Ukraine, exclusive of fodder crops. The Company harvested about 65,800 hectares in Russia and about 6,150 hectares in Ukraine.

Annual Report 2009

The year in brief

Operations

The total gross harvest in 2009 amounted to about 169,300 tonnes in Russia and about 11,670 tonnes in N

Ukraine, exclusive of fodder crops. The Company harvested about 65,800 hectares in Russia and about 6,150 hectares in Ukraine.

The Company has winter planted about 44,000 hectares in Russia and about 2,200 hectares in Ukraine N

during fall 2009, mainly winter wheat.

Financials

The Group’s total revenues for 2009 increased by 491 per cent and amounted to SEK 179 million, and the N

Group net loss for 2009 amounted to SEK –174 million.

Earnings per share for 2009 are SEK –5.03 and Equity per share as of 31 December 2009 was SEK 27.21.

N

The Company raised SEK 65 million from an issue of convertible bonds in March 2009.

N

Investments

The amount of land under the Company’s control increased to about 170,000 hectares in Russia and N

7,400 hectares in Ukraine. By year-end, the amount of registered land in Russia was approximately 23,600 hectares.

Total investments in land acquisition during 2009 amounted to SEK 11 million and investments in new N

machinery and equipment during the year amounted to SEK 47 million.

Listing

The Company’s shares were accepted for trading on NASDAQ OMX First North in Stockholm with the N

ticker name ALPA. First day of trading was Monday 19 October 2009.

Important events after the end of the period

The preferential rights issue that was announced on November 24, 2009 was successfully completed in N

January 2010 and raised SEK 235 million before issue costs.

On 24 November 2009 the Company announced an offer to acquire all outstanding shares of BBAH N

Sweden AB (“BBAH”) to be paid for in Alpcot Agro shares. The offer ended on 26 February 2010 with

Alpcot Agro gaining control of 95.2 per cent of the shares in BBAH.

Table of contents

The preliminary reporting calendar for 2010 is 3 May, 2010 Annual Report 2009

17 May, 2010 Annual General Meeting 2010 31 August, 2010 Interim Report January-June 2010 30 March, 2011 Report for the financial year 2010

Alpcot Agro AB (publ)

Corporate registration number: 556710-3915 Birger Jarlsgatan 2

SE-114 34 Stockholm Sweden

www.alpcotagro.com info@alpcotagro.com

LLC Management Company Agrokultura 7 Butikovskiy lane

119034 Moscow Russia

This is an unofficial translation of the Company’s Swedish annual report. In the event of any discrepancy between the Swedish original text and this English translation, the Swedish text shall prevail.

The year in brief 2

Alpcot Agro in brief 4

CEOs comments 5

Economy and markets 6

Agricultural markets 7

Financial results 9

Company operations 11

Organisation 16

Environment and CSR 17

Share capital, ownership structure and

share performance 18

Board of Directors report 20

Consolidated Income Statement 22

Consolidated Balance Sheet 23

Consolidated Statement of Changes in Equity 24

Consolidated Cash Flow 25

Notes 26

Parent Company 47

Audit Report 55

Board of directors and management 56

Glossary and definitions 58

Alpcot Agro in brief

Alpcot Agro is a Swedish limited liability com- pany, incorporated in 2006. Alpcot Agro invests in farmland and associated agricultural operations in the Black earth belt, which stretches from Northern Ukraine through Southern Russia to Siberia. The soil and climate conditions in Black earth belt are favourable for farming.

The Group commenced its operations in 2007 in the Voronezh region in Russia. Since 19 October 2009, the Company’s shares are traded on NAS- DAQ OMX First North in Stockholm.

ORgAnIsAtIOn

The Group has operations in six regions in Russia – Kurgan, Kursk, Lipetsk, Tambov, Volgograd and Voronezh – and four regions in Ukraine – Ivano- Frankivsk, Lviv, Poltava and Volyn. With the acquisi- tion of BBAH, the Group will also have operations in the Kaliningrad region in Russia. The Company’s legal home is Stockholm and the head office is located in Moscow.

BusIness COnCept And OpeRAtIOnAL stRAtegy

Alpcot Agro’s business concept is to generate an attractive return on invested capital by acquiring and farming agricultural land in Russia and in other countries within the Commonwealth of Independ- ent States (“CIS”). The Company’s operational strategy is to operate an efficient, modern agri- cultural business according to international best practice. The Group’s value chain has three parts:

crop production, storage and sales. The Group is also operating dairy farms.

InvestMent stRAtegy

The Company’s long-term target is to control a land bank in Russia of 120,000–150,000 hectares.

In Ukraine the short term objective is to increase the landholding up to 20,000–30,000 hectares. The present focus is to optimise the geographical struc- ture of the land bank through selective acquisitions, sales and swaps of land plots. Alpcot Agro invests in and uses modern Western farming equipment.

Kurgan

Moskva

Kiev

tambov volgograd voronezh

Kursk Lipetsk

poltava Ivano Frankivsk

Lviv volyn

Glacier/

inland ice Tundra Forest Framed land pasture land Semi-desert,

desert

CEOs comments

Alpcot Agro has been through a very tough time.

It is easy to forget that Alpcot Agro is a young company, which started its operations in Russia and Ukraine in 2007 and 2008 respectively. After a short period of accelerated expansion, the growth plans came to an early halt in August 2008. At that time, the Company was about half through its invest- ment plans in Russia and in an even earlier stage in Ukraine. The credit market was closed for the Com- pany, and on top of these challenges, the domestic grain prices in Russia collapsed following the record harvest in 2008. These were the market conditions at the start of 2009.

Our objective remains the same, i.e. to create shareholder value. But we have changed our strate- gic plan how we best create shareholder value in the light of the new market environment.

The market environment has changed in two very important respects. Firstly, there will be limited access to additional funds, equity or debt, at attrac- tive terms for Alpcot Agro to finance further expan- sion. Secondly, it is probable that the domestic prices for soft commodities in Russia will remain at relatively low levels for the next few years.

The strategic plan can be summarised in four main points. Firstly, we have reduced the target size for the Company’s land bank in Russia to 120,000–

150,000 hectares. In Ukraine, the short-term target is to create a profitable company with 20,000–30,000 hectares before further plans will be evaluated.

Secondly, the structure of the land bank will change. Some areas where the Company did not reach sufficient size before the expansion was brought to a halt in August 2008 will be divested when an acceptable price can be realised. The Company will focus on creating 3–4 mega clusters, consisting of 30,000–40,000 hectares in the Russian inland and one additional mega cluster in Kalinin- grad. Each mega cluster will have one large dairy farm to benefit from the synergies between crop production and dairy farming.

Thirdly, we are continuously evaluating options within vertical integration to improve the pricing.

Further up the value chain, much higher margins can be achieved for agricultural products such as milk, eggs, beef, pork and poultry. Some steps in this direction might be realised especially in the Russian inland, where the prices for feed crops are low. Fourthly, a plan is being worked out to improve the commercial department and start grain trading.

With a strong commercial department and access to infrastructure, it is possible to turn the weak domestic grain market in Russia into an advantage for Alpcot Agro, hence sourcing grains locally at low prices and use its own logistical chain to sell at global prices. This is a long-term effort which will re- quire many years to implement, but we have started.

2009 has been a tough year, but by no means a lost year. Many important steps have been taken.

Alpcot Agro listed its shares on NASDAQ OMX First North in October, which has provided existing shareholders with a venue for trading the Com- pany’s shares. Furthermore, the required funds for implementing the first steps in the strategic plans have been raised through the convertible bond of SEK 65 million in March and through the rights issue of SEK 235 million, which closed in January 2010.

Furthermore, Alpcot Agro has made considerable improvements in the land bank. A starting point for the mega cluster in Kaliningrad has been estab- lished through the acquisition of BBAH Sweden AB.

Land registration is making progress in all the Com- pany’s clusters. Alpcot Agro has also established a co-operation with Baltic Oil Terminals in Kaliningrad with a view to construct a grain terminal in Baltysk.

The board of directors decided in 2009 not to pursue separate financing of Alpcot Agro’s Ukrain- ian operations mainly due to the early stage of the operations. The current objective is to expand to 20,000 – 30,000 hectares in Ukraine and reach profit- ability before future options will be evaluated.

Our vision for Alpcot Agro is crystal clear, to create a profitable agricultural company with about 150,000 hectares of farmland in Russia and Ukraine concentrated in a few mega clusters with in-house trading. To realise the vision will take many years of hard work, but profitability will be reached earlier and results will be evident gradually.

The economic outlook has improved substan- tially since the beginning of 2009. The domestic market for soft commodities has also stabilised, and as the costs for inputs have come down in line with prices for soft commodities, the prospect of profit- ability is improving.

Björn Lindström

During 2009, the Russian and Ukrainian economies have both been suffering from the aftermath of the global economic crisis, with GDPs falling by around 8 per cent and 15 per cent respectively. The crisis also had a considerable impact on the banking systems of both countries which influenced the availability and the cost of credit, hence limiting corporate expansion plans in many sectors.

However, in the last months there are signs that the economies are bottoming out and there are indica- tions of economic recovery. The forecasts for 2010 and 2011 are relatively optimistic as compared to 2009. The Economist Intelligence Unit is forecasting a GDP growth of 3.5 per cent in Russia and 3.0 per cent in Ukraine in 2010.

Economy and markets

Russia Forecast Overview (values in % unless indicated otherwise)

2006 2007 2008 2009 2010e 2011e

Real GDP growth 7.7 8.1 5.6 -7.9 3.5 4.3

Unemployment 7.2 6.1 6.4 8.4 8.3 7.5

Inflation 9.0 11.9 14.1 11.7 7.0 7.0

Budget balance (% of GDP) 7.4 5.4 4.1 -5.9 -4.0 -2.5

Current-account balance (USD billion) 94.3 76.2 102.4 47.5 65.7 60.4

Current-account balance (% of GDP) 9.5 5.9 6.2 3.9 4.2 3.6

Exchange rate RUB:USD (31 December) 26.3 24.5 29.4 30.2 29.9 29.6

Source: Economist Intelligence Unit

ukraine Forecast Overview (values in % unless indicated otherwise)

2006 2007 2008 2009 2010e 2011e

Real GDP growth 7.4 7.7 2.4 -15.0 3.0 4.0

Unemployment 2.7 2.3 3.0 1.9 2.0 2.0

Inflation 11.6 16.6 25.2 15.9 11.5 10.5

Budget balance (% of GDP) -0.7 -1.1 -1.5 -6.0 -5.0 -3.0

Current-account balance (USD billion) -1.6 -5.9 -12.8 -1.8 -0.2 -1.2

Current-account balance (% of GDP) -1.5 -4.2 -7.1 -1.5 -0.1 -0.8

Exchange rate UAH:USD (31 December) 5.1 5.1 5.3 7.8 8.0 7.7

Source: Economist Intelligence Unit

IntROduCtIOn

The overall economic slowdown in Russia and Ukraine during 2009 has coincided with a de- pressed grain market, as a result of

Two consecutive historically large grain harvests N

in Russia in 2008 and 2009 (108 million tonnes and 97 million tonnes respectively),

A considerable both global and domestic N

excess supply of grains in both the 2008/09 and 2009/10 seasons and carryover stocks growing to the highest level in a decade,

Reductions in the government intervention N

program in Russia with the tender price levels below the market price levels, hence absorbing only small portion of the supply,

Infrastructure limitations for the export sales N

leading to the increase in national stock levels.

As a consequence, the price levels for grains in the region remained at historically low levels. Mean- while, sunflower and corn remained the most profit- able crops due to the high price levels, supported by strong demand from the major sunflower oil importing countries and the increased competition among regional processing plants.

MARKet OutLOOK FOR 2010/11

The grain market outlook for 2010/11 will be af- fected by the following major factors:

The area under winter crops further increased in N

2009/10, which might put additional pressure on local and national wheat markets,

Indications of a decrease of the spring planting N

of wheat and barley could provide some sup- port for the prices until the end of the year, The Russian government has announced plans N

of a substantial increase of grain exports from the State intervention fund by United Grain Company, which might bring about a reduction of the Russian carryover stocks,

In general, government support is likely to be N

reduced with fewer intervention sessions and cuts in subsidies.

The official forecast from the Russian Ministry of Agriculture indicates a grain harvest of about 97 million tonnes in the agricultural year 2009/10, although other analysts give a lower figure.

Agricultural markets

100 200 300 400 500

Milling wheat Russia (FCA central region) MATIF Milling wheat USD/tonne

Mar ch 2009

January 2009

November 2008

September 2008

July 2008

May 2008

Mar ch 2008

January 2008

November 2007

September 2007

July 2007

May 2007 Mar ch 2010 April 2010

January 2010

November 2009

September 2009

July 2009

May 2009

Mar ch 2007

January 2007

November 2006

September 2006

July 2006

May 2006

Mar ch 2006

January 2006

September 2005

July 2005

May 2005

Mar ch 2005

January 2005 November 2005

Source: Reuters

Historical wheat prices

Agricultural markets

RussIAn gRAIn pROduCtIOn

Grain production decreased by about 11.1 million tonnes to about 97.0 million tonnes in 2009. Yield per hectare fell from 2.38 tonnes per hectare in 2008 to 2.27 tonnes per hectare in 2009. The total amount of land under grains in Russia increased by 1.7 per cent in 2009 as compared with 2008 to 47.5 million hectares.

RussIAn OIL seed pROduCtIOn

Sunflower production decreased by 0.93 million tonnes to about 6.4 million tonnes in 2009, mainly due to lower yields. Yield per hectare fell from 1.23 tonnes per hectare in 2008 to 1.15 tonnes per hectare in 2009.

dAIRy FARMIng In RussIA

Livestock production in Russia is still trailing behind demand, and the sector remains underinvested.

The total number of cattle in Russia saw a small decrease in 2009 of 2 per cent to about 20.6 million heads. The production of milk increased marginally with about half a percent to 32.5 million tonnes in 2009.

0 20 40 60 80 100 120 140

-09 -08 -07 -06 -05 -04 -03 -02 -01 -00 -99 -98 -97 -96 -95 -94 -93 -92 -91 -90

Million tonnes Tonnes per hectare

0.0 0.5 1.0 1.5 2.0 2.5

Harvest Productivity

Source: Russian Ministry of Agriculture

Historical harvests and productivity – grain

0 1 2 3 4 5 6 7 8

-09 -08 -07 -06 -05 -04 -03 -02 -01 -00 -99 -98 -97 -96 -95 -94 -93 -92 -91 -90

Thousand tonnes Tonnes per hectare

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6

Harvest Productivity

Source: Russian Ministry of Agriculture

Historical harvests and productivity – sunflower

0 10 20 30 40 50 60

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Cattle Milk

Source: Russian Ministry of Agriculture

Livestock, heads of cattle and milk production

Revenue

For the twelve months ended 31 December 2009 revenues from sales increased significantly in com- parison with the same period 2008, and amounted to SEK 179,005 thousand (30,267). Sales of crops constituted 90 per cent of total sales, 8 per cent was sales of milk, meat and dairy products and 2 per cent other sales.

seK thousand Revenue from sales

Jan–dec 2009

Jan–dec 2008

total (tonnes) Revenues from sales of crop

production 160,964 12,230 1,216%

Revenues from sales of

grain processing products 2,822 4,741 –40%

Revenues from sales of milk

and meat 14,568 6,394 128%

Revenues from sales of

other goods and services 651 6,902 –91%

Total 179,005 30,267 491%

In 2009 the Group sold approximately 166 thou- sand tons of grain, sunflower and other crops. The volume of sales increased from approximately 22 thousand tons in 2008, 655 per cent on year-on-year basis, as a substantial part of the 2008 harvest was sold in 2009 and also due to the increase of harvest in 2009. At year end approximately 40 per cent of the 2009 harvest remained in storage.

Agricultural produce in inventory

31 dec 2009

31 dec 2008

year on year change

Tons 57,090 81,650 –30%

As % of the year net harvest 40% 79%

gAIns On RevALuAtIOn

For the twelve months ended 31 December 2009 the Group has accounted for losses on revaluation of biological assets in the amount of SEK 4,412 thousand (gain 94,355). The loss is driven by the decrease of the winter crops acreage to 46,200 ha as of 31 December 2009 compared with 55,300 ha as of 31 December 2008, and by the decrease of market prices for grains compared to a year ago.

When calculating fair value of crops in inventory and biological assets, and respective revaluation, market prices from Ministry of Agriculture of Rus-

sian Federation were used. The prices for all grains as of 31 December 2009 have decreased compared with prices as of 31 December 2008 as listed in the table below:

seK/ton

Crop 31 dec 2009 31 dec 2008

Wheat 1,028 1,400 Rye 849 1,021 Barley malting 907 1,050 Barley feed 852 1,034 Corn 1,088 824 Sunflower 2,348 2,895

CHAnge In InventORy

The operations are highly seasonal: winter crops are seeded in August–September and spring crops are seeded in April–May. Hence, expenses are accu- mulated during the agricultural year preceding the year of harvest, which is done in July–September.

The harvest is mostly sold during the period of September–March.

Change in inventory relates to the changes in value of agriculture produce: grains, milk and meat.

Change in inventory for the twelve months ended 31 December 2009 amounted to SEK –31,528 thou- sand (130,652).

expenses

In 2009 the Group did not increase the amount of land in production to a significant extent as most of the abandoned land was already put into operation during 2008. Putting land that has been abandoned into operation requires a high level of inputs, including fuel, chemicals and fertilizers. As a con- sequence, the expenses for raw materials in 2009 decreased compared to the same period of 2008 and amounted to SEK 156,011 thousand (196,448).

Since the Group made large purchases of machin- ery and equipment during the first half of 2008, the depreciation for the twelve months period ended 31 December 2009 increased significantly com- pared to the same period 2008 and amounted to SEK 46,038 thousand (35,444).

During 2009 the Group realised several cost reduction initiatives that helped to decrease other external expenses in 2009 to SEK 85,488 thousand (93,935).

Financial results

Due to the fact that several significant subsidi- aries of the Group were acquired only in 2Q 2008 and have not been consolidated for the full year of 2008, personnel expenses for twelve months ended 31 December 2009 increased to SEK 53,730 thousand (51,092).

OpeRAtIng ResuLt

For the twelve months ended 31 December 2009, EBITDA amounted to SEK –143,206 thousand (–75,892). The operating loss amounted to SEK –189,244 thousand (–111,336) and loss for the pe- riod amounted to SEK –174,108 thousand (–96,092).

The main factors behind the negative result are the continually low prices for crops during 2009 as well as high production costs for the land recently put into operation.

InvestMents ACtIvIty

As the Group substantially decreased the invest- ment activities this year, for the twelve months ended 31 December 2009, investments in tangible and intangible assets amounted to SEK 58,288 thousand (575,622). The main part of such invest- ments comprised farming machinery and equip- ment. As of 31 December 2009, the book value of tangible and intangible fixed assets amounted to SEK 423,054 thousand (426,624) and SEK 11,198 thousand (39,295), respectively.

CAsH FLOw And LIquIdIty

The Group’s cash-flow for the period amounted

to SEK –71,153 thousand (–82,502). Cash and cash

equivalents at the end of the period amounted to

SEK 33,458 thousand (105,620) and interest-bearing

debt to SEK 139,833 thousand (56,996).

InvestMent ACtIvItIes Land

Alpcot Agro reduced its investments in land to a minimum during 2009. The main focus was to consolidate existing land under control and gain direct ownership or register long-term leases. The land under control in Russia increased during 2009 by about 35,000 hectares to 170,000 hectares. Kursk accounts for the bulk of the increase, following a decision to continue the consolidation of the farmland in Kursk in order to create an optimal land bank structure in the region. However, the long- term presence in Kursk is being evaluated.

Future land investments in Russia will focus on Alpcot Agro’s identified mega clusters, each of which already encompasses 30,000 hectares or is targeting at least 30,000 hectares within the near

future. The identified mega clusters are Lev Tolstoy in Lipetsk, Ertil/Mordova in Voronezh and Tambov, Vorobievka in Voronezh, Zhirnovsk in Volgograd and, following the acquisition of BBAH Sweden, Kaliningrad. Farmland not belonging to a mega cluster will be evaluated and either divested, leased out, or used for other purposes than crop produc- tion.

Following completion of the current long-term plan for the land bank in Russia, Alpcot Agro should end up with 120,000-150,000 hectares of farmland concentrated to 4-5 mega clusters.

Alpcot Agro’s land expansion in Ukraine is focusing on Western Ukraine in the regions Ivano- Frankivsk and Lviv as well as in central Ukraine in Poltava. Alpcot Agro is controlling through land lease and land certificate agreements about 7,400

Company operations

Moscow

Kiev

Zhirnovsk ertil/Mordova

Minsk

Lev tolstoy warsaw

stockholm

Kaliningrad

vorobievka

Russia, location of mega clusters

Company operations

hectares in Ukraine as of 31 December 2009, of which 1,700 hectares in Poltava and the remainder in the Oblasts Ivano-Frankivsk, Lviv and Volyn in Western Ukraine.

Machinery

Following massive investments in new machinery and equipment in 2008 in Russia, Alpcot Agro has a limited capital expenditure requirement. However, a long-term Machinery and Equipment strategy is being worked out based on the plan for the land bank.

storage

The Company has an estimated total storage capacity of about 145,300 tonnes in flatbeds and houses in Russia, as illustrated in the table below, as well as an additional 35,000 tonnes in airtight

tents. Over time, the Company aims to upgrade its storage facilities with existing Russian or newly built grain silos. Alpcot Agro is planning to have one grain silo in each mega cluster. The construc- tion of a new grain silo with a storage capacity of 10,000 tonnes in Voronezh will be completed later in spring 2010 and will be used to store part of the harvest in 2010.

Alpcot has about 8,000 tonnes in storage capacity in Ukraine, which covered the majority of the re- quirement in 2009. The remainder was rented from state-owned grain silos.

CROp pROduCtIOn Harvest 2009

The total gross harvest for Alpcot Agro in 2009 amounted to about 169,300 tonnes in Russia and about 11,670 tonnes in Ukraine, excluding fodder

Alpcot Agro’s grain silo in Ertil

Company operations

crops. The total harvested area was about 65,800 hectares in Russia and about 6,150 hectares in Ukraine.

The average yield for winter wheat was about 2.8 tonnes/hectare. The winter wheat yield is lower compared to 2008 due to the drought in some regions and problems with a virus disease in a widely used wheat variety. However the quality of the wheat in 2009 was better with a considerably greater share of high class milling wheat. Since there is a relatively large price difference between milling and feed wheat in Russia, this compensated for the lower yield.

Alpcot Agro established operations in Ukraine in late spring 2008, and harvested for the first time

in 2009. The investment approach in Ukraine differs from Russia since Alpcot Agro does not acquire any existing companies in Ukraine, but incorporates all subsidiaries and hires all staff itself. Therefore, there was no old organisation or routines to rely on. How- ever, the Group managed successfully to harvest all planted fields in time.

The average yield for winter wheat was about 2.3 tonnes/hectare, which is relatively low by Ukrainian standards. This is however a consequence of too late winter planting in 2008 since the first machinery and equipment arrived late in the planting season.

The Company expects substantially higher yields in 2010.

Russia, Land under control per december 31, 2009

Region

Land in control, ha

Land in ownership, ha

Registered land, ha Kurgan 13,000 13,000 –

Kursk 47,000 26,000 4,200

Lipetsk 15,000 11,000 3,800

Tambov 15,000 8,000 3,300 Volgograd 18,000 3,000 -

Voronezh 62,000 30,000 12,300

Russia total 170,000 91,000 23,600

Source: Alpcot Agro

Russia, storage capacity, 2009 Region

Flatbed (tonnes)

House (ton- nes)

total (ton- nes)

Kurgan – – –

Kursk 1,000 8,000 9,000

Lipetsk 3,500 25,000 28,500

Tambov 1,500 16,000 17,500 Volgograd 1,500 9,500 11,000

Voronezh 15,300 64,000 79,300

Russia total 22,800 122,500 145,300

Source: Alpcot Agro

Russia, Hectares harvested and gross harvest 2009, excluding fodder crops

Crop

Harvested, ha

Received,

tonnes

yield, t/ha Winter wheat 42,600 119,900 2.8

Winter rye 5,700 12,900 2.3

Barley 1,900 5,300 2.8

Spring wheat 3,700 9,100 2.5

Sunflower 9,400 14,100 1.5

Maize 1,700 6,400 3.8

Other crops 800 1,600 –

Total 65,800 169,300 2.6

1) Tonnes collected are gross weight, i.e. before cleaning and drying Source: Alpcot Agro

ukraine, Hectares harvested and gross harvest 2009

Crop

Harvested, ha

Received,

tonnes

yield, t/ha Winter wheat 4,200 9,510 2.3

Spring wheat 340 1,050 3.1

Buckwheat 620 590 1.0

Mustard 660 410 0.6

Other crops 330 110 –

Total 6,150 11,670 n.m.

1) Tonnes collected are gross weight, i.e. before cleaning and drying

Company operations

0 50,000 100,000 150,000 200,000

2009 2008

2007

Hectares harvested Total harvest (tonnes) Harvested area and harvest volume growth

winter and spring planting 2009/10

The Company has winter planted about 44,000 hec- tares in Russia (excluding Kaliningrad) and about 2,200 hectares in Ukraine during autumn 2009, mainly winter wheat. Some of the winter planted fields, have been drought damaged and will be spring planted.

As of April 2010 the spring planting campaign is ongoing both in Russia and Ukraine. The Com- pany is planning to spring plant approximately 32,000 hectares excluding fodder crops in Russia (excluding Kaliningrad) with corn and sunflower as the most important crops. Hence, the expected total harvested area of commercial crops in Russia amounts to 76,000 hectares, before potential losses from winterkill. Alpcot Agro is also growing fodder for its dairy farms on about 4,100 hectares.

Following a successful acquisition of BBAH Sweden, Alpcot Agro would harvest en estimated 8,000 hectares in addition to the planted areas in the Russian mainland. The most important crops in Kaliningrad are winter wheat and winter rape.

The Company is planning to spring plant about 3,600 hectares in Ukraine. The most impor- tant crops in Ukraine are sunflower, mustard and buckwheat. Hence the Company expects to harvest about 5,800 hectares in Ukraine, before potential losses from winterkill.

winterplanting 2009, per region

Crop Kursk Lipetsk tambov volgograd voronezh ukraine total

Winter wheat 8,300 8,600 5,000 6,000 16,100 1,000 45,000

Winter rape 1,200 1,200

Total 8,300 8,600 5,000 6,000 16,000 2,200 46,200

Source: Alpcot Agro

Company operations

dAIRy FARMIng

By the end of 2009, Alpcot Agro had three large dairy farms in Russia (one of which owned to 50%), one each in the mega clusters Lev Tolstoy, Ertil/

Mordova and Vorobievka. Following the acquisition of BBAH, Alpcot Agro is in the process of gaining control of an additional large dairy farm in Kalin- ingrad. Hence, Alpcot Agro will control one large dairy farm in all mega clusters except for Zhirnovsk, giving the Company all the benefits of synergies between crop production and dairy farming.

As of 31 December 2009, Alpcot Agro had more than 5,000 animals (excluding Kaliningrad), of which about 2,400 were milk cows. The dairy farms are an integrated part of the Company’s business concept and generate stable cash flows all year

around. The management team is currently working on a long-term business plan to significantly boost the milk and meat production from the Company’s existing farms. The increase in milk production will come from both increased number of milk cows and increased production of milk per cow. Consid- erable improvement have been achieved already, revenues have increased by close to 58% in the first quarter 2010 year-on-year.

Milk prices have been low during the first half of 2009 but prices recovered during the later part of the year. In 2009, sales of milk, meat and dairy prod- ucts generated revenues corresponding to about 8 per cent of Alpcot Agro’s consolidated revenues.

Wheat in Poltava.

OpeRAtIOnAL ORgAnIZAtIOn

The Company has operations in six regions in Rus- sia – Kurgan, Kursk, Lipetsk, Tambov, Volgograd and Voronezh – and four regions in Ukraine – Ivano- Frankivsk, Lviv, Poltava and Volyn. With the acquisi- tion of BBAH, the Group will also have operations in the Kaliningrad region in Russia. The Company’s head office is located in Moscow and the Company also has an office in Stockholm.

The basic organisational unit of the Group’s op- erations is the farm and is managed by a local farm director. The farms are being organised into mega clusters of about 30,000 hectares, a volume deter- mined by the Company as optimal for the utilization of management resources, machinery and equip- ment and achieving full economies of scale.

InvestMent MAnAgeR

In order to obtain advice in connection with the execution of its business strategy, Alpcot Agro has entered into a Management Agreement with ACM.

Besides fulfilling key roles in the management and administration of Alpcot Agro, ACM also manages the Group’s acquisitions, investments and divest- ments of subsidiaries, farmland and other assets.

eMpLOyees

The number of employees as of 31 December 2009 amounted to 1,078 (1,285), of which 79 were employed in Ukraine. The decrease in the number of employees is the result of cost reduction and ef- ficiency improvement initiatives.

Organisation

Winter wheat in Voronezh

Environment and CSR

envIROnMent

A cornerstone in Alpcot Agro’s strategy is the implementation of modern western agricultural practices in the Black earth region. In most cases, these practices mean significant improvements in terms of environment and sustainability compared to current agricultural practices in the region.

Among the key techniques are

Plough free technology with shallow cultivation N

– conserves humidity and nutrients in the soil, preserves water, lowers erosion and lowers the amount of fertilizer needed.

Seeding in stubble – instead of burning the N

stubble which is a common practice in Rus- sia, this practice also conserves humidity and nutrients, as well as prevents the release of thousands of tonnes of carbon dioxide into the atmosphere.

Precision farming – by the use of sensors and N

precision farming methods, fertilizer and plant protection can be applied in very specific amounts to minimize spill and overuse.

Other environment factors that the Company moni- tors as an integral part of the Group’s operations are the quality of the soils (compaction, erosion, and degradation), water usage (efficient use, mini- mizing pollution by chemicals) as monitoring the use of fossil fuel. The Company has the ambition to be acting in a responsible and environmentally sound manner, and the objective is to maintain and

to continuously improve the environmental policies and practices.

sOCIAL RespOnsIBILIty

Alpcot Agro continues to prove its social respon- sibility policy in the regions where it operates.

This includes conforming to international labour conventions, being an equal opportunity employer and ensuring that health and safety procedures are observed in the different workplaces. Investments in social programs allow the Company to maintain good working relationships with local authorities, administrations, police and fire departments and the general public.

During 2009 the Company has extended the reach of its contribution to social projects by:

Sponsoring local schools/children’s culture in N

Ertil, Ramon, Vorobiovka and Poltava

Sponsoring local football teams in Ertil, Buturl- N

inov, Rechichany and Ivano-Frankivsk Supporting orphanages in Lviv and Ertil N

Sponsoring the renovation of the Village club in N

Rechichany

Snow moving of roads in Ertil N

Supporting the celebration of Victory Day in N

several regions and the construction of a monu-

ment in Kursk.

Share capital, ownership structure and share performance

sHARe CApItAL

By year-end 2009, the share capital in Alpcot Agro amounted to SEK 146,903,500 divided into 29,380,700 shares. In two share issues in January and February 2010, the Company issued 19,587,133 and 624,059 new shares, so that per 31 March, 2010, the share capital in Alpcot Agro amounted

to SEK 247,959,460 divided into 49,591,892 shares.

Changes in share capital since the formation of the Company are shown in the table below.

All shares in Alpcot Agro carry equal voting rights as well as equal rights to a share in Alpcot Agro’s assets, profits and any liquidation surplus.

The quota value per share is SEK 5.00.

Changes in share capital

Change in no. of

shares no. of shares

Change in share capital in seK

share capital in seK

transaction year

Formation 2006 – 100,000 – 100,000

Reverse split 1:5 2006 –80,000 20,000 – 100,000

New Issue 2006 80,000 100,000 400,000 500,000

Direct issue 2007 9,053,200 9,153,200 45,266,000 45,766,000

Direct issue 2007 6,000,000 15,153,200 30,000,000 75,766,000

Direct issue 2007 87,500 15,240,700 437,500 76,203,500

Direct issue 2007 6,000,000 21,240,700 30,000,000 106,203,500

Direct issue 2008 140,000 21,380,700 700,000 106,903,500

Direct issue 2008 8,000,000 29,380,700 40,000,000 146,903,500

Preferential rights issue 2010 19,587,133 48,967,833 97,935,655 244,839,165

Issue in kind to acquire BBAH 2010 624,059 49,591,892 3,120,295 247,959,460

COnveRtIBLe deBt InstRuMents 2009/2011 In March 2009, the Company raised issue proceeds of SEK 65,050,000 in an issue of convertible debt instruments. The convertible debt instruments carry an annual interest of ten per cent, and payment of interest shall be made on 27 March 2010 and 27 March 2011. The holders of the convertible debt in- struments are entitled to call for conversion of debt into new shares in the Company in February-March 2011 at a conversion rate of SEK 14.61 per share.

OwneRsHIp stRuCtuRe

As of 31 March 2010, Alpcot Agro had about 1,000 shareholders. The shareholding of the main share- holders in Alpcot Agro as of 31 March 2010 is shown in the table below.

Main shareholders as of 31 March 2010

shareholder

number of shares

Capital and votes

%

Tredje AP-Fonden 7,930,000 16.0

SEB Private Bank S.A. 5,439,532 11.0

SIX SIS AG as nominee 5,136,492 10.4 Nordea Investment Funds 3,014,956 6.1 Credit Suisse Sec. Europe Ltd 2,356,666 4.8

Two Eye Fund Ltd 2,166,666 4.4

Corso Holding S.A. 1,588,666 3.2

Andra AP-fonden 1,524,773 3.1

JP Morgan Bank 1,183,721 2.4

The Sturgeon Fund 1,120,000 2.3

Others 18,130,420 36.6

Total number of shares 49,591,892 100.0

Share capital, ownership structure and share performance

sHARe deveLOpMent

The Company’s shares are traded on First North since 19 October 2009. In the remainder of 2009 after the listing, a total of around 2.1 million shares were traded for a value of around SEK 34.1 million.

0 5 10 15 20 25

10-04-09 10-04-08 10-04-07 10-04-06 10-04-01 10-03-31 10-03-30 10-03-29 10-03-26 10-03-25 10-03-24 10-03-23 10-03-19 10-03-18 10-03-17 10-03-16 10-03-15 10-03-12 10-03-11 10-03-10 10-03-09 10-03-08 10-03-05 10-03-04 10-03-03 10-03-02 10-03-01 10-02-26 10-02-25 10-02-24 10-02-23 10-02-22 10-02-19 10-02-18 10-02-17 10-02-16 10-02-15 10-02-12 10-02-11 10-02-10 10-02-08 10-02-05 10-02-04 10-02-03 10-02-02 10-02-01 10-01-30 10-01-29 10-01-28 10-01-27 10-01-26 10-01-25 10-01-22 10-01-21 10-01-20 10-01-19 10-01-18 10-01-17 10-01-16 10-01-15 10-01-14 10-01-13 10-01-12 10-01-11 10-01-10 10-01-09 10-01-08 10-01-07 10-01-06 10-01-05 10-01-04 10-01-01 09-12-31 09-12-30 09-12-29 09-12-28 09-12-25 09-12-24 09-12-23 09-12-22 09-12-21 09-12-18 09-12-17 09-12-16 09-12-15 09-12-14 09-12-11 09-12-10 09-12-09 09-12-08 09-12-07 09-12-04 09-12-03 09-12-02 09-12-01 09-11-30 09-11-27 09-11-26 09-11-25 09-11-24 09-11-23 09-11-20 09-11-19 09-11-18 09-11-17 09-11-16 09-11-13 09-11-12 09-11-11 09-11-10 09-11-09 09-11-06 09-11-05 09-11-04 09-11-03 09-11-02 09-10-30 09-10-29 09-10-28 09-10-27 09-10-26 09-10-23 09-10-22 09-10-21 09-10-20 09-10-19

19-Oct-09 29-Oct-09 8-Nov-09 18-Nov-09 28-Nov-09 8-Dec-09 18-Dec-09 28-Dec-09 7-Jan-10 17-Jan-10 27-Jan-10 6-Feb-10 16-Feb-10 26-Feb-10 8-Mar -10 18-Mar -10 28-Mar -10 7-Apr -10

0 100 200 300 400 500 600

10-04-09 10-04-08 10-04-07 10-04-06 10-04-01 10-03-31 10-03-30 10-03-29 10-03-26 10-03-25 10-03-24 10-03-23 10-03-19 10-03-18 10-03-17 10-03-16 10-03-15 10-03-12 10-03-11 10-03-10 10-03-09 10-03-08 10-03-05 10-03-04 10-03-03 10-03-02 10-03-01 10-02-26 10-02-25 10-02-24 10-02-23 10-02-22 10-02-19 10-02-18 10-02-17 10-02-16 10-02-15 10-02-12 10-02-11 10-02-10 10-02-08 10-02-05 10-02-04 10-02-03 10-02-02 10-02-01 10-01-30 10-01-29 10-01-28 10-01-27 10-01-26 10-01-25 10-01-22 10-01-21 10-01-20 10-01-19 10-01-18 10-01-17 10-01-16 10-01-15 10-01-14 10-01-13 10-01-12 10-01-11 10-01-10 10-01-09 10-01-08 10-01-07 10-01-06 10-01-05 10-01-04 10-01-01 09-12-31 09-12-30 09-12-29 09-12-28 09-12-25 09-12-24 09-12-23 09-12-22 09-12-21 09-12-18 09-12-17 09-12-16 09-12-15 09-12-14 09-12-11 09-12-10 09-12-09 09-12-08 09-12-07 09-12-04 09-12-03 09-12-02 09-12-01 09-11-30 09-11-27 09-11-26 09-11-25 09-11-24 09-11-23 09-11-20 09-11-19 09-11-18 09-11-17 09-11-16 09-11-13 09-11-12 09-11-11 09-11-10 09-11-09 09-11-06 09-11-05 09-11-04 09-11-03 09-11-02 09-10-30 09-10-29 09-10-28 09-10-27 09-10-26 09-10-23 09-10-22 09-10-21 09-10-20 09-10-19

Share price, SEK Turnover, thousands of shares

Preparing the fields for spring wheat seeding.

Board of Directors report

This Annual Report covers the financial year 1 Janu- ary 2009 – 31 December 2009.

OpeRAtIOns

Alpcot Agro AB (publ), corporate registration number 556710-3915, began acquiring and farm- ing agricultural land in Russia in 2007. By farming the land using modern technology and farming practices, the objective is to generate an attractive return on invested capital.

At the end of the year the Group had about 170,000 (135,000) hectares of land under control in Russia, of which about 91,000 (84,000) hectares are directly and indirectly owned. In addition, the Group had close to 7,400 (4,600) hectares in Ukraine under control.

The total harvest for Alpcot Agro was about 181,000 tonnes in 2009, exclusive of fodder crops, an increase from 150,100 tonnes in 2008. The total harvested area was about 65,800 hectares in Russia and about 6,150 hectares in Ukraine. The winter planting 2009 amounted to 44,000 hectares in Rus- sia and 2,200 hectares in Ukraine.

IMpORtAnt events duRIng tHe FInAnCIAL yeAR

In March the Company raised about SEK 65 million in an issue of convertible debt instruments with a two-year term.

In September, the Company received an offer from ACM to convert a part of the management fee and performance fee into warrants. The acceptance of the offer is subject to approval by Alpcot Agro’s shareholders at the annual general meeting in May 2010.

On Monday 19 October 2009, the Company’s shares began trading on NASDAQ OMX First North in Stockholm.

FInAnCIAL pOsItIOn

As of the closing day, the Group’s cash and cash equivalents amounted to SEK 33 million (106 mil- lion). The equity/assets ratio was 80.5% (91.0%). The Group’s total equity amounted to SEK 941 million (1,207 million), which is equivalent to SEK 27.21 (41,09) per share, adjusted for the new share issue in 2010.

eARnIngs

The Group’s total revenues for 2009 amounted to SEK 179 million (SEK 30 million). The Group loss for 2009 amounted to SEK –174 million (SEK –96 million).

InvestMents

Total investments in land acquisition during 2009 amounted to SEK 11 million (184 million) and invest- ments in new machinery, equipment and facilities during the year amounted to SEK 47 million (392 million).

eMpLOyees

The average number of full-time employees during the period was 1,123 (1,015).

RIsK

The Group’s operations, in addition to business risk, are exposed to credit, currency, liquidity and inter- est risk. The Group has implemented risk manage- ment and control routines to handle this exposure and related risks. For more detailed information about the risk management, please refer to Note 30 Risk management.

wORK OF tHe BOARd

The Company’s Board of Directors consisted at year end of four members, including the Chairman, elected at the Annual General Meeting. During the financial year, the Board convened 15 board meet- ings.

IMpORtAnt events AFteR tHe end OF tHe FInAnCIAL yeAR

In January 2010 the Company raised SEK 235 mil- lion before issue costs in a preferential rights issue.

On 24 November 2009 the Company an-

nounced an offer to acquire all outstanding shares

of BBAH Sweden AB (“BBAH”) to be paid for in

Alpcot Agro shares. The offer ended on 26 Febru-

ary 2010 with Alpcot Agro gaining control of 95.2

per cent of the shares in BBAH.

Board of Directors report

Key RAtIOs the group

1 Jan–31 dec 2009

1 Jan–31 dec 2008

Operating margin, % –103.1 -82.5

Equity/asset ratio, % 80.5 91.0

Shareholders’ equity, MSEK 941 1,207 Average number of shares 34,591,956 29,974,536 Number of shares at end of

period 34,591,956 34,591,956

Earnings per share, SEK –5.03 –3.23

Equity per share, SEK 27.21 34.90

Earnings and equity per share has been adjusted for the share issue which was completed in January 2010.

pARent COMpAny Operations

Alpcot Agro AB (Publ) is a holding company that manages and develops investments in the agricul- tural sector in Russia and Ukraine.

Financial position

As of December 31, 2009 the parent company had cash and cash equivalents amounting to SEK 22 mil- lion (85). The equity ratio was 94,6 per cent (99.8).

The parent company’s equity amounted to SEK 1,373 million (1,357).

earnings

The Parent company’s pre-tax earnings January–

December 2009 were SEK 18,5 million (18,2).

Important events during the financial year See the relevant section for the Group.

employees

The average number of employees during the period was 3 (3) persons.

AnnuAL geneRAL MeetIng

The Company’s Board of Directors has convened an Annual General Meeting on 17 May 2010 at 16.00.

The Company’s articles of association contain a record clause and the Company’s share register is kept by Euroclear Sweden AB. No share certificates are issued.

dIvIdend pOLICy

Alpcot Agro may distribute future profits to the shareholders. However, as long as the Board of Directors sees the opportunity to reinvest profits on favourable terms, the Board does not intend to propose any dividend. Alpcot Agro has not, since the Company was incorporated in 2006, paid any dividends.

pROpOsed dIstRIButIOn OF tHe pARent COMpAny’s ResuLts (seK)

Share premium reserve 1,193,982,798

Retained earnings 22,551,024

Profit for the year 18,454,884

Retained earnings and reserves of

the parent Company 1,234,988,706

The Board of Directors proposes that the share

premium reserve, retained earnings and the profit

for the year, amounting to SEK 1,234,988,706 be

carried forward.

Financial information

COnsOLIdAted stAteMent OF COMpReHensIve InCOMe

KSEK Note Jan–Dec 2009 Jan–Dec 2008

Revenue 6 179,005 30,267

Gain from changes in fair value of biological assets –4,412 94,355

Government grants 7 8,958 10,309

Total revenue and gain 183,551 134,931

Change in inventory of agricultural produce –31,528 130,652

Raw material and consumables 8 –156,011 –196,448

Other external expenses 9 –85,488 –93,935

Personnel expenses 23 –53,730 –51,092

Depreciation and amortization 11, 13 –46,038 –35,444

Total operating expenses –372,795 –246,267

Operating loss –189,244 –111,336

Income/(loss) from investments 10 12,334 –13,737

Interest income and similar items 4,813 23,367

Interest expense and similar items –15,291 –4,262

Loss before tax –187,388 –105,968

Tax 22 13,280 9,876

Loss for the period –174,108 –96,092

Other comprehensive income

Translation differences –104,334 –7,450

Total comprehensive loss for the period –278,442 –103,542

Basic / Diluted earnings per share –5.03 –3.21

Average number of shares 34,591,956 29,974,536

Number of shares at the end of the period 34,591,956 34,591,956

Earnings per share has been adjusted for the share issue which was completed in January 2010.

Financial information

December 31, KSEK Note 2009 2008

ASSETS

Non-current assets

Tangible fixed assets 11 423,054 426,624

Land in process for registration 12 262,543 0

Intangible assets 13 11,198 39,295

Biological assets 16 15,844 14,514

Equity investments 14 17,932 891

Investments in securities and other financial assets 14 61,997 297,950

Deferred taxes 22 20,282 20,829

Total non-current assets 812,850 800,103

Current assets

Inventory 15 116,983 161,320

Biological assets 16 69,124 83,622

Trade and other receivables 18 124,840 184,264

Cash and cash equivalents 17 33,458 105,620

Total Current assets 344,405 534,826

Assets classified as held for sale 19 7,262 1,654

TOTAL ASSETS 1,164,517 1,336,583

EQUITY AND LIABILITIES Equity

Share capital 146,904 146,904

Other paid-in capital 1,195,983 1,183,373

Reserves –112,804 –8,471

Retained earnings, incl. Result for the year –288,977 –114,868

Minority interest 1 301

Equity 25 941,107 1,207,239

Non-current liabilities

Convertible loan 21 56,446 0

Other non-current liabilities 21 37,279 38,860

Deferred taxes 22 2,348 16,631

Total non-current liabilities 96,073 55,491

Current liabilities

Short term loans 21 50,114 18,136

Trade and other payables 20 77,223 55,717

Total current liabilities 127,337 73,853

TOTAL EQUITY AND LIABILITIES 1,164,517 1,336,583

COnsOLIdAted BALAnCe sHeet

Financial information

COnsOLIdAted stAteMent OF CHAnges In equIty

Equity attributable to shareholders of the parent company Share

capital

Other capital

contributions Reserves

Retained earnings

Minority interest

Total share- holders’

equity

Balance December 31, 2007 76,204 753,809 –1,021 –18,776 – 810,216

Minority interest – – – – 301 301

Total comprehensive loss for the

period – – –7,450 –96,092 – –103,542

Registration of new issue in

progress 30,000 –30,000 – – – –

New shares issue 40,700 459,564 – – – 500,264

Balance December 31, 2008 146,904 1,183,373 –8,471 –114,868 301 1,207,239

Net income – – – –174,109 – –174,109

Other comprehensive income:

Translation differences – – –104,333 – – –104,333

Total comprehensive loss for the

period – – –104,333 –174,109 – –278,442

Change in minority interest – – – – –300 –300

Equity part of convertible loan – 12,610 – – – 12,610

Balance December 31, 2009 146,904 1,195,983 –112,804 –288,977 1 941,107

Financial information

COnsOLIdAted CAsH FLOw

KSEK Note 2009 2008

Operating activities

Cash received from debtors 180,990 27,750

Cash paid to suppliers and personnel –254,566 –313,951

Cash flow (used in)/generated from operations –73,576 –286,201

Interest paid –10,905 –147

Interest received 587 11,974

Income tax paid –471 –252

Net cash (used in)/generated from operating activities –84,365 –274,626

Investing activities

Acquisition of subsidiaries, net of cash acquired 5 –128 –27,599

Acquisition of tangible fixed assets 11 –58,288 –575,622

Sale of fixed assets and intangible assets 745 277

Change in loan receivables –16,881 –72,611

Net cash (used in)/generated from investing activities –74,552 –675,555

Financing activities

Share issue 866,338

Issue costs –23,236

Proceeds from convertible loan 65,050

Proceeds from / Repayment of loans, net 22,714 24,577

Net cash (used in)/generated from financing activities 87,764 867,679

Net (decrease)/increase in cash and cash equivalents –71,153 –82,502

Cash at the beginning of the year 17 105,620 186,593

Exchange difference on cash –1,009 1,529

Cash at the end of the year 17 33,458 105,620

Notes

nOte 1 – geneRAL InFORMAtIOn

Alpcot Agro is a Swedish limited liability company, incor- porated in 2006 and located in Stockholm. Alpcot Agro invests in farmland and agricultural operations in Russia and other CIS states.

The Company’s shares are traded on NASDAQ OMX First North in Stockholm with the ticker name ALPA.

The Company’s legal residence is Stockholm and the head office is located in Moscow with the address 7 Butik- ovskiy lane, 119034 Moscow, Russia.

nOte 2 – ACCOuntIng pRInCIpLes etC

(a) principles applied in preparing the financial state- ments

The consolidated financial statements are prepared on the historical cost basis, except for acquired subsidiaries, which are valued at fair value in accordance with IFRS 3

“Business combinations”, biological assets which are rec- ognised at fair value in accordance with IAS 41 “Agricul- ture”, and certain financial instruments which are recog- nised at fair value in accordance with IAS 39 “Financial instruments, recognition and measurement”. All amounts are in thousands of Swedish crowns, KSEK, unless other- wise indicated.

(b) statement on compliance with the rules in force The financial statements have been prepared in accord- ance with International Financial Reporting Standards (IFRS) and the interpretations from the International Finan- cial Reporting Interpretations Committee (IFRIC). Since the parent company is a company within the EU, only the IFRS that have been approved by the EU are applied. The consolidated financial statements have also been pre- pared in accordance with Swedish law through the appli- cation of the Swedish Accounting Standards Council’s rec- ommendation RFR 1:2 “Supplementary Accounting Rules for Groups”. The financial statements of the parent com- pany have been prepared in accordance with Swedish law, the Annual Reports Act throught the application of RFR 2.2 “Accounting for legal entities”, as well as statements from the Council’s Emerging Issues Task Force.

Preparing financial statements in accordance with IFRS requires the use of a number of significant estimates for accounting purposes. It also requires management to make certain judgements in application of the Group’s accounting principles. Areas where a high degree of esti- mation, which are complex or where judgements and esti- mates have a significant impact on the consolidated finan- cial statements are described in Note 3.

(c) standards, amendments and interpretations that came into effect on or after January 1st 2009 Since 1 January 2009 the Group has changed the presen- tation of Income Statement from function of expense to nature of expense as described in IAS 1 “Presentation of

Financial Statements”. The management believes that while not affecting the financial result of the operations, the presentation by nature of expense provides a more transparent picture of the Group performance for the users of financial statements. For the preparation of this report the comparative figures for 2008 have been restated accordingly.

IAS 23, Borrowing Costs, revised in March 2007 – The main change is the removal of the option of immediately recog- nising as an expense borrowing costs that relate to assets that are not carried at fair value and that take a substantial period of time to get ready for use or sale. Such borrowing costs form part of the cost of that asset, if the commence- ment date for capitalisation is on or after 1 January 2009.

The Group previously recognised all borrowing costs as an expense immediately. The change in accounting policy had no material impact on earnings per share. Early applied 2008.

IFRS 8 “Operating segments”. IFRS 8 replaces IAS 14 –

”Segment reporting” See Note 2 section f.

IAS 1, Presentation of Financial Statements, revised in September 2007 – The main change in IAS 1 is the replacement of the income statement by a statement of comprehensive income which includes all non-owner changes in equity, such as the revaluation of available-for- sale financial assets. Alternatively, entities are allowed to present two statements: a separate income statement and a statement of comprehensive income. The Group has elected to present a statement of comprehensive income.

The revised IAS 1 also introduces a requirement to present a statement of financial position (balance sheet) at the beginning of the earliest comparative period when- ever the entity restates comparatives due to reclassifica- tions, changes in accounting policies, or corrections of errors. The revised IAS 1 had an impact on the presenta- tion of the Group’s financial statements but had no impact on the recognition or measurement of specific transac- tions and balances.

Improvements to International Financial Reporting Stand- ards, issued in May 2008 – The amendments consist of a mixture of substantive changes, clarifications, and changes in terminology in various standards. The amend- ments did not have an impact on the Group’s financial statements.

Improving Disclosures about Financial Instruments,

amendment to IFRS 7, issued in March 2009 – The amend-

ment requires enhanced disclosures about fair value

measurements and liquidity risk. The entity is required to

disclose an analysis of financial instruments using a three-

level fair value measurement hierarchy. The enhanced dis-

closures are included in these financial statements.

(d) new standards, amendments to standards and interpretations that are mandatory for the group’s accounting periods beginning on or after 1 January 2010 which the group has not early adopted

IAS 27, Consolidated and Separate Financial Statements, revised in January 2008 is applied as from January 1, 2010.

The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests even if this results in the non- controlling interests having a deficit balance. The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of con- trol must be accounted for as equity transactions.

IFRS 3, Business Combinations, revised in January 2008 is applied for business combinations made in 2010 and onwards. The most important changes are:

Non-controlling interests (previously “minority inter-

•

ests”) can be measured either using the existing IFRS 3 method (proportionate share of the acquiree’s identifi- able net assets) or at fair value.

The requirement to measure at fair value every asset

•

and liability at each step in a step acquisition for the purposes of calculating a portion of goodwill has been removed and changes in the ownership of subsidiaries are accounted for as equity transactions.

Acquisition-related costs are recognised as expenses

•

rather than included in goodwill.

An acquirer will have to recognise at the acquisition

•

date a liability for any contingent purchase considera- tion. Changes in the value of that liability after the acquisition date are recognised in the income state- ment and not as an adjustment of goodwill.

Group Cash-settled Share-based Payment Transactions, amendments to IFRS 2 is applied as from January 1, 2010.

The amendments provide a clear basis to determine the classification of share-based payment awards in both con- solidated and separate financial statements. The amend- ments incorporate into the standard the guidance in IFRIC 8 and IFRIC 11, which are withdrawn. The Group does not expect the amendments to have any material effect on its financial statements.

Improvements to International Financial Reporting Stand- ards, issued in April 2009 The Group does not expect the amendments to have any material effect on its financial statements.

(e) Basis of consolidation

The consolidated financial statements have been pre- pared in accordance with the purchase method and cover the parent company and its subsidiaries. The financial statements for the parent company and the subsidiaries that are included in the consolidated financial statements pertain to the same period and are prepared according to

the accounting principles that apply for the Group. All intra-group transactions, balances and any unrealised profits or losses arising from intra-group transactions are eliminated. The consolidated financial statements incor- porate financial statements of the parent company and its subsidiaries, from the date that control effectively com- menced until the date that control effectively ceased.

Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Subsidiaries

The subsidiaries are consolidated according to the pur- chase method. The purchase method means, among other things, that the cost of an acquisition is allocated to the acquired assets, liabilities and contingent liabilities based on their fair values at the date of acquisition. If the cost of the acquisition exceeds the acquired assets, liabili- ties and contingent liabilities, the difference is recognised as an intangible asset. If the cost of the acquisition is less than the net assets of the acquired subsidiary, the differ- ence is recognised directly in the income statement.

Minority interest is the part of a subsidiary’s net income and net assets that is not, directly or indirectly, is control- led by the parent company. The minority’s interest in the net income is included in the consolidated income state- ment. The minority’s interest in the net assets are included in the equity of the consolidated balance sheet but is sep- arated from equity attributable to the parent company shareholders.

Joint Ventures and equity investments

Investments in Joint Ventures (JV) and associates are accounted for using to the equity method. Goodwill aris- ing on the acquisition of an associate or joint venture is included within the carrying amount of the associate or joint venture. If it is apparent that goodwill does not reflect future economic benefit, it is immediately written off.

Any net excess of the Group’s interest in the net fair value of acquiree’s net identifiable assets over cost is rec- ognised in the profit and loss account.

When the Group’s share of losses exceeds the carrying amount of the investment, the investment is reported at nil value and recognition is discontinued unless the Group has a commitment towards the JV or associate.

Where a Group enterprise transacts with an associate or JV of the Group, unrealised profits and losses are elimi- nated to the extent of the Group’s interest in the relevant associate or JV, except where unrealised losses provide evidence of an impairment.

(f) segment reporting

The Group has not adopted IFRS 8 Operating Segments previously, so these financial statements include the first adoption of IFRS 8.

Note 2, continued