments at the beginning of the year	127,913	127,774
Acquisition of UAB Bústo administravimo agentúra	-	911
Establishment of UAB Baltijos pastatų valdymas	-	10
Acquisition of Interbud Max Sp. z o.o	-	7
Investment impairment of UAB Saulės valda	-	(563)
Investment impairment of OAO Специализированное ремонтно-наладочное управление	-	(226)
Establishment and increase of authorised share capital of UAB Baltijos NT valdymas	1,637	-
Establishment of City Service Poland Sp. z o.o	4	-
Transfer of Company's activities to UAB Mano būstas LT	44,431	-
Investment impairment of UAB Ecoservice	(10,948)	-
Investment impairment of SIA Riga City Service	(992)	-
Cost of investments at the period end	162,045	127,913

Impairment testing of investments has been performed by the management of the Group using valuation methods and based on assumptions described in Note 4.

8 Inventories

	Group		Company
	As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
Raw and auxiliary materials	4,386	2,694	1	686
Goods for resale	495	861	-	-
Other	331	575	-	15
	5,212	4,130	1	701
Less: net realisable value allowance	(93)	(90)	-	-
	5,119	4,040	1	701

Change in allowance for inventories for the year 2012 and 2011 has been included into general and administrative expenses.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

9 Prepayments

Prepayments of the Group amount to LTL 12,269 thousand as of 31 December 2012 (LTL 8,911 thousand as of 31 December 2011) and mainly include prepayments to subcontractors for residential renovation projects in Russia amounting to LTL 7,186 thousand (LTL 6,996 thousand as of 31 December 2011).

10 Trade and other receivables

	Group		Company
	As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
Trade receivables, gross	146,297	103,327	29,936	22,177
Less: allowance for doubtful trade receivables	(28,282)	(26,602)	(778)	(1,619)
	118,015	76,725	29,158	20,558

Change in allowance for doubtful trade receivables for the year 2012 and 2011 has been included into general and administrative expenses.

The Group's and the Company's accounts receivable from Vilnius City Municipality for maintenance and heat supply within Vilnius schools and kindergartens amounts to LTL 27,927 thousand as of 31 December 2012 (LTL 12,872 thousand as of 31 December 2011).

Both trade receivables and other receivables are non-interest bearing and are generally collectible on 30 - 90 days terms.

Other receivables of the Group and the Company as of 31 December 2011 included a loan granted to UAB Novrita in the amount of LTL 8,348 thousand. Based on management estimate, part of the loan granted to UAB Novrita in the amount of LTL 6,000 thousand was accounted as non-current receivable as of 31 December 2011. In 2012 amounts due from UAB Novrita were netted off fully.

As of 31 December 2012 and 2011 a part of trade receivables of the Company's subsidiaries Mano būstas LT UAB and Ecoservice UAB was pledged to banks as collateral for the loans (Note 13).

Movements in the allowance for impairment of the Group's receivables were as follows:

	Individually impaired	Collectively impaired	Total
Balance as of 1 January 2011	524	20,132	20,656
Charge for the year	1,946	5,791	7,737
Exchange differences	(79)	(951)	(1,030)
Reversed during the year	(401)	(360)	(761)
Balance as of 31 December 2011	1,990	24,612	26,602
Charge for the year	2,420	7,154	9,574
Exchange differences	75	1,666	1,741
Reversed during the year	-	(877)	(877)
Written off during the year*	(193)	(8,565)	(8,758)
Balance as of 31 December 2012	4,292	23,990	28,282

The major part of written off receivables is related to disposal of subsidiaries (Note 1)

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

10 Trade and other receivables (cont'd)

Movements in the allowance for impairment of the Company's receivables were as follows:

	Individually impaired	Collectively impaired	Total
Balance as of 1 January 2010	-	1,444	1,444
Charge for the year	-	175	175
Balance as of 31 December 2011	-	1,619	1,619
Reversed during the year	-	(841)	(841)
Balance as of 31 December 2012	-	778	778

The ageing analysis of the Group's trade receivables (presented net of allowance for impaired receivables) as of 31 December is as follows:

	Trade receivables neither past due nor impaired	Trade receivables past due but not impaired					Total
		Less than 30 days	30 – 60 days	60 – 90 days	90 – 360 days	More than 360 days
2011	32,118	14,445	7,501	5,190	9,676	7,795	76,725
2012	63,707	12,669	7,057	6,764	16,828	10,990	118,015

The ageing analysis of the Company's trade receivables (presented net of allowance for impaired receivables) as of 31 December is as follows:

	Trade receivables neither past due nor impaired	Trade receivables past due but not impaired					Total
		Less than 30 days	30 – 60 days	60 – 90 days	90 – 360 days	More than 360 days
2011	8,807	4,637	2,667	2,345	2,022	80	20,558
2012	7,947	3,886	3,902	3,923	7,087	2,413	29,158

Trade receivables of the Company overdue for more than 90 days consist mainly of receivables from municipal entities, which, in the view of the management, do not bear the risk of non-repayment.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

11 Cash and cash equivalents

	Group		Company
	As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
Cash at bank	19,060	21,608	127	202
Cash on hand	109	109	2	14
Short-term deposits	13,745	3,333	-	-
	32,914	25,050	129	216

The original term of all deposits is less than three months, the weighted average annual interest rate of the Group as of 31 December 2012 was 5,36 % (7 % as of 31 December 2011).

The fair value of cash and short-term deposits as of 31 December 2012 of the Group and the Company was LTL 32,914 thousand and LTL 129 thousand respectively (LTL 25,050 thousand and LTL 216 thousand as of 31 December 2011, respectively).

As of 31 December 2012 the Group had restricted cash of LTL 730 thousand (LTL 200 thousand as of 31 December 2011) held in the bank as guarantee provided to customers. The whole amount is accounted for under non-current receivables caption in the statement of financial position as of 31 December 2012.

As of 31 December 2012 and 2011 part of bank accounts of the Company and its subsidiaries are pledged to banks for loans (Note 13).

12 Reserves and share premium

Legal reserve

A legal reserve is a compulsory reserve under Lithuanian legislation. Annual transfers of not less than 5% of net profit, calculated for statutory reporting purposes are required until the reserve reaches 10% of the share capital. As of 31 December 2012 and 2011 the reserve was fully composed.

Other reserves

Based on the shareholders' decision other reserves of LTL 6,000 thousand were formed from the retained earnings during the year 2009 for acquisition of its own shares.

Share premium

Share premium represents the excess of the share issue price over nominal value of the shares issued.

According to the laws of the Republic of Lithuania share surplus cannot be distributed, it can only be converted to the share capital or used to cover accumulated losses.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

13 Borrowings

The list of borrowings of the Group and the Company as of 31 December 2012 and 2011 are as follows:

Creditor	Currency of the loan	Amount of the loan (in currency of the loan)	Final repayment date	Group Balance as of 31 December 2012 (LTL)	Balance as of 31 December 2011 (LTL)	Company Balance as of 31 December 2012 (LTL)	Balance as of 31 December 2011 (LTL)
Current loans
Swedbank, AB (overdraft)	EUR	1,448	17.08.2013	5,000	86	5,000	86
Swedbank, AB (overdraft)	LTL	5,000	17.08.2013	83	-	83	-
Swedbank, AB	EUR	3,700	10.06.2013	12,775	-	12,775	-
DNB bankas, AB (UAB Ecoservice)	EUR	435	29.11.2013	928	770	-	-
AS UniCredit Bank (UAB Tvar.com)	LTL	350	15.02.2013	127	-	-	-
Group Account (eliminated in the consolidated group accounts)*	Unspecified	Unspecified	Unspecified	-	-	17,092	3,062
Current loan balance				18,913	856	34,950	3,148
Non-current loans
Swedbank, AB	EUR	10,486	09.08.2015	18,417	25,533	18,417	25,533
Swedbank, AB	EUR	6,000	10.12.2017	20,717	-	20,717	-
AS UniCredit Bank (UAB Tvar.com)	EUR	309	15.01.2013	80	1,067	-	-
Less: current portion of non-current borrowings				(9,498)	(8,103)	(9,418)	(7,116)
Non-current loan balance				29,716	18,497	29,716	18,417

Based on overdraft facility agreement signed on 25 August 2008 among the Company, its subsidiaries operating in Lithuania and Swedbank, AB, the Group can utilise net cash balances of the Company and its subsidiaries operating in Lithuania as inter-group borrowings.

For all the loans of the Group and the Company variable interest rates apply. Actual interest rates are close to effective interest rates. As of 31 December 2012 the weighted average annual interest rate of borrowings outstanding was 2.35% (3.9% as of 31 December 2011). In 2012 and 2011 the period of re-pricing of floating interest rates on borrowings was 6 months. Interest is paid quarterly.

The total unutilized borrowing facilities of the Group and the Company as of 31 December 2012 amounted to LTL 5,714 thousand and LTL 4,917 thousand respectively (LTL 9,914 thousand for both, the Group and the Company, as of 31 December 2011).

As of 31 December 2012 and 2011 a part of property, plant and equipment (Note 6), a part of trade receivables (Note 10) and a part of bank accounts (Note 11) of the Group and the Company were pledged to banks as collateral for the loans received.

Terms of repayment of non-current debt are as follows:

Term	Group		Company
	As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
Within one year	9,498	8,103	9,418	7,116
From one to five years	29,716	18,497	29,716	18,417
	39,214	26,600	39,134	25,533

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

14 Non-current payables

In 2010 OAO City Service, ZAO City Service and OOO ЖИЛКОМСЕРВИС № 3 ФРУНЗЕНСКОГО РАЙОНА started court litigation against TGK-1 (the provider of heating). The companies challenged the amounts invoiced by TGK-1, because the companies believe the invoices should be calculated not based on volumes of heating dispatched by TGK-1, but based on the estimated volumes of heating consumed by the inhabitants (based on the norms set for consumption).

In October 2011 the companies decided not to continue litigations with TGK-1 and an amicable settlement agreement was signed regarding the outstanding debt due from the companies. According to this agreement:

The debt was decreased by RUR 22,541 thousand (equivalent of LTL 1,878 thousand)
The remaining amount RUR 120,190 thousand (equivalent of LTL 10,016 thousand) has to be repaid on a monthly basis until August 2014.
No interest is charged to the companies.

Non-current payables to TGK-1 were discounted using the effective interest rate method on the date of recognition. A gain on initial recognition (LTL1,396 thousand) was recognised in the cost of sales caption of the statement of comprehensive income for 2011. The expenses amounted to LTL 686 thousand for 2012 (LTL 202 thousand for 2011), which were included in financial expenses.

As of 31 December 2012 and 2011 the amortised cost of non-current payables was respectively LTL 2,594 thousand and LTL 5,131 thousand. Current payable is accounted under trade payables.

15 Financial lease

The assets leased by the Group and the Company under financial lease contracts mainly consist of vehicles. Apart from the lease payments, other obligations under lease contracts are maintenance and insurance. The net book value of the vehicles acquired under financial lease amounted to LTL 14,638 thousand as of 31 December 2012 in the Group and LTL 330 thousand in the Company (LTL 16,406 thousand in the Group and LTL 2,405 thousand in the Company as of 31 December 2011). The terms of the financial lease agreements are from 2 to 5 years. The currencies of the financial lease agreements are EUR and LTL.

As of 31 December 2012 the interest rate on the financial lease obligations is 6 month EUR LIBOR + 1.2% - 3%, or 6 month VILIBOR + 1.5% - 3.31% (as of 31 December 2011 – 6 month EUR LIBOR + 1.2% - 6.18%, or 6 month VILIBOR + 1.5% - 3.31%). Interest is paid monthly.

Future minimal lease payments under the above mentioned financial lease contracts as of 31 December 2012 are as follows:

	Group	Company
Within one year	2,904	69
From one to five years	6,478	264
Total financial lease obligations	9,382	333
Interest	(378)	(18)
Present value of financial lease obligations	9,004	315
Financial lease obligations are accounted as:
- current	2,749	62
- non-current	6,255	253

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

15 Financial lease (cont'd)

Future minimal lease payments under the above mentioned financial lease contracts as of 31 December 2011 are as follows:

	Group	Company
Within one year	4,133	633
From one to five years	6,597	1,722
Total financial lease obligations	10,730	2,355
Interest	(664)	(190)
Present value of financial lease obligations	10,066	2,165
Financial lease obligations are accounted as:
- current	3,859	569
- non-current	6,207	1,596

16 Operating lease

As of 31 December 2012 and 2011 the Group had several contracts of operating lease for vehicles outstanding. The remaining part of the operating lease comprises of rent of offices in Vilnius. The terms of lease do not include restrictions of the activities of the Group and the Company in connection with the dividends, additional borrowings or additional lease agreements.

Minimal future lease payments according to the signed non-cancellable operating lease contracts are as follows:

	Group		Company
	As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
Within one year	139	829	12	136
From one to five years	22	563	-	6
	161	1,392	12	142

Operating lease contracts are denominated in Lithuanian Litas and Euros.

The Company has also entered into several vehicle operating lease agreements with employees. However, the agreements are cancellable; therefore, minimum lease payments are not disclosed.

17 Provision for employee benefits

As of 31 December 2012 and 2011 the Group and Company accounted for employee benefits for employees leaving the Group or the Company at the age of retirement (Note 2.13). Related expenses are included into general and administrative expenses in the Group's and the Company's statements of comprehensive income.

	Group		Company
	2012	2011	2012	2011
As of 31 December of the previous year	750	724	327	312
Additions arising from acquisitions of new subsidiaries	579	-	-	-
Change during the year	79	26	(299)	16
As of 31 December of the financial year	1,408	750	28	328

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

17 Provision for employee benefits (cont'd)

Main assumptions applied while evaluating the Group's and the Company's provision for employee benefits as of 31 December 2012 are as follows:

	Group	Company
Discount rate	4.4%	6.0%
Anticipated annual salary increase	3.2%	3.0%

Main assumptions applied while evaluating the Group's and the Company's provision for employee benefits as of 31 December 2011 are as follows:

	Group	Company
Discount rate	5.8%	5.8%
Anticipated annual salary increase	3.0%	3.0%

18 Trade payables and payables to related parties

	Group		Company
	As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
Trade payables	73,687	59,035	13,189	4,334
Payables to related parties (Note 31)	12,473	13,212	11,928	13,559
	86,160	72,247	25,117	17,893

Trade payables are non-interest bearing and are normally settled on 60-day terms.

19 Advances received

As of 31 December 2012 and 2011 amount represents advances received from the owners of commercial and residential buildings administrated by the Group and the Company for repair and other works.

As of 31 December 2011 balance also included payments received from UAB Litesko and UAB Vilniaus Energija for heating system renovation works amounting to LTL 872 thousand.

20 Other current liabilities

	Group		Company
	As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
Salaries and social security	6,024	4,683	87	733
Vacation pay accrual	6,222	5,536	374	2,115
Accrued expenses and deferred income	5,028	2,837	186	299
Other current liabilities	6,949	6,114	319	67
	24,223	19,170	966	3,214

Other payables are non-interest bearing and have an average term of six months.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

21 Sales

	Group		Company
	2012	2011	2012	2011
Buildings' administration and related services	494,190	492,310	52,159	107,560
Heating system renovation and heating components installation services (Note 1)	-	6,748	-	6,748
Waste management	39,455	47,537	-	-
Other services and goods	909	1,248	909	1,248
	534,554	547,843	53,068	115,556

The Company has a relatively significant concentration of trading counterparties. The main customer of the Company – Vilnius City Municipality – in 2012 and 2011 accounted for 75 % and 28 %, of total Company's sales, respectively.

Information about customer specific contracts in progress as of 31 December 2012 and 2011:

	Group and Company
	2012	2011
Sales of customer specific contracts in progress, recognised in the statement of comprehensive income during the year	-	1,092
Sales from customer specific contracts in progress, recognised to date	-	23,614
Expenses incurred on the customer specific contracts, recognised in the statement of comprehensive income during the year	-	43
Expenses incurred on the customer specific contracts, recognised to date	-	16,901
Due to customers (accounted for as advances received)	-	872

22 Cost of sales

	Group		Company
	2012	2011	2012	2011
Services of subcontractors and materials used	335,919	352,814	39,848	61,351
Wages and salaries and social security	68,568	68,100	2,503	22,074
Cost of goods sold	9,451	5,345	1	1,022
Depreciation	5,779	5,741	-	-
Other	5,207	2,595	-	-
Total cost of sales	424,924	434,595	42,352	84,447

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

23 General and administrative expenses

	Group		Company
	2012	2011	2012	2011
Wages and salaries and social security	36,345	35,751	2,913	7,218
Goodwill impairment (Note 4)	19,139	-	-	-
Allowance for trade receivables	8,697	5,946	(841)	641
Depreciation and amortisation	7,330	6,924	265	1,507
Consulting and similar expenses	3,603	3,173	1,382	1,374
Commissions for collection of payments	3,068	4,819	279	1,904
Rent of premises and other assets	2,934	3,324	440	1,149
Bonuses	2,420	800	2,420	800
Allowance for long term receivables*	2,335	-	-	-
Consulting and tax expenses related with acquisitions in Poland	1,768	-	1,768	-
Utilities	1,276	1,144	404	379
Fuel expenses	1,201	1,410	85	220
Transportation	1,012	1,204	48	172
Computer software maintenance	1,131	955	25	125
Advertising	1,062	1,524	348	905
Communication expenses	1,047	1,239	126	231
Taxes other than income tax	947	646	17	78
Business trips and training	778	863	269	571
Insurance	752	556	43	196
Representational costs	712	654	224	464
Bank payments	654	500	142	22
Charity and support	346	561	198	480
Other	6,043	3,890	310	1,443
Total general and administrative expenses	104,600	75,883	10,865	19,879

Allowance relates to long term accounts receivable of Group companies operating in St. Petersburg.

24 Other operating income and expenses

	Group		Company
	2012	2011	2012	2011
Income from rent	179	556	860	156
Gain on disposal of property, plant and equipment	358	636	13	-
Gain from bargain purchase (Note 4)	22,965	1,156	-	-
Fines and penalties	2,651	3,084	-	-
Other income***	3,360	1,185	3,385	469
Total other operating income	29,513	6,617	4,258	625
Depreciation of rented assets	32	34	18	22
Fines and penalties	263	1,949	-	-
Legal claims*	1,164	1,045	-	-
State duties**	181	2,464	-	-
Other expenses***	2,998	2,964	2,411	517
Total other operating expenses	4,638	8,456	2,429	539

Expenses relate to claim payments to inhabitants in St. Petersburg, mainly for roof leaks during winter.
**Expenses for government fees paid for failed legal cases in St. Petersburg subsidiaries.
*** Other Company income/expenses mainly relates to the property, plant and equipment transferred during the reorganisation.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

25 Finance income and (expenses), net

	Group		Company
	2012	2011	2012	2011
Interest income	337	717	936	1,757
Dividend income	-	-	18,578	2,957
Foreign currency exchange gain	984	217	82	2
Other financial income	223	286	13	79
Total finance income	1,544	1,220	19,609	4,795
Interest (expenses)	(1,415)	(1,724)	(1,646)	(1,664)
Impairment of investments into subsidiaries (Note 7)	-	-	(11,940)	(789)
Foreign currency exchange loss	(163)	(791)	(104)	(33)
Loss on sale of investments (Note 1)	(6,906)	-	-	-
Other financial (expenses)	(736)	(306)	(30)	(88)
Total finance (expenses)	(9,220)	(2,821)	(13,720)	(2,574)
Financial activity, net	(7,676)	(1,601)	5,889	2,221

26 Income tax

	Group		Company
	2012	2011	2012	2011
Components of the income tax expenses
Current income tax	4,853	4,777	152	1,610
Deferred income tax (income) expenses	1,138	(324)	285	(176)
Income tax (income) expenses recorded in the statement of comprehensive income	5,991	4,453	437	1,434

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

26 Income tax (cont'd)

	Group		Company
	As of 31 December 2012	As of 31 December 2011	As of 31 December 2012	As of 31 December 2011
Deferred income tax asset
Allowance for accounts receivable	3,235	7,111	117	313
Allowance for inventories	17	17	-	-
Accruals and similar temporary differences	2,485	1,275	125	430
Deferred income (percentage of completion method)	-	-	-	-
Impairment of investments	-	-	210	181
Tax loss carry forward	1,088	2,651	-	-
Tax goodwill	4,573	5,030	-	-
Deferred income tax asset before valuation allowance	11,398	16,084	452	924
Less: valuation allowance	(2,193)	(2,084)	-	(188)
Deferred income tax asset, net of valuation allowance	9,205	14,000	452	736
Deferred income tax liability
Property, plant and equipment and intangible assets	(11,952)	(15,662)	-	-
Accrued income	(502)	(4,401)	-	-
Deferred income tax liability	(12,454)	(20,063)	-	-
Deferred income tax, net	(3,249)	(6,063)	452	736
Presented in the statement of financial position as follows:
Deferred income tax asset	10,149	9,243	452	736
Deferred income tax liability	(13,398)	(15,306)	-	-

The Group's deferred tax asset and liability were netted-off to the extent they related to the same tax administration institution and the same taxable entity.

Tax loss carry forward can be utilised as follows: in Lithuania (LTL 3,363 thousand as of 31 December 2012) – indefinitely, in Russia (LTL 2,899 thousand as of 31 December 2012) – mainly until the year 2014.

Deferred income tax asset and liability, related to entities operating in Lithuania, were accounted at 15% rate in 2012 and 2011. The deferred tax of companies operating in Russia, Ukraine, Latvia and Poland was calculated using 20%, 25%, 15% and 19% tax rates, respectively in 2012 (same as in 2011).

Due to group reorganisations (mergers) in 2011 and 2010 as discussed in Notes 1 and 4, tax goodwill was created as of the merger date. Consequently, a deferred tax asset was recorded on these transactions to the extent tax goodwill exceeds a respective financial goodwill amounts.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

26 Income tax (cont'd)

The changes of temporary differences before and after tax effect in the Group were as follows:

	Balance as of 31 December 2011	Recognised in statement of comprehensive income	Exchange differences	Disposed subsidiaries	Acquired subsidiaries	Balance as of 31 December 2012
Allowance for accounts receivable	38,628	(3,695)	67	(16,620)	1,411	19,791
Allowance for inventories	113	-	-	-	-	113
Accruals and similar temporary differences	8,247	4,510	7	(1,065)	2,166	13,865
Deferred income (percentage of completion)	-	-	-	-	-	-
Tax loss carry forward	16,127	(9,384)	12	-	-	6,755
Tax goodwill	33,531	(3,047)	-	-	-	30,484
Property, plant and equipment and intangible assets	(97,214)	7,466	3	11,451	1,745	(76,549)
Accrued income	(22,250)	1,474	57	18,927	-	(1,792)
Total temporary differences before valuation allowance	(22,818)	(2,676)	146	12,693	5,322	(7,333)
Valuation allowance	(10,853)	303	(5)		-	(10,555)
Total temporary differences	(33,671)	(2,373)	141	12,693	5,322	(17,888)
Deferred income tax, net	(6,063)	(950)	28	2,539	1,197	(3,249)
	Balance as of 31 December 2010	Recognised in statement of comprehensive income	Exchange differences	Acquired subsidiaries	Balance as of 31 December 2011
---	---	---	---	---	---
Allowance for accounts receivable	42,196	(5,850)	(58)	2,340	38,628
Allowance for inventories	113	-	-	-	113
Accruals and similar temporary differences	6,447	(4,755)	(6)	6,561	8,247
Deferred income (percentage of completion)	1,053	(1,053)	-	-	-
Tax loss carry forward	14,515	(2,439)	(10)	4,061	16,127
Tax goodwill	17,671	15,860	-	-	33,531
Property, plant and equipment and intangible assets	(90,542)	(504)	(2)	(6,166)	(97,214)
Accrued income	(13,439)	(8,762)	(49)	-	(22,250)
Total temporary differences before valuation allowance	(21,986)	(7,503)	(125)	6,796	(22,818)
Valuation allowance	(19,514)	9,898	4	(1,241)	(10,853)
Total temporary differences	(41,500)	2,395	(121)	5,555	(33,671)
Deferred income tax, net	(7,196)	324	(24)	833	(6,063)

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

26 Income tax (cont'd)

The changes of temporary differences before and after tax effect in the Company were as follows:

	Balance as of 31 December 2011	Recognised in statement of comprehensive income	Balance as of 31 December 2012
Allowance for accounts receivable	2,085	(1,307)	778
Accruals and similar temporary differences	2,872	(2,040)	832
Deferred income (percentage of completion method)	-	-	-
Impairment of investments	1,206	194	1,400
Total temporary differences	6,163	(3,153)	3,010
Valuation allowance	(1,255)	1,255	-
Total temporary differences	4,908	(1,898)	3,010
Deferred income tax, net	736	(284)	452
	Balance as of 31 December 2010	Recognised in statement of comprehensive income	Balance as of 31 December 2011
Allowance for accounts receivable	1,444	641	2,085
Accruals and similar temporary differences	2,265	607	2,872
Deferred income (percentage of completion method)	1,049	(1,049)	-
Impairment of investments	417	789	1,206
Total temporary differences	5,175	988	6,163
Valuation allowance	(1,444)	189	(1,255)
Total temporary differences	3,731	1,177	4,908
Deferred income tax, net	560	176	736

The reported amount of income tax expenses attributable to the year can be reconciled to the amount of income tax expenses that would result from applying statutory income tax rate to pre tax income as follows:

	Group		Company
	2012	2011	2012	2011
Income tax expenses computed at 15 % in 2012 and 2011	3,336	5,091	1,135	2,030
Effect of different tax rates applicable to foreign subsidiaries	476	748	-	-
Deferred tax asset recognized on reorganization of subsidiaries (on tax goodwill)	-	(2,379)	-	-
Tax incentive on investments	-	(42)	-	(42)
Tax losses overtaken from other Group companies	-	-	-	(38)
Change in deferred tax asset valuation allowance	109	(1,713)	(188)	(29)
Permanent differences	2,070	2,748	(510)	(487)
Income tax expenses reported in the statement of comprehensive income	5,991	4,453	437	1,434

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

27 Basic and diluted earnings per share (LTL)

Basic earnings per share are calculated by dividing the net profit attributable to the shareholders by the weighted average number of ordinary shares issued and paid during the year. The Company has no diluting instruments, therefore basic and diluted earnings per share are equal. Calculation of basic and diluted earnings per share is presented below:

	Group
	2012	2011
Net profit attributable to the shareholders	15,078	28,725
Number of shares (thousand), opening balance	31,610	31,610
Number of shares (thousand), closing balance	31,610	31,610
Weighted average number of shares (thousand)	31,610	31,610
Basic and diluted earnings per share (LTL)	0.48	0.91

28 Dividends per share

	2012	2011
Approved dividends*	7,270	7,903
Number of shares (in thousand)**	31,610	31,610
Approved dividends per share (LTL)	0.23	0.25

The year when the dividends are approved.
** At the date when dividends are approved.

29 Financial assets and liabilities and risk management

Credit risk

The Group's and the Company's procedures are in force to ensure on a permanent basis that sales are made to customers with an appropriate credit history and do not exceed an acceptable credit exposure limit. Furthermore, the credit risk of the main customer of the Company, regarding which there is a trading and credit risk concentration (Note 21), however Vilnius City Municipality is considered as low risk customer in this respect. Receivables from Vilnius City Municipality as of 31 December 2012 amounted to 23% and 95% of the Group's and the Company's trade accounts receivable, respectively (17% and 63% as of 31 December 2011, respectively).

The maximum exposure to credit risk is represented by the carrying amount of each financial asset. Therefore, the Company's management considers that its maximum exposure is reflected by the amount of trade and other receivables, net of allowance for doubtful accounts recognised at the date of the statement of financial position.

Interest rate risk

The major part of the Group's and the Company's borrowings (loans and financial lease obligations) are subject to variable rates, related to EUR LIBOR and VILIBOR, which create an interest rate risk (Notes 13 and 15). There are no financial instruments designated to manage the exposure to the interest rate risk outstanding as of 31 December 2012 and 2011.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

29 Financial assets and liabilities and risk management (cont'd)

Interest rate risk (cont'd)

The following table demonstrates the sensitivity of the Group's profit before tax (through the impact on floating rate borrowings) to a reasonably possible change in interest rates, with all other variables held constant. There is no impact on the Group's equity, other than that to current year profit.

2012	Increase/decrease in basis points	Effect on the profit before the income tax
EUR	+100	(664)
LTL	+100	(3)
2011
EUR	+100	(368)
LTL	+100	(40)

The following table demonstrates the sensitivity of the Company's profit before tax (through the impact on floating rate borrowings) to a reasonably possible change in interest rates, with all other variables held constant. There is no impact on the Company's equity, other than that to current year profit.

2012	Increase/decrease in basis points	Effect on the profit before the income tax
EUR	+100	(572)
LTL	+100	(1)
2011
EUR	+100	(278)
LTL	+100	(40)

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

29 Financial assets and liabilities and risk management (cont'd)

Liquidity risk

The Group's and the Company's policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed overdraft and loans to meet its commitments at a given date in accordance with its strategic plans. The Group's liquidity (current assets / current liabilities) and quick ((current assets – inventory) / current liabilities) ratios as of 31 December 2012 were 1.10 and 1.07 respectively (1.04 and 1.01 as of 31 December 2011 respectively). The Company's liquidity and quick ratios as of 31 December 2012 were 1.20 and 1.20 respectively (1.82 and 1.80 as of 31 December 2011, respectively).

The table below summarises the maturity profile of the Group's financial liabilities as of 31 December 2012 and 2011 based on contractual undiscounted payments:

	On demand	Less than 3 months	3 to 12 months	1 to 5 years	More than 5 years	Total
Non-current interest bearing borrowings	-	-	-	31,294	-	31,294
Current portion of non-current interest bearing borrowings	-	2,661	7,742	-	-	10,403
Current loans	-	231	18,988	-	-	19,219
Financial lease obligations	-	712	2,135	6,284	-	9,131
Trade payables and payables to related parties	-	59,906	26,223	31	-	86,160
Other current liabilities	-	285	-	-	-	285
Balance as of 31 December 2012	-	63,795	55,088	37,609	-	156,492
Non-current interest bearing borrowings	-	-	-	19,506	-	19,506
Current portion of non-current interest bearing borrowings	-	2,178	6,798	-	-	8,976
Current loans	-	90	790	-	-	880
Financial lease obligations	-	1,033	3,100	6,597	-	10,730
Trade payables and payables to related parties	481	37,564	34,640	6,741	523	79,949
Other current liabilities	-	458	1,543	-	-	2,001
Balance as of 31 December 2011	481	41,323	46,871	32,844	523	122,042

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

29 Financial assets and liabilities and risk management (cont'd)

Liquidity risk (cont'd)

The table below summarises the maturity profile of the Company's financial liabilities as of 31 December 2012 and 2011 based on contractual undiscounted payments:

	On demand	Less than 3 months	3 to 12 months	1 to 5 years	More than 5 years	Total
Non-current interest bearing borrowings	-	-	-	31,294	-	31,294
Current portion of non-current interest bearing borrowings	-	2,581	7,742	-	-	10,323
Current loans	-	17,337	18,048	-	-	35,385
Financial lease obligations	-	17	52	264	-	333
Trade payables and payables to related parties	-	25,117	-	-	-	25,117
Other current liabilities	-	70	-	-	-	70
Balance as of 31 December 2012	-	45,122	25,842	31,558	-	102,522
Non-current interest bearing borrowings	-	-	-	19,483	-	19,483
Current portion of non-current interest bearing borrowings	-	1,994	5,983	-	-	7,977
Current loans	-	3,166	-	-	-	3,166
Financial lease obligations	-	105	527	1,722	-	2,354
Trade payables and payables to related parties	-	17,893	-	-	-	17,893
Other current liabilities	-	229	-	-	-	229
Balance as of 31 December 2011	-	23,387	6,510	21,205	-	51,102

Foreign exchange risk

The Company's monetary assets and liabilities as of 31 December 2012 and 2011 are denominated in LTL or EUR, to which LTL is pegged. Therefore, the management of the Company believes that foreign exchange risk is insignificant.

Monetary assets and liabilities of the Group denominated in various currencies as of 31 December 2012 and 2011 were as follows:

	2012		2011
	Assets	Liabilities	Assets	Liabilities
LTL	95,091	59,395	69,069	35,248
RUB	38,077	45,027	49,791	63,421
LVL	1,215	867	884	594
PLN	26,289	13,319	4	-
EUR	-	66,480	-	37,522
	160,672	185,088	119,748	136,785

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

29 Financial assets and liabilities and risk management (cont'd)

Foreign exchange risk (cont'd)

The following tables demonstrate the sensitivity of the Group's profit before tax (due to change in the fair value of monetary assets and liabilities) to a reasonably possible change in respect of currency exchange rate with all other variables held constant.

EUR held by Russian subsidiaries:

	Increase/ decrease in exchange rate	Effect on the profit before the income tax
2012
EUR	+ 15.00 %	(1,078)
EUR	- 15.00 %	1,078
2011
EUR	+ 15.00 %	(2,801)
EUR	- 15.00 %	2,801
EUR held by Polish subsidiaries:
	Increase/ decrease in exchange rate	Effect on the profit before the income tax
2012
EUR	+ 15.00 %	(5,723)
EUR	- 15.00 %	5,723
2011
EUR	+ 15.00 %	-
EUR	- 15.00 %	-

Fair value of financial instruments

The Group's and the Company's principal financial instruments not carried at fair value are trade and other receivables, trade and other payables, non-current and current borrowings.

Fair value is defined as the amount at which the instrument could be exchanged between knowledgeable and willing parties in an arm's length transaction, other than in forced or liquidation sale. The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

(a) The carrying amount of current trade and other accounts receivable, current accounts payable and current borrowings approximates fair value;

(b) The fair value of non-current borrowings is based on the quoted market price for the same or similar issues or on the current rates available for borrowings with the same maturity profile. The fair value of non-current borrowings with variable interest rates approximates their carrying amounts.

The fair values of the Group's and the Company's financial assets and financial liabilities approximate their carrying values.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

30 Commitments and contingencies

Acquisition of UAB Lazdynų Būstas

The Company participates as defendant in the case of UAB Lazdynų Būstas privatization. Vilnius district prosecutor claims to dissolve all privatization procedures of UAB Lazdynų Būstas and apply restitution. Vilnius district prosecutor raised the case on the ground of public interest that Vilnius municipality, while preparing UAB Lazdynų Būstas for privatization, did not acquire from UAB Lazdynų Būstas real estate situated on the state land which should be returned to the private citizens. On 20 March 2012 Vilnius district court decided to satisfy all the claims of the prosecutor and apply restitution - Vilnius municipality shall have to return all the Company's paid sum (LTL 7,551 thousand) and the Company shall have to return the shares to Vilnius municipality. Vilnius municipality appealed the decision, the Company supports the appeal and the Appeal Court of Lithuania shall hear the case. At the moment there is no information about the date of the hearing.

In case the final court ruling shall be that UAB Lazdynų Būstas shares could not be transferred to the Company in the public auction by Vilnius municipality, restitution in full shall be applied. Firstly, Vilnius municipality shall be obliged to return all the Company's consideration paid (LTL 7,551 thousand) in order to re-acquire the above mentioned shares from the Company. It should be mentioned that the Company shall transfer UAB Lazdynų Būstas shares only after the above mentioned sum would be paid to the Company. In case of restitution the Company retains the right to claim for damages from the municipality or other state institutions. The net assets and net profit of UAB Lazdynų Būstas included in the consolidated financial statements of the Group as of 31 December 2012 amount to LTL 953 thousand and LTL 41 thousand, respectively. Currently, according to the court decision dated 27 June 2008, shares of UAB Lazdynų Būstas are restricted from sale and pledge, however the restriction does not influence the Group's ability to exercise control over operating and financing decisions of UAB Lazdynų Būstas.

Embezzlement of assets in UAB Mano Būstas LT (previously – UAB City Service LT, UAB Fervėja)

Currently the Company is in the first instance trial process, which started in 2009 after a subsidiary of the Company UAB Fervėja (at the moment the name is changed into UAB Mano Būstas LT) applied to the Lithuanian Financial Crime Investigation Service for initiating the investigation for a compensation of LTL 2.3 million of damages described below.

The application was made because a former director of UAB Būsto Investicijų Valdymas (the company acquired by UAB Mano Būstas LT and currently merged with UAB Naujamiesčio Būstas) had signed an agreement with OOO BAS, a company registered in Kaliningrad district, according to which the latter company was paid LTL 2.3 million for market research works that actually had not been carried out. Currently, the Group cannot assess the outcome of the case. The outcome of the litigation process cannot be reliably determined, thus no assets were recorded in the financial statements in respect of this matter.

UAB Specialus Autotransportas claim

In 2010 UAB Specialus Autotransportas sued to the court for Klaipėda city municipality debt from the year 2009. The claim was set up due to the fact that the municipality ex-parte has changed the order of payments as set per agreement. In June 2009 the municipality has refused to pay according to the tariffs as agreed in the last supplement to the agreement signed between UAB Specialus Autotransportas and Klaipėda city municipality in 2009 and instead applied tariffs as set in the original agreement of 2006. The tariffs set by the supplements of the agreement signed in 2008 and 2009 have not been cancelled or legally disputed. The amount of the legal claim, including interest and legal costs, amounts to LTL 1,659 thousand at the date of issue of these financial statements. At the moment the dispute is for the second time re-considered in the appeal court, as Klaipėda district court ruling was appealed by UAB Specialus Autotransportas. However, as the outcome of the litigation cannot be reliably determined, a full allowance is accounted for the respective receivables from Klaipėda city municipality in the amount of LTL 1,474 thousand (excluding VAT) as of 31 December 2012 and 2011.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

30 Commitments and contingencies (cont'd)

Contingencies related to foreign subsidiaries

In 2009 OAO City Service and ZAO City Service started to participate in residential renovation projects, whose funding is largely covered by the state by signing financing agreements with local government bodies, called Housing Committees. The implementation costs of these residential renovation projects are covered by the state funds. Group companies have committed to implement projects until letters of credit in bank accounts under the contracts for these projects expire. As of 31 December 2012 the letters of credit were extended since the contractors had not completed renovation projects on time. For extension of those letters of credit written authorization of the Housing Committee was not obtained before the year end, however, before the release date of these financial statements the majority of the funds under the contract has already been used for paying the contractors' work. Therefore, the Management of the Group does not think that the extension of letters of credit without the written permission of the Housing Committee is a significant breach of the contract and that any sanctions against the Group are probable.

Due to lack of taxation practices and clear legislative requirements in 2012 and 2011 Group subsidiaries, carrying out business operations in the region of St. Petersburg, namely ZAO City Service, OAO City Service, ООО Жилкомсервис № 3 Фрунзенского района and group of companies in Stavropol city were dealing with some uncertainties related to tax treatment of certain transactions. The management accounted for taxes related to such transactions based on the management's interpretation of tax rules. In case the local tax authorities challenge the management's view on treatment and accounting of taxes, the Group could be charged with additional taxes. The maximum exposure of additional VAT and income tax risk has been estimated by the management to amount to approximately LTL 14 million. However, based on the fact, that tax inspections have already been performed in 2011 in several subsidiaries and did not challenge the management's treatment of taxes in the companies and also due to the fact that the management considers such tax risks to be not probable, no accruals in respect of these tax contingencies have been accounted for in these financial statements.

No contingencies or provisions were recognised in these financial statements that relate to the uncertainties regarding changes in Russian legislation and regulations.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

31 Related party transactions

The parties are considered related when one party has the possibility to control the other one or has significant influence over the other party in making financial and operating decisions. The related parties of the Group are as follows:

UAB Lag&d – the ultimate shareholder of the Company from 2010;
UAB ICOR - the shareholder of the Company;
Subsidiaries and associates of UAB ICOR (same ultimate controlling shareholder);
Subsidiaries of AB City Service (for the list of the subsidiaries, see also Note 1);
Associates of AB City Service (for the list of the associates, see also Note 1);
Mr. Ž. Lapinskas, J. Janukénas, V. Turonis (Management of the Company);
UAB Vilniaus Energija and UAB Litesko (only in 2011 and disclosed under other related parties).

Transactions with related parties include sales and purchases of goods and services in the ordinary course of business, and acquisitions and disposals of property, plant and equipment. Property, plant and equipment to related parties in 2012 and 2011 were sold for the net book value.

Prices for the intercompany purchase and sale transactions are established by the management and shareholders of the UAB ICOR and/or UAB Lag&d and AB City Service considering the results of independent valuations, if any, undertaken for the purposes of the transfer pricing regulations – which may not always be at their fair value.

There are no guarantees or pledges given or received in respect of the related party payables and receivables. Related party receivables and payables are expected to be settled in cash or netted-off with payables / receivables to / from a respective related party.

2012

Group	Purchases	Sales	Receivables and prepayments	Loans granted	Payables and advances received
UAB ICOR	2,540	24	7	-	11,458
Subsidiaries of UAB ICOR:
AB Axis Industries	2,329	886	2	-	812
Other subsidiaries of UAB ICOR	1,392	2,737	916	-	252
Management of the Company	-	-	-	204	-
Shareholders of the Company	-	-	25	-	-
Total	6,261	3,647	950	204	12,522

2012

Company	Purchases	Sales	Receivables and prepayments	Loans granted	Payables and advances received
UAB ICOR	1,440	19	-	-	7,015
Subsidiaries of UAB ICOR:
AB Axis industries	906	677	-	-	239
Other subsidiaries of UAB ICOR Group	8	281	55	-	-
Subsidiaries of the Company	9,203	78,670	3,821	51,183	4,674
Management of the Company	-	11	-	204	-
Shareholders of the Company	-	-	25	-	-
Total	11,557	79,658	3,901	51,387	11,928

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

31 Related party transactions (cont'd)

Loans granted to subsidiaries of the Company as of 31 December 2012 and 2011 are payable in one year and carry fixed interest rates of 4-8 % (accounted under current receivables from related parties caption in the statement of financial position as of 31 December 2012 and 2011). Loans granted to the management of the Company are payable in 1-3 years and carry fixed interest rates of 3-6 % (accounted under non-current receivables and current receivables from related parties captions in the statement of financial position).

Payables to related parties mostly represent payables for heating system components, installation and automation services of heating system components.

2011

Group	Purchases	Sales	Receivables and prepayments	Loans granted	Payables and advances received
UAB ICOR	2,472	31	7	-	867
Subsidiaries of UAB ICOR:
AB Axis Industries	7,548	1,329	16	-	781
Other subsidiaries of UAB ICOR	1,252	2,443	1,238	-	167
Management of the Company	-	35	-	250	-
Shareholders of the Company	-	2	25	-	11
Other related parties	20,722	8,726	225	-	12,258
Total	31,994	12,529	1,511	250	14,084

2011

Company	Purchases	Sales	Receivables and prepayments	Loans granted	Payables and advances received
UAB ICOR	1,482	30	7	-	643
Subsidiaries of UAB ICOR:
AB Axis industries	7,380	1,218	15	-	496
Other subsidiaries of UAB ICOR Group	151	1,630	661	-	-
Subsidiaries of the Company	7,971	25,460	10,374	24,080	1,100
Management of the Company	-	35	-	250	-
Shareholders of the Company	-	2	25	-	-
Other related parties	20,374	8,126	122	-	12,192
Total	37,358	36,464	11,204	24,330	14,431

The ageing analysis of the Group's receivables from related parties as of 31 December is as follows:

	Trade receivables neither past due nor impaired	Trade receivables past due but not impaired					Total
		Less than 30 days	30 – 60 days	60 – 90 days	90 – 360 days	More than 360 days
2012	703	198	8	7	12	22	950
2011	817	64	158	111	332	29	1,511

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

31 Related party transactions (cont'd)

The ageing analysis of the Company's receivables from related parties as of 31 December is as follows:

	Trade receivables neither past due nor impaired	Trade receivables past due but not impaired					Total
		Less than 30 days	30 – 60 days	60 – 90 days	90 – 360 days	More than 360 days
2012	336	62	69	88	675	2,671	3,901
2011	2,565	1,183	634	508	4,274	2,040	11,204

Payables to related parties are non-interest bearing and are normally settled on 60-day terms. Trade receivables from related parties are non-interest bearing and are generally collectible on 30 - 90 days terms. Valuation allowance amounting LTL 466 thousand is accounted for the receivables from related parties as of 31 December 2012 (LTL 466 thousand as of 31 December 2011). Change in valuation allowance for the years 2012 and 2011 has been included into general and administrative expenses.

Remuneration of the management and other payments

The Group's and the Company's management remuneration amounted to LTL 6,861 thousand and LTL 967 thousand in 2012, respectively (to LTL 4,710 thousand and LTL 2,258 thousand in 2011, respectively). The outstanding balance of the loans granted by the Company to the management is disclosed in the tables above under Management of the Company heading. Provision for employee benefit for the management of the Group and the Company amounted to LTL 1 thousand both as of 31 December 2012 (LTL 1 thousand both as of 31 December 2011). In 2012 and 2011 the management of the Company did not receive any guarantees; no other payments or property transfers were made or accrued. No impairment of loans granted to the management of the Company has been recorded as of 31 December 2012 and 2011. The board remuneration in 2012 was LTL 2,420 thousand (LTL 800 thousand in 2011).

32 Capital management

The primary objectives of the Group's and the Company's capital management are to ensure that the Group and the Company comply with externally imposed capital requirements and that the Group and the Company maintain healthy capital ratios in order to support the business and to maximise shareholders' value. For capital management purposes, capital comprises equity attributable to equity holders of the Parent Company.

The Group and the Company manage capital structure and makes adjustments to it in the light of changes in economic conditions and risk characteristics of the activities. To maintain or adjust the capital structure, the Group and the Company may issue new shares, adjust the dividend payment to shareholders and/or return capital to shareholders. No changes were made in the objectives, policies or processes of capital management during the years ended 31 December 2012 and 2011.

The Group companies registered in Lithuania and the Company are obliged to upkeep its equity at not less than 50% of its share capital (comprised of share capital and share surplus), as imposed by the Law on Companies of the Republic of Lithuania. The Group companies registered in Russia are obliged to upkeep their net assets at not less than the minimum amount of share capital, as imposed by the Law on Joint Stock Companies of the Russian Federation. As of 31 December 2012 some Group companies did not meet these requirements (UAB Vilkpédès büstas, UAB Büsto administravimo agentūra and OAO CИТИ Cервис).

A company, which does not comply with these legal requirements, may become a subject for liquidation. If the Company does not decide on its liquidation, creditors may claim early termination or the execution of the company's liabilities and compensation of losses, if any. In practice, such actions of the creditors are not usual and the management of the Group considers such risk as remote.

In addition the Company has committed to its lenders to keep to certain minimum capital requirements. There were no other externally imposed capital requirements on the Group and the Company. As of 31 December 2012 and 2011 the Company were not in breach of the above mentioned requirements.

On 28 April 2007 the shareholders of the Company decided while distributing current and subsequent year's results (starting from the distribution of the results for 2007) to pay out 25% dividends from the total amount of the current year's net profit less prior year losses (if any) and mandatory transfers to reserves.

AB CITY SERVICE

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 December 2012

(all amounts are in LTL thousand unless otherwise stated)

32 Capital management (cont'd)

The Group and the Company monitor capital using debt to equity ratio. There is no target debt to equity ratio set out by the Group's and the Company's management, however, current ratios presented below are treated as good performance indicators, taking into account the changes in the Group and the Company (Note 1).

	Group		Company
	2012	2011	2012	2011
Non-current liabilities (including deferred tax)	53,966	46,661	30,359	20,516
Current liabilities	162,457	119,900	72,204	33,615
Liabilities	216,423	166,561	102,563	54,131
Equity	185,999	178,470	147,550	147,688
Debt to equity ratio	116%	93%	70%	37%

33 Subsequent events

On 10 December 2012 the Company and Swedbank AB concluded additional agreement to credit contract for obtaining additional LTL 20,717 credit sum for purchase Zespół Zarządców Nieruchomości WAM Sp.z.o.o (ZZN WAM). Following the agreement, on 20 March 2013 the Company pledged UAB Mano Bustas LT receivables from the main clients for the amount of 5 million LTL and the shares of following Group companies: UAB Žaidas, UAB Pempininkų bustas, UAB Vilkpėdės bustas, UAB Šiaulių bustas, UAB Šilutės bustas, UAB Baltijos Liftai, UAB Economus, UAB Aukštaitijos bustas, UAB SKOLOS LT, UAB Justiniškių bustas, UAB Radviliškio bustas, UAB Antakalnio bustas, UAB Karoliniškių Bustas, UAB Viršuliškių bustas, UAB Naujamiesčio bustas, UAB Žirmūnų bustas, UAB Šiaulių Liftas, UAB Mano bustas LT, AB Vėtrungės bustas, UAB Žardės bustas, UAB Jūros bustas, UAB Vingio bustas, UAB Būsto administravimo agentūra, UAB Namų Priežūros Centras, UAB Danės bustas, UAB Pašilaičių bustas. As of 26 February 2013 City Service brand was pledged to Swedbank AB as collateral for the loans received also.

On 22 February 2013 UAB SKT Environmental Services Klaipėda, code 110734883, after the reorganization was incorporated into UAB Specialus Autotransportas.

On 14 March 2013 the Company through a subsidiary acquired 100% shares of UAB Vilniaus turgus, code 303005920. The value of the acquisition – LTL 68 thousand.

AI assistant

City Service SE — Audit Report / Information 2012

5564_rns_2013-04-30_7c0de1d4-8594-4bf3-9c51-24f48cfb7b24.pdf

Independent auditor's report to the shareholders of AB City Service

Report on the Financial Statements

Management's Responsibility for the Financial Statements

Auditor's Responsibility

Opinion

Report on Other Legal and Regulatory Requirements

Statements of financial position

Statements of financial position (cont'd)

Statements of comprehensive income

Statements of changes in equity

Statements of changes in equity (cont'd)

Statements of cash flows

Statements of cash flows (cont'd)

Notes to the financial statements

1 General information

Share capital of the Company

1 General information (cont'd)

Structure of the Group

1 General information (cont'd)

Changes in the Group in 2012

1 General information (cont'd)

Changes in the Group in 2011 (cont'd)

Investment into associate

2 Accounting policies

2.1. Basis of preparation

Adoption of new and/or changed IFRSs and IFRIC interpretations

Standards issued but not yet effective

2 Accounting policies (cont'd)

2.1. Basis of preparation (cont'd)

2 Accounting policies (cont'd)

2.1. Basis of preparation (cont'd)

2.2. Measurement and presentation currency

2 Accounting policies (cont'd)

2.3. Principles of consolidation

Business combinations

2 Accounting policies (cont'd)

2.4. Investments in subsidiaries and associates (the Company)

2.5. Intangible assets other than goodwill

2.6. Property, plant and equipment and investment property

2 Accounting policies (cont'd)

2.7. Financial assets

2.8. Derecognition of financial assets and liabilities

2 Accounting policies (cont'd)

2.8. Derecognition of financial assets and liabilities (cont'd)

Financial liabilities

2.9. Inventories

2.10. Cash and cash equivalents

2.11. Borrowings

2.12. Financial and operating leases

2 Accounting policies (cont'd)

2.12. Financial and operating leases (cont'd)

Financial lease

Operating lease

2.13. Provision for employee benefits

2.14. Provisions

2 Accounting policies (cont'd)

2.15. Income tax

2.16. Revenue recognition

2 Accounting policies (cont'd)

2.17. Impairment of assets

Financial assets

Other assets (excluding goodwill)

2.18. Use of estimates in the preparation of financial statements

2 Accounting policies (cont'd)

2.19. Contingencies

2.20. Subsequent events

3 Segment information

3 Segment information (cont'd)

Operating Segments

3 Segment information (cont'd)

3 Segment information (cont'd)

4 Goodwill

4 Goodwill (cont'd)

4 Goodwill (cont'd)

4 Goodwill (cont'd)

Disposals in 2012

Acquisitions during 2011

City Service SE Audit Report / Information 2012