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Joint Stock Company Eco Baltia - FKTK

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BMWARDOCS232112v37<br />

<strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> <strong>Eco</strong> <strong>Baltia</strong><br />

a joint stock company, having its registered office at Darza iela 2, Riga, Latvia and registered with the Commercial Register of the Republic<br />

of Latvia under number 40103446506<br />

Offering of up to 12,558,000 Shares, with a nominal value of LVL 1.00 each, and admission to trading on the Warsaw <strong>Stock</strong><br />

Exchange and the Riga <strong>Stock</strong> Exchange of up to 28,704,000 Shares of <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> <strong>Eco</strong> <strong>Baltia</strong><br />

This document (the “Prospectus”) has been prepared for the purpose of (i) the offering (the “Offering”) of up to 12,558,000 bearer shares in<br />

the share capital, with a nominal value of LVL 1.00 each, in <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> <strong>Eco</strong> <strong>Baltia</strong> (the “Issuer” or the “<strong>Company</strong>”), and (ii) the<br />

admission of up to 28,704,000 bearer shares of the Issuer (the “Shares”) to trading on the Warsaw <strong>Stock</strong> Exchange (Giełda Papierów<br />

Wartościowych w Warszawie S.A., the “WSE”) and the Riga <strong>Stock</strong> Exchange (NASDAQ OMX Riga, the “RSE”). The Issuer will be<br />

offering for subscription up to 6,279,000 newly issued Shares (the “New Shares”). Otrais Eko Fonds (the “Selling Shareholder”), the Issuer’s<br />

minority shareholder, will be offering up to 6,279,000 existing Shares (the “Sale Shares”). The New Shares to be issued by the Issuer and the<br />

Sale Shares offered by the Selling Shareholder are referred to, where the context permits, as the offer shares (the “Offer Shares”). The Issuer<br />

will only receive the net proceeds from the sale of the New Shares, whereas the Selling Shareholder will receive the net proceeds from the<br />

sale of its respective Sale Shares. The Offer Shares offered in this Offering constitute a minority interest in the Issuer. Prior to the completion<br />

of the Offering, the Selling Shareholder holds 28% of the issued share capital of the Issuer.<br />

The Offering consists of: (i) public offering to retail investors in Poland (the “Retail Investors”), (ii) public offering to institutional investors<br />

in Poland (the “Polish Institutional Investors”) and (iii) private placement to institutional investors in certain jurisdictions outside the United<br />

States and Poland in reliance on Regulation S under the U.S. Securities Act (the “International Investors”, and together with the Polish<br />

Institutional Investors, the “Institutional Investors”), in each case in accordance with applicable securities laws.<br />

The Offer Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “US<br />

Securities Act”), or under any securities laws of any state or other jurisdiction of the United States. The Offer Shares are being<br />

offered and sold only outside the United States in offshore transactions in reliance on Regulation S under the US Securities Act<br />

(“Regulation S”) and may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as<br />

defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of<br />

the US Securities Act (see "Selling Restrictions").<br />

The Offer Shares are being offered, as specified in this Prospectus, subject to cancellation or modification of the Offering and subject to<br />

certain other conditions.<br />

This Prospectus constitutes a prospectus for the purposes of Article 3 of European Union (EU) Directive 2003/71/EC (the “Prospectus<br />

Directive”) and has been prepared in accordance with the Financial Instrument Market Law of the Republic of Latvia, dated 20 November<br />

2003 (the “Latvian Financial Instrument Market Law”). The Latvian Financial and Capital Market Commission (Finanšu un kapitāla tirgus<br />

komisija, the “<strong>FKTK</strong>”) in its capacity as the competent authority in Latvia under the Latvian Financial Instrument Market Law, has approved<br />

this document as a prospectus. The Issuer has requested that the <strong>FKTK</strong> provide the competent authority in Poland, Polish Financial<br />

Supervision Authority (Komisja Nadzoru Finansowego, the “PFSA”) with a certificate of approval attesting that this Prospectus has been<br />

drawn up in accordance with the Prospectus Directive. The Issuer will be authorised to carry out the Offering to the public in Poland, once<br />

the <strong>FKTK</strong> has provided the PFSA with a certificate of approval of this Prospectus and after the Prospectus has been made available to the<br />

public together with a translation of the summary into the Polish language. See "Risk Factors" for a discussion of certain considerations<br />

to be taken into account when deciding whether to invest in the Offer Shares.<br />

Prior to the Offering, there was no public market for the Shares. Based on this Prospectus, the Issuer intends to apply for up to 28,704,000<br />

Shares, including the Offer Shares, to be admitted to listing and trading on the main market of the WSE and the main market (list) of the RSE<br />

(the “Admission”). The Issuer expects that trading in the Shares on the WSE and the RSE will commence in on or about 16 July 2012 (the<br />

“Listing Date”). Settlement of the Offering is expected to occur on or about 12 July 2012 (the “Settlement Date”). Prospective Retail and<br />

Institutional Investors may subscribe for or purchase the Offer Shares during a period which is expected to commence on or about 29 June<br />

2012 and is expected to end on or about 4 July 2012 (the “Subscription Period”). The final offer price per one Offer Share denominated in<br />

PLN (the "Offer Price"), the final number of the Offer Shares, and the final number of Offer Shares allocated to each tranche will be<br />

determined by the Issuer and the Selling Shareholder, acting jointly, upon recommendation of the Offering Broker after completion of bookbuilding<br />

process for Institutional Investors and prior to commencement of the subscription period in the retail and institutional tranche no<br />

later than on or about 29 June 2012 (by 9:00 am CET) and will, in accordance with Art. 17.7 and 21.4 of the Latvian Financial Instrument<br />

Market Law and Art. 54 of the Polish Public Offerings Act, be filed with the <strong>FKTK</strong> and PFSA and published on the websites of the Issuer<br />

(www.ecobaltia.lv) and the Offering Broker (www.dmbzwbk.pl), otherwise in accordance with applicable Latvian and Polish regulations.<br />

The Shares of the <strong>Company</strong> are bearer shares and are registered with the Latvian Central Depository (Latvijas Centrālais Depozitārijs, the<br />

“LCD“) under ISIN code LV0000101350. The delivery of the Offer Shares will be made through the book-entry facilities by transferring<br />

them from the LCD to the Polish clearing and settlement institution – the National Depository for Securities (Krajowy Depozyt Papierów<br />

Wartościowych S.A., the “NDS”). Shareholders in the Issuer may hold the Shares through the NDS and/or LCD participants, such as<br />

investment firms and custodian banks operating in Poland and/or Latvia.<br />

Offer Price: To be determined in PLN and announced no later than on or about 29 June 2012<br />

BIC Securities SIA is the financial advisor (the “Financial Advisor”) and Bank Zachodni WBK S.A. is the capital advisor (the “Capital<br />

Advisor”) of the Issuer. AS SEB Enskilda is the sales agent (the “Sales Agent”). Dom Maklerski BZ WBK S.A. is the global co-ordinator<br />

and sole bookrunner (the “Global Coordinator”), and the offering broker in Poland for the purposes of the Offering and Admission of the<br />

Shares on the WSE (“Offering Broker”).<br />

Financial Advisor Capital Advisor<br />

Global Coordinator and Offering Broker Sales Agent<br />

The date of this Prospectus is 18 June 2012


BMWARDOCS232112v37<br />

TABLE OF CONTENTS<br />

SUMMARY 3<br />

PERSONS RESPONSIBLE 11<br />

RISK FACTORS 12<br />

EXCHANGE RATES 32<br />

USE OF PROCEEDS 33<br />

DIVIDENDS AND DIVIDEND POLICY 34<br />

CAPITALISATION AND INDEBTEDNESS 35<br />

SELECTED HISTORICAL FINANCIAL INFORMATION 37<br />

OPERATING AND FINANCIAL REVIEW 41<br />

PRO FORMA FINANCIAL INFORMATION 77<br />

INDUSTRY OVERVIEW 82<br />

REGULATORY INFORMATION 96<br />

GENERAL INFORMATION ON THE ISSUER 101<br />

GROUP STRUCTURE 103<br />

BUSINESS OVERVIEW 109<br />

MATERIAL CONTRACTS 131<br />

RELATED PARTY TRANSACTIONS 138<br />

MANAGEMENT AND CORPORATE GOVERNANCE 141<br />

SHAREHOLDERS 152<br />

DESCRIPTION OF THE SHARES AND CORPORATE RIGHTS AND OBLIGATIONS 155<br />

CERTAIN LATVIAN AND POLISH SECURITIES MARKET REGULATIONS AND PROCEDURES,<br />

THE WARSAW STOCK EXCHANGE AND THE RIGA STOCK EXCHANGE 163<br />

THE OFFERING AND PLAN OF DISTRIBUTION 168<br />

PLACING 178<br />

SELLING RESTRICTIONS 180<br />

TAXATION 184<br />

INDEPENDENT AUDITORS 189<br />

ADDITIONAL INFORMATION 190<br />

FINANCIAL INFORMATION F-1<br />

ANNEX I DEFINED TERMS A-1<br />

2


BMWARDOCS232112v37<br />

SUMMARY<br />

The following constitutes the summary of the essential characteristics and risks associated with the Issuer, the<br />

Group and the Offer Shares. This summary is not exhaustive, does not contain all information of importance to<br />

prospective investors, is not a substitute for reading the entre Prospectus and must be read as an introduction to<br />

this Prospectus. Prospective investors should read this Prospectus thoroughly and completely, including the<br />

"Risk Factors", any supplements to this Prospectus required under applicable laws and the Consolidated<br />

Financial Statements, the Condensed Consolidated Interim Financial Statements, the Pro Forma Financial<br />

Information and other financial information and related notes, before making any decision with respect to<br />

investing in the Offer Shares. No civil liability will attach to the Issuer and other companies of the Group in<br />

respect of this summary (including the Summary Financial and Operating Information) or any translation<br />

thereof, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this<br />

Prospectus. Where a claim relating to the information contained in this Prospectus is brought before a court in a<br />

Member State, the plaintiff may, under the national legislation of the Member State where the claim is brought,<br />

be required to bear the costs of translating this Prospectus before the legal proceedings are initiated.<br />

Summary of the Business<br />

The Group is the largest vertically integrated multi-service waste management group in the Baltics in terms of<br />

turnover, consisting of companies that operate in four different waste management segments, providing wide<br />

variety of services, starting from (i) organisation of waste recovery, (ii) waste collection, (iii) recyclables sorting<br />

and trading, and finally (iv) recycling. The Group is market leader in Latvia in organisation of waste recovery<br />

segment in terms of market share and turnover and the Group is one of the largest waste collectors in Latvia in<br />

terms of turnover and the leader in terms of geographical coverage. The Group collects waste in cities and<br />

surrounding regions of Riga, Liepaja, Talsi, Tukums, Jurmala and Sigulda. The Group also holds large market<br />

share in terms of volume in recyclables sorting and trading segment in the Baltics. Moreover, the Group has an<br />

unrivalled position in polyethylene terephthalate (“PET”) bottle and polyethylene (“PE”) recycling segments in<br />

the Baltics in terms of amount of recycled material and turnover. The Group has a long lasting cooperation with<br />

all key customers and municipalities.<br />

In the three months period ended 31 March 2012 the Group had consolidated revenue of LVL 6,969,000 and net<br />

profit of LVL 1,052,000. In the three months period ended 31 March 2012 55.5% of revenue was generated by<br />

waste recycling segment, 22.7% by waste collection segment, 14.6% by organisation of waste recovery segment<br />

and 7.2% by recyclables sorting and trading segment. In 2011 the Group recorded consolidated revenue of LVL<br />

26,595,000 and net profit of LVL 3,378,000. In 2011 54.5% of revenue was generated by waste recycling<br />

segment, 21.9% by waste collection segment, 15.9% by organisation of waste recovery segment and 7.7% by<br />

recyclables sorting and trading segment. For the avoidance of doubt it should be noted that the above mentioned<br />

financial results were derived from the Consolidated Financial Statements and the Condensed Consolidated<br />

Interim Financial Statements and are financial results of Eko Baltija Group and not of the Group as it is at the<br />

date of the Prospectus.<br />

Competitive Strengths and Advantages<br />

The Group believes that the competitive strengths and advantages of its business are as follows:<br />

Highly competitive vertically integrated business model.<br />

Successful experience in accelerated growth.<br />

Diversified business model.<br />

Modern equipment and unique technologies.<br />

Market leadership.<br />

Highly competent growth oriented local management.<br />

Solid and consistent financial performance.<br />

3


BMWARDOCS232112v37<br />

Excellent ongoing collaboration with local authorities.<br />

Diversified client and supplier base.<br />

Positive public image.<br />

Business Strategy<br />

Being the leading waste management group in the Baltics by revenues, the Group believes that it can capitalise<br />

on significant market growth potential and the market’s fragmented structure, by identifying attractive<br />

consolidation opportunities and continuing its organic growth. The Group’s strategy rests on the following key<br />

pillars:<br />

Investing into sorting of municipal solid waste by construction of the mechanical biological treatment<br />

plant.<br />

Introduction of new products in the recycling business line.<br />

Geographical expansion.<br />

Securing raw material base.<br />

Launching new cross-sector business projects.<br />

Introduction of one-stop-shop concept.<br />

Applying global trends, technologies and processes to local conditions.<br />

Actively seeking for the opportunities of financing from the EU.<br />

Use of Proceeds<br />

The net proceeds the Issuer receives from the issuance of the New Shares will be used primarily for fulfilling of<br />

the Group’s business plan which envisages the following capital investments:<br />

Construction of the first mechanical-biological treatment (MBT) plant in Latvia.<br />

Launch of food grade PET pellet production at PET Baltija production site with capacity of around<br />

11,500 tonnes of new products that are used in the food industry (material used in production of food<br />

packaging).<br />

Capacity expansion at Nordic Plast by installation of a second production line for production of<br />

polypropylene (“PP”) pellets with capacity of around 3,700 tonnes, thus doubling the current capacity.<br />

Summary of Risk Factors<br />

Risks Relating to the Group’s Business and Industry<br />

The Group operates in a highly regulated industry what limits its ability to adapt to changing economic<br />

conditions and any breaches of regulations may put at risk continuity of its operations.<br />

Changes in the regulatory environment may have an adverse effect on the Group’s operations.<br />

Amount of generated waste may fluctuate.<br />

The Group depends on licenses and permits that could be revoked, the Group may not be able to<br />

prolong them or the Group may not be able to obtain required licenses and permits.<br />

The Group is subject to regulations and liability under environmental laws.<br />

The Group’s operations are regulated by the municipalities.<br />

4


BMWARDOCS232112v37<br />

Agreements on providing the waste management services with municipalities may be terminated.<br />

Latvijas Zalais punkts may not be able to organise waste recovery system in the future.<br />

Increased competition could reduce the Group's revenue and profits and constrain the Group's growth.<br />

The Group’s revenues may decrease if the Group fails to win tenders for waste collection organised by<br />

the municipalities.<br />

Latvijas Zalais punkts may lose the right to use the “Green Dot” trademark.<br />

The tariffs for household waste management are subject to regulation by the authorities.<br />

Increase in operating costs and/or inability to pass on any increases in costs on Group’s customers<br />

could adversely affect the Group’s profits.<br />

The Group doesn’t conclude long-term agreements with its major customer.<br />

Disruptions in the Group’s production facilities may have a material adverse impact on the Group.<br />

Prices for the Group’s products are subject to fluctuations.<br />

Demand for certain services and products of the Group is subject to fluctuations.<br />

The Group has grown through acquisitions.<br />

Further expansion through acquisitions entails certain risks, which could have adverse consequences<br />

for the Group's business.<br />

The lease agreements concluded by the Group may be terminated or the Group may not be able to<br />

prolong them.<br />

A number of lease agreements have not been registered with the Land Register and in case of transfer<br />

of ownership to properties these leases may cease to be valid.<br />

Failure to register transfer of title to real properties as a result of merger of Tukuma Ainava into<br />

Kurzemes Ainava with the public registers and failure to register respective amendments to Nordea<br />

Financing Agreements and security agreements in the public registers may lead to event of default<br />

under Nordea Financing Agreements.<br />

Certain Group Companies are and in the future may be recognized as having dominant position on the<br />

market.<br />

The Group may be subject to claims for unpaid remuneration for fulfilment of duties of members of<br />

corporate bodies of certain Group Companies.<br />

Current and future assets of the Group Companies, certain amount of the Shares in the Issuer, as well<br />

as all the shares of the Group Companies are pledged.<br />

Certain of the Group’s credit facilities are subject to certain covenants and restrictions.<br />

The Group may not be able to obtain financing from the EU funds or the financing may be revoked.<br />

The Group’s ability to obtain debt financing may depend on the performance of its business and market<br />

conditions.<br />

The Group is exposed to currency exchange risk and interest rate risk.<br />

The Group is exposed to the credit risks of its customers and suppliers.<br />

The Group may not be able to grow or effectively manage its growth.<br />

The Group is dependent on its key personnel.<br />

The Group’s insurance coverage may be insufficient for any incurred losses.<br />

The Group may infringe third party IP rights.<br />

The tax office may determine that agreements executed by the Group Companies with each other and<br />

the related parties are not on arm-length basis and impose fines on the Group Companies.<br />

5


BMWARDOCS232112v37<br />

Historical financial statements of the Group may not be representative of its historic or future results<br />

and may not be comparable across periods, which may make it difficult to evaluate the Group’s results<br />

and future prospects.<br />

Risks Relating to Latvia<br />

Political and economic changes could negatively impact the Group.<br />

Pegged currency may have adverse impact on Latvian economy and therefore materially adversely<br />

influence the Group.<br />

Inflation risk may have material adverse impact on the Group.<br />

Unfavourable changes in taxes may have material adverse influence on the Group.<br />

Latvian judicial system is undergoing development.<br />

Risk Relating to the Issuer<br />

The Issuer is a holding company with no assets other than shares of its subsidiary.<br />

The rights of Latvian company shareholders differ from the rights of the shareholders of Polish listed<br />

companies.<br />

Judgments of Polish courts against the <strong>Company</strong> and the Group may be more difficult to enforce than if<br />

the company and its management were located in Poland.<br />

The Issuer has been, and will continue to be, influenced by three principal shareholders.<br />

The Issuer may have limited ability to attract financing through secondary offerings of Shares.<br />

Risks Relating to Shares, Listing and Trading on the WSE and the RSE<br />

The Offering may be delayed, suspended or cancelled.<br />

There has been no prior public trading market for the Shares.<br />

The price of the Shares may fluctuate significantly.<br />

Turmoil in emerging markets could cause the value of the Shares to suffer.<br />

The market value of the Shares may be adversely affected by future sales or issues of substantial<br />

amounts of Shares.<br />

Holders of the Offer Shares may not be able to exercise pre-emptive rights, and as a result may<br />

experience substantial dilution upon future issuances of Shares.<br />

The Issuer is established and organised under laws of Latvia while the Shares will be listed on a<br />

regulated market in Poland.<br />

There is no guarantee that the Issuer will pay dividends in the future.<br />

The Issuer may be unable to list the Shares on the WSE and/or the RSE, or the Issuer may be delisted<br />

from the WSE and/or the RSE.<br />

Trading in the Shares on the WSE and/or the RSE may be suspended.<br />

The Issuer may have a limited free float, which may have a negative effect on the liquidity,<br />

marketability or value of its Shares.<br />

The marketability of the Issuer’s Shares may decline and the market price of the Issuer’s Shares may<br />

fluctuate disproportionately in response to adverse developments that are unrelated to the Group’s<br />

operating performance and decline below the Offer Price.<br />

Dual listing of the Shares will result in differences in liquidity, settlement and clearing systems, trading<br />

currencies and transaction costs between the WSE and the RSE, which may hinder the transferability of<br />

the Shares between the WSE and the RSE.<br />

Tax treatment for non-Latvian investors in a Latvian company may vary.<br />

The Issuer has no experience in complying with requirements for publicly-listed companies.<br />

6


BMWARDOCS232112v37<br />

Summary of the Offering<br />

Issuer ................................................................ <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> <strong>Eco</strong> <strong>Baltia</strong>, a joint stock company,<br />

incorporated under the laws of Latvia, having its registered<br />

office at Darza iela 2, Riga, LV-1007, Latvia, and registered<br />

under the corporate code 40103446506.<br />

Selling Shareholder ............................................. Limited partnership Otrais Eko Fonds, corporate code:<br />

40003837498, with registered office at Darza iela 2, Riga, LV-<br />

1007, Latvia.<br />

Principal Shareholders ........................................Mrs. Undine Bude, Mr. Viesturs Tamuzs and Mr. Maris<br />

Simanovics.<br />

Offering ................................................................ The Offering consists of: (i) public offering to retail investors in<br />

Poland (the "Retail Investors"), (ii) public offering to<br />

institutional investors in Poland (the “Polish Institutional<br />

Investors”), and (iii) private placement to institutional investors<br />

in certain jurisdictions outside the United States and Poland in<br />

reliance on Regulation S under the U.S. Securities Act (the<br />

“International Investors”, and together with the Polish<br />

Institutional Investors, the “Institutional Investors”), in each case<br />

in accordance with applicable securities laws.<br />

Offer Shares .........................................................Up to 12,558,000 bearer shares in the share capital of the Issuer.<br />

Consist of up to 6,279,000 bearer shares with a nominal value of<br />

LVL 1.00 each to be issued by the Issuer and up to 6,279,000<br />

existing bearer shares offered by the Selling Shareholder.<br />

New Shares...........................................................Up to 6,279,000 bearer shares with a nominal value of LVL 1.00<br />

each to be issued by the Issuer.<br />

Sale Shares...........................................................Up to 6,279,000 existing bearer shares offered by the Selling<br />

Shareholder.<br />

Book-building ...................................................... Before the commencement of subscription period, the bookbuilding<br />

process will be conducted, during which selected<br />

Institutional Investors, who have been invited by the Issuer and<br />

the Selling Shareholder through the Offering Broker will be able<br />

to make, in a manner agreed between them and the Offering<br />

Broker, declarations as to the total number of the Offer Shares<br />

they are willing to acquire and the price they are willing to pay<br />

for one Offer Share.<br />

Subscription Period........................................... The subscriptions by the Retail Investors and Institutional<br />

Investors will be accepted between on or about 29 June 2012 and<br />

on or about 4 July 2012 (inclusive).<br />

Maximum Price.................................................... The maximum price at which the Offer Price will be set, which<br />

will be announced no later than on or about 27 June 2012.<br />

Offer Price............................................................<br />

The Offer Price at which the Offer Shares are being offered, the<br />

final number of the Offer Shares and the final number of Offer<br />

Shares allocated to each tranche will be determined by the Issuer<br />

and the Selling Shareholder, acting jointly, upon<br />

recommendation of the Offering Broker after completion of the<br />

book-building process and after taking into account other<br />

conditions. In particular, the following considerations will be<br />

taken into account: (i) the size and price sensitivity of demand<br />

indicated in the book-building process, (ii) the current and<br />

anticipated sentiment in the capital market in Poland, the<br />

European Union and globally and (iii) assessment by investors of<br />

<strong>Company</strong>’s business prospects, risk factors and other<br />

7


BMWARDOCS232112v37<br />

information contained in this Prospectus or available elsewhere.<br />

The Offer Price will not be higher than Maximum Price, will be<br />

identical for both New Shares and Sale Shares and for both<br />

Institutional and Retail Investors and will be set in PLN.<br />

The Issuer will announce the Offer Price prior to commencement<br />

of the Subscription Period. A pricing statement setting forth the<br />

Offer Price, the number of Offer Shares and the final number of<br />

Offer Shares allocated to each tranche will be filled with the<br />

<strong>FKTK</strong> and the PFSA and published no later than on or about 29<br />

June 2012 (09.00 a.m. CET) on the websites of the Issuer<br />

(www.ecobaltia.lv) and the Offering Broker<br />

(www.dmbzwbk.pl).<br />

Allotment .............................................................Allotment will take place on or about 5 July 2012, after closing<br />

of the Subscription Period.<br />

Settlement and Delivery of the Offer Shares.......<br />

The settlement of the Offering is expected to be made on or<br />

about 12 July 2012, after which delivery of the Offer Shares will<br />

follow. Delivery of the Offer Shares will be made in accordance<br />

with settlement instructions placed by the Investors upon<br />

subscription, through the facilities of the NDS, by registration of<br />

the Offer Shares on the Investors’ securities accounts indicated<br />

by such Investors. Delivery of the Offer Shares is expected to<br />

take place no longer than 14 days after the Settlement Date,<br />

barring unforeseen circumstances, by appropriate entry on the<br />

Investors’ securities accounts held through members of the NDS.<br />

The exact delivery dates will depend on timing of: (i)<br />

registration of capital increase of the <strong>Company</strong> with the<br />

Commercial Register, (ii) registration of the Shares of the Issuer<br />

(including the Offer Shares) with the LCD and (iii) registration<br />

of the Shares of the Issuer (including the Offer Shares) in the<br />

facilities of the NDS.<br />

Listing and Trading ............................................. The Issuer intends to apply for admission to listing and trading<br />

on the main market of the WSE and the main market (list) of the<br />

RSE of all the Issuer’s Shares, including the Offer Shares,<br />

immediately after the Settlement Date. The Issuer believes that<br />

trading on the WSE and the RSE will commence on or about 16<br />

July 2012, or as soon as possible thereafter, barring unforeseen<br />

circumstances.<br />

Form of Offer Shares and Deliver of the The Shares of the <strong>Company</strong> are bearer shares and are registered<br />

Offer Shares ......................................................... with the LCD. The delivery of the Offer Shares will be made<br />

through the book-entry facilities by transferring them from the<br />

LCD to the NDS. After the successful closing of the Offering,<br />

the Offer Shares will be held in book entry form in the NDS<br />

and/or the LCD. Shareholders in the Issuer may hold the Shares<br />

through the NDS and/or LCD participants, such as investment<br />

firms and custodian banks operating in Poland and/or Latvia.<br />

Shares outstanding before and after the The Issuer’s issued and outstanding share capital as of the date<br />

completion of the Offering................................ of this Prospectus is LVL 22,425,000, divided into 22,425,000<br />

Shares, each with a nominal value of LVL 1.00. The Issuer<br />

expects that up to 6,279,000 Shares will be issued and<br />

outstanding which Shares will comprise the Issuer’s share capital<br />

in the amount of LVL 6,279,000, assuming that all Offer Shares<br />

are subscribed for, allotted and issued. The Selling Shareholder<br />

is offering up to 6,279,000 Shares. Upon completion of the<br />

Offering no more than 28,704,000 Shares will be issued and<br />

outstanding, which Shares will comprise the Issuer’s share<br />

8


BMWARDOCS232112v37<br />

Securities code.................................................. ISIN code LV0000101350<br />

capital in the amount not exceeding LVL 28,704,000 (assuming<br />

that all of the Offer Shares have been issued).<br />

In case all the Offer Shares are subscribed or purchased and<br />

allotted, the Offer Shares will constitute up to 43.75% of the<br />

share capital of the Issuer and up to 43.75% of total votes at the<br />

General Meeting. Shares issued and outstanding as of the date of<br />

this Prospectus will be in bearer form.<br />

Dividends..............................................................All Shares carry full dividend rights if and when the distribution<br />

of profit is declared.<br />

Voting Rights ....................................................... Each Share entitles its holder to one vote at the General Meeting.<br />

Lock-up ................................................................ Subject to certain exceptions, the Issuer, the Principal<br />

Shareholders the Selling Shareholder and ESOMTAX INVEST<br />

LIMITED (Cyprus) agreed that for a period of 12 months from<br />

the Settlement Date, they will not, without the prior written<br />

consent of the Offering Broker, propose or otherwise support an<br />

offering of any of the <strong>Company</strong>’s shares, announce any intention<br />

to offer new shares and/or to issue any securities convertible into<br />

<strong>Company</strong>’s shares or securities that in any other manner<br />

represent the right to acquire the <strong>Company</strong>’s shares, or conclude<br />

any transaction (including any transaction involving derivatives)<br />

of which the economic effect would be similar to the effect of<br />

selling the <strong>Company</strong>’s Shares.<br />

Financial Advisor ................................................ BIC Securities SIA<br />

Capital Advisor..................................................... Bank Zachodni WBK S.A.<br />

Global Coordinator and Offering Broker ...........Dom Maklerski BZ WBK S.A.<br />

Sales Agent...........................................................AS SEB Enskilda<br />

Managers.............................................................. The Financial Advisor, the Capital Advisor, the Offering Broker<br />

and the Sales Agent.<br />

Selling Restrictions ..............................................<br />

The Offer Shares may not be offered outside Poland in any<br />

manner that would constitute public offering or would otherwise<br />

require authorization under applicable local regulations. The<br />

Offer Shares have not been and will not be registered under the<br />

US Securities Act or with any securities regulatory authority of<br />

any state or any jurisdiction in the United States and subject to<br />

certain exceptions, may not be offered or sold within the United<br />

States or to, or for the account or benefit of, U.S. persons (as<br />

defined in the Regulation S) except in certain transactions<br />

exempt from the registration requirements of the US Securities<br />

Act. For information on further selling restrictions please see:<br />

"Selling Restrictions".<br />

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BMWARDOCS232112v37<br />

Summary financial and operating information<br />

The following tables set forth summary consolidated financial data on the level of Eko Baltija Group for the<br />

periods indicated, which have been extracted without material adjustments from the Consolidated Financial<br />

Statements and the Condensed Consolidated Interim Financial Statements.<br />

The information below should be read in conjunction with the Consolidated Financial Statements and the<br />

Condensed Consolidated Interim Financial Statements, including the notes thereto and included elsewhere in<br />

this Prospectus and with the information included in “Operating and Financial Review” section of the<br />

Prospectus.<br />

Comprehensive Income Information<br />

For three months ended<br />

31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Net sales 6,969 6,315 26,595 21,088 13,851<br />

Cost of sales (4,979) (4,320) (19,354) (15,079) (10,174)<br />

Gross profit 1,990 1,995 7,241 6,009 3,677<br />

Operating profit/(loss) 1,206 1,200 3,981 2,325 (144)<br />

Profit before corporate income tax 1,154 1,142 3,722 2,039 (352)<br />

Income taxes (102) (63) (344) (245) (163)<br />

Current year profit/ (loss) and comprehensive<br />

income<br />

1,052 1,079 3,378 1,794 (515)<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

Financial Position Information<br />

ASSETS<br />

As of 31 March As of 31 December<br />

2012 2011 2010 2009<br />

(LVL in thousands)<br />

Total non-current assets 10,960 10,900 11,586 12,934<br />

Total current assets 8,016 7,566 5,781 4,665<br />

Total assets 18,976 18,466 17,367 17,599<br />

EQUITY AND LIABILITIES<br />

Total equity 7,171 6,119 7,989 6,198<br />

Total liabilities 11,805 12,347 9,378 11,401<br />

Total equity and liabilities 18,976 18,466 17,367 17,599<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

Cash Flows Information<br />

For three months<br />

ended 31 March<br />

For the year ended 31<br />

December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Net cash from operating activities 1,541 1,678 4,989 2,694 936<br />

Net cash used in investing activities (910) (563) (7,764) (918) (42)<br />

Net cash used in financing activities (810) (1,011) 2,885 (1,730) (100)<br />

Profit or loss from currency fluctuations - - (3) - (3)<br />

Net increase in cash and cash equivalents (179) 104 107 46 791<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

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BMWARDOCS232112v37<br />

PERSONS RESPONSIBLE<br />

The Issuer and the Selling Shareholder (in case of the Selling Shareholder, only with respect to information<br />

relating to the Selling Shareholder and the Sale Shares offered by the Selling Shareholder) accept responsibility<br />

for the information contained in this Prospectus. To the best of the knowledge and belief of the Issuer and the<br />

Selling Shareholder (with respect to the above indicated information), which have taken all reasonable care to<br />

ensure that such is the case, the information contained in this Prospectus is in accordance with the facts and<br />

contains no omission likely to affect its import.<br />

Neither the delivery of this Prospectus nor any sale made hereby at any time after the date hereof should, under<br />

any circumstances, create any implication that there has been no change in the affairs of the Issuer or any of its<br />

subsidiaries or the Issuer and its subsidiaries taken as a whole (the “<strong>Eco</strong> <strong>Baltia</strong> Group”, the “Group”) since the<br />

date hereof or that the information contained herein is correct as of any date subsequent to the earlier of the date<br />

hereof or any date specified with respect to such information.<br />

Neither the Managers nor the legal advisers to the Issuer accept any responsibility whatsoever for the contents of<br />

this Prospectus, or for its transaction, or for any other statement made or purported to be made by any of them or<br />

on their behalf in connection with the Issuer or the Offering. The Managers and the legal advisers to the Issuer<br />

accordingly disclaim all and any liability whether arising in tort or contract which they might otherwise have in<br />

respect of this Prospectus or any such statement. No representation or warranty, express or implied, is made by<br />

the Managers as to the accuracy or completeness of the information set forth herein and nothing contained in this<br />

Prospectus is, or should be relied upon as a promise or representation, whether as to the past or the future.<br />

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BMWARDOCS232112v37<br />

RISK FACTORS<br />

Prospective investors in the Offer Shares should carefully consider the following risks and uncertainties, as well<br />

as other information contained in this Prospectus before deciding to invest in any of the Offer Shares. The<br />

Issuer’s business, financial condition and results of operations have been, and could be, materially adversely<br />

affected by the following risks. If any of the following risks actually occurs, the value and trading price of the<br />

Shares could decline and investors could lose all or part of their investment. Described below are the risks and<br />

uncertainties the Issuer believes are material, but these risks and uncertainties may not be the only ones faced by<br />

the Issuer or the Group Companies. Additional risks and uncertainties, including those that the Issuer is not<br />

currently aware of or deems immaterial, may also result in decreased revenues, increased expenses or other<br />

events that could result in a decline in the value of the Shares.<br />

Risks Relating to the Group’s Business and Industry<br />

The Group operates in a highly regulated industry what limits its ability to adapt to changing economic<br />

conditions and any breaches of regulations may put at risk continuity of its operations.<br />

The Group’s main area of business operations is waste management (including: organisation of waste recovery,<br />

waste collection, recyclables sorting and trading, and recycling) in Latvia. In Latvia, as in many other countries,<br />

companies operating in waste management industry are subject to various regulations. Each of the segments of<br />

the business has different regulations. The Group is subject to constant supervision by the state authorities and<br />

continuous reporting obligations. The Group’s business depends on the continuing validity of a number of<br />

licenses granted to the Group Companies and the Group Companies’ compliance with the terms of such licenses,<br />

permits etc. Breaches of regulations by the Group, negative publicity concerning the Group or the waste<br />

management sector and/or fines or criminal prosecutions resulting from violation of regulations may result in<br />

imposition of fines or withdraw of licenses necessary to carry on the operations, what may have material adverse<br />

impact on the Group’s operations, prospects and financial results. See: “Regulatory Information” for more<br />

information on regulations relating to waste management industry.<br />

Changes in the regulatory environment may have an adverse effect on the Group’s operations.<br />

The Group operates in the waste management industry, which is regulated and therefore there are substantial<br />

uncertainties embedded in operations in this industry. The legal framework in Latvia could change in<br />

unpredictable way. Furthermore, some steps may be undertaken on the European Union level or may result from<br />

judgments of the European Court of Justice. New laws may be unfavourable to the operations of the Group or<br />

may require necessary adjustments to the operations. The Group Companies may be unable to implement new<br />

regulations in the prescribed period or to do it at all. Consequently, the Group’s operations may have to be<br />

changed, causing inability to use common solutions or implement the Group’s strategy. Moreover, the<br />

collaboration with the state and municipal authorities are very important to the business of the Group.<br />

All of factors mentioned above, especially adverse changes in the laws or their interpretation and/or deterioration<br />

of collaboration with the state and municipal authorities may have a material adverse effect on the business of<br />

the Group or create obstacles to further expansion.<br />

Amount of generated waste may fluctuate.<br />

Amount of generated waste is subject to fluctuations that cannot be predicted. The level of generated waste<br />

depends on, among others, stage of economic growth, macroeconomic situation, disposable income of the<br />

population and the structure of the population. Latvian population is decreasing as a result of migrations and low<br />

birth rate. Moreover, generation of different types of waste depends on many specific factors, e.g. generation of<br />

construction waste depends on, inter alia, availability of crediting and market conditions for construction<br />

business, and amount of disposed PET bottles depends on, among others, the weather conditions and<br />

consumption of beverages. As a consequence the generation of waste in general or different types of waste may<br />

be volatile in the next years. Adverse fluctuations in the amount of generated waste may have material adverse<br />

impact on the Group’s operations, prospects and financial results.<br />

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BMWARDOCS232112v37<br />

The Group depends on licenses and permits that could be revoked, the Group may not be able to prolong them<br />

or the Group may not be able to obtain required licenses and permits.<br />

The business operations and activities undertaken by the Group Companies are subject to regulatory<br />

requirements imposed by law, including requirements to obtain certain licenses and permits. Such licenses and<br />

permits may be revoked due to, inter alia, incompliance to its terms. Usually, licenses and permits are granted on<br />

the defined period of time and after expiry of their term they should be prolonged. The Group may not be able to<br />

prolong its licenses and permits. Moreover, as the Group’s business and operations are expanding, the Group<br />

may require obtaining additional licenses and permits. The Group cannot assure that it will be able to obtain such<br />

additional licenses and permits.<br />

As of the date of the Prospectus, the Group has all required licenses and permits, although it cannot assure that in<br />

the future any of the events described above would not appear. If any of those factors appear, it may have<br />

material adverse impact on the Group’s operations, prospects and financial results.<br />

The Group is subject to regulations and liability under environmental laws.<br />

While operating in waste management business in Latvia the Group is subject to certain regulation and liability<br />

under environmental laws. Certain Group Companies, including Eko Riga, Eko Kurzeme, Jurmalas ATU, Jumis,<br />

Kurzemes Ainava, Eko Reverss, PET Baltija and Nordic Plast, are subject to the so-called strict liability, i.e. in<br />

case of environmental damage or imminent threat of damage to environment would emerge, they could be liable<br />

for environmental damage or imminent threat of damage irrespective of their fault. Any such environmental<br />

damage or imminent threat of damage could lead to penalties and fines imposed by the authorities, as well as<br />

claims raised by third parties. Although, the Group holds a third party liability insurance, which covers sudden<br />

and unforeseen damages to the environment, it cannot assure that the insurance coverage is sufficient for any<br />

incurred damages, penalties, fines and claims from third parties (see risk factor: “The Group’s insurance<br />

coverage may be insufficient for any incurred losses”). If any of those factors appear, it may have material<br />

adverse impact on the Group’s operations, prospects and financial results.<br />

The Group’s operations are regulated by the municipalities.<br />

The Group’s operations in the field of waste collection are subject to municipal regulation and supervision (for<br />

more information please see: “Regulatory Information - Environmental and other Licenses and Permits”).<br />

Adverse legislative changes in any of the municipalities where the Group operates may have adverse effect on<br />

the business of the Group or create obstacles to further growth. Any possible amendments to the enforced<br />

legislation, the frequency of adoption of such amendments, resolutions passed by municipalities, which provide<br />

additional obligations for service providers, and the results of controls carried out by various inspectorates and<br />

municipal authorities are additional risk factors in the field of waste collection.<br />

All of factors mentioned above, especially unfavourable changes in the municipal regulations may have a<br />

material adverse effect on the business of the Group or create obstacles to further expansion of the Group.<br />

Agreements on providing the waste management services with municipalities may be terminated.<br />

The Group Companies operating in the waste collection segment has concluded number of agreements with the<br />

municipalities on providing the waste management services (e.g. collection, transportation and disposal of<br />

household waste). Following the conclusion of number of these contracts, the applicable Latvian law changed<br />

the system of granting of rights to collect and transport household waste in the territories of municipalities.<br />

Currently, municipalities are entitled to grant such rights to contractors only by undergoing a public procurement<br />

procedure. According to the transitional provisions of the Waste Management Law, the contracts concluded for a<br />

definite period of time prior to 26 July 2005 without undergoing public procurement procedure, will be<br />

terminated on the date determined in the contract, and similar contracts concluded indefinitely and contracts<br />

entered into or extended after 26 July 2005 without applying public procurement procedure will be terminated no<br />

later than on 1 July 2013. The aforementioned transitional provisions authorising the municipalities to continue<br />

the validity of the contracts concluded for definite period of time by the end date determined in the contract is<br />

currently being examined in the Constitutional Court.<br />

Certain Group Companies, including Eko Kurzeme, Jumis, Jurmalas ATU and Kurzemes Ainava, prior to 26<br />

July 2005 concluded contracts with municipalities on granting rights to provide waste management services<br />

without determining their validity or entered into or extended such contracts after 26 July 2005 without applying<br />

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BMWARDOCS232112v37<br />

the public procurement procedure. In accordance with applicable regulations such contracts have to be<br />

terminated no later than by 1 July 2013 and the municipality should select a municipal waste manager in<br />

accordance with the procedures specified in the regulatory enactments regulating public procurement or publicprivate<br />

partnership. When the waste manager has been selected, municipal authorities should conclude waste<br />

management contracts with the selected entity and should terminate the former waste management contracts no<br />

later than one month after the new contract of the municipality with the selected waste manager comes into<br />

force. For more information please see: “Material Contracts – Waste Management Agreements”.<br />

The Group Companies, including Eko Riga and Eko Kurzeme, prior to 26 July 2005 concluded long-term<br />

agreements with municipalities for a definite period of time without undergoing public procurement procedure<br />

(for more information please see: Material Contracts – Waste Management Agreements”). In accordance with<br />

transitional provisions those agreements should end on the date determined therein. However, there could be no<br />

assurance that the transitional provisions would not be change (e.g. due to the ruling of the Constitutional Court)<br />

and the agreements would not be terminated prior to their term.<br />

Termination of the agreements concluded by the Group Companies with municipalities prior to their term may<br />

have material adverse impact on the Group’s operations, prospects and financial results.<br />

Latvijas Zalais punkts may not be able to organise waste recovery system in the future.<br />

Latvijas Zalais punkts (“LZP”) has right to establish and implement waste recovery system of: (i) waste harmful<br />

to the environment, (ii) waste electric and electronic equipment, and (iii) packaging waste and disposable<br />

tableware and accessories, based on orders No 430, 431 and 428 issued on 29 December 2010 by the Ministry of<br />

Environment Protection and Regional Development of Latvia. The orders were issued on the grounds of the<br />

plans for implementation of waste recovery systems for above mentioned types of waste for period 2011-2013<br />

prepared by LZP and accepted by the Ministry of Environment Protection and Regional Development of Latvia.<br />

The orders grant rights to NRT payers, who have signed the agreement with LZP on participation in the waste<br />

recovery system to apply exemption from NRT for a period indicated in the orders, i.e. until 31 December 2013.<br />

Granted rights are conditional on validity of an agreement entered into between LZP and Latvian Environmental<br />

Protection Fund Administration. On 30 December 2010 LZP concluded three agreements with the Latvian<br />

Environmental Protection Fund Administration regarding implementation of waste recovery system of: (i) waste<br />

harmful to the environment, (ii) waste electric and electronic equipment, and (iii) packaging waste and<br />

disposable tableware and accessories. Each agreement is concluded for defined period starting from 1 January<br />

2011 till 31 December 2013.<br />

Prior to expiration of the term of validity of plans for implementation of waste recovery systems for above<br />

mentioned types of waste, a new waste recovery plans may be coordinated with competent authorities and the<br />

term may be extended for additional 3 years (the number of such extensions is currently not limited). Although,<br />

there could be no assurance that such new waste recovery plans for next periods would be coordinated with<br />

competent authorities, that the Ministry of Environment Protection and Regional Development of Latvia would<br />

issue required orders allowing LZP to establish and implement waste recovery systems of certain types of waste,<br />

and that LZP would conclude agreements with the Latvian Environmental Protection Fund Administration<br />

regarding implementation of waste recovery systems of certain types of waste.<br />

If LZP failed to extend the terms of validity of its waste recovery systems, it would not be allowed to organise<br />

waste recovery system. As a consequence, LZP would not be able to undertake its core business activities, which<br />

may have material adverse impact on the Group’s business model, strategy, operations, prospects and financial<br />

results.<br />

Increased competition could reduce the Group's revenue and profits and constrain the Group's growth.<br />

The Group faces competition from other waste management companies in Latvia and in the Baltics. Due to the<br />

specificity of its business model and carried operations the Group has to compete with both local and<br />

international waste management companies, which are present in different segments of waste management<br />

industry. There can be no assurance that the Group will be able to compete effectively against current and future<br />

competitors, in particular those with greater financial or operational resources than the Group. Although the<br />

Group believes that there are certain barriers to entry in its key markets, any new entrants to or other changes in<br />

the competitive environment may result in price reductions, reduced margins or loss of market share, any of<br />

which could materially adversely affect the Group’s profit margins. Current and potential competitors may<br />

increase their advertising expenditures and promotional activities and/or engage in irrational or predatory pricing<br />

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BMWARDOCS232112v37<br />

behaviour in an effort to gain market share. There can be no assurance that current or potential competitors will<br />

not provide services or products comparable or superior to those provided by the Group, adapt more quickly to<br />

the evolving industry trends, changing market requirements and legal framework, or price at level below those of<br />

the Group’s competing services and products, any of which could result in the Group losing its market share.<br />

There can be no assurance that competition from new or existing competitors who operates in the waste<br />

management industry in Latvia and in the Baltics will not have a material adverse effect on the Group’s<br />

operating results. In addition, there can be no assurance that any future development or investment by the Group<br />

will not be matched or surpassed by its competitors. The inability of the Group to compete effectively could have<br />

a material adverse effect on the Group’s business, prospects, results of operations, financial condition or the<br />

price of the Shares.<br />

The Group’s revenues may decrease if the Group fails to win tenders for waste collection organised by the<br />

municipalities.<br />

As of the date of the Prospectus municipalities in Latvia are entitled to grant rights to provide the household<br />

waste management services within the territory of municipality only by undergoing a public procurement<br />

procedure. Therefore, after expiry or termination of currently valid agreements between the Group Companies<br />

and municipalities, the only way to conclude such agreement will be participation in the public procurement<br />

procedure, e.g. in the public tenders. Due to competition in the waste management sector, the Group Companies<br />

may not be able to win tenders organised by the municipalities which in turn may have material adverse impact<br />

on the Group’s operations, prospects and financial results.<br />

Latvijas Zalais punkts may lose the right to use the “Green Dot” trademark.<br />

Latvijas Zalais punkts is a shareholder of Packaging Recovery Organization Europe (PRO Europe), which<br />

unifies “Green Dot” systems from 33 European and North American countries. Recently, amendments to the<br />

statutes of PRO Europe were proposed to impose the obligation to meet certain conditions to become a<br />

shareholder of PRO Europe and to keep the shares of the Packaging Recovery Organization Europe. One of<br />

discussed criteria was that a shareholder should not be controlled by the government or any waste management<br />

companies or recyclers. Should one or more criteria not be met, the shareholders should have one year to make<br />

the necessary adjustments in order to meet the criteria. After expiry of that term without making those necessary<br />

adjustments, the status of the shareholder should be reassessed by the general assembly of PRO Europe which<br />

will have the power to decide on expulsion of the shareholder from PRO Europe. Ultimately with the expulsion<br />

from PRO Europe, the former shareholder will lose the right to use “Green Dot” trademark.<br />

Amended statutes of Packaging Recovery Organization Europe were not adopted at the shareholders meeting of<br />

PRO Europe held on 20 April 2012. However, it is possible that PRO Europe and its shareholders will return to<br />

discussing issue in the future and such amendments in the statutes of PRO Europe will be accepted. Due to the<br />

fact that LZP is part of the Group, which also indirectly owns companies engaged in a waste management, LZP<br />

may be forced to dispose shares of PRO Europe and ultimately LZP may lose the sub-license to use the “Green<br />

Dot” trademark.<br />

Consequences of such event may have material adverse effect on the Group’s business operations. LZP may be<br />

forced to undertake rebranding and may not offer its customers the legal right to use “Green Dot” trademark as<br />

part of the Group’s services, what may have negative influence on the Group’s market position.<br />

Furthermore, LZP has registered national trademark LZP (“Latvia’s Green Dot”) and uses it as a corporate logo,<br />

disregarding the prohibition included in Article 2 of the Principal Licensing Agreement of 27 August 2003,<br />

concluded with the Packaging Recovery Organisation Europe, which forbids registration of the trademarks<br />

identical or similar to Green Dot trademark and using Green Dot trademark for business activities other than<br />

indication for financial participation in system of collection and recycling of packaging and packaging waste in<br />

Latvia. The registration of national trademark LZP or use of Green Dot trademark other than in relation to<br />

participation in packaging and packaging waste recovery system in Latvia may trigger termination of the<br />

Principal Licensing Agreement and loss of rights of LZP to use and sub-license of this trademark in relation to<br />

activities related to packaging and packaging waste in Latvia.<br />

Consequences of termination of the Principal Licensing Agreement may have material adverse effect on the<br />

Group’s business operations. Furthermore, LZP may lose the rights to use and sub-license its trademark in<br />

relation to activities related to packaging and packaging waste in Latvia.<br />

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BMWARDOCS232112v37<br />

All these factors may have material adverse impact on the Group’s operations, prospects and financial results.<br />

The tariffs for household waste management are subject to regulation by the authorities.<br />

The tariffs of household waste management are subject to regulation by the authorities. Pursuant to the Waste<br />

Management Law, during the transition period (i.e. until municipalities have entered into a contracts on<br />

household waste management with waste management companies selected in accordance with the public<br />

procurement procedures), the fees for household waste management should comply with the last tariff approved<br />

by the Latvian Public Utilities Commission (the “LPUC”) for household waste management which has been<br />

determined prior to 18 November 2010. Municipalities are entitled to adjust the tariff for household waste<br />

management due to the changes in the tariff for the municipal waste disposal in landfill sites and waste dumps<br />

approved by the LPUC or in the Natural Resources Tax (the “NRT”) for disposal of waste in the amount<br />

specified in the regulatory enactments. For more information on price controls in waste management industry<br />

please see: “Regulatory Information – Price Controls”.<br />

Certain Group Companies, including Eko Riga, Eko Kurzeme, Jumis, Jurmalas ATU and Kurzemes Ainava,<br />

concluded agreements with the municipalities on household waste management without undergoing the public<br />

procurement procedures, and therefore fees paid to the Group Companies for household waste management<br />

should comply with the tariffs approved by the authorities.<br />

There could be no assurance that the tariffs for household waste management would be in line with costs of<br />

household waste management borne by the Group Companies. As a consequence, this may result in decrease of<br />

profit margins and adversely affect the financial results of the Group.<br />

Increase in operating costs and/or inability to pass on any increases in costs on Group’s customers could<br />

adversely affect the Group’s profits.<br />

Operating costs the Group Companies doing business in the waste collection segment include, but are not limited<br />

to, fuel charges and costs of disposing of waste that cannot be recycled. The above mentioned costs depend on a<br />

variety of factors, many of which are beyond the Group’s control. The market price of fuel has historically<br />

fluctuated and fluctuations could continue. If the costs of fuel increase this could lead to increase in operating<br />

costs of the Group Companies. Waste collected by the Group Companies is disposed predominantly on the<br />

landfills and the Group Companies pay disposal charges. Disposal charges are set by the LPUC and depend on,<br />

inter alia, the level of the Natural Resource Tax imposed on the landfilled waste. If the disposal charges for<br />

landfilling of waste increase, this could increase the operating costs of Group Companies. Increase in operating<br />

costs due to, inter alia, factors mentioned above could not always be passed on customers by increasing the<br />

prices of services provided and therefore may have material adverse impact on the Group’s operations, prospects<br />

and financial results.<br />

The Group doesn’t conclude long-term agreements with its major customer.<br />

Certain Group Companies, including PET Baltija and Nordic Plast, cooperate with some major clients on the<br />

basis of separate orders without signing any long-term sales agreements. Therefore, there could be no assurance<br />

that the Group will continue to cooperate with its major clients on the current basis or at all.<br />

In the event the Group is not able to further cooperate with its major customers, it may have material adverse<br />

impact on the Group’s operations, prospects and financial results.<br />

Disruptions in the Group’s production facilities may have a material adverse impact on the Group.<br />

Certain Group Companies, namely PET Baltija and Nordic Plast, are engaged in recycling packaging waste into<br />

PET flakes and PE pellets. The recycling processes are sophisticated and therefore performed by specially<br />

equipped production facilities. The Group’s production facilities may be subject to disruptions, including<br />

breakdowns, accidents and/or other force majeure situations. Depending on how serious is the disruption, the<br />

production facilities may be partially or fully non-operational for certain period of time.<br />

In the event the Group’s production facilities are subject to disruptions, it may have material adverse impact on<br />

the Group’s operations, prospects and financial results. Please also see risk factor: “The Group’s insurance<br />

coverage may be insufficient for any incurred losses”.<br />

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BMWARDOCS232112v37<br />

Prices for the Group’s products are subject to fluctuations.<br />

Certain Group Companies, namely Nordic Plast and PET Baltija, recycle secondary raw materials into products,<br />

which prices are subject to market volatility. Nordic Plast produces PE pellets, which prices are linked with,<br />

among other, the price of primary PE and, to some extent, with crude oil prices. PET Baltija produces PET<br />

flakes, which prices are variable depending on, inter alia, crude oil and cotton prices and virgin PET prices.<br />

There can be no assurance that future fluctuations in prices of products manufactured by the Group will not have<br />

an adverse effect on the Group’s results of operations. As of the date of the Prospectus, the Group does not have<br />

any specific hedging arrangements, including long-term sales agreements, in place to cover risk of product prices<br />

fluctuations and there can be no assurance that the Group will enter into such arrangements in the future. If the<br />

Group does enter into hedging arrangements, it cannot assure that hedging arrangements will not result in<br />

additional losses.<br />

The above mentioned factors could not be controlled by the Group and may have material adverse impact on the<br />

Group’s operations, prospects and financial results.<br />

Demand for certain services and products of the Group is subject to fluctuations.<br />

Demand for certain services and products provided by the Group may fluctuate. For example, in the summer<br />

time there is more packaging generated and placed on the market, households generate more waste, but the<br />

demand for street cleaning decreases. In the winter time the demand for street cleaning increases due to snowfall.<br />

Moreover, due to the market specificity, the Group does not sell PET flakes produced by PET Baltija in the<br />

second half of December.<br />

The above mentioned factors could not be controlled by the Group and may have material adverse impact on the<br />

Group’s operations, prospects and financial results.<br />

The Group has grown through acquisitions.<br />

The Group has developed its business and fuelled its growth through number of acquisitions and reorganisations<br />

(including mergers) of companies operating in waste management sector in Latvia. In accordance with Latvian<br />

law, the acquiring and/or merging company is liable for all historical obligations and liabilities, including tax<br />

liabilities, of the target entity. Therefore, there is a potential risk that the Group would be liable for any<br />

obligations and/or liabilities that could be material for Group’s business and/or financial position.<br />

As a consequence, the above mentioned factors may have material adverse impact on the Group’s operations,<br />

prospects and financial results.<br />

Further expansion through acquisitions entails certain risks, which could have adverse consequences for the<br />

Group's business.<br />

The Group may consider further growing through acquisitions in the near future. In particular, the Group may<br />

want to enter into or strengthen its presence in certain markets through the acquisition of other waste<br />

management businesses. If the Group made an acquisition it would need to integrate new operations, products,<br />

services and personnel into the Group’s business. The Group’s ability to realise the expected benefits from future<br />

acquisitions will depend, in large part, on its ability to integrate new operations with existing operations in a<br />

timely and effective manner and to manage a greater number of portfolio assets. In addition, the Group’s<br />

potential acquisition plans involve numerous risks, including the following: the Group's acquisitions may not be<br />

profitable or generate anticipated cash flows, the Group may fail to expand its corporate infrastructure to<br />

facilitate the integration of its operations with those of acquired assets, the Group may face difficulties entering<br />

into markets and geographic areas where it has limited or no experience, the Group may have potential<br />

difficulties in integrating its operations and systems with those of acquired companies, the Group may face<br />

possible anti-monopoly review by relevant competition authorities that could result in such authorities seeking to<br />

prohibit or unwind its acquisition of new businesses, and the possibility that the failure of the Group's acquisition<br />

strategy could hamper its continued growth and profitability.<br />

As a consequence, the above mentioned factors may have material adverse impact on the Group’s operations,<br />

prospects and financial results.<br />

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The lease agreements concluded by the Group may be terminated or the Group may not be able to prolong<br />

them.<br />

The Group leases number of real estates, including warehouse and industrial premises, which have material<br />

importance for the Group’s business and operations (for more information on leased real estate please see:<br />

“Business Overview - Real Estate”). Although, most of the lease agreements are long-term, there could be no<br />

assurance that they would not be terminated before expiry of their term or the Group would be able to prolong<br />

them on reasonable conditions or at all. Termination of the lease agreements concluded by the Group or inability<br />

to prolong them may have material adverse impact on the Group’s operations, prospects and financial results.<br />

A number of lease agreements have not been registered with the Land Register and in case of transfer of<br />

ownership to properties these leases may cease to be valid.<br />

Under Latvian law lease agreements may be registered with the Land Register. In case of change of the owner of<br />

the real property, the new owner will not be bound by the lease agreement and will be entitled to terminate lease<br />

agreement prior to its term if the lease agreement is not registered in the Land Register. Certain lease agreements<br />

concluded by the Group Companies have not been registered with the Land Register. Consequently, in case the<br />

change of ownership of leased premises, new owners would not be obliged to perform the obligations of the<br />

lessor under such agreements and the Group Companies might have an obligation to abandon the leased<br />

premises. Such events may have material adverse impact on the Group’s operations, prospects and financial<br />

results.<br />

Failure to register transfer of title to real properties as a result of merger of Tukuma Ainava into Kurzemes<br />

Ainava with the public registers and failure to register respective amendments to Nordea Financing<br />

Agreements and security agreements in the public registers may lead to event of default under Nordea<br />

Financing Agreements.<br />

On 19 April 2012 merger of Tukuma Ainava into its subsidiary Kurzemes Ainava has been registered with the<br />

Commercial Register. According to the Latvian Commercial Law on the indicated date Eko Baltija acquired all<br />

shares of Kurzemes Ainava owned by Tukuma Ainava, Kurzemes Ainava acquired all assets, rights and<br />

obligations of Tukuma Ainava and Tukuma Ainava ceased to exist.<br />

Transfer of title to the real properties from Tukuma Ainava to Kurzemes Ainava as a result of merger of Tukuma<br />

Ainava into Kurzemes Ainava has not been registered with the Land Register. Consequently, currently<br />

Kurzemes Ainava is not considered as the owner of real properties in its relations with third parties and may not<br />

execute ownership rights until such registration. Moreover, Nordea Financing Agreements foresee several<br />

mortgages over real properties formerly owned by Tukuma Ainava. Mortgage agreements have been amended<br />

respectively providing that Kurzemes Ainava pledges real properties previously owned by Tukuma Ainava.<br />

However, these amendments were not and may not be registered with Land Register until registration of transfer<br />

of title to the real properties. Lack of registration of transfer of title to real properties and lack of registration of<br />

the amendments (novations) with the Land Register may lead that it will become impossible for Nordea Bank to<br />

enforce these securities which would constitute the event of default under Nordea Financing Agreements. Such<br />

default would entitle Nordea Bank to require full repayment of outstanding loans from Group Companies and<br />

satisfying its outstanding claims by: (i) enforcement of financial collaterals; (ii) taking over the receivables of the<br />

Group Companies; (iii) enforcement of guarantees; (iv) sale of pledged assets (including pledged Shares)<br />

without court proceedings or auction at a freely determined price; and/or (v) sale of the mortgaged assets at<br />

auction at the terms and conditions approved by court or on the basis of court decision on recovering of the debt<br />

secured by mortgage.<br />

The occurrence of any of the indicated events may have material adverse impact on the Group’s operations,<br />

prospects and financial results.<br />

Certain Group Companies are and in the future may be recognized as having dominant position on the<br />

market.<br />

On 18 August 2010 the Latvian Competition Council took a decision to terminate the case on potential abuse of<br />

dominant position by Eko Kurzeme and Eko Riga by violation of law provisions prohibiting abuse of a dominant<br />

position and restricting application of unfair purchase or selling prices. Although, in this decision the Latvian<br />

Competition Council established that Eko Kurzeme holds a dominant position in the market for collection,<br />

transportation, loading and storage of waste in the territory of Liepaja city, due to having a market share of over<br />

18


BMWARDOCS232112v37<br />

70% with a tendency to increase during the past 3 years and administrative barriers preventing potential<br />

competitors from entry to this market.<br />

Eko Kurzeme, as entity recognized as having dominant position, has a special responsibility not to abuse its<br />

dominant position that includes, inter alia, refraining from: (i) refusal to enter into transactions or to amend the<br />

provisions of a transaction without an objectively justifiable reason; (ii) limiting production, markets or technical<br />

development to the prejudice of consumers; (iii) imposing unfair purchase or selling prices or other unfair<br />

trading conditions. If operations of Eko Kurzeme are recognised as abusing its dominant position, Eko Kurzeme<br />

may be subject to an administrative fine of up to 10% of the net turnover for the preceding financial year, as well<br />

as compensation of third party claims for damages.<br />

On 27 August 2009 the Latvian Competition Council indicated that it had no grounds to conclude that LZP did<br />

not possess a dominant position in the market for organisation of systems/alternative solutions to fulfil the<br />

environmental obligations in Latvia and therefore drew attention of LZP to a special responsibility of a dominant<br />

market participant in the relevant market. LZP as being potentially in a dominant position in the market of the<br />

organisation of systems/alternative solutions to fulfil the environmental obligations in Latvia should apply fair<br />

prices and other trading provisions.<br />

If any of the Group Companies will be recognized as abusing its dominant position and will be subject to fines<br />

and obligation to compensate damages of third parties, it may have material adverse impact on the Group’s<br />

operations, prospects and financial results.<br />

The Group may be subject to claims for unpaid remuneration for fulfilment of duties of members of corporate<br />

bodies of certain Group Companies.<br />

Certain Group Companies, namely, Eko Riga, Eko Kurzeme, Jurmalas ATU, Nordic Plast, Kurzemes Ainava,<br />

Vaania, Eko Reverss, PET Baltija and MRTL, didn’t conclude agreements with current and former members of<br />

their corporate bodies (management boards) and didn’t pay remuneration for the performance of their duties.<br />

According to the Latvian Commercial Law, members of the management board are entitled to remuneration,<br />

which is commensurate with their duties and the financial condition of the company. Therefore, current and<br />

former members of the management boards of above mentioned Group Companies, as well as former members<br />

of the management boards of Eko Baltija and Tukuma Ainava, may request remuneration, which is<br />

commensurate with their duties and the financial condition of the Group <strong>Company</strong>, for the performance of the<br />

duties for the entire period in the office. The term of limitation for bringing claims for unpaid remuneration is 3<br />

years.<br />

If compensation of any such unpaid remuneration will be claimed and the Group Companies will be obliged to<br />

compensate such claims, it may have material adverse impact on the Group’s operations, prospects and financial<br />

results.<br />

Current and future assets of the Group Companies, certain amount of the Shares in the Issuer, as well as all<br />

the shares of the Group Companies are pledged.<br />

All current and future assets of Eko SPV, Eko Baltija, Eko Riga, Eko Reverss, Eko Kurzeme, Kurzemes Ainava,<br />

Jurmalas ATU, PET Baltija, Vaania, Nordic Plast and LZP are pledged in favour of Nordea Bank as security<br />

under the Nordea Financing Agreements. Moreover, the obligations under the Nordea Financing Agreements are<br />

secured by mortgages on certain real properties owned by the Group Companies. For more information please<br />

see: “Business – Encumbrances” and “Material Contracts - Financing Agreements - Agreements with Nordea<br />

Bank”).<br />

Additionally, the obligations under the Nordea Financing Agreements are secured by commercial pledge over<br />

100% of shares in Eko Baltija, 100% of shares in Eko SPV, 100% of shares in Jurmalas ATU, 100% of shares in<br />

Eko Kurzeme, 100% of shares in Eko Riga, 100% of shares in Nordic Plast, 75.13% of shares in LZP, 91.03% of<br />

shares in PET Baltija, 90% of shares in Vaania, 100% of shares in Kurzemes Ainava and 100% of shares in Eko<br />

Reverss. Pledged shares may not be transferred or otherwise disposed of without the consent of Nordea Bank.<br />

Moreover, the Nordea Financing Agreements and related security agreements provide that consent of Nordea<br />

Bank is required to undertake certain corporate actions by the Group Companies, among others, to pay out<br />

dividends (for more information please see: “Material Contracts - Financing Agreements - Agreements with<br />

Nordea Bank”).<br />

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In case of failure to fulfil the Nordea Financing Agreements by any of the borrowers or security providers<br />

Nordea Bank would have a right to satisfy its outstanding claims by, inter alia, sale of the pledged and<br />

mortgaged assets (including pledged shares) without court proceedings or auction at a freely determined price<br />

and/or sale of the mortgaged assets at auction at the terms and conditions approved by court or on the basis of<br />

court decision on recovering of the debt secured with mortgage. The occurrence of such events may have<br />

material adverse impact on the Group’s operations, prospects and financial results.<br />

On 11 June 2012, the Principal Shareholders, ESOMTAX INVEST LIMITED (Cyprus), certain Group<br />

Companies and Nordea Bank concluded an agreement, whereby the parties agreed that the commercial pledge<br />

over the pledged shares of the Group Companies in favour of Nordea Bank will be cancelled after setting in of<br />

the following conditions: (i) a subscription of at least 5,000,000 (five million) New Shares of the Issuer during<br />

the Offering with the nominal value of LVL 1.00; (ii) at least 50% + 1 of the Issuer’s Shares are jointly or<br />

individually owned by Viesturs Tamuzs, Maris Simanovics, Undine Bude, ESOMTAX INVEST LIMITED<br />

(Cyprus) and those shares have been pledged as a financial pledge in favour of Nordea Bank; (iii) amendments<br />

to the Nordea Financing Agreements of Group Companies have been signed indicating that the shares of Group<br />

Companies may not be encumbered in favour of other persons without prior consent of Nordea Bank until Group<br />

Companies have performed all their obligations towards Nordea Bank.<br />

Certain of the Group’s credit facilities are subject to certain covenants and restrictions.<br />

The operating and financial restrictions and covenants in existing and any future financing agreements could<br />

adversely affect the Group’s ability to finance future operations or capital needs or to pursue and expand its<br />

business activities. For example, some of the loan agreements require maintaining certain level of cash flow on<br />

the bank accounts, opened with the respective bank, to provide the bank with regular financial statements,<br />

information on the borrower’s business activity, to fulfil certain financial covenants, to notify the bank on the<br />

changes in statutory documents, as well as any changes of management.<br />

The Group’s ability to comply with covenants and restrictions contained in debt instruments may be affected by<br />

events beyond its control, including prevailing economic, financial and industry conditions. If market or other<br />

economic conditions deteriorate, the Group may fail to comply with these covenants. Failure to comply with the<br />

above mentioned requirements and failure to pay any principal, interest, fees, expenses or other amounts when<br />

due, as well as deterioration of the borrower’s financial condition, entitles the bank to suspend granting of the<br />

loan facilities or to accelerate respective loans, and grants other rights to the bank, determined by the agreements<br />

and applicable laws. Though the Group believes that it complies with the conditions of the credit facilities in all<br />

material respects, there can be no guarantee that the Group will not be required to repay such facilities in the<br />

future with limited advance notice and when not provided for in the Group’s budget. See: “Material Agreements<br />

– Financing Arrangements” for more information about the Group’s existing credit facilities.<br />

A default under financing agreements could also result in foreclosure on any of the Group’s assets securing<br />

related loans, as well as could result in execution by Nordea Bank of the financial pledge over the Shares subject<br />

to lock-up arrangements (see risk factor: “Current and future assets of the Group Companies, certain amount of<br />

the Shares in the Issuer, as well as all the shares of the Group Companies are pledged” and section<br />

“Shareholders – Lock-up agreement”). The occurrence of any of these events may have material adverse impact<br />

on the Group’s operations, prospects and financial results.<br />

The Group may not be able to obtain financing from the EU funds or the financing may be revoked.<br />

The business strategy of the Group includes active search for opportunities of obtaining financing from the EU<br />

funds (for more information please see: “Business Overview – Business Strategy”). Such financing may be<br />

invested in various projects, which could fuel the Group’s growth. Although, there could be no assurance that<br />

such financing would be obtained at all or in the amount, and on conditions, allowing the Group to undertake<br />

planned investments. Moreover, usually projects co-financed by the EU are subject to strict terms and<br />

conditions, breach of which may lead to revoking of the financing and could force the Group to abandon its<br />

investment plans and projects, and return obtained financing. Additionally, the Group may also be obliged to<br />

return the obtained financing, if the Group is in breach of terms and conditions of EU financing in certain period<br />

after the successful execution of project.<br />

Each of these factors may have material adverse impact on the Group’s business strategy, operations, prospects<br />

and financial results.<br />

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BMWARDOCS232112v37<br />

The Group’s ability to obtain debt financing may depend on the performance of its business and market<br />

conditions.<br />

The actual or perceived credit quality of the Group’s business and market conditions affecting the waste<br />

management industry and the credit markets may materially affect the Group’s ability to obtain the additional<br />

capital resources that may be required or may significantly increase the Group’s costs of obtaining such capital.<br />

The Group’s inability to obtain additional financing at all or at a higher than anticipated cost may have material<br />

adverse impact on the Group’s operations, prospects and financial results.<br />

The Group is exposed to currency exchange risk and interest rate risk.<br />

Although the Group generates most of its revenues and costs in LVL, certain of its revenues and expenses<br />

(including financial expenses) are generated in currencies other than LVL, particularly EUR. Although, LVL is<br />

pegged to EUR, there could be no assurance that this would not change in the future. Any unfavourable<br />

fluctuations in LVL/EUR exchange rate in the future may have material adverse impact on the Group’s<br />

operations, prospects and financial results.<br />

Moreover, the value of investment in the Shares may be affected by prevailing rates of exchange between LVL<br />

and PLN because the <strong>Company</strong>’s share capital is denominated in LVL, while the Shares will be subscribed and<br />

traded on the WSE in PLN. Changes in LVL to PLN exchange rate between the time of pricing and receiving the<br />

proceeds from the Offering by the <strong>Company</strong> could reduce LVL denominated proceeds received from the<br />

Offering and result in a decline in the <strong>Company</strong>’s equity capital for reasons unrelated to the performance of its<br />

business.<br />

The majority of Group’s financing is at variable interest rates. As a result the Group is subject to the effects of<br />

interest rate fluctuations on such indebtedness. A significant increase in the interest rate will negatively influence<br />

the Group’s results.<br />

There can be no assurance that future exchange rate and interest rate fluctuations may not have an adverse effect<br />

on the Group’s results of operations. As of the date of the Prospectus, the Group does not have any specific<br />

hedging arrangements in place to cover exchange rate or interest rate fluctuations and there can be no assurance<br />

that the Group will enter into such arrangements in the future. If the Group does enter into hedging<br />

arrangements, it cannot assure that hedging arrangements will not result in additional losses or that further shifts<br />

in exchange rates or interest rates will not have a material effect on the Group’s operations and results. Adverse<br />

exchange and interest rate fluctuations, if not hedged, may have material adverse impact on the Group’s<br />

operations, prospects and financial results.<br />

The Group is exposed to the credit risks of its customers and suppliers.<br />

The Group’s financial performance and position are dependent, to a certain extent, on the creditworthiness of its<br />

customers and suppliers. If there are any unforeseen circumstances affecting the Group’s customers’ and/or<br />

suppliers’ ability or willingness to pay, the Group may experience payment delays or non-payment. Each of<br />

these factors may have material adverse impact on the Group’s operations, prospects and financial results.<br />

The Group may not be able to grow or effectively manage its growth.<br />

The Group’s future growth will depend on a number of factors which include, among others, ability to: maintain<br />

or develop new and existing customer relationships; identify and consummate desirable acquisitions, joint<br />

ventures or strategic alliances; introduce new and attractive services; identify and capitalise on opportunities in<br />

new markets; successfully adapt to changing market conditions, such as changes to the regulatory framework;<br />

successfully manage the Group’s liquidity and obtain the required financing for existing and new operations;<br />

secure necessary third party service providers; and attract, hire and retain qualified personnel. A deficiency in<br />

any of these factors could adversely affect the Group’s ability to achieve anticipated growth in cash flow or<br />

realize other anticipated benefits. Future investments could result in incurring additional indebtedness and<br />

liabilities that could have a material adverse effect on the Group’s profitability. In addition, the Group’s current<br />

operating and financial systems may not be adequate to support growth and attempts to improve those systems<br />

may be ineffective. Failure to execute the Group’s business strategy or to manage growth effectively could<br />

adversely affect the Group’s business, results of operations, cash flow and financial condition. In addition, even<br />

if the Group successfully implements its business strategy, it may not improve results of operations.<br />

Furthermore, the Group may decide to alter or discontinue aspects of business strategy and may adopt alternative<br />

21


BMWARDOCS232112v37<br />

or additional strategies in response to operating environment or competitive situation or factors or events beyond<br />

the Group’s control. Each of these factors may have material adverse impact on the Group’s operations,<br />

prospects and financial results.<br />

The Group is dependent on its key personnel.<br />

The Group’s success depends to a significant extent upon the contributions of a limited number of the Group’s<br />

key senior management and personnel. There can be no certainty that the Group will be able to retain its key<br />

personnel. Factors critical to retaining the Group’s present staff and attracting and motivating additional highly<br />

qualified personnel include the Group’s ability to provide these individuals with competitive compensation<br />

arrangements. As of the date of the Prospectus the Group has not entered into any non-compete agreements with<br />

any of its key senior management and personnel. Furthermore, the Group is not insured against risks of loss or<br />

removal of its key senior management and personnel.<br />

The loss (whether temporary or permanent) of the services of any director, member of the senior management<br />

team or other key personnel, either at the Issuer level or within the Group Companies, could have a material<br />

adverse effect on the business, financial condition or results of operations of the Group.<br />

The Group’s insurance coverage may be insufficient for any incurred losses.<br />

The Group’s operations are subject to risks inherent in the waste management sector. The Group maintains<br />

insurance in accordance with industry standards and applicable laws and regulations. The Group cannot assure<br />

that it has adequately insured against all risks, that any future claims, penalties and/or fines will be paid or that it<br />

will be able to procure adequate insurance coverage at commercially reasonable rates in the future. If<br />

environmental regulations become more stringent, insurance costs may increase or make insurance unavailable<br />

against the risk of environmental damage or pollution. Further, there can be no assurance that the insurance<br />

policies will cover all losses that the Group incurs, or that disputes over insurance claims will not arise with the<br />

insurance carriers. There can be no assurance that the Group will be able to renew its insurance policies on the<br />

same or commercially reasonable terms, or at all, in the future. Any uninsured or underinsured loss may have<br />

material adverse impact on the Group’s operations, prospects and financial results.<br />

The Group does not carry business interruption insurance. Business interruption insurance is intended to cover<br />

some of costs and loss of revenues during period when the company’s operations are adversely affected due to<br />

any disruptions (e.g., accidents or damages) in the production facilities. Accordingly, any circumstances which<br />

adversely affect the Group’s operations may have material adverse impact on the Group’s operations, prospects<br />

and financial results.<br />

The Group may infringe third party IP rights.<br />

The Group deals with two major groups of intellectual property rights relating to: software and trademarks.<br />

Some software was developed or adjusted to the Group’s activities and is used by the Group Companies. It is<br />

possible that IT solutions were implemented in a particular Group Companies without first obtaining all of the<br />

necessary licenses. Furthermore, rights to use trademarks designed for the Group by particular Group Companies<br />

may not be properly secured, e.g. not registered. There is also a risk that the Group may violate third parties'<br />

rights to trademarks and other IP rights. If action is taken by a third party against the Group as a result of its<br />

alleged infringement of IP rights, this may have a material adverse impact on the operations, financial results and<br />

prospects of the Group.<br />

The tax office may determine that agreements executed by the Group Companies with each other and the<br />

related parties are not on arm-length basis and impose fines on the Group Companies.<br />

Latvian transfer pricing rules require that prices in transactions between related parties and, under certain<br />

circumstances, between unrelated parties be set on an arm’s length basis. Latvian tax authorities may make<br />

transfer pricing adjustments and impose additional tax liabilities in respect of transactions between related<br />

parties and, as applicable, unrelated parties if the transaction prices differ from market prices.<br />

In the ordinary course of the Group’s business there have been and continue to be a number of transactions<br />

between companies within the Group, as well as with related parties regarding, among others, providing waste<br />

management services, business advisory services and use of software. In addition, the Group Companies entered<br />

into numerous loan agreements, which generate revenues and costs in the Group. It is not always possible to<br />

22


BMWARDOCS232112v37<br />

determine an appropriate market price for all such transactions, and the Latvian tax authorities’ view as to what<br />

constitutes a market price may differ from that adopted by the Group. These differences may also be concluded,<br />

as none of the Group Companies has transfer pricing documentation prepared in accordance with the applicable<br />

laws. As a result, there can be no assurance that the Latvian tax authorities will not challenge the prices used by<br />

the Group for these transactions and assess additional taxes and/or impose fines on the Group. If such price<br />

adjustments are implemented, the Group’s effective tax rate could increase and its future financial results could<br />

be materially adversely affected. In addition, the Group could face significant losses associated with the assessed<br />

amount of prior tax underpaid and related fines and penalties, which may have a material adverse effect on the<br />

Group’s business, results of operations and financial condition.<br />

Historical financial statements of the Group may not be representative of its historic or future results and may<br />

not be comparable across periods, which may make it difficult to evaluate the Group’s results and future<br />

prospects.<br />

The Issuer was incorporated in 2011. The legal restructuring aimed at transferring certain existing legal entities<br />

to the Issuer was not completed before 31 December 2011. As a result, the Issuer did not have control over all<br />

the Group Companies as of 31 December 2011 and was not permitted to present consolidated financial<br />

statements for the Group as it is at the date of the Prospectus. Therefore, the Issuer decided to prepare the audited<br />

consolidated annual report of Eko Baltija Group for the years ended 31 December 2011, 2010, 2009 (the<br />

“Consolidated Financial Statements”), the reviewed condensed consolidated interim financial statements for the<br />

three months ended 31 March 2012 and 2011 (the “Condensed Consolidated Interim Financial Statements”) and<br />

pro forma consolidated financial information of <strong>Eco</strong> <strong>Baltia</strong> (the "Pro Forma Financial Information"). Such<br />

presentation of historical financial information may make it difficult to evaluate the Group’s results of operations<br />

and future prospects. Moreover, such presentation of historical financial information may not be representative<br />

of historic or future results of the Group and may not be comparable across periods, which may make it difficult<br />

to evaluate the Group’s results and future prospects.<br />

Risks Relating to Latvia<br />

Political and economic changes could negatively impact the Group.<br />

The Group operates mainly in Latvia. The economic, regulatory and administrative situation in Latvia is<br />

developing continuously, mainly as a result of transformation and accession to the EU and as reaction to the<br />

global economic crisis in recent years. Latvia was heavily affected by the global crisis with GDP rate falling by<br />

17.7% in 2009. According to Eurostat in 2011 the Latvian real GDP growth rate was 5.5%, unemployment rate<br />

was 16.2% and inflation rate was 4.2%. Due to relatively small domestic market, Latvia is exposed to events in<br />

global economy to much more extent than many other countries, including Poland. The Group has no or limited<br />

influence on these events. Changes and developments in economic, regulatory, administrative or other policies<br />

and conditions in Latvia, over which the Group has no control, could significantly affect the Group’s business,<br />

prospects, financial conditions and results of operations in a manner that could not be predicted.<br />

Pegged currency may have adverse impact on Latvian economy and therefore materially adversely influence<br />

the Group.<br />

Since May 2005 Latvia has been part of the ERM II and committed to observe a central exchange rate of LVL<br />

0.702804 to EUR 1.00 with a fluctuation band of ±15%. However, Latvia unilaterally maintains a 1% fluctuation<br />

band around the central rate.<br />

The fact that Latvian lat is pegged to euro could have material adverse effect on the Latvian economy. Namely,<br />

pegged currency limits the self-regulatory mechanisms of the economy. For example, during financial turmoil<br />

substantial amounts of investments are withdrawn from developing countries (such as Latvia), what causes<br />

depreciation of local currency. Although, depreciation of local currency increases the trade competitiveness of<br />

the country (by fuelling exports), and therefore softens the impact and economic consequences of the financial<br />

turmoil. Counties with pegged currency cannot rely on above mentioned self-regulatory mechanisms and<br />

therefore could be struck by the financial turmoil in more severe way. Therefore, during any financial turmoil the<br />

Latvian economy may have limited ability to recover due to peg between lat and euro.<br />

Any potential turmoil in economic conditions in Latvia, over which the Group has no control, could significantly<br />

affect the Group’s business, prospects, financial conditions and results of operations in a manner that could not<br />

be predicted.<br />

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Inflation risk may have material adverse impact on the Group.<br />

In previous years Latvia has been heavily affected by financial instability, caused by the global financial crisis.<br />

According to Eurostat, before the financial crisis struck inflation rate in Latvia was double digit, amounting to<br />

10.1% in 2007 and 15.3% in 2008. In 2009 the inflation rate fell to 3.3% and this trend continued in years 2010<br />

and 2011, with inflation rate amounting to -1.2% (deflation) and 4.2%, respectively.<br />

Relevant expenses of the Group Companies, e.g., operating costs, are closely related to the general price level.<br />

The Group Companies’ expenditures may increase considerably due to high inflation and the Group Companies<br />

may not always be able to increase prices of their services and/or products. Consequently, high inflation as well<br />

as deflation may have a considerable adverse influence on the Group’s financial situation and business results.<br />

Unfavourable changes in taxes may have material adverse influence on the Group.<br />

The Group Companies are subject to the following taxes in Latvia: VAT, social security contributions, personal<br />

income tax, corporate income tax, natural resource tax and real estate tax.<br />

According to the Tax Policy Strategy for 2011-2014 set by the Latvian Ministry of Finance, no additional tax<br />

load should be imposed on tax payers in Latvia within the period to 2014 (including), except for potentially<br />

moderate increase in real estate tax. At the same time, the effective personal income tax charge may be reduced<br />

by increasing the tax-exempt ceiling. However, there could be no assurance that the tax policy in Latvia would<br />

not change in manner having adverse effect on the Group’s business and financial results.<br />

Moreover, the Group is subject to the continual examinations and audits by the Latvian tax authorities. While the<br />

Group regularly evaluates its compliance with tax legislation and uncertain tax positions, any adverse outcome<br />

from these continuous examinations may have adverse effect on Group’s operating results and financial position.<br />

All above mentioned factors may have material adverse effect on the Group’s business, operations, financial<br />

position and financial results.<br />

Latvian judicial system is undergoing development.<br />

The <strong>Company</strong> and the Group are incorporated in Latvia. The majority of the assets of the Group Companies are<br />

located in Latvia and the majority of the management personnel working for the Group reside in Latvia. Latvian<br />

commercial and financial instruments laws regulate existence and operations of the <strong>Company</strong> and the Group,<br />

including Shares and shareholder rights. Therefore Latvian courts might be the sole venue for hearing the claims<br />

against the <strong>Company</strong>, the Group and/or their management. Latvian commercial and financial instruments laws<br />

have been adopted only approximately 10 years ago and are subject to frequent amendments. For these reasons<br />

there is not much practice established and case law settled in relation to commercial and financial instruments<br />

laws issues, including shares and shareholder rights. Moreover, court proceedings in Latvia may be lengthier<br />

than in other EU countries, including Poland. Henceforth, investors in the Shares (including the Offer Shares)<br />

may encounter difficulties with foreseeable, fast and effective defence of their interests in the Latvian courts,<br />

related with claims against the <strong>Company</strong>, any other of the Group Companies and/or their management.<br />

Risk Relating to the Issuer<br />

The Issuer is a holding company with no assets other than shares of its subsidiary.<br />

The Issuer is a holding company with no other assets than the shares in the Group Companies. All business<br />

operations are carried out by the Group Companies. The Issuer could pay dividends only to the extent it is<br />

entitled to receive indirectly dividends from the Group Companies. It recognizes gains from the sale of its assets<br />

and proceeds from the issuance of the Shares only (see: “General information on the Issuer”). Furthermore, the<br />

Issuer will depend upon external sources of financing, the earnings and cash flows from the Group Companies<br />

and dividends on shares indirectly held in the Group Companies to pay expenses and meet any future obligations.<br />

There is no guarantee that the earnings and cash flows from the Group Companies will be sufficient to meet<br />

future needs.<br />

24


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The rights of Latvian company shareholders differ from the rights of the shareholders of Polish listed<br />

companies.<br />

The Issuer was incorporated and organized under the laws of Latvia in particular, in accordance with, inter alia,<br />

Latvian Commercial Law and consequently the rights of the Issuer’s shareholders are governed by the laws of<br />

Latvia and by the Issuer’s Articles of Association. Accordingly, the Issuer’s corporate structure as well as the<br />

rights and obligations of its shareholders may be different from the rights and obligations of the shareholders of<br />

Polish-based companies listed on the WSE. In addition, Latvian regulations may provide shareholders with<br />

particular rights and privileges which could not exist in Poland and, vice versa, certain rights and privileges that<br />

shareholders may benefit from in Polish companies may not be guaranteed. The exercise of some of the<br />

shareholders’ rights in a Latvian company could be more complicated or expensive for investors from Poland<br />

than the exercise of similar rights in a Polish company. Resolutions of the General Meeting of Shareholders may<br />

be adopted with majorities different from the majorities required for adoption of equivalent resolutions in Polish<br />

companies. Rectification of the <strong>Company</strong>’s registers and/or some corporate actions may require the approval of<br />

Latvian courts.<br />

Judgments of Polish courts against the <strong>Company</strong> and the Group may be more difficult to enforce than if the<br />

company and its management were located in Poland.<br />

The <strong>Company</strong> and the Group were formed in accordance with the Latvian laws and its registered office is in<br />

Latvia. The majority of the assets of the Group Companies are located in Latvia and the majority of the<br />

management personnel working for the Group reside in Latvia. For this reason Polish investors may encounter<br />

difficulties in serving summons and other documents relating to court proceedings on any of the entities within<br />

the Group and/or the management personnel working for the Group. For the same reason it may be more difficult<br />

for Polish investors to enforce a judgment of the Polish court issued against any entities within the Group and/or<br />

the management personnel working for the Group than if those entities and/or the management personnel were<br />

located in Poland.<br />

The Issuer has been, and will continue to be, influenced by three principal shareholders.<br />

As of the date of the Prospectus each of Mrs. Undine Bude, Mr. Viesturs Tamuzs and Mr. Maris Simanovics (the<br />

“Principal Shareholders”) owns directly 10% of the Issuer’s share capital. Principal Shareholders are also<br />

beneficial owners of ESOMTAX INVEST LIMITED (Cyprus), which owns 42% of the Issuer’s share capital.<br />

Moreover, the Principal Shareholders are direct and indirect shareholders of AS Perseus, which is partner in<br />

Otrais Eko Fonds. Otrais Eko Fonds owns 28% of the Shares of the Issuer as of the date of the Prospectus.<br />

Following the Offering each of Mrs. Undine Bude, Mr. Viesturs Tamuzs and Mr. Maris Simanovics will<br />

continue to own directly 7.81% of the Issuer’s Shares, assuming all of the Offer Shares are placed with investors.<br />

Moreover, ESOMTAX INVEST LIMITED (Cyprus) will continue to own 32.82% of the Issuer’s share capital,<br />

assuming all of the Offer Shares are placed with investors. Together, the Principal Shareholders will continue to<br />

own directly and indirectly up to 56.25% of the Issuer’s issued share capital, assuming all of the Offer Shares are<br />

placed with investors. Although, the Principal Shareholders should not be deemed as acting in concert, they have<br />

the ability to influence most actions requiring shareholder approval, including electing the majority of the<br />

Issuer’s Supervisory Board and determining the outcome of most corporate matters, without recourse to the<br />

Issuer’s minority shareholders. As a result, the Principal Shareholders could, for example, cause the Group to<br />

pursue transactions, which may involve higher risk for the Group. Moreover, the interests of the Principal<br />

Shareholders may, in some circumstances, conflict with the interests of other holders of the Shares. If<br />

circumstances were to arise where the interests of the Principal Shareholders conflicted with the interests of<br />

other holders of the Shares, they could take actions materially adverse to the interests of holders of the Shares.<br />

See: “Management and Corporate Governance” and “Related Party Transactions”.<br />

The Issuer may have limited ability to attract financing through secondary offerings of Shares.<br />

In general, in case of any increase of the share capital of the Issuer, the existing shareholders of the Issuer have a<br />

pre-emptive right to acquire newly issued shares. The pre-emptive right requires that the <strong>Company</strong> gives priority<br />

treatment to the current shareholders. Pre-emptive rights of the shareholders may not be revoked or restricted by<br />

the foundation agreement, the Articles of Association or a decision of the General Meeting, except in cases of<br />

increase of the share capital for a special purpose (e.g. for exchange of newly issued shares for convertible<br />

bonds; for exchange of newly issued shares for the shares of a company to be merged in case of reorganisation;<br />

for issuing of employee shares). The time limit for a shareholder to acquire the shares by exercising pre-emptive<br />

rights may not be shorter than 1 month after the public announcement thereof. For more information on pre-<br />

25


BMWARDOCS232112v37<br />

emptive rights please see “Description of the Shares and Corporate Rights and Obligations - Pre-emptive<br />

Rights”.<br />

Due to the above mentioned provisions of the Latvian law the Issuer may have limited ability to attract financing<br />

through secondary offerings of new shares in the Issuer, attract new investors and widening investors’ base.<br />

Moreover, to date the LCD has never been involved in settlement (except for registration of newly issued shares)<br />

of the capital increase through exercise of the pre-emptive rights. Therefore, there can be no assurance that a<br />

potential share capital increase of the Issuer will not experience technical or organizational difficulties.<br />

Risks Relating to Shares, Listing and Trading on the WSE and the RSE<br />

The Offering may be delayed, suspended or cancelled.<br />

Public offerings are subject to various circumstances independent from the <strong>Company</strong> and the Principal<br />

Shareholders. In particular, the demand for the Offer Shares is shaped by, among others, investors’ sentiment<br />

toward sector, legal and financial conditions of the Offering. In case such circumstances would have adverse<br />

impact on the results of the Offering. The Issuer may decide to delay, suspend or cancel the Offering (for further<br />

details see: “The Offering and the plan of distribution – Cancellation, Suspension or Postponement of the<br />

Offering”). Consequently, the investors may be unable to successfully subscribe for the Offer Shares and<br />

payments made by investors during the Offering, if any, may be returned without any compensation.<br />

There has been no prior public trading market for the Shares.<br />

Prior to the Offering, there has been no public trading market for the Shares. Although the Issuer will apply for<br />

the Shares to be admitted to trading on the WSE and the RSE, as well as intends to engage the market maker on<br />

the RSE and does not exclude possibility to engage the market maker on the WSE, there can be no assurance that<br />

an active trading market for the Shares will develop or, if developed, can be sustained following the closing of<br />

the Offering. If an active trading market is not developed or maintained, the liquidity and trading price of the<br />

Shares could be materially and adversely affected. Active, liquid trading markets generally result in lower price<br />

volatility, lower spreads and more efficient execution of buy and sell orders for investors. If an actual liquid<br />

trading market for the Shares does not develop, the price of the Shares may be more volatile and it may be<br />

difficult to complete a buy or sell order for the Shares.<br />

The price of the Shares may fluctuate significantly.<br />

The trading prices of the Shares may be subject to significant price and volume fluctuations in response to many<br />

factors, including but not limited to:<br />

variations in the Group’s operating results and those of other companies operating in the same industry<br />

sector;<br />

negative research reports or adverse brokers’ comments;<br />

future sales of the Shares owned by the Issuer’s significant shareholders, or the perception that such sales<br />

will occur; and<br />

extreme price and volume fluctuations on the WSE, the RSE or other stock exchanges, including those in<br />

other emerging markets.<br />

Fluctuations in the price and volume of the Shares may not be correlated in a predictable way to the Group’s<br />

performance or operating results. The Offer Price may not be indicative of prices that will subsequently prevail<br />

in the market and an investor may not be able to resell its Shares at or above the Offer Price.<br />

Turmoil in emerging markets could cause the value of the Shares to suffer.<br />

Financial or other turmoil in emerging markets has in the recent past adversely affected market prices in the<br />

world’s securities markets for companies operating in the affected developing economies. There can be no<br />

assurance that renewed volatility stemming from future financial turmoil, or other factors, such as political<br />

26


BMWARDOCS232112v37<br />

unrests, that may arise in other emerging markets or otherwise, will not adversely affect the value of the Shares<br />

even if the Latvian economy remains relatively stable.<br />

The market value of the Shares may be adversely affected by future sales or issues of substantial amounts of<br />

Shares.<br />

Future sales of the Shares owned by the Principal Shareholders, the Selling Shareholder and/or ESOMTAX<br />

INVEST LIMITED (Cyprus), future sales of the Shares by Nordea Bank in case of execution of the financial<br />

pledge over certain Shares (for more information please see: “Material Contracts – Financing Agreements –<br />

Agreements with Nordea Bank”), and/or new issuances of the Shares by the Issuer, or the perception that such<br />

sales and/or new issuances will occur, could cause a decline in the market price of the Shares. In connection with<br />

the Offering, each of the Issuer, the Principal Shareholders, the Selling Shareholder and/or ESOMTAX INVEST<br />

LIMITED (Cyprus), as well as Nordea Bank, have agreed to certain lock-up arrangements in respect to the<br />

Shares. For further details please see: “Shareholders – Lock-up agreement”. The Issuer cannot predict whether<br />

substantial numbers of the Shares will be sold by such persons following the expiry of the lock-up period. In<br />

particular, there can be no assurance that after the lock-up period expires, the Principal Shareholders, the Selling<br />

Shareholder and/or ESOMTAX INVEST LIMITED (Cyprus) will not reduce their holdings of the Shares.<br />

Moreover, there can be no assurance that in case of a default under the Nordea Financing Agreements and after<br />

execution of the financial pledge over certain Shares by Nordea or after expiry of the lock-up period Nordea<br />

Bank will not sell substantial amounts of the Shares. Future sales of the Shares could be made by the Issuer, the<br />

Principal Shareholders, the Selling Shareholder, ESOMTAX INVEST LIMITED (Cyprus) and/or Nordea Bank<br />

or through a capital increase undertaken by the Issuer to fund an acquisition or for another purpose. A sale of a<br />

substantial number of the Shares, or the perception that such sales could occur, could materially and adversely<br />

affect the market price of the Shares and could also impede the Issuer’s ability to raise capital through the issue<br />

of equity securities in the future.<br />

Holders of the Offer Shares may not be able to exercise pre-emptive rights, and as a result may experience<br />

substantial dilution upon future issuances of Shares.<br />

Holders of the Shares generally will have a pre-emptive right with respect to any issue for cash consideration of<br />

the Shares or the granting of rights to subscribe for the Shares, unless additional shares are issued for a special<br />

purpose in the following cases: (i) for exchange of newly issued shares for convertible bonds, (ii) for exchange<br />

of newly issued shares for the shares of a company to be merged in case of reorganisation, (iii) as a<br />

compensation to minority shareholders that as an exchange of shares is conducted by the dominant undertaking<br />

of a group of companies, (iv) for the issuing of employee shares or the holders of the Shares each individually<br />

waive their pre-emption rights. As a result, shareholders may experience significant dilution if additional Shares<br />

of the Issuer were to be offered and would not apply towards them or have been waived by them. Moreover,<br />

holders of the Shares in certain jurisdictions may not be able to exercise pre-emptive rights for the Shares unless<br />

the applicable securities law requirements in such jurisdiction are adhered to or an exemption from such<br />

requirements is available. Accordingly, such holders may not be able to exercise their pre-emptive rights on<br />

future issuances of the Shares, and, as a result, their percentage ownership interest in the Issuer would be<br />

reduced.<br />

The Issuer is established and organised under laws of Latvia while the Shares will be listed on a regulated<br />

market in Poland.<br />

The Issuer is a company organised and existing under the laws of Latvia while the Shares will be listed on a<br />

regulated market in Poland. The Issuer’s corporate structure as well as rights and obligations of its shareholders<br />

may be different from the rights and obligations of shareholders in Polish companies listed on the WSE.<br />

Latvia will be the home Member State of the Issuer for the purpose of the European Union securities regulations,<br />

and Poland will be its host Member State. The EU directives provide different competencies for the home<br />

Member State and host Member State with respect to rights and obligations of the investors in public companies,<br />

depending on the subject of regulations. In addition, the directives are not always implemented in the proper<br />

manner at a national level. Consequently, investors in the Offer Shares may be forced to seek complex legal<br />

advice in order to comply with all regulations when exercising their rights or when fulfilling their obligations. In<br />

case an investor fails to fulfil its obligations or violates law when exercising rights from or regarding the Offer<br />

Shares, he or she may be fined or sentenced for such non-compliance or be unable to exercise rights from the<br />

Offer Shares.<br />

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BMWARDOCS232112v37<br />

Resolutions of the General Meeting of Shareholders may be taken with majorities different from the majorities<br />

required for adoption of equivalent resolutions in Polish companies. Certain protections such as pre-emption<br />

rights and anti-takeover measures, may not be available to holders of the Offer Shares, or their application may<br />

be uncertain (see risk factors: “Holders of the Offer Shares may not be able to exercise pre-emptive rights, and<br />

as a result may experience substantial dilution upon future issuances of Shares” and “Holders of Shares may<br />

face legal uncertainty if the Issuer is the subject of a takeover”).<br />

There is no guarantee that the Issuer will pay dividends in the future.<br />

The Issuer is under no continuous obligation to pay regular dividends to its shareholders. Any payment of<br />

dividends in the future will depend upon decisions of the General Meeting (at which the Principal Shareholders<br />

may represent a majority of voting rights). Payment of (future) dividends may be made only if mandatory<br />

provisions so allow, as required by law or by the Articles of Association and the respective articles of association<br />

of the Group Companies. Furthermore, for the decision to pay dividend the following factors (among others)<br />

should also be taken into account: future results of operations, cash flows, financial position, reinvestment needs,<br />

expansion plans, contractual restrictions, and other factors the Management Board, Supervisory Board and/or the<br />

General Meeting deem relevant, which do not necessarily have to coincide with the short-term interests of all the<br />

Issuer’s shareholders. Moreover, according to the Nordea Financial Agreements, Nordea’s consent is required to<br />

pay out dividends from the Group Companies.<br />

There can be no assurance that the Issuer will make any dividend payments in the future. As of the date of the<br />

Prospectus, the Issuer does not expect to pay dividends in the medium term. However the Issuer may pay<br />

dividends at some future date, including in the short-to-medium term, if the General Meeting (having considered<br />

the recommendation of the Management Board) approves a dividend. The Management Board and the General<br />

Meeting will take into account various factors, including the Group’s business prospects, future earnings, cash<br />

requirements, financial position, expansion plans and the requirements of the law of Latvia (See: “Dividends and<br />

Dividend Policy”). Accordingly, investors cannot rely on dividend income from the Offer Shares and any returns<br />

on an investment in the Offer Shares will likely depend entirely upon any future appreciation in the price of the<br />

Shares.<br />

The Issuer may be unable to list the Shares on the WSE and/or the RSE, or the Issuer may be delisted from<br />

the WSE and/or the RSE.<br />

The admission of the Shares to trading on the WSE requires, inter alia, that (i) the Shares are registered with the<br />

clearing and settlement system and (ii) the management board of the WSE approves the listing and trading of the<br />

Shares on the WSE. To obtain the WSE management board’s approval the Issuer has to meet certain<br />

requirements provided for in the respective regulations of the WSE and other applicable laws. Such requirements<br />

include, but are not limited to: (i) the appropriate free float of the Shares; (ii) the appropriate market value of the<br />

Shares or the equity of the Issuer; (iii) no restriction on transferability of the Shares; (iv) the approval of this<br />

Prospectus by the <strong>FKTK</strong> and its notification to the PFSA; and (v) no bankruptcy or liquidation proceedings<br />

pending with respect to the Issuer. Furthermore, while examining the Issuer’s application for admission of the<br />

Shares to trading on the WSE, the management board of the WSE will take into consideration: (i) the Issuer’s<br />

current and projected financial standing; (ii) the Issuer’s development perspectives, in particular, assessment of<br />

investments objectives taking into account its financial sources; (iii) experience and qualifications of the<br />

members of the Issuer’s Management Board; (iv) the terms on which the securities were issued and the<br />

compliance of these terms with the principles of the public nature laid out in the WSE Rules; and (v) security of<br />

public trading on the WSE and interests of trading participants. Some of the conditions mentioned above are<br />

discretionary in nature and, therefore, the Issuer cannot provide any assurance that the management board of the<br />

WSE will conclude that the Issuer meets all of them.<br />

The rules of the WSE require the Issuer to file an application for introduction of the Shares to trading on the<br />

WSE within a period of six months from the date on which the Issuer’s Shares have been admitted to such<br />

trading. If the Issuer fails to comply with this obligation, the decision of the management board of the WSE on<br />

the admission of the Issuer’s Shares to trading on the WSE could be annulled.<br />

Similar rules to the aforementioned apply for admission of the Shares to trading on the RSE.<br />

The Issuer intends to take all the necessary steps to ensure that its Shares are admitted to trading on the WSE and<br />

the RSE as soon as possible after the closing of the Offering. However, there is no guarantee that all of the<br />

aforementioned conditions will be met and that the Shares will be admitted to trading on the WSE and the RSE<br />

28


BMWARDOCS232112v37<br />

on the Listing Date as expected or at all. Moreover, if the PFSA, which is the competent authority of the Issuer’s<br />

host state, finds that the Issuer has failed to perform or has unduly performed its obligations under applicable<br />

Polish securities laws, it should notify the <strong>FKTK</strong>, which is the competent authority of the Issuer’s home state, of<br />

such event. If, despite the PFSA’s notification, the <strong>FKTK</strong> does not take any measures aimed at preventing<br />

further breach by the Issuer of its obligations, or when such measures prove ineffective, after the notification of<br />

the <strong>FKTK</strong>, the PFSA may, in order to protect investors’ interests, impose a fine and/or delist the Shares from<br />

trading on the WSE. The PFSA should notify the European Commission immediately of the application of such<br />

measures. If the <strong>FKTK</strong>, which is the competent authority of the Issuer’s home state, finds that the Issuer has<br />

failed to perform or has unduly performed its obligations under applicable Latvian securities laws, the Shares<br />

may be delisted from trading on the RSE.<br />

Mandatory delisting of the Shares will be effected by the WSE management board where: (i) transferability of<br />

the Shares has become restricted, (ii) the Shares are no longer in book-entry form, (iii) the PFSA has requested<br />

so in accordance with the Polish Trading in Finance Instruments Act, or (iv) the Shares have been delisted from<br />

another regulated market by a competent supervisory authority over such market, provided that the Shares were<br />

traded on another regulated market. In addition, the WSE management board should delist the Shares from<br />

trading upon the request of the PFSA, if the PFSA concludes that trading in the Issuer’s Shares imposes a<br />

significant threat to the proper functioning of the WSE or the safety of trading on that exchange, or infringes<br />

investors’ interest. Mandatory delisting rules from the RSE are similar to the aforementioned, which are<br />

applicable for the delisting from the WSE.<br />

The WSE management board may also delist the Shares where, (i) the Shares cease meeting all requirements for<br />

admission to trading on the WSE; (ii) the Issuer persistently violates the regulations of the WSE; (iii) the Issuer<br />

has requested so; (iv) the Issuer has been declared bankrupt or a petition for bankruptcy has been dismissed by<br />

the court because the Issuer’s assets do not suffice to cover the costs of the bankruptcy proceedings; (v) the WSE<br />

considers it necessary to protect the interests of the market participants; (vi) following a decision on a merger,<br />

split or transformation of the Issuer; (vii) no trading was effected in the Shares within a period of three previous<br />

months; (viii) the Issuer has become involved in a business that is illegal under the applicable provisions of laws;<br />

and (ix) the Issuer is in liquidation proceedings.<br />

The RSE management board may delist the Shares (i) upon the Issuer’s request; (ii) if the Shares and/or the<br />

Issuer do not conform to the requirements for trading on the RSE; (iii) if the Issuer repeatedly and materially<br />

violates the regulations of the RSE; (iv) in case the interruption of trade in Shares has been longer than six<br />

months and the Issuer has not taken measures to prevent the circumstances on the grounds of which trading was<br />

suspended; (v) if other circumstances occur under which continuing trading of the Shares becomes impossible;<br />

(vi) if the Issuer has not paid the listing fees to the RSE upon repeated notice.<br />

The Issuer believes that as at the date of the Prospectus there are no circumstances which could give grounds for<br />

delisting of the Shares from the WSE and/or the RSE in the foreseeable future. However, there can be no<br />

assurance that any of such circumstances will not arise in relation to the Issuer’s Shares in the future. Delisting<br />

of the Shares from the WSE and/or the RSE could have an adverse effect on the liquidity of the Shares and,<br />

consequently, on investors’ ability to sell the Shares at a satisfactory price.<br />

Trading in the Shares on the WSE and/or the RSE may be suspended.<br />

The WSE management board has the right to suspend trading in the Shares for up to three months (i) at the<br />

request of the Issuer, (ii) if the Issuer fails to comply with the respective regulations of the WSE (such as specific<br />

disclosure requirements), or (iii) if it concludes that such a suspension is necessary to protect the interests and<br />

safety of market participants.<br />

The RSE management board has the right to suspend trading in the Shares for up to six months (i) at the request<br />

of the Issuer, (ii) in extraordinary circumstances, in order to protect the interests of investors (extraordinary<br />

circumstances should, inter alia, mean ample price fluctuation; existence of information which may materially<br />

affect the price of the Shares and which is planned to be disclosed shortly; other situations, circumstances or<br />

conditions which may obstruct the process of transparent and fair trading); (iii) if the information disclosed by<br />

the Issuer through RSE information system is clearly erroneous or has to be processed or checked for other<br />

reasons; (iv) the trading may also be suspended during the General Meeting of the Issuer at which it is planned to<br />

adopt resolutions or disclose information which may materially affect the price of the Shares. In such case the<br />

trading may be suspended from the beginning of the said event until the moment when the information about the<br />

adapted resolutions or other relevant information has been published.<br />

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BMWARDOCS232112v37<br />

Furthermore, the WSE management board should suspend trading in the Shares for up to one month upon the<br />

request of the PFSA, if the PFSA concludes that trading in the Shares is carried out in circumstances which may<br />

impose a possible threat to the proper functioning of the WSE or the safety of trading on that exchange, or may<br />

harm investors’ interest. Likewise the RSE management board should suspend trading of the Shares upon<br />

decision of the <strong>FKTK</strong>, if the <strong>FKTK</strong> concludes that regular trading of the Shares has become impossible or may<br />

harm investors’ interest.<br />

The Issuer will make all endeavours to comply with all applicable regulations in this respect. However, there can<br />

be no assurance that trading in the Shares will not be suspended. Any suspension of trading could adversely<br />

affect the Share price.<br />

The Issuer may have a limited free float, which may have a negative effect on the liquidity, marketability or<br />

value of its Shares.<br />

Prior to the Offering, each of Mrs. Undine Bude, Mr. Viesturs Tamuzs and Mr. Maris Simanovics (the “Principal<br />

Shareholders”) owns directly 10% of the Issuer’s share capital. Principal Shareholders are also beneficial owners<br />

of ESOMTAX INVEST LIMITED (Cyprus), which owns 42% of the Issuer’s share capital. Moreover, Principal<br />

Shareholders are direct and indirect shareholders of AS Perseus, which is partner in Otrais Eko Fonds. Otrais<br />

Eko Fonds owns 28% of the Shares as of the date of the Prospectus. Immediately after the Offering the Principal<br />

Shareholders will own directly and indirectly up to 56.25% of the Issuer’s outstanding Shares, provided that all<br />

Offer Shares are placed with investors. Consequently, the free float of Shares held by the public will be no more<br />

than 43.75% of the Issuer’s share capital.<br />

In addition, the WSE requires that the share capital of a company to be listed on the main market of the WSE<br />

must be adequately diluted, i.e. part of the capital must be held by minority shareholders holding individually<br />

less than 5% of that company’s share capital. If the Offer Shares are acquired by a limited number of large<br />

investors, there is a risk that the share capital would not be adequately diluted and as a result the WSE would not<br />

approve the Shares for listing on the main market of the WSE and, consequently, the Shares would be listed on<br />

the parallel market.<br />

The RSE requires that not later than the day on which the trading with shares starts, a sufficient free float (i.e.<br />

part of share capital of the Issuer is held by minority shareholders holding individually less than 10% of the share<br />

capital of the Issuer) is ensured. This condition should be deemed as met if: (i) at least 25% of the shares of the<br />

category which the Issuer wants to list at the exchange are in free float, or (i) the number of shares in free float is<br />

smaller than that specified above, but the capitalisation of the shares on free float exceeds EUR 10,000,000.<br />

Consequently, there is a risk, similar as regarding to WSE rules, that the free float requirements of <strong>Company</strong>’s<br />

Shares will not be met and as a result the RSE would not approve the Shares for listing on the main list of the<br />

RSE and, thus, the Shares would be listed on the secondary list.<br />

The marketability of the Issuer’s Shares may decline and the market price of the Issuer’s Shares may<br />

fluctuate disproportionately in response to adverse developments that are unrelated to the Group’s operating<br />

performance and decline below the Offer Price.<br />

The <strong>Company</strong> cannot assure that the marketability of the <strong>Company</strong>’s Shares will improve or remain consistent.<br />

The Offer Price in the Offering may not be indicative of the market price for the <strong>Company</strong>’s Shares after the<br />

Offering has been completed. Shares listed on regulated markets, such as the WSE and the RSE, have from time<br />

to time experienced and may experience in the future, significant price fluctuations in response to developments<br />

that are unrelated to the operating performance of particular companies. The market price of the <strong>Company</strong>’s<br />

Shares may fluctuate widely, depending on many factors beyond the <strong>Company</strong>’s control. These factors include,<br />

amongst other things, actual or anticipated variations in operating results and earnings by the Group Companies<br />

and/or its competitors, changes in financial estimates by securities analysts, market conditions in the industry and<br />

in general the status of the securities market, governmental legislation and regulations, as well as general<br />

economic and market conditions, such as recession. These and other factors may cause the market price and<br />

demand for the <strong>Company</strong>’s Shares to fluctuate substantially and any such development, if adverse, may have an<br />

adverse effect on the market price of the <strong>Company</strong>’s Shares which may decline disproportionately to the Group<br />

Companies’ operating performance. The market price of the <strong>Company</strong>’s Shares is also subject to fluctuations in<br />

response to further issuance of shares by the <strong>Company</strong>, sales of Shares by the <strong>Company</strong>’s major shareholders,<br />

the liquidity of trading in the Shares and capital reduction or purchases of Shares by the <strong>Company</strong> as well as<br />

investor perception. As a result of these or other factors, there can be no assurance that the public trading market<br />

price of the <strong>Company</strong>’s Shares will not decline below the Offer Price.<br />

30


BMWARDOCS232112v37<br />

Dual listing of the Shares will result in differences in liquidity, settlement and clearing systems, trading<br />

currencies and transaction costs between the WSE and the RSE, which may hinder the transferability of the<br />

Shares between the WSE and the RSE.<br />

The existing Shares are not listed on the regulated market. Applications will be made to list the Shares on the<br />

WSE and the RSE. Therefore, trading and liquidity of the Shares will be split between those two exchanges.<br />

Furthermore, the price of the Shares may fluctuate and may at any time be lower on the RSE than the price at<br />

which the shares are traded on the WSE and vice versa.<br />

Differences in settlement and clearing systems, trading currencies, transaction costs and other factors may hinder<br />

the transferability of Shares between the WSE and the RSE. This could adversely affect the trading of the Shares<br />

on these exchanges and increase their price volatility and/or adversely affect the price and liquidity of the shares<br />

on these exchanges.<br />

Furthermore, the Shares will be quoted and traded either in EUR or in LVL on the RSE and in PLN on the WSE.<br />

The Shares to be traded on the RSE will be settled and cleared through the LCD. The Shares to be traded on the<br />

WSE will be settled and cleared through the NDS. The transfer of the Shares between the RSE and the WSE will<br />

be effectuated through a direct settlement link established between the LCD and the NDS. Although the LCD<br />

and the NDS established the indicated link and the NDS and the LCD will settle transfers of shares between the<br />

NDS and the LCD, they will be under no obligation to perform or to continue to perform such procedures and<br />

such procedures may be discontinued at any time, which may limit the liquidity of the Shares and have a<br />

negative impact on the efficiency of the pricing mechanisms of the secondary market of the Shares.<br />

Tax treatment for non-Latvian investors in a Latvian company may vary.<br />

The <strong>Company</strong> is organised and existing under the laws of Latvia and, as such, the Latvian tax regime applies to<br />

the distribution of profit and other payments from the <strong>Company</strong> to its investors. The taxation of income from<br />

such payments as well as other income, for instance, from the sale of the Shares, may vary depending on the tax<br />

residence of particular investors as well as the existence and the provisions of double tax treaties between an<br />

investor’s country of residence and Latvia. Tax provisions applying to particular investors may be unfavourable<br />

and/or may change in the future in a way which has an adverse effect on the tax treatment of an investor’s<br />

holding of the Shares.<br />

The Issuer has no experience in complying with requirements for publicly-listed companies.<br />

A public company is subject to a number of obligations, mostly relating to the disclosure of relevant information<br />

for investors. The Issuer has never been subject to such obligations and may fail to fulfil such obligations. As a<br />

consequence, investors may not be provided with price-sensitive information on time, or at all, or the content of<br />

materials made public may be of unsatisfactory quality. In addition, in case of its non-compliance with relevant<br />

rules and regulations relating to a public company, the Issuer may be fined or have other sanctions imposed on it,<br />

which may have an adverse impact on the Issuer’s financial results, share price and demand for the Shares.<br />

31


BMWARDOCS232112v37<br />

EXCHANGE RATES<br />

The Consolidated Financial Statements, the Condensed Consolidated Interim Financial Statements and the Pro<br />

Forma Financial Information included in this Prospectus are presented in Latvian lats (“LVL”).<br />

The following table shows, for the periods provided, and unless indicated otherwise, certain information<br />

regarding the exchange rates between Latvian lat (“LVL”), euro (“EUR”), US dollar (“USD”) and Polish zloty<br />

(“PLN”).<br />

Average weighted rate for the year ended<br />

December 31, 2009<br />

LVL per EUR LVL per USD LVL per PLN<br />

0.702804 0.505310 0.162810<br />

Closing rate as of December 31, 2009 0.702804 0.489000 0.169000<br />

Average weighted rate for the year ended<br />

December 31, 2010<br />

0.702804 0.530426 0.176012<br />

Closing rate as of December 31, 2010 0.702804 0.535000 0.176000<br />

Average weighted rate for the year ended<br />

December 31, 2011<br />

0.702804 0.505474 0.171087<br />

Closing rate as of December 31, 2011 0.702804 0.544000 0.160000<br />

Average weighted rate for the 3 month period<br />

ended March 31, 2012<br />

0.702804 0.536277 0.166062<br />

Closing rate as of March 31, 2012 0.702804 0.528000 0.169000<br />

Source: National Bank of Latvia<br />

32


BMWARDOCS232112v37<br />

USE OF PROCEEDS<br />

The amount of the gross proceeds raised from issue of the New Shares depends on the number of the New<br />

Shares actually placed and the set Offer Price. The net proceeds depend on final costs and expenses associated<br />

with issue of the New Shares. The <strong>Company</strong> expects the net proceeds from the issue of the New Shares,<br />

provided that all of the New Shares are subscribed, paid and allotted, to be between LVL 10.5 million and LVL<br />

14.6 million. The final amount of proceeds may however change due to possible fluctuations in PLN/LVL ratio.<br />

The Issuer will receive the net proceeds from the issuance of the New Shares.<br />

The Issuer will publish information regarding the proceeds from the issue of the New Shares in the form and<br />

scope specified under applicable laws and regulations.<br />

The net proceeds from the issue of the New Shares will be used primarily for fulfilling of the Group’s business<br />

plan which envisages the following capital investments:<br />

Construction of the first mechanical-biological treatment (MBT) plant in Latvia which will be among the<br />

largest and the most modern in the Baltics and will ensure sorting of municipal waste generated in Riga<br />

and surrounding districts. This would allow the Group to increase sorting capacities from 11,400 tonnes<br />

per year as of the date of the Prospectus to approximately 88,500 tonnes per year (subject to quality of<br />

pre-sorted waste). The total estimated investment is LVL 8.3 million. The Issuer expects to construct the<br />

plant by the end of 2013.<br />

Launch of food grade PET pellet production at PET Baltija production site with capacity of around<br />

11,500 tonnes of new products that are used in the food industry (material used in production of food<br />

packaging). As a result the Group aims to develop production of crystallized PET pellets, which would<br />

use significant part of current PET Baltija output as raw material. This would allow PET Baltija to<br />

increase output capacities from 19,320 tonnes of products per year as of the date of the Prospectus to<br />

approximately 30,550 tonnes of products per year (subject to quality of pre-sorted waste). The total<br />

estimated investment would be LVL 4.1 million. The Group expects to finish the investment in the first<br />

half of 2013.<br />

Capacity expansion at Nordic Plast by installation of a second production line for production of<br />

polypropylene (“PP”) pellets with capacity of around 3,700 tonnes of products per year, thus doubling the<br />

current capacity. The total estimated investment would be LVL 2.2 million. The Group expects to finish<br />

the investment in the first half of 2013.<br />

Should the net proceeds from the issue of the New Shares fall below the total required amount to undertake the<br />

above capital investments additional financing may be covered by debt financing commitments from Nordea as<br />

well cash flows from operations.<br />

To the extent the net proceeds of the Offering of the New Shares are not invested as described above they will be<br />

used to modernize existing production facilities, support the Group’s working capital needs as well as to finance<br />

possible corporate acquisitions in the existing and new markets in line with the Group’s business strategy.<br />

Reasons for the Offering<br />

The Offering and the Admission are expected to provide a number of benefits to the <strong>Company</strong>, such as:<br />

Enabling the <strong>Company</strong> to raise funds with a view to implementing the Group’s business strategy and<br />

achieving its strategic goals;<br />

Providing the <strong>Company</strong>’s access to the capital markets and, improving opportunities for future growth,<br />

expansion and development of the Group’s business and, thus increasing shareholders value; and<br />

Strengthening the Group’s position as one of the leading waste management companies in the Baltics.<br />

33


BMWARDOCS232112v37<br />

DIVIDENDS AND DIVIDEND POLICY<br />

The Management Board intends that the <strong>Company</strong> will re-invest any net earnings to finance the development of<br />

its assets and, accordingly, it is not intended that the <strong>Company</strong> should pay any dividends in the medium term.<br />

The Issuer is under no continuous obligation to pay regular dividends to its shareholders. Any payment of<br />

dividends in the future will depend upon decisions of the General Meeting (at which the Principal Shareholders<br />

may represent a majority of voting rights). Payment of (future) dividends may be made only if mandatory<br />

provisions so allow, as required by law or by the Articles of Association and the respective articles of association<br />

of the Group Companies. Furthermore, for the decision to pay dividend the following factors (among others)<br />

should also be taken into account: future results of operations, cash flows, financial position, reinvestment needs,<br />

expansion plans, contractual restrictions and other factors the Management Board, Supervisory Board and/or the<br />

General Meeting deem relevant, which do not necessarily have to coincide with the short-term interests of all the<br />

Issuer’s shareholders.<br />

All Shares, including the Offer Shares, carry equal dividend rights.<br />

As a holding company the ability of the <strong>Company</strong> to pay dividends will principally depend upon dividends or<br />

interest paid to it by the Group Companies.<br />

For information related to dividend rights and dividend payments, please see “Description of the Shares and<br />

Corporate Rights and Obligations-Dividends and Other Distributions”.<br />

Dividends for the years ended 31 December 2011, 2010 and 2009 constituted approximately LVL 0.00,<br />

approximately LVL 0.00 and approximately LVL 1,000 respectively.<br />

34


BMWARDOCS232112v37<br />

CAPITALISATION AND INDEBTEDNESS<br />

The following tables set out the Group’s capitalisation and indebtedness on a consolidated basis as at 31 March<br />

2012. For the avoidance of doubt is should be noted that the following tables set out capitalisation and<br />

indebtedness of the Group as it is at the date of the Prospectus (i.e. of the <strong>Eco</strong> <strong>Baltia</strong> Group and not the Eko<br />

Baltija Group).<br />

This information should be read in conjunction with the section “Operating and Financial Review”, the<br />

Consolidated Financial Statements including accompanying notes, the Condensed Consolidated Interim<br />

Financial Statements including accompanying notes and the Pro Forma Financial Information including<br />

accompanying notes.<br />

Total current debt:<br />

Secured/guaranteed (1)<br />

As at 31 March 2012<br />

(LVL thousands)<br />

Unsecured/unguaranteed 0<br />

Total current debt 3,963<br />

Total non-current debt, net of current portion of long term<br />

debt:<br />

Secured/guaranteed (1)<br />

3,963<br />

14,276<br />

Unsecured/unguaranteed 0<br />

Total long-term liabilities 14,276<br />

Shareholders’ equity:<br />

Share capital 22,425<br />

Share premium 0<br />

Other reserves (including retained earnings) 721<br />

Total shareholders’ equity 23,146<br />

Minority interest 1,158<br />

Total capitalisation and indebtedness<br />

42,543<br />

(1)<br />

Secured and guaranteed debt consists of bank loans and overdraft facilities which are secured by, among others: pledges over current and<br />

future assets of the Group Companies, and pledges over shares in the Group Companies. For more information please see: “Material<br />

Contracts – Financing Agreements – Agreements with Nordea Bank”.<br />

Source: The Group, based on the Pro Forma Financial Information and the Condensed Consolidated Interim Financial Statements<br />

35


BMWARDOCS232112v37<br />

Net indebtedness as at 31 March 2012<br />

As at 31 March 2012<br />

(LVL thousands)<br />

Cash 787<br />

Cash equivalents 0<br />

Trading securities 0<br />

Liquidity 787<br />

Current financial receivable<br />

Current bank debt 3,534<br />

Current portion of non current debt 0<br />

Other current financial debt - lease 429<br />

Current financial debt 3,963<br />

Net current financial indebtedness 3,176<br />

Non-current bank loans 13,126<br />

Bonds issued 0<br />

Other non-current financial debt 1,150<br />

Non-current financial indebtedness 14,276<br />

Subordinated loan 0<br />

Net Financial Indebtedness<br />

Source: The Group, based on Pro Forma Financial Information and the Condensed Consolidated Interim Financial Statements<br />

17,452<br />

36


BMWARDOCS232112v37<br />

SELECTED HISTORICAL FINANCIAL INFORMATION<br />

The following tables set forth summary consolidated financial data on the Eko Baltija Group level and not the<br />

Group as it is at the date of the Prospectus level for the periods indicated, which have been extracted without<br />

material adjustments from the Consolidated Financial Statements and the Condensed Consolidated Interim<br />

Financial Statements.<br />

The information below should be read in conjunction with the Consolidated Financial Statements and the<br />

Condensed Consolidated Interim Financial Statements, including the notes thereto and included elsewhere in<br />

this Prospectus and with the information included in “Operating and Financial Review” section of the<br />

Prospectus.<br />

Consolidated Statement of Comprehensive Income<br />

For three months ended<br />

31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Net sales 6,969 6,315 26,595 21,088 13,851<br />

Cost of sales (4,979) (4,320) (19,354) (15,079) (10,174)<br />

Gross profit 1,990 1,995 7,241 6,009 3,677<br />

Selling expenses (43) (67) (325) (484) (323)<br />

Administrative expenses (702) (699) (2,932) (2,629) (2,682)<br />

Other operating income 60 73 284 236 191<br />

Other operating expenses (99) (102) (287) (807) (1,007)<br />

Write-off of long-term financial investments - - - (19) -<br />

Interest income and similar income 32 7 70 18 55<br />

Interest expenses and similar expenses (82) (64) (324) (280) (257)<br />

Other taxes (2) (1) (5) (5) (6)<br />

Profit before corporate income tax 1,154 1,142 3,722 2,039 (352)<br />

Corporate income tax for the reporting year (119) (75) (211) (248) (103)<br />

Deferred income tax 17 12 (133) 3 (60)<br />

Current year profit/ (loss) and comprehensive<br />

income<br />

Attributable to:<br />

1,052 1,079 3,378 1,794 (515)<br />

Owners of the parent 974 962 3,203 1,539 (498)<br />

Non-controlling interests 78 117 175 (255) 17<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

37


BMWARDOCS232112v37<br />

Consolidated Statement of Financial Position<br />

ASSETS<br />

Non-current assets<br />

As of 31 March As of 31 December<br />

2012 2011 2010 2009<br />

(LVL in thousands)<br />

Goodwill 5,056 5,056 5,238 6,121<br />

Intangible assets 39 40 35 30<br />

Property, plant and equipment 5,611 5,662 5,839 6,640<br />

Investments in subsidiaries and associates 177 2 2 -<br />

Long-term loans and receivables - - 404 138<br />

Other financial assets 77 140 68 5<br />

Total non-current assets 10,960 10,900 11,586 12,934<br />

Current assets<br />

Inventories 898 1,459 1,057 693<br />

Trade and other receivables 2,241 1,626 1,731 1,502<br />

Loans to related companies 2,398 1,852 - -<br />

Other short-term receivables 1,521 1,546 1,874 1,399<br />

Corporate income tax 55 116 101 176<br />

Other short-term financial investments 116 1 159 82<br />

Cash and cash equivalents 787 966 859 813<br />

Total current assets 8,016 7,566 5,781 4,665<br />

Total assets 18,976 18,466 17,367 17,599<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

38


BMWARDOCS232112v37<br />

EQUITY AND LIABILITIES<br />

Capital and reserves<br />

As of 31 March As of 31 December<br />

2012 2011 2010 2009<br />

(LVL in thousands)<br />

Share capital 150 150 150 150<br />

Share premium 5,442 5,442 5,442 5,442<br />

Reorganization reserve (4,625) (4,625) - -<br />

Retained earnings /(losses) 5,046 4,072 591 (944)<br />

Equity attributed to the shareholders 6,013 5,039 6,183 4,648<br />

Non-controlling interests 1,158 1,080 1,806 1,550<br />

Total equity 7,171 6,119 7,989 6,198<br />

Non-current liabilities<br />

Interest bearing borrowings 5,363 5,556 736 2,689<br />

Finance lease liabilities 1,150 1,085 1,876 2,541<br />

Liabilities to related companies - - - 158<br />

Deferred tax liabilities 283 317 184 187<br />

Other liabilities - - - 183<br />

Other provisions - - 51 51<br />

Deferred income 180 182 180 300<br />

Total non-current liabilities 6,976 7,140 3,027 6,109<br />

Current liabilities<br />

Trade and other payables 980 999 880 816<br />

Interest bearing borrowings 2,096 2,392 3,124 1,979<br />

Finance lease liabilities 429 595 935 1,018<br />

Deferred income and customer prepayments 264 215 167 177<br />

Corporate income tax liabilities 12 43 113 20<br />

Tax liabilities 327 246 411 254<br />

Other liabilities 721 717 721 1,028<br />

Total current liabilities 4,829 5,207 6,351 5,292<br />

Total liabilities 11,805 12,347 9,378 11,401<br />

Total equity and liabilities 18,976 18,466 17,367 17,599<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

39


BMWARDOCS232112v37<br />

Consolidated Statement of Cash Flows<br />

For three months<br />

ended 31 March<br />

For the year ended 31<br />

December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Net cash from operating activities 1,541 1,678 4,989 2,694 936<br />

Net cash used in investing activities (910) (563) (7,764) (918) (42)<br />

Net cash used in financing activities (810) (1,011) 2,885 (1,730) (100)<br />

Profit or loss from currency fluctuations - - (3) - (3)<br />

Net increase in cash and cash equivalents (179) 104 107 46 791<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

40


BMWARDOCS232112v37<br />

OPERATING AND FINANCIAL REVIEW<br />

The following review of the operating and financial situation relates to historical financial conditions and<br />

results of operations of the Eko Baltija Group for the financial years ended on 31 December 2011, 2010, 2009<br />

respectively, and for the three months ended 31 March 2012 and 2011 respectively. Any reference in this<br />

section to the Group is reference to the Eko Baltija Group and not to the Group as it is at the date of the<br />

Prospectus. The “Operating and Financial Review” section was based on the Consolidated Financial<br />

Statements and the Condensed Consolidated Interim Financial Statements that are contained in the<br />

Prospectus and this section should be read in conjunction with the Consolidated Financial Statements and<br />

the Condensed Consolidated Interim Financial Statements. The “Operating and Financial Review” section<br />

does not present historical financial conditions and results of operations of the Group as it is at the date of the<br />

Prospectus. Therefore, the prospective investors shall read this section in conjunction with the “Capitalisation<br />

and Indebtedness” and “Pro Forma Financial Information” sections of the Prospectus.<br />

Certain information contained in the section set forth below includes forward-looking statements. Such forwardlooking<br />

statements are subject to risks, uncertainties and assumptions about the Group. In light of these risks,<br />

uncertainties and assumptions, the forward-looking events discussed in this Prospectus may not occur. Any<br />

statements regarding past trends or activities should not be taken as a representation that such trends or<br />

activities will continue in the future.<br />

Overview<br />

The Group is the largest vertically integrated multi-service waste management group in the Baltics in terms of<br />

turnover, consisting of companies that operate in four different waste management segments:<br />

(i) organisation of waste recovery, which accounted for revenue of LVL 4,237,000 (or 15.9% of the Group’s<br />

consolidated revenue) in the year ended 31 December 2011 and LVL 1,020,000 (or 14.6% of the Group’s<br />

consolidated revenue) in three months period ended 31 March 2012;<br />

(ii) waste collection, which accounted for revenue of LVL 5,820,000 (or 21.9% of the Group’s consolidated<br />

revenue) in the year ended 31 December 2011 and LVL 1,583,000 (or 22.7% of the Group’s consolidated<br />

revenue) in three months period ended 31 March 2012;<br />

(iii) recyclables sorting and trading, which accounted for revenue of LVL 2,040,000 (or 7.7% of the Group’s<br />

consolidated revenue) in the year ended 31 December 2011 and LVL 499,000 (or 7.2% of the Group’s<br />

consolidated revenue) in three months period ended 31 March 2012; and<br />

(iv) recycling, which accounted for revenue of LVL 14,498,000 (or 54.5% of the Group’s consolidated<br />

revenue) in the year ended 31 December 2011 and LVL 3,867,000 (or 55.5% of the Group’s consolidated<br />

revenue) in three months period ended 31 March 2012.<br />

In the three months period ended 31 March 2012 the Group had consolidated revenue of LVL 6,969,000 and net<br />

profit of LVL 1,052,000, as compared to consolidated revenue of LVL 6,315,000 and net profit of LVL<br />

1,079,000 in the three months period ended 31 March 2011. In the year ended 31 December 2011 the Group had<br />

consolidated revenue of LVL 26,595,000 and net profit of LVL 3,378,000, as compared to consolidated revenue<br />

of LVL 21,088,000 and net profit of LVL 1,794,000 in the year ended 31 December 2010. In the year ended 31<br />

December 2009 the Group had consolidated revenue of LVL 13,851,000 and net loss of LVL 515,000.<br />

Major Factors Affecting the Group’s Operations<br />

The Group’s performance and results of operations have been and continue to be affected by a number of factors,<br />

including, the Group’s operations, production volumes and prices of the Group’s services and products. See also<br />

“Risk Factors”.<br />

Macroeconomic trends in Latvia and the Baltics<br />

Due to the fact that the Group concentrates its business activities in Latvia and is also active in other Baltic<br />

countries, Lithuania and Estonia, its business operations depend on macroeconomic trends in Latvia and the<br />

41


BMWARDOCS232112v37<br />

Baltics. Basic data on the macroeconomic situation in Latvia and the Baltics are presented in section “Industry<br />

Overview”.<br />

In general, level of waste generation is connected with stage of economic growth and macroeconomic situation.<br />

Moreover, macroeconomic conditions have significant influence on the levels of disposable income of<br />

population and consumption. Level of consumption affects total volume of waste generated in Latvia and the<br />

Baltics, and therefore affects the Group’s businesses. However, it should be noted that these changes are slow<br />

and affect Group operations in the long term. Additionally, consumption is one of the key drivers of consumer<br />

goods industry, and therefore is influencing volume of packaging, electronic and electronic equipment and goods<br />

harmful to the environment, which are released into the environment by producers and importers. The volume of<br />

released packaging, electronic and electronic equipment and goods harmful to the environment by clients of the<br />

Group is a direct driver of the revenue of one of the Group Companies, LZP.<br />

Volume of waste under recovery<br />

The Group’s revenue is influenced by the volume of waste under recovery of LZP, the Group <strong>Company</strong> engaged<br />

in organisation of waste recovery.<br />

The table below presents data on packaging waste, WEEE and GHE (excluding oil filters) under recovery of<br />

LZP in periods indicated (in tonnes).<br />

For three months ended 31<br />

March For the year ended 31 December<br />

2012 2011 Change 2011 Change 2010 Change 2009<br />

tonnes tonnes % tonnes % tonnes % tonnes<br />

Packaging waste 28,747 27,399 4.9 122,055 (1.3) 123,685 11.1 111,346<br />

WEEE 673 654 2.9 3,323 (10.5) 3,711 (27.9) 5,149<br />

GHE* 1,822 1,594 14.3 7,249 8.8 6,664 75.1 3,806<br />

Total 31,242 29,647 5.4 132,627 (1.07) 134,060 11.44 120,301<br />

* excluding oil filters<br />

Source: The Group’s data<br />

Total volume of packaging waste under recovery of LZP was 28,747 and 27,399 tonnes as of three months ended<br />

31 March 2012 and 2011, respectively, representing an increase of 4.9%. The increase was due to continuous<br />

efforts to improve sales.<br />

Total volume of packaging waste under recovery of LZP was 122,055, 123,685 and 111,346 tonnes as of the<br />

years ended 31 December 2011, 2010 and 2009, respectively. In the year ended 31 December 2010 amount of<br />

packaging waste under recovery increased by 11.1% comparing with the year ended 31 December 2009. The<br />

increase was due to the recovery of Latvian economy from the financial crisis, which led to recovery of stock<br />

levels of products held by retailers, which are clients of LZP. In the year ended 31 December 2011 the Group<br />

observed decrease of packaging waste volume under recovery by 1.3% in comparison with the year ended 31<br />

December 2010. This was caused by stabilisation of internal consumption, i.e. volume of goods supplied by LZP<br />

clients to the local market matched the internal demand. The growth of export which is now one of the drivers of<br />

recovery of Latvian economy had a minor impact on the volume of packaging waste under recovery.<br />

Total volume of WEEE under recovery of LZP was 673 and 654 tonnes as of three months ended 31 March 2012<br />

and 2011, respectively, representing an increase of 2.9%. The increase is attributed to the fact that the Group<br />

continued to retain stable client base, which increased the volumes of WEEE under recovery, and attracted few<br />

new clients.<br />

Total volume of WEEE under recovery of LZP was 3,323, 3,711 and 5,149 tonnes as of the years ended 31<br />

December 2011, 2010 and 2009, respectively. In the year ended 31 December 2010 volume of WEEE under<br />

recovery decreased by 27.9% comparing with the year ended 31 December 2009. In the year ended 31 December<br />

2011 the Group observed further decrease of WEEE volume under recovery by 10.5% in comparison with the<br />

year ended 31 December 2010. The decrease during those periods was due to lose of market share, because of<br />

lower fees for recovery of WEEE offered by the Group’s competitors. The Group didn’t participate in price wars<br />

which led to decrease of fees on the WEEE recovery market.<br />

42


BMWARDOCS232112v37<br />

Total volume of GHE (excluding oil filters) under recovery of LZP was 1,822 and 1,594 tonnes as of three<br />

months ended 31 March 2012 and 2011, respectively, representing and increase of 14.3%. This significant<br />

increase was due to attracting new clients and retaining stable client base, which increased the volumes of GHE<br />

under recovery.<br />

Total volume of GHE (excluding oil filters) under recovery of LZP was 7,249, 6,664 and 3,806 tonnes as of the<br />

years ended 31 December 2011, 2010 and 2009, respectively. In the year ended 31 December 2010 volume of<br />

GHE (excluding oil filters) under recovery increased by 75.1% comparing with the year ended 31 December<br />

2009. The Group increased volume of GHE under recovery (excluding oil filters) by attracting new clients.<br />

Moreover, there was change in legislation regarding recovery of batteries and accounting system (i.e., before<br />

mid-2009 the batteries being part of electric and electronic equipment were accounted as part of this equipment,<br />

and starting from mid-2009 they became separate object of recovery). In the year ended 31 December 2011 the<br />

Group observed increase of GHE (excluding oil filters) volume under recovery by 8.8% in comparison with the<br />

year ended 31 December 2010. This was achieved by attracting new clients.<br />

Due to the factors mentioned above, the total volume of waste (excluding oil filters) under recovery of LZP was<br />

31,242 and 29,647 tonnes as of three months ended 31 March 2012 and 2011, respectively. In three months<br />

ended 31 March 2012 volume of waste (excluding oil filters) under recovery increased by 5.4% comparing with<br />

the three months ended 31 March 2011. Furthermore, the total volume of waste (excluding oil filters) under<br />

recovery of LZP was 132,627, 134,060 and 120,301 tonnes as of the years ended 31 December 2011, 2010 and<br />

2009, respectively. In the year ended 31 December 2010 volume of waste (excluding oil filters) under recovery<br />

increased by 11.44% comparing with the year ended 31 December 2009. In the year ended 31 December 2011<br />

the Group observed decrease of total volume of waste (excluding oil filters) under recovery by 1.07% in<br />

comparison with the year ended 31 December 2010.<br />

Volume of waste collected<br />

The Group’s operations and results are affected by the amount of waste collected by the Group Companies. First<br />

of all, revenue of the Group Companies operating in waste collection segment is, to some extent, linked with<br />

amount of waste collected. Second of all, increase in volume of waste collected allows the Group to enjoy<br />

economies of scale. Third of all, the Group Companies collecting waste are suppliers of raw materials to other<br />

Group Companies, namely Eko Reverss which is engaged in sorting and trading of recyclables, and indirectly<br />

(through intermediary of Eko Reverss) to the Group Companies engaged in recycling.<br />

The table below presents amounts of municipal waste collected by the Group Companies in periods indicated (in<br />

m 3 ).<br />

For three months ended 31<br />

March For the year ended 31 December<br />

2012 2011 Change 2011 Change 2010 Change 2009<br />

m 3<br />

m 3<br />

% m 3<br />

% m 3<br />

% m 3<br />

Eko Riga 89,453 68,346 30.9 330,930 41.4 234,058 54.7 151,284<br />

Eko Kurzeme 42,882 40,652 5.5 193,521 (0.2) 193,968 (3.1) 200,128<br />

Jurmala ATU 39,477 18,414 114.4 115,582 1.4 114,017 (12.6) 130,465<br />

Kurzemes Ainava 26,698 24,634 8.4 107,797 0.5 107,223 (11.0) 120,436<br />

Jumis 10,559 11,669 (9.5) 51,492 25.2 41,121 26.1 32,616<br />

Total 209,069 163,715 27.7 799,322 15.8 690,387 8.7 634,929<br />

Source: The Group’s data<br />

Total volume of waste collected by the Group was 209,069 and 163,715 m 3 as of three months ended 31 March<br />

2012 and 2011, respectively, representing an increase of 27.7%. This increase was mainly due to increase of<br />

volume of waste collected by Eko Riga (which was achieved by increase of sales, partially caused by hiring new<br />

employees) and Jurmalas ATU (the company started to serve the whole territory of Jurmala city and Babite).<br />

Total volume of waste collected by the Group was 799,322, 690,387 and 634,929 m 3 as of the years ended 31<br />

December 2011, 2010 and 2009, respectively. In the year ended 31 December 2010 waste collection volume<br />

increased by 8.7% comparing with the year ended 31 December 2009. In the year ended 31 December 2011 the<br />

43


BMWARDOCS232112v37<br />

Group observed further increase of waste collection volume by 15.8% in comparison with the year ended 31<br />

December 2010. The increase during those periods was achieved primarily due to increase of volume of waste<br />

collected by Eko Riga. This was achieved by the Group wining new tenders for waste collection in<br />

Sarkandaugava (part of Riga) and Carnikava (Riga’s region), which are executed by Eko Riga. Moreover, during<br />

the 2008 the Group has acquired 8 waste collection companies, which had been gradually consolidated into the<br />

activities of the Group by 2011. The integration included joint administration and sales activities, establishment<br />

of cooperation with other segments of the Group (organisation of waste recovery, sorting and trading, recycling),<br />

which has led to improvement of operational efficiency and as a consequence increase in volume of waste<br />

collected. Furthermore, the Group implemented efficient sales approach, by attracting new clients in the territory<br />

that had already been under the Group’s operations.<br />

Volume of recyclables traded<br />

The Group’s revenue is influenced by the volume of recyclables which the Group trades.<br />

The table below presents amounts of different types of recyclables sorted and traded by the Group in periods<br />

indicated (in tonnes).<br />

For three months ended 31<br />

March For the year ended 31 December<br />

2012 2011 Change 2011 Change 2010 Change 2009<br />

tonnes tonnes % tonnes % tonnes % tonnes<br />

Sorted recyclables 1,365 1,830 (25.4) 6,620 14.4 5,789 32.7 4,363<br />

Traded recyclables* 9,555 7,059 35.4 39,964 11.9 35,704 44.0 24,797<br />

* includes sorted recyclables<br />

Source: The Group’s data<br />

Total volume of recyclables traded by the Group was 9,530 and 8,889 tonnes as of three months ended 31 March<br />

2012 and 2011, respectively, representing an increase of 35.4%. This increase was mainly due to increasing sales<br />

of cardboard, which is in line with LZP orders for cardboard recovery. What refers to total volume of recyclables<br />

sorted by the Group, it was 1,365 and 1,830 tonnes as of three months ended 31 March 2012 and 2011,<br />

respectively, representing a decrease of 25.4%. This decrease was caused by technical maintenance work with<br />

sorting equipment done in winter period 2012.<br />

Total volume of recyclables traded by the Group was 39,964, 35,704 and 24,797 tonnes as of the years ended 31<br />

December 2011, 2010 and 2009, respectively. In the year ended 31 December 2010 volume of recyclables traded<br />

increased by 44.0% comparing with the year ended 31 December 2009. This was due to increase of orders from<br />

LZP, which switched from outsourcing of recyclables sorting and trading to intra-group orders. The other growth<br />

driver was increase of demand for cardboard and polymers. In the year ended 31 December 2011 the Group<br />

observed further increase of volume of recyclables traded by 11.9% in comparison with the year ended 31<br />

December 2010. The increase was due to increase of orders from LZP, which continued switch from outsourcing<br />

of recyclables sorting and trading to intra-group orders. The other growth driver was increase of demand for<br />

cardboard and polymers.<br />

Volume of recycling<br />

The Group’s results of operations are affected by the production levels of recycling segment, namely production<br />

output of PET Baltija and Nordic Plast.<br />

The table below sets forth information on sales volumes of PET Baltija in periods indicated.<br />

44


BMWARDOCS232112v37<br />

For three months ended 31<br />

March For the year ended 31 December<br />

2012 2011 Change 2011 Change 2010 Change 2009<br />

tonnes tonnes % tonnes % tonnes % tonnes<br />

PET flakes (clear) 3,853 3,445 11.9 12,870 24.7 10,321 131.1 4,466<br />

PET flakes (mix) 1,250 1,071 16.7 4,256 30.1 3,270 120.5 1,483<br />

Other 666 670 (0.7) 952 (51.7) 1,971 129.8 858<br />

Total 5,769 5,186 11.2 18,078 16.2 15,562 128.6 6,807<br />

Source: The Group’s data<br />

The table below sets forth information on sales volumes of Nordic Plast in periods indicated.<br />

For three months ended 31<br />

March For the year ended 31 December<br />

2012 2011 Change 2011 Change 2010 Change 2009<br />

tonnes tonnes % tonnes % tonnes % tonnes<br />

LDPE (natural) 366 659 (44.5) 2,061 (19.0) 2,546 3.5 2,459<br />

LDPE (mix) 180 194 (7.2) 735 (28.3) 1,025 (10.6) 1,147<br />

HDPE 328 61 437.7 922 1,781.6 49 - 0<br />

New products* 23 - - - - - - -<br />

Total 897 914 (1.9) 3,718 2.7 3,620 0.4 3,606<br />

* e.g., PP pellets<br />

Source: The Group’s data<br />

The Group’s sales volumes of recycled materials are driven by a number of factors, including capacity utilisation<br />

levels, suspensions of production, availability of raw materials and quality of raw materials (higher quality of<br />

raw materials means higher production efficiency). During the period under review, the Group’s recycling<br />

facilities operated as a non-stop production on 4 shifts (each 12 hours), including weekends, subject to<br />

undergoing routine maintenance and one major annual maintenance for approximately one week, typically in the<br />

second half of December. Combination of modern and well maintained equipment and high quality of recycled<br />

raw material allows PET Baltija and Nordic Plast using production capacities of its facilities with maximum<br />

efficiency.<br />

Sales volume of PET Baltija was 5,769 and 5,186 tonnes as of three months ended 31 March 2012 and 2011,<br />

respectively, representing an increase of 11.2%. This increase was primarily driven by improvement of<br />

production efficiency and growing demand for PET flakes.<br />

Sales volume of PET Baltija was 18,078, 15,562 and 6,807 tonnes as of the years ended 31 December 2011,<br />

2010 and 2009, respectively. In the year ended 31 December 2010 PET Baltija sales volume increased by<br />

128.6% comparing with the year ended 31 December 2009. In the year ended 31 December 2011 the Group<br />

observed further increase of PET Baltija sales volume by 16.2% in comparison with the year ended 31 December<br />

2010. This material increase during those periods was achieved due to modernization of production facilities and<br />

improvement of production technology, which resulted in decreasing of a percentage of contaminated product<br />

(which in general are cheaper than the general production of PET Baltija) to just 1.2% of the overall volume.<br />

Moreover, the Group introduced constant control of raw material quality, which corresponds to ISO standards.<br />

The Group also introduced training and motivation programs for production workers.<br />

Sales volume of Nordic Plast was 897 and 914 tonnes as of three months ended 31 March 2012 and 2011,<br />

respectively, representing a decrease of 1.9%, which was caused primarily by continuing of the Group’s strategy<br />

to shift production targets to products with higher profit margin (i.e. from LDPE to HDPE pellets). In addition<br />

Nordic Plast started pilot production runs for new types of products (e.g., PP pellets) in order to decide whether<br />

to acquire new production equipment.<br />

Sales volume of Nordic Plast was 3,718, 3,620 and 3,606 tonnes as of the years ended 31 December 2011, 2010<br />

and 2009, respectively. In the year ended 31 December 2010 Nordic Plast sales volume increased by 0.4%<br />

45


BMWARDOCS232112v37<br />

comparing with the year ended 31 December 2009. In the year ended 31 December 2011 the Group observed an<br />

increase of Nordic Plast sales volume by 2.7% in comparison with the year ended 31 December 2010. During<br />

those periods the Group kept the general level of production output of PE pellets on the stable level, but switch<br />

the production aims. The aim was to increase the proportion of higher value added products, but switching from<br />

production of mix LDPE to natural LDPE and later to HDPE (when the recycling of PET bottle corks and labels<br />

into HDPE pellets was launched).<br />

Prices for recycling products and costs of raw materials<br />

In accordance with common practices in the recycling business both PET Baltija and Nordic Plast cooperates<br />

with their clients on the basis of separate orders without signing any long-term agreements.<br />

The prices for PET flakes and PE pellets are variable. Prices of PET flakes are variable depending on, inter alia,<br />

crude oil and cotton prices and virgin PET prices. Prices of PE pellets are linked with, among other, the price of<br />

primary PE and, to some extent, with crude oil prices. All of above mentioned factors are outside the Group’s<br />

control. Moreover, due to growing environmental concerns globally, many companies have been increasing their<br />

usage of raw materials which are product of recycling. The companies want to be seen as socially responsible<br />

and green and this trend influences demand for products of the Group Companies engaged in recycling activities.<br />

PET and PE raw materials are the biggest cost items of the Group Companies operating in the recycling<br />

business. Therefore, fluctuations in costs of raw materials may influence cost levels in both PET Baltija and<br />

Nordic Plast. Although, it should be noted that as of the date of the Prospectus the Group Companies engaged in<br />

recycling business purchase raw materials on order basis, without having long term agreement with fixed prices<br />

and amounts. It allows flexibility in adjusting prices of final products to reflect the costs of raw materials.<br />

The chart below outlines prices for virgin PET and disposable PET bottle prices in period of July 2009 – March<br />

2012 (in EUR per tonne).<br />

2000<br />

1500<br />

1000<br />

500<br />

0<br />

Jul-09<br />

Aug-09<br />

Sep-09<br />

Oct-09<br />

Nov-09<br />

Dec-09<br />

Jan-10<br />

Feb-10<br />

Mar-10<br />

Apr-10<br />

May-10<br />

Jun-10<br />

Source: EUWID - Europäischer Wirtschaftsdienst GmbH<br />

Jul-10<br />

Aug-10<br />

Sep-10<br />

Oct-10<br />

Nov-10<br />

Dec-10<br />

Jan-11<br />

Feb-11<br />

Mar-11<br />

Apr-11<br />

May-11<br />

Jun-11<br />

Jul-11<br />

Aug-11<br />

Disposable PET bottle price, EUR/ton Virgin PET price, EUR/ton<br />

Market average monthly virgin PET price is used as a proxy to show the movement of PET flakes price, which is<br />

the end product of PET Baltija. In period from July 2009 till March 2012 the average monthly price of virgin<br />

PET increased by EUR 560 per tonne, or 52%, from EUR 1,080 to EUR 1,640 per tonne.<br />

Market average disposable PET bottle price shows the raw material price movement. In period from July 2009<br />

till March 2012 the average monthly price of disposable PET bottles increased by EUR 292 per tonne, or 141%,<br />

from EUR 208 EUR to EUR 500 per tonne.<br />

The chart below outlines prices for LDPE pellets and disposable LDPE film in the period of January 2009 –<br />

March 2012 (in EUR per tonne).<br />

Sep-11<br />

Oct-11<br />

Nov-11<br />

Dec-11<br />

Jan-12<br />

Feb-12<br />

Mar-12<br />

46


BMWARDOCS232112v37<br />

1500<br />

1000<br />

500<br />

0<br />

Jan-09<br />

Feb-09<br />

Mar-09<br />

Apr-09<br />

May-09<br />

Jun-09<br />

Jul-09<br />

Aug-09<br />

Sep-09<br />

Oct-09<br />

Nov-09<br />

Dec-09<br />

Jan-10<br />

Feb-10<br />

Mar-10<br />

Apr-10<br />

May-10<br />

Jun-10<br />

Jul-10<br />

Aug-10<br />

Sep-10<br />

Oct-10<br />

Nov-10<br />

Dec-10<br />

Jan-11<br />

Feb-11<br />

Mar-11<br />

Apr-11<br />

May-11<br />

Jun-11<br />

Jul-11<br />

Aug-11<br />

Sep-11<br />

Oct-11<br />

Nov-11<br />

Dec-11<br />

Jan-12<br />

Feb-12<br />

Mar-12<br />

Source: New Media Publisher GmbH (www.plasticker.de)<br />

Disposable LDPE film price, EUR/ton LDPE pellet price, EUR/ton<br />

Market average monthly LDPE pellet price is used as a proxy to show dynamics in the sales price of Nordic<br />

Plast output. In period from January 2009 till March 2012 the average monthly price of LDPE pellets increased<br />

by EUR 330 per tonne, or 57%, from EUR 580 to EUR 910 per tonne.<br />

Market average price of disposable LDPE film shows the raw material price movement. In period from January<br />

2009 till March 2012 the average monthly price of disposable LDPE film increased by EUR 30 per tonne, or<br />

13%, from EUR 230 to EUR 260 per tonne.<br />

The chart below outlines prices for HDPE pellets and disposable HDPE regrind in the period of January 2009 –<br />

March 2012 (in EUR per tonne).<br />

1500<br />

1000<br />

500<br />

0<br />

Jan-09<br />

Feb-09<br />

Mar-09<br />

Apr-09<br />

May-09<br />

Jun-09<br />

Jul-09<br />

Aug-09<br />

Sep-09<br />

Oct-09<br />

Nov-09<br />

Dec-09<br />

Jan-10<br />

Feb-10<br />

Mar-10<br />

Apr-10<br />

May-10<br />

Jun-10<br />

Jul-10<br />

Aug-10<br />

Sep-10<br />

Oct-10<br />

Nov-10<br />

Dec-10<br />

Jan-11<br />

Feb-11<br />

Mar-11<br />

Apr-11<br />

May-11<br />

Jun-11<br />

Jul-11<br />

Aug-11<br />

Sep-11<br />

Oct-11<br />

Nov-11<br />

Dec-11<br />

Jan-12<br />

Feb-12<br />

Mar-12<br />

Source: New Media Publisher GmbH (www.plasticker.de)<br />

Disposable HDPE regrind price, EUR/ton HDPE pellet price, EUR/ton<br />

Market average monthly price for HDPE pellet is used as a proxy to show dynamics in the sales price of Nordic<br />

Plast output. In period from January 2009 till March 2012 the average monthly price of HDPE pellets increased<br />

by EUR 330 per tonne, or 55%, from EUR 600 EUR to 930 per tonne.<br />

Market average disposable HDPE regrind price can be used as proxy for raw material price movement, as<br />

regrind material is already a semi-finished good for Nordic Plast. In period from January 2009 till March 2012<br />

the average monthly price of disposable HDPE regrind increased by EUR 140 per tonne, or 29%, from EUR 490<br />

to EUR 630 per tonne.<br />

47


BMWARDOCS232112v37<br />

Results of Operations for three months ended 31 March 2012 compared to three months ended 31 March<br />

2011<br />

The following table sets forth the Group’s results of operations for three months ended 31 March 2012 and 2011<br />

derived from the Condensed Consolidated Interim Financial Statements.<br />

For three months ended 31 March<br />

2012 2011 Change<br />

(LVL in thousands) (%)<br />

Net sales 6,969 6,315 10.4<br />

Cost of sales (4,979) (4,320) 15.6<br />

Gross profit 1,990 1,995 (0.3)<br />

Gross profit margin 28.6% 31.6% -<br />

Selling expenses (43) (67) (35.8)<br />

Administrative expenses (702) (699) (0.4)<br />

Other operating income 60 73 (17.8)<br />

Other operating expenses (99) (102) (2.9)<br />

Operating profit 1,206 1,200 0.5<br />

Operating profit margin 17.3% 19.0% -<br />

Write-off of long-term financial investments - - -<br />

Interest income and similar income 32 7 357.1<br />

Interest expenses and similar expenses (82) (64) 28.1<br />

Other taxes (2) (1) 100.0<br />

Profit before corporate income tax 1,154 1,142 1.1<br />

Corporate income tax for the reporting year (119) (75) 58.7<br />

Deferred income tax 17 12 41.7<br />

Current period’s profit 1,052 1,079 (2.5)<br />

Net profit margin 15.1% 17.1% -<br />

Source: Condensed Consolidated Interim Financial Statements<br />

Revenue<br />

The following table sets forth the breakdown of the Group’s net sales by business segment for three months<br />

ended 31 March 2012 and 2011.<br />

(LVL in<br />

thousands)<br />

For three months ended 31 March<br />

2012 2011 Change<br />

(As a % of total<br />

revenue)<br />

(LVL in<br />

thousands)<br />

(As a % of<br />

total revenue)<br />

Revenue from recycling 3,867 55.5 3,473 55.0 11.3<br />

Revenue from waste collection 1,583 22.7 1,488 23.6 6.4<br />

Revenue from organisation of waste<br />

recovery<br />

Revenue from recyclables sorting and<br />

trading<br />

1,020 14.6 945 15.0 7.9<br />

(%)<br />

499 7.2 409 6.5 22.0<br />

Other - - - - -<br />

Total Revenue from core services 6,969 100.0 6,315 100.0 10.4%<br />

Source: Condensed Consolidated Interim Financial Statements<br />

48


BMWARDOCS232112v37<br />

The Group’s total net sales increased by 10.4% to LVL 6,969,000 for three months ended 31 March 2012 from<br />

LVL 6,315,000 for three months ended 31 March 2011. The increase in net sales in three months ended 31<br />

March 2012 was primarily driven by increase of net sales from recycling and recyclables sorting and trading<br />

segments.<br />

Summary of revenue from each segment is presented below. It should be underlined that as a result of<br />

consolidation the revenue of each business segment is adjusted by intra-group transactions. For more details<br />

please see Note 1 to the Condensed Consolidated Interim Financial Statements.<br />

Revenue from recycling<br />

The Group’s revenue from recycling segment was LVL 3,867,000 for three months ended 31 March 2012, as<br />

compared to LVL 3,473,000 for three months ended 31 March 2011, representing an increase of 11.3%. The<br />

increase was in line with the increase in sales volume.<br />

Revenue from waste collection<br />

The Group’s revenue from waste collection segment was LVL 1,583,000 for three months ended 31 March 2012,<br />

as compared to LVL 1,488,000 for three months ended 31 March 2011, representing an increase of 6.4%, mainly<br />

due to increase of the volume, which was partially offset by decrease of prices (which were lowered in order to<br />

increase market share).<br />

Revenue from organisation of waste recovery<br />

The Group’s revenue generated from organisation of waste recovery segment was LVL 1,020,000 for three<br />

months ended 31 March 2012, as compared to LVL 945,000 for three months ended 31 March 2011. The<br />

revenue from this segment increased by 7.9%, due to increase of the volume of waste under recovery and<br />

increase of average price for waste recovery services.<br />

Revenue from recyclables sorting and trading<br />

The Group’s revenue from recyclables sorting and trading segment was LVL 499,000 for three months ended 31<br />

March 2012, as compared to LVL 409,000 for three months ended 31 March 2011, representing an increase of<br />

22.0%, mainly due to increase of sales of cardboard and glass to external customers.<br />

Revenue by geographical location<br />

The following table sets forth the breakdown of the Group’s revenue by geographical location for three months<br />

ended 31 March 2012 and 2011.<br />

(LVL in<br />

thousands)<br />

For three months ended 31 March<br />

2012 2011 Change<br />

(As a % of<br />

total revenue)<br />

(LVL in<br />

thousands)<br />

(As a % of<br />

total<br />

revenue)<br />

Latvia 2,662 38.2 2,507 39.7 6.2<br />

European Union (EU) 3,866 55.5 3,753 59.4 3.0<br />

Non-EU countries 441 6.3 55 0.9 701.8<br />

Total Revenue 6,969 100.0 6,315 100.0 10.4<br />

Source: Condensed Consolidated Interim Financial Statements<br />

In three months period ended 31 March 2012 net sales from export totalled LVL 4,307,000 meaning that export<br />

accounted for 61.8% of the total net sales of the Group. In three months period ended 31 March 2011 net sales<br />

from export amounted to LVL 3,808,000 or 60.3% of the total net sales of the Group. The total net sales from<br />

export increased by 13.1% in three months period ended 31 March 2012 in comparison with the three months<br />

period ended 31 March 2011. This was mainly due to increase of sales of Eko Reverss to non-EU countries<br />

(increase in sales of cardboard to customers in Asia), increase of sales of PET Baltija to EU countries, which was<br />

partially offset by decrease of sales of Eko Reverss to EU countries.<br />

(%)<br />

49


Cost of sales<br />

BMWARDOCS232112v37<br />

The table below sets forth the principal components of the Group’s cost of sales for three months ended 31<br />

March 2012 and 2011.<br />

For three months ended 31 March<br />

2012 2011 Change<br />

(LVL in thousands) (%)<br />

Raw materials and other material costs (2,711) (2,339) 15.9<br />

Transportation expenses (442) (396) 11.6<br />

Municipal waste landfilling and disposal of sewage water (404) (306) 32.0<br />

Salaries and wages (431) (404) 6.7<br />

Depreciation and amortization (302) (273) 10.6<br />

Outsourcing (191) (164) 16.5<br />

Rent of production premises and related costs (141) (142) (0.7)<br />

Professional services (189) (91) 107.7<br />

Social security taxes (102) (96) 6.3<br />

Natural resources tax (1) (1) 0.0<br />

Other production costs (65) (108) (39.8)<br />

Total (4,979) (4,320) 15.3<br />

Source: Condensed Consolidated Interim Financial Statements<br />

The Group’s cost of sales was LVL 4,979,000 for three months ended 31 March 2012 (71.4% of revenue), as<br />

compared to LVL 4,320,000 (68.4% of revenue) for three months ended 31 March 2011, representing an<br />

increase of 15.3%. The increase was primarily due to increase of total sales volume, as well as increase of costs<br />

of raw materials and costs of landfilling of municipal waste.<br />

Raw materials and other material costs were LVL 2,711,000 for three months ended 31 March 2012, as<br />

compared to LVL 2,339,000 for three months ended 31 March 2011, representing an increase of 15.9%. The<br />

increase was primarily due to increase of sales volume and increase of prices of raw materials.<br />

Transportation expenses amounted to LVL 442,000 for three months ended 31 March 2012, as compared to LVL<br />

396,000 for three months ended 31 March 2011, representing an increase of 11.6%. The increase was mainly due<br />

to increase in volume of waste collected of 27.7%, as well as increase of fuel costs.<br />

Costs of municipal waste landfilling and disposal of sewage water were LVL 404,000 for three months ended 31<br />

March 2012, as compared to LVL 306,000 for three months ended 31 March 2011, representing an increase of<br />

32.0%. The increase was primarily due to increase in volume of waste collected of 27.7% and increase of the<br />

NRT by LVL 2, which resulted in increase of landfilling cost per tonne by approximately 10% to 15%<br />

(depending on region).<br />

Salaries and wages amounted to LVL 431,000 for three months ended 31 March 2012, as compared to LVL<br />

404,000 for three months ended 31 March 2011, representing an increase of 6.7%. The increase was primarily<br />

due to employing additional employees in Eko Riga to increase sales.<br />

Costs of depreciation of fixed assets and amortization of intangible investments were LVL 302,000 for three<br />

months ended 31 March 2012, as compared to LVL 273,000 for three months ended 31 March 2011,<br />

representing an increase of 10.6%. The increase was primarily due to amortization of new equipment in Nordic<br />

Plast and amortization of containers in waste collection segment.<br />

Outsourcing costs were LVL 191,000 for three months ended 31 March 2012, as compared to LVL 164,000 for<br />

three months ended 31 March 2011, representing an increase of 16.5%. The increase was primarily due to<br />

increase in sales of construction and demolition waste and consequent increase of costs of delivery of the<br />

collected material to recycling, which is carried out by third parties.<br />

Costs of rent of production premises and other related costs were LVL 141,000 for three months ended 31 March<br />

2012, as compared to LVL 142,000 for three months ended 31 March 2011, representing a decrease of 0.7%.<br />

50


BMWARDOCS232112v37<br />

Costs of professional services were LVL 189,000 for three months ended 31 March 2012, as compared to LVL<br />

91,000 for three months ended 31 March 2011, representing an increase of 107.7%. The increase was primarily<br />

due to inclusion of costs of services related to the Offering, which amounted to approximately LVL 86,000.<br />

Social insurance costs were LVL 102,000 for three months ended 31 March 2012, as compared to LVL 96,000<br />

for three months ended 31 March 2011, representing an increase of 6.3%.<br />

Other expenses amounted to LVL 65,000 for three months ended 31 March 2012, as compared to LVL 108,000<br />

for three months ended 31 March 2011, representing a decrease of 39.8%.<br />

Costs of sales by the business segments<br />

The following table sets forth the breakdown of the Group’s costs of sales by business segment for three months<br />

ended 31 March 2012 and 2011.<br />

For three months ended 31 March<br />

2012 2011 Change<br />

(LVL in thousands) (%)<br />

Recycling (2,821) (2,531) 11.5<br />

Waste collection (1,125) (1,080) 4.2<br />

Organisation of waste recovery (697) (663) 5.1<br />

Recyclables sorting and trading (664) (660) 0.6<br />

Other expenses (151) (47) 221.3<br />

Consolidation adjustments and eliminations 779 938 (17.0)<br />

Total* (4,679) (4,043) 15.7<br />

* In segment report cost of sales are showed before depreciation and amortisation<br />

Source: Condensed Consolidated Interim Financial Statements<br />

The Group’s cost of sales in the recycling segment was LVL 2,821,000 for three months ended 31 March 2012,<br />

as compared to LVL 2,531,000 for three months ended 31 March 2011, representing an increase of 11.5%. The<br />

increase was primarily due to increase in sales volume.<br />

The Group’s cost of sales in the waste collection segment was LVL 1,125,000 for three months ended 31 March<br />

2012, as compared to LVL 1,080,000 for three months ended 31 March 2011, representing an increase of 4.2%.<br />

The increase was primarily due to increase in volume of waste collected.<br />

The Group’s cost of sales in the organisation of waste recovery segment was LVL 697,000 for three months<br />

ended 31 March 2012, as compared to LVL 663,000 for three months ended 31 March 2011, representing an<br />

increase of 5.1%. The increase was primarily due to increase in sales volume.<br />

The Group’s cost of sales in the recyclables sorting and trading segment was LVL 664,000 for three months<br />

ended 31 March 2012, as compared to LVL 660,000 for three months ended 31 March 2011, representing an<br />

increase of 0.6%.<br />

Cost of sales from other activities was LVL 151,000 for three months ended 31 March 2012, as compared to<br />

LVL 47,000 for three months ended 31 March 2012, representing an increase of 221.3%. The increase was due<br />

to inclusion of costs of services related to the Offering, which amounted to approximately LVL 86,000.<br />

Gross profit<br />

The Group’s consolidated gross profit was LVL 1,990,000 for three months ended 31 March 2012, as compared<br />

to LVL 1,995,000 for three months ended 31 March 2011, representing a decrease of 0.3%. The gross profit<br />

margin for three months ended 31 March 2012 was 28.6%, as compared to 31.6% for three months ended 31<br />

March 2011.<br />

51


BMWARDOCS232112v37<br />

The decrease in gross profit for three months ended 31 March 2012 in comparison with three months ended 31<br />

March 2011 was mainly caused by decrease of gross profit in recyclables sorting and trading segment.<br />

The Group’s gross profit, if adjusted with costs relating to the Offering (which amounted to approximately LVL<br />

86,000 for three months ended 31 March 2012) was LVL 2,076,000 for three months ended 31 March 2012.<br />

Gross profit margin (adjusted with costs relating to the Offering) was 29.8% for three months ended 31 March<br />

2012.<br />

Gross profit by segment<br />

The following table sets forth the breakdown of the Group’s gross profit by business segment for three months<br />

ended 31 March 2012 and 2011.<br />

For three months ended 31 March<br />

2012 2011 Change<br />

(LVL in thousands) (%)<br />

Recycling 1,302 1,205 8.0<br />

Waste collection 668 651 2.6<br />

Organisation of waste recovery 324 282 14.9<br />

Recyclables sorting and trading 146 189 (22.8)<br />

Other 262 188 39.4<br />

Consolidation adjustments and eliminations (412) (243) 69.5<br />

Total* 2,290 2,272 0.8<br />

* In segment report gross profit is showed before depreciation and amortisation<br />

Source: Condensed Consolidated Interim Financial Statements<br />

Taking into consideration that gross profit by segment is presented excluding depreciation and amortization,<br />

changes in gross profit for waste collection and recycling could be considered as relatively immaterial.<br />

The gross profit in recycling segment increased by 8.0% to LVL 1,302,000 for three months ended 31 March<br />

2012 from LVL 1,205,000 for three months ended 31 March 2011. The increase in gross profit was due to<br />

increase in sales volume, which was partially offset by increase of prices of raw materials.<br />

The gross profit in waste collection segment increased by 2.6% to LVL 668,000 for three months ended 31<br />

March 2012 from LVL 651,000 for three months ended 31 March 2011. The increase in gross profit was due to<br />

increase in sales volume, which was partially offset by increase of costs of transportation and landfilling.<br />

The gross profit in organisation of waste recovery segment increased by 14.9% to LVL 324,000 for three months<br />

ended 31 March 2012 from LVL 282,000 three months ended 31 March 2011. The increase in gross profit was<br />

due to increase of sales volume.<br />

The gross profit in recyclables sorting and trading segment decreased by 22.8% to LVL 146,000 for three<br />

months ended 31 March 2012 from LVL 189,000 for three months ended 31 March 2011. The decrease in gross<br />

profit was due to shift to sorting and trading of less profitable recyclables.<br />

Selling expenses<br />

The Group’s selling expenses were LVL 43,000 (0.6% of revenue) for three months ended 31 March 2012, as<br />

compared to LVL 67,000 (1.1% of revenue) for three months ended 31 March 2011, representing a decrease of<br />

35.8%.<br />

The following table sets forth the elements of the Group’s selling expenses for three months ended 31 March<br />

2012 and 2011.<br />

52


BMWARDOCS232112v37<br />

For three months ended 31 March<br />

2012 2011 Change<br />

(LVL in thousands) (%)<br />

Salaries and wages (4) (5) (20.0)<br />

Social security taxes (1) (1) 0.0<br />

Marketing expenses (1) (1) 0.0<br />

Transportation expenses - (13) (100.0)<br />

Other expenses (37) (47) (21.3)<br />

Total (43) (67) (35.8)<br />

Source: Condensed Consolidated Interim Financial Statements<br />

The decrease in selling expenses in three months ended 31 March 2012 was primarily due to the decrease in<br />

transportation expenses and other expenses.<br />

Administrative expenses<br />

The Group’s administrative expenses were LVL 702,000 (10.1% of revenue) for three months ended 31 March<br />

2012, as compared to LVL 699,000 (11.1% of revenue) for three months ended 31 March 2011, representing an<br />

increase of 0.4%.<br />

The following table sets forth the elements of the Group’s administrative expenses for three months ended 31<br />

March 2012 and 2011.<br />

For three months ended 31 March<br />

2012 2011 Change<br />

(LVL in thousands) (%)<br />

Salaries and wages (339) (229) 48.0<br />

Consultations of business development and organization (96) (216) (55.6)<br />

Social security taxes (82) (67) 22.4<br />

Transportation expenses (22) (26) (15.4)<br />

Communications expenses (14) (13) 7.7<br />

Auditing fees - - -<br />

Rent of premises and related costs (23) (17) 35.3<br />

Office expenses (8) (9) (11.1)<br />

Depreciation and amortization (50) (67) (25.4)<br />

Legal services (6) (8) (25.0)<br />

Business trips expenses (10) (6) 66.7<br />

Representation expenses (9) (4) 125.0<br />

Other administrative expenses (43) (37) 16.2<br />

Total (702) (699) 0.4<br />

Source: Condensed Consolidated Interim Financial Statements<br />

Administrative expenses for three months ended 31 March 2012 remained on relatively similar level as for three<br />

months ended 31 March 2011. During the period under review the Group observed increase in costs of, among<br />

others: salaries and wages, social security taxes, as well as rent of premises and related costs. The increase was<br />

offset by decrease in costs of, among others: consultations of business development and organization, as well as<br />

depreciation and amortization.<br />

53


BMWARDOCS232112v37<br />

Other operating income<br />

The Group’s other operating income was LVL 60,000 for three months ended 31 March 2012, as compared to<br />

LVL 73,000 for three months ended 31 March 2011, representing a decrease of 17.8%.<br />

Other operating expenses<br />

The Group’s other operating expenses were LVL 99,000 for three months ended 31 March 2012, as compared to<br />

LVL 102,000 for three months ended 31 March 2011, representing a decrease of 2.9%. The decrease in other<br />

operating expenses was primarily due to decrease of expenses related to implementation of EU education<br />

project, which was partially offset by increase in other expenses.<br />

Operating profit<br />

The Group’s operating profit was LVL 1,206,000 for three months ended 31 March 2012, as compared to LVL<br />

1,200,000 for three months ended 31 March 2011, representing an increase of 0.5%.<br />

The operating profit margin for three months ended 31 March 2012 was 17.3%, as compared to 19.0% for the<br />

three months ended 31 March 2011.<br />

EBITDA<br />

The Group’s EBITDA was LVL 1,562,000 for three months ended 31 March 2012, as compared to LVL<br />

1,540,000 for three months ended 31 March 2011, representing an increase of 1.4%. EBITDA margin was 22.4%<br />

for three months ended 31 March 2012, as compared to 24.4% for three months ended 31 March 2011.<br />

The Group’s EBITDA, if adjusted with costs relating to the Offering (which amounted to approximately LVL<br />

86,000 for three months ended 31 March 2012), was LVL 1,648,000 for three months ended 31 March 2012.<br />

EBITDA margin (adjusted with costs relating to the Offering) was 23.7% for three months ended 31 March<br />

2012.<br />

Interest income/(expense) and similar income/(expenses)<br />

The Group’s net financial expenses for three months ended 31 March 2012 were LVL 50,000, as compared to<br />

LVL 57,000 for three months ended 31 March 2011, representing a decrease of 12.3%. The decrease in net<br />

financial expenses was primarily due to increase in interest and similar income, which was however offset by<br />

increase in interest and similar expenses. The Group’s interest and similar income was LVL 32,000 for three<br />

months ended 31 March 2012, as compared to LVL 7,000 for three months ended 31 March 2011, representing<br />

an increase of 357.1%. The Group’s interest and similar expenses were LVL 82,000 for three months ended 31<br />

March 2012, as compared to LVL 64,000 for three months ended 31 March 2011, representing an increase of<br />

28.1%.<br />

Profit before taxes<br />

The Group’s profit before taxes was LVL 1,154,000 for three months ended 31 March 2012, as compared to<br />

LVL 1,142,000 for three months ended 31 March 2011, representing an increase of 1.1%.<br />

Taxes<br />

The Group had corporate income tax expenses of LVL 119,000 for three months ended 31 March 2012, as<br />

compared to LVL 75,000 for three months ended 31 March 2011, representing an increase of 58.7%.<br />

The Group had deferred income tax income of LVL 17,000 for three months ended 31 March 2012, as compared<br />

with deferred income tax income of LVL 12,000 for three months ended 31 March 2011, representing an<br />

increase of 41.7%.<br />

Current period’s profit<br />

For the reasons discussed above, the Group’s profit for three months ended 31 March 2012 was LVL 1,052,000,<br />

as compared to LVL 1,079,000 for three months ended 31 March 2011, representing a decrease of 2.5%.<br />

54


BMWARDOCS232112v37<br />

The net profit margin for three months ended 31 March 2012 was 15.1%, as compared to 17.1% for three months<br />

ended 31 March 2011.<br />

The Group’s net profit, if adjusted with costs relating to the Offering (which amounted to approximately LVL<br />

86,000 for three months ended 31 March 2012) was LVL 1,138,000 for three months ended 31 March 2012. Net<br />

profit margin (adjusted with costs relating to the Offering) was 16.3% for three months ended 31 March 2012.<br />

Results of Operations for year ended 31 December 2011 compared to year ended 31 December 2010<br />

The following table sets forth the Group’s results of operations for the years ended 31 December 2011 and 2010<br />

derived from the Consolidated Financial Statements.<br />

For the year ended 31 December<br />

2011 2010 Change<br />

(LVL in thousands) (%)<br />

Net sales 26,595 21,088 26.1<br />

Cost of sales (19,354) (15,079) 28.4<br />

Gross profit 7,241 6,009 20.5<br />

Gross profit margin 27.2% 28.5% -<br />

Selling expenses (325) (484) (32.9)<br />

Administrative expenses (2,932) (2,629) 11.5<br />

Other operating income 284 236 20.3<br />

Other operating expenses (287) (807) (64.4)<br />

Operating profit 3,981 2,325 71.1<br />

Operating profit margin 15.0% 11.0% -<br />

Write-off of long-term financial investments - (19) -<br />

Interest income and similar income 70 18 288.9<br />

Interest expenses and similar expenses (324) (280) 15.7<br />

Other taxes (5) (5) 0.0<br />

Profit before corporate income tax 3,722 2,039 82.5<br />

Corporate income tax for the reporting year (211) (248) (14.9)<br />

Deferred income tax (133) 3 -<br />

Current year’s profit 3,378 1,794 88.3<br />

Net profit margin 12.7% 8.5% -<br />

Source: Consolidated Financial Statements<br />

Revenue<br />

The following table sets forth the breakdown of the Group’s net sales by business segment for years ended 31<br />

December 2011 and 2010.<br />

55


BMWARDOCS232112v37<br />

(LVL in<br />

thousands)<br />

For the year ended 31 December<br />

2011 2010 Change<br />

(As a % of total<br />

revenue)<br />

(LVL in<br />

thousands)<br />

(As a % of<br />

total revenue)<br />

Revenue from recycling 14,498 54.5 9,663 45.8 50.0<br />

Revenue from waste collection 5,820 21.9 5,568 26.4 4.5<br />

Revenue from organisation of waste<br />

recovery<br />

Revenue from recyclables sorting and<br />

trading<br />

4,237 15.9 4,249 20.1 (0.3)<br />

2,040 7.7 1,582 7.5 29.0<br />

Other 0.0 0.0 26 0.1 (100.0)<br />

Total Revenue from core services 26,595 100.0 21,088 100.0 26.1<br />

Source: Consolidated Financial Statements<br />

The Group’s total net sales increased by 26.1% to LVL 26,595,000 for the year ended 31 December 2011 from<br />

LVL 21,088,000 for the year ended 31 December 2010. The increase in net sales in the year ended 31 December<br />

2011 was primarily driven by increase of net sales from recycling and recyclables sorting and trading segments.<br />

Summary of revenue from each segment is presented below. It should be underlined that as a result of<br />

consolidation the revenue of each business segment is adjusted by intra-group transactions. For more details<br />

please see Note 1 to the Consolidated Financial Statements.<br />

Revenue from recycling<br />

The Group’s revenue from recycling segment was LVL 14,498,000 for the year ended 31 December 2011, as<br />

compared to LVL 9,663,000 for the year ended 31 December 2010, representing an increase of 50.0%. The<br />

increase was primarily due to increase of production, and as a consequence, sales volume of PET flakes by<br />

16.2%, as well as increase of PET flakes prices.<br />

Revenue from waste collection<br />

The Group’s revenue from waste collection segment was LVL 5,820,000 for the year ended 31 December 2011,<br />

as compared to LVL 5,568,000 for the year ended 31 December 2010, representing an increase of 4.5%, mainly<br />

due to increase of volume of waste collected by the Group of 15.8%. The increase in amount of waste collected<br />

allowed the Group to increase the revenues in this segment, despite the fact that in the year ended 31 December<br />

2011 the Group observed decrease of the average fee for waste collection in comparison with the year ended 31<br />

December 2010.<br />

Revenue from organisation of waste recovery<br />

The Group’s revenue generated from organisation of waste recovery segment was LVL 4,237,000 for the year<br />

ended 31 December 2011, as compared to LVL 4,249,000 for the year ended 31 December 2010. The revenue<br />

from this segment decreased by 0.3% due to decrease of total volume of waste (excluding oil filters) under<br />

recovery of 1.07%. Although, it should be noted that in the year ended 31 December 2011 the Group observed<br />

increase of the average fee for waste recovery in comparison with the year ended 31 December 2010.<br />

Revenue from recyclables sorting and trading<br />

The Group’s revenue from recyclables sorting and trading segment was LVL 2,040,000 for the year ended 31<br />

December 2011, as compared to LVL 1,582,000 for the year ended 31 December 2010, representing an increase<br />

of 28.95%, mainly due to increase of volume of recyclables traded by the Group of 11.9%. Moreover, the<br />

increase in revenue from recyclables sorting and trading segment was fuelled by the increase of average price of<br />

recyclables sold in the year ended 31 December 2011 in comparison with the year ended 31 December 2010.<br />

(%)<br />

56


BMWARDOCS232112v37<br />

Revenue by geographical location<br />

The following table sets forth the breakdown of the Group’s revenue by geographical location for years ended 31<br />

December 2011 and 2010.<br />

(LVL in<br />

thousands)<br />

For the year ended 31 December<br />

2011 2010 Change<br />

(As a % of<br />

total revenue)<br />

(LVL in<br />

thousands)<br />

(As a % of<br />

total<br />

revenue)<br />

Latvia 10,416 39.2 10,208 48.4 2.0<br />

European Union (EU) 15,989 60.1 10,610 50.3 50.7<br />

Non-EU countries 190 0.7 270 1.3 (29.6)<br />

Total Revenue 26,595 100.0 21,088 100.0 26.1<br />

Source: Consolidated Financial Statements<br />

In the year ended 31 December 2011 net sales from export totalled LVL 16,179,000 meaning that export<br />

accounted for 60.8% of the total net sales of the Group. In the year ended 31 December 2010 net sales from<br />

export amounted to LVL 10,880,000 or 51.6% of the total net sales of the Group. The total net sales from export<br />

increased by 48.7% in the year ended 31 December 2011 in comparison with the year ended 31 December 2010.<br />

This was generally due to increase of net sales to the EU by 50.7%, from LVL 10,610,000 in the year ended 31<br />

December 2010 to LVL 15,989,000 in the year ended 31 December 2011. This increase was fuelled by increase<br />

of net sales in recycling segment, namely increase of sales of PET flakes (in 2011 the whole production output of<br />

PET flakes was exported to the EU), and increase of volume in recyclables sorting and trading.<br />

Cost of sales<br />

The table below sets forth the principal components of the Group’s cost of sales for the years ended 31<br />

December 2011 and 2010.<br />

For the year ended 31 December<br />

(%)<br />

2011 2010 Change<br />

(LVL in thousands) (%)<br />

Raw materials and other material costs (9,541) (5,244) 81.9<br />

Transportation expenses (1,814) (1,505) 20.5<br />

Municipal waste landfilling and disposal of sewage water (1,562) (1,297) 20.4<br />

Salaries and wages (1,511) (1,668) (9.4)<br />

Depreciation and amortization (1,291) (1,365) (5.4)<br />

Outsourcing (1,064) (1,728) (38.4)<br />

Rent of production premises and related costs (875) (1,204) (27.3)<br />

Professional services (451) (532) (15.2)<br />

Social security taxes (358) (394) (9.1)<br />

Natural resources tax (3) - -<br />

Other production costs (884) (142) 522.5<br />

Total (19,354) (15,079) 28.4<br />

Source: Consolidated Financial Statements<br />

The Group’s cost of sales was LVL 19,354,000 for the year ended 31 December 2011 (73% of revenue), as<br />

compared to LVL 15,079,000 (72% of revenue) for the year ended 31 December 2010, representing an increase<br />

of 28.4%.<br />

Raw materials and other material costs were LVL 9,541,000 for the year ended 31 December 2011, as compared<br />

to LVL 5,244,000 for the year ended 31 December 2010, representing an increase of 81.9%. The increase was<br />

primarily due to increase of production volume in recycling segment and increase of volume of recyclables<br />

purchased, sorted and traded.<br />

57


BMWARDOCS232112v37<br />

Transportation expenses amounted to LVL 1,814,000 for the year ended 31 December 2011, as compared to<br />

LVL 1,505,000 for the year ended 31 December 2010, representing an increase of 20.5%. The increase was<br />

mainly attributed to expansion of collection business and subsequent growth in volumes of collected waste as<br />

well as increasing fuel costs.<br />

Costs of municipal waste landfilling and disposal of sewage water were LVL 1,562,000 for the year ended 31<br />

December 2011, as compared to LVL 1,297,000 for the year ended 31 December 2010, representing an increase<br />

of 20.5%. The increase was primarily due to increase in landfilling tariffs on the back of increased Natural<br />

Resource Tax, as well as due to growth in volume of waste collected.<br />

Salaries and wages amounted to LVL 1,511,000 for the year ended 31 December 2011, as compared to LVL<br />

1,668,000 for the year ended 31 December 2010, representing a decrease of 9.4%. The decrease was primarily<br />

due to optimization of remuneration system used in recycling segment which effectively resulted in increase<br />

productivity and decreased overtime hours.<br />

Costs of depreciation of fixed assets and amortization of intangible investments were LVL 1,291,000 for the year<br />

ended 31 December 2011, as compared to LVL 1,365,000 for the year ended 31 December 2010, representing a<br />

decrease of 5.4%. The decrease was primarily due to lower volume of capital investments carried out during<br />

2011.<br />

Outsourcing costs were LVL 1,064,000 for the year ended 31 December 2011, as compared to LVL 1,728,000<br />

for the year ended 31 December 2010, representing a decrease of 38.4%. The decrease was primarily due to<br />

reclassification of packaging and delivery expense in the amount of LVL 559,000 incurred by PET Baltija from<br />

outsourcing costs to raw materials and other material costs.<br />

Costs of rent of production premises and other related costs were LVL 875,000 for the year ended 31 December<br />

2011, as compared to LVL 1,204,000 for the year ended 31 December 2010, representing a decrease of 27.3%.<br />

The decrease was primarily due to reclassification of electricity costs in the amount of LVL 333,000 from cost of<br />

rent of production premises and other related costs to other production costs. If like-for-like costs are compared<br />

than increase in costs amounts to 0.3% in the year ended 31 December 2011 compared with the year ended 31<br />

December 2010.<br />

Costs of professional services were LVL 451,000 for the year ended 31 December 2011, as compared to LVL<br />

532,000 for the year ended 31 December 2010, representing a decrease of 15.2%. The decrease was primarily<br />

due to decrease of production equipment maintenance related costs in the recycling segment.<br />

Social insurance costs were LVL 358,000 for the year ended 31 December 2011, as compared to LVL 394,000<br />

for the year ended 31 December 2010, representing a decrease of 9.1%. The decrease was primarily due to<br />

optimization of remuneration system used in recycling segment which effectively resulted in increase<br />

productivity and decreased overtime hours.<br />

Other expenses, which primarily consisted of production process related costs, amounted to LVL 884,000 for the<br />

year ended 31 December 2011, as compared to LVL 142,000 for the year ended 31 December 2010, representing<br />

an increase of 522.5%. The increase was primarily due to reclassification electricity costs from costs of rent of<br />

production and other related costs as described above as well as increased costs related to maintenance and repair<br />

of production equipment in the amount of LVL 414,000 incurred by PET Baltija.<br />

Costs of sales by the business segments<br />

The following table sets forth the breakdown of the Group’s costs of sales by business segment for years ended<br />

31 December 2011 and 2010.<br />

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BMWARDOCS232112v37<br />

For the year ended 31 December<br />

2011 2010 Change<br />

(LVL in thousands) (%)<br />

Recycling (11,084) (7,515) 47.5<br />

Waste collection (4,384) (3,965) 10.6<br />

Organisation of waste recovery (3,419) (3,371) 1.4<br />

Recyclables sorting and trading (3,140) (2,492) 26.0<br />

Other expenses (248) (195) 27.2<br />

Consolidation adjustments and eliminations 4,207 3,824 10.0<br />

Total* (18,068) (13,714) 31.7<br />

* In segment report cost of sales are showed before depreciation and amortisation<br />

Source: Consolidated Financial Statements<br />

The Group’s cost of sales in the recycling segment was LVL 11,084,000 for the year ended 31 December 2011,<br />

as compared to LVL 7,515,000 for the year ended 31 December 2010, representing an increase of 47.5%. The<br />

increase was primarily due to the increase in sales volumes of PET flakes by 16.2%. Additionally, the increase<br />

was caused by increase of costs of energy.<br />

The Group’s cost of sales in the waste collection segment was LVL 4,384,000 for the year ended 31 December<br />

2011, as compared to LVL 3,965,000 for the year ended 31 December 2010, representing an increase of 10.6%.<br />

The increase was primarily due to the increase in amount of waste collected by the Group by 15.8%.<br />

Additionally, the increase was caused by increase of fuel and landfilling costs.<br />

The Group’s cost of sales in the organisation of waste recovery segment was LVL 3,419,000 for the year ended<br />

31 December 2011, as compared to LVL 3,371,000 for the year ended 31 December 2010, representing an<br />

increase of 1.4%. The increase was primarily due to increase in the cost of collection caused by growing fuel<br />

costs.<br />

The Group’s cost of sales in the recyclables sorting and trading segment was LVL 3,140,000 for the year ended<br />

31 December 2011, as compared to LVL 2,492,000 for the year ended 31 December 2010, representing an<br />

increase of 26.0%. The increase was primarily due to the increase in volume of recyclables traded by the Group<br />

by 11.9%.<br />

Cost of sales from other activities, including mainly consulting costs for the holding company, was LVL 248,000<br />

for the year ended 31 December 2011, as compared to LVL 195,000 for the year ended 31 December 2010,<br />

representing an increase of 27.2%. The increase was caused by more extensive use of different type of advisers<br />

(i.e. legal, financial and other).<br />

Gross profit<br />

The Group’s consolidated gross profit was LVL 7,241,000 for the year ended 31 December 2011, as compared<br />

to LVL 6,009,000 for the year ended 31 December 2010, representing an increase of 20.5%. The gross profit<br />

margin for the year ended 31 December 2011 was 27.2%, as compared to 28.5% for the year ended 31 December<br />

2010.<br />

The increase in gross profit for year ended 31 December 2011 in comparison with the year ended 31 December<br />

2010 was mainly caused by increase in revenue from recycling, recyclables sorting and trading as well as waste<br />

collection in combination with effective management of production costs.<br />

Gross profit by segment<br />

The following table sets forth the breakdown of the Group’s gross profit by business segment for the years ended<br />

31 December 2011 and 2010.<br />

59


BMWARDOCS232112v37<br />

For the year ended 31 December<br />

2011 2010 Change<br />

(LVL in thousands) (%)<br />

Recycling 4,716 3,215 46.7<br />

Waste collection 2,634 2,772 (5.0)<br />

Organisation of waste recovery 822 880 (6.6)<br />

Recyclables sorting and trading 568 609 (6.7)<br />

Other 693 67 934.3<br />

Consolidation adjustments and eliminations (906) (169) 436.1<br />

Total* 8,527 7,374 15.6<br />

* In segment report gross profit is showed before depreciation and amortisation<br />

Source: Consolidated Financial Statements<br />

Taking into consideration that gross profit by segment is presented excluding depreciation and amortization,<br />

changes in gross profit for waste collection, organization of waste recovery and recyclables sorting and trading<br />

could be considered as relatively immaterial.<br />

The gross profit in recycling segment increased by 46.7% to LVL 4,716,000 for the year ended 31 December<br />

2011 from LVL 3,215,000 for the year ended 31 December 2010. The increase in gross profit in the year ended<br />

31 December 2011 was primarily driven by increase of production, and as a consequence, sales volume of PET<br />

flakes.<br />

The gross profit in waste collection segment decreased by 5.0% to LVL 2,634,000 for the year ended 31<br />

December 2011 from LVL 2,772,000 for the year ended 31 December 2010. The decrease in gross profit in the<br />

year ended 31 December 2011 was primarily driven by increasing costs of collection activities influenced by the<br />

price of fuel as well as increasing landfilling costs.<br />

The gross profit in organisation of waste recovery segment decreased by 6.6% to LVL 822,000 for the year<br />

ended 31 December 2011 from LVL 880,000 for the year ended 31 December 2010. The decrease in gross profit<br />

in the year ended 31 December 2011 was primarily driven by increasing recovery targets and the relative<br />

increase of recovery costs.<br />

The gross profit in recyclables sorting and trading segment decreased by 6.7% to LVL 568,000 for the year<br />

ended 31 December 2011 from LVL 609,000 for the year ended 31 December 2010. The increase in gross profit<br />

in the year ended 31 December 2011 was primarily driven by increasing costs of transportation expense<br />

connected with product in-house deliveries and deliveries to the client.<br />

Selling expenses<br />

The Group’s selling expenses were LVL 325,000 (1.2% of revenue) for the year ended 31 December 2011, as<br />

compared to LVL 484,000 (2.3% of revenue) for the year ended 31 December 2010, representing a decrease of<br />

32.9%.<br />

The following table sets forth the elements of the Group’s selling expenses for the years ended 31 December<br />

2011 and 2010.<br />

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BMWARDOCS232112v37<br />

For the year ended 31 December<br />

2011 2010 Change<br />

(LVL in thousands) (%)<br />

Salaries and wages (172) (149) 15.4<br />

Social security taxes (41) (36) 13.9<br />

Depreciation and amortization (17) (13) 30.8<br />

Marketing expenses (17) (18) (5.6)<br />

Transportation expenses (13) (12) 8.3<br />

Bad debt write-off expense - (162) (100.0)<br />

Other expenses (65) (94) (30.9)<br />

Total (325) (484) (32.9)<br />

Source: Consolidated Financial Statements<br />

The decrease in selling expenses in the year ended 31 December 2011 was primarily due to the decrease in bad<br />

debt write-off expense. This position was influenced by bankruptcy of one of the customers in 2010. The<br />

decrease was partially offset by the increase of salaries and wages as a result of increasing number of sales<br />

personnel.<br />

Administrative expenses<br />

The Group’s administrative expenses were LVL 2,932,000 (11% of revenue) for the year ended 31 December<br />

2011, as compared to LVL 2,629,000 (12.5% of revenue) for the year ended 31 December 2010, representing an<br />

increase of 11.5%.<br />

The following table sets forth the elements of the Group’s administrative expenses for the years ended 31<br />

December 2011 and 2010.<br />

For the year ended 31 December<br />

2011 2010 Change<br />

(LVL in thousands) (%)<br />

Salaries and wages (1,277) (910) 40.3<br />

Consultations of business development and organization (776) (981) (20.9)<br />

Social security taxes (269) (179) 50.3<br />

Transportation expenses (107) (75) 42.7<br />

Communications expenses (49) (46) 6.5<br />

Auditing fees (47) (23) 104.3<br />

Rent of premises and related costs (45) (71) (36.6)<br />

Office expenses (38) (15) 153.3<br />

Depreciation and amortization (36) (36) 0.0<br />

Legal services (35) (24) 45.8<br />

Business trips expenses (30) (27) 11.1<br />

Representation expenses (28) (8) 250.0<br />

Other administrative expenses (195) (234) (16.7)<br />

Total (2,932) (2,629) 11.5<br />

Source: Consolidated Financial Statements<br />

The increase in administrative expenses in the year ended 31 December 2011 was primarily due to the increase<br />

in employees’ salaries and wages. The salaries and wages increased because increase of number of<br />

administrative personnel on the level of the Group and the Group Companies, and pay out of performance<br />

bonuses for fulfilling budget targets for the year ended 31 December 2011.<br />

61


BMWARDOCS232112v37<br />

Consultations of business development and organization decreased by 20.9% from LVL 981,000 in the year<br />

ended 31 December 2011 to LVL 776,000 in the year 31 December 2010. The main reason for such decrease<br />

was cancellation of part of the management fee in the amount of that was paid to the previous shareholders in the<br />

year ended 31 December 2010.<br />

Other operating income<br />

The Group’s other operating income was LVL 284,000 for the year ended 31 December 2011, as compared to<br />

LVL 236,000 for the year ended 31 December 2010, representing an increase of 20.3%. The increase in other<br />

operating income was primarily the result of the increased income from EU project financing.<br />

Other operating expenses<br />

The Group’s other operating expenses were LVL 287,000 for the year ended 31 December 2011, as compared to<br />

LVL 807,000 for the year ended 31 December 2010, representing a decrease of 64.4%. The decrease in other<br />

operating expenses was primarily the result of the write-off of goodwill impairment, which was carried out in<br />

2010 in the amount of LVL 656,000.<br />

Operating profit<br />

The Group’s operating profit was LVL 3,981,000 for the year ended 31 December 2011, as compared to LVL<br />

2,325,000 for the year ended 31 December 2010, representing an increase of 71.1%.<br />

The operating profit margin for the year ended 31 December 2011 was 14.9%, as compared to 11.0% for the<br />

year ended 31 December 2010.<br />

EBITDA<br />

The Group’s EBITDA was LVL 5,328,000 for the year ended 31 December 2011, as compared to LVL<br />

3,739,000 for the year ended 31 December 2010, representing an increase of 42.5%. EBITDA margin was 20.0%<br />

for the year ended 31 December 2011, as compared to 18% for the year ended 31 December 2010.<br />

The Group’s EBITDA if adjusted for goodwill impairment (LVL 656,000 for the year ended 31 December 2010)<br />

was LVL 4,395,000 for the year ended 31 December 2010 and EBITDA margin (adjusted for goodwill<br />

impairment) was 20.8% for the year ended 31 December 2010.<br />

Interest income/(expense) and similar income/(expenses)<br />

The Group’s net financial expenses for the year ended 31 December 2011 were LVL 254,000, as compared to<br />

LVL 281,000 for the year ended 31 December 2010, representing a decrease of 9.6%. The decrease in net<br />

financial expenses was primarily due to increase in interest and similar income, which was however offset by<br />

increase in interest and similar expenses. The Group’s interest and similar income was LVL 70,000 for the year<br />

ended 31 December 2011, as compared to LVL 18,000 for the year ended 31 December 2010, representing an<br />

increase of 288.9%. The Group’s interest and similar expenses were LVL 324,000 for the year ended 31<br />

December 2011, as compared to LVL 280,000 for the year ended 31 December 2010, representing an increase of<br />

15.7%.<br />

Profit before taxes<br />

The Group’s profit before taxes was LVL 3,722,000 for the year ended 31 December 2011, as compared to LVL<br />

2,039,000 for the year ended 31 December 2010, representing an increase of 82.5%.<br />

Taxes<br />

The Group had corporate income tax expenses of LVL 211,000 for the year ended 31 December 2011, as<br />

compared to LVL 248,000 for the year ended 31 December 2010, representing a decrease of 14.9%.<br />

The Group had deferred income tax expenses of LVL 133,000 for the year ended 31 December 2011, as<br />

compared with deferred income tax income of LVL 3,000 for the year ended 31 December 2010. The main<br />

62


BMWARDOCS232112v37<br />

reason for such decease was utilization tax credits in the year ended 31 December 2010 that were carried forward<br />

after PET Baltija incurred losses in 2008 and 2009.<br />

Current year’s profit<br />

For the reasons discussed above, the Group’s profit for the year ended 31 December 2011 was LVL 3,378,000,<br />

as compared to LVL 1,794,000 for the year ended 31 December 2010, representing an increase of 88.3%.<br />

The net profit margin for the year ended 31 December 2011 was 12.7%, as compared to 8.5% for the year ended<br />

31 December 2010.<br />

However, the result for the year ended 31 December 2010 was influenced by goodwill impairment in the amount<br />

of LVL 656,000. The Group’s profit for the year ended 31 December 2010, if adjusted for goodwill impairment,<br />

was LVL 2,450,000 and the net profit margin (adjusted for goodwill impairment) for the year ended 31<br />

December 2010 was 11.6%.<br />

Results of Operations for year ended 31 December 2010 compared to year ended 31 December 2009<br />

The following table sets forth the Group’s results of operations for the years ended 31 December 2010 and 2009<br />

derived from the Consolidated Financial Statements.<br />

For the year ended 31 December<br />

2010 2009 Change<br />

(LVL in thousands) (%)<br />

Net sales 21,088 13,851 52.2<br />

Cost of sales (15,079) (10,174) 48.2<br />

Gross profit 6,009 3.677 63.4<br />

Gross profit margin 28.5% 26.5% -<br />

Selling expenses (484) (323) 49.8<br />

Administrative expenses (2,629) (2,682) (2.0)<br />

Other operating income 236 191 23.6<br />

Other operating expenses (807) (1,007) (19.9)<br />

Operating profit 2,325 (144) 1714.6<br />

Operating profit margin 11.0% neg. -<br />

Write-off of long-term financial investments (19) - -<br />

Interest income and similar income 18 55 (67.3)<br />

Interest expenses and similar expenses (280) (257) 8.9<br />

Other taxes (5) (6) (16.7)<br />

Profit before corporate income tax 2,039 (352) 679.3<br />

Corporate income tax for the reporting year (248) (103) 140.8<br />

Deferred income tax 3 (60) 105.0<br />

Current year’s profit 1,794 (515) 448.4<br />

Net profit margin 8.5% neg. -<br />

Source: Consolidated Financial Statements<br />

Revenue<br />

The following table sets forth the breakdown of the Group’s net sales by business segment for years ended 31<br />

December 2010 and 2009.<br />

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BMWARDOCS232112v37<br />

(LVL in<br />

thousands)<br />

For the year ended 31 December<br />

2010 2009 Change<br />

(As a % of total<br />

revenue)<br />

(LVL in<br />

thousands)<br />

(As a % of<br />

total revenue)<br />

Revenue from recycling 9,663 45.8 3,865 27.9 150.0<br />

Revenue from waste collection 5,568 26.4 5,128 37.0 8.6<br />

Revenue from organisation of waste<br />

recovery 4,249 20.1 4,161 30.0 2.1<br />

Revenue from recyclables sorting and<br />

trading 1,582 7.5 665 4.8 137.9<br />

Other 26 0.1 32 0.2 (18.8)<br />

Total Revenue from core services 21,088 100.0 13,851 100.0 52.2<br />

Source: Consolidated Financial Statements<br />

The Group’s total net sales increased by 52.2 % to LVL 21,088,000 for the year ended 31 December 2010 from<br />

LVL 13,851,000 for the year ended 31 December 2009. The increase in net sales in the year ended 31 December<br />

2010 was primarily driven by material increase of net sales from recycling and recyclables sorting and trading<br />

segments.<br />

Revenue from recycling<br />

The Group’s revenue from recycling segment was LVL 9,663,000 for the year ended 31 December 2010, as<br />

compared to LVL 3,865,000 for the year ended 31 December 2009, representing an increase of 150.0%. The<br />

increase was primarily due to increase of production, and as a consequence, sales volume of PET flakes by<br />

128.6% and increase of PET flakes prices.<br />

Revenue from waste collection<br />

The Group’s revenue from waste collection segment was LVL 5,568,000 for the year ended 31 December 2010,<br />

as compared to LVL 5,128,000 for the year ended 31 December 2009, representing an increase of 8.6%, mainly<br />

due to increase of volume of waste collected by the Group of 8.7% combined with small decrease in price of<br />

services.<br />

Revenue from organisation of waste recovery<br />

The Group’s revenue generated from organisation of waste recovery segment was LVL 4,249,000 for the year<br />

ended 31 December 2010, as compared to LVL 4,161,000 for the year ended 31 December 2009. The revenue<br />

from this segment increased by 2.1%, due to increase of total volume of waste (excluding oil filters) under<br />

recovery of 11.44%. Although, it should be noted that increase of total volume of waste (excluding oil filters)<br />

under recovery was offset by decrease of the average fee for waste recovery due to issuing discounts to key<br />

customers.<br />

Revenue from recyclables sorting and trading<br />

The Group’s revenue from recyclables sorting and trading segment was LVL 1,582,000 for the year ended 31<br />

December 2010, as compared to LVL 665,000 for the year ended 31 December 2009, representing an increase of<br />

137.9%, mainly due to increase of volume of recyclables traded by the Group of 44.0%. It was achieved by<br />

increasing activity in cardboard sorting and trading, and expanding cooperation with clients in different<br />

countries. Moreover, the increase in revenue from recyclables sorting and trading segment was fuelled by the<br />

increase of average price of recyclables traded in the year ended 31 December 2011 in comparison with the year<br />

ended 31 December 2010.<br />

Revenue by geographical location<br />

The following table sets forth the breakdown of the Group’s net sales by geographical location for years ended<br />

31 December 2010 and 2009.<br />

(%)<br />

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BMWARDOCS232112v37<br />

(LVL in<br />

thousands)<br />

For the year ended 31 December<br />

2010 2009 Change<br />

(As a % of<br />

total revenue)<br />

(LVL in<br />

thousands)<br />

(As a % of<br />

total revenue)<br />

Latvia 10,208 48.4 9,851 71.1 3.6<br />

European Union (EU) 10,610 50.3 3,970 28.7 167.3<br />

Non-EU countries 270 1.3 30 0.2 800.0<br />

Total Revenue 21,088 100 13,851 100 52.2<br />

Source: Consolidated Financial Statements<br />

In the year ended 31 December 2010 net sales from export amounted to LVL 10,880,000 or 51.6% of the total<br />

net sales of the Group. In the year ended 31 December 2009 net sales from export totalled LVL 4,000,000<br />

meaning that export accounted for 28.9% of the total net sales of the Group. The total net sales from export<br />

increased by 172.0% in the year ended 31 December 2010 in comparison with the year ended 31 December<br />

2009. This was generally due to increase of net sales to the EU by 167.3%, from LVL 3,970,000 in the year<br />

ended 31 December 2009 to LVL 10,610,000 in the year ended 31 December 2010. This increase was primarily<br />

fuelled by increase of net sales in recycling segment, namely increase of production volume and sales of PET<br />

flakes by 128.6% and fact that in 2010 the whole production output of PET flakes was exported to the EU.<br />

Moreover, in the year ended 31 December 2010 the Group increased export to non-EU countries to LVL 270,000<br />

from LVL 30,000 in the year ended 31 December 2009 (an increase of 800.0%). The increase in export to non-<br />

EU countries was achieved by launching sale of recyclables (mainly glass) to Ukraine.<br />

Cost of sales<br />

The Group’s cost of sales was LVL 15,079,000 (72% of revenue) for the year ended 31 December 2010, as<br />

compared to LVL 10,174,000 (73% of revenue) for the year ended 31 December 2009, representing an increase<br />

of 48.2%. The increase was in general caused by increase of costs of: raw and other materials, transportation<br />

expenses municipal waste landfilling and disposal of sewage water as well as outsourcing, costs of rent of<br />

production premises and professional services.<br />

The table below sets forth the principal components of the Group’s cost of sales for the years ended 31<br />

December 2010 and 2009.<br />

For the year ended 31 December<br />

(%)<br />

2010 2009 Change<br />

(LVL in thousands) (%)<br />

Raw materials and other material costs (5,244) (2,673) 96.2<br />

Outsourcing (1,728) (322) 436.6<br />

Salaries and wages (1,668) (1,635) 2.0<br />

Transportation expenses (1,505) (1,358) 10.8<br />

Depreciation and amortization (1,365) (1,386) (1.5)<br />

Municipal waste landfilling and disposal of sewage water (1,297) (752) 72.5<br />

Rent of production premises and related costs (1,204) (822) 46.5<br />

Professional services (532) (421) 26.4<br />

Social security taxes (394) (382) 3.1<br />

Other production costs (142) (387) (63.0)<br />

Natural resources tax - (36) (100.0)<br />

Total (15,079) (10,174) 48.2<br />

Source: Consolidated Financial Statements<br />

Raw materials and other material costs were LVL 5,244,000 for the year ended 31 December 2010, as compared<br />

to LVL 2,673000 for the year ended 31 December 2009, representing an increase of 96.2%. The increase was<br />

primarily due to corresponding increase in sales volumes of PET flakes.<br />

65


BMWARDOCS232112v37<br />

Outsourcing costs were LVL 1,728,000 for the year ended 31 December 2010, as compared to LVL 322,000 for<br />

the year ended 31 December 2009, representing an increase of 436.6%. The main reasons for increase were<br />

reclassification of costs incurred by Latvijas Zalais punkts in the amount of LVL 708,000 used to organize the<br />

segregated waste collection schemes and waste management from raw materials and other material cost to<br />

outsourcing costs in the year ended 31 December 2010.<br />

Transportation expenses amounted to LVL 1,505,000 for the year ended 31 December 2010, as compared to<br />

LVL 1,358,000 for the year ended 31 December 2009, representing an increase of 10.8%. The increase was<br />

mainly attributed to increasing amount of sales for recycling segment and increase of volume of recyclables<br />

purchased, sorted and traded.<br />

Costs of municipal waste landfilling and disposal of sewage water were LVL 1,297,000 for the year ended 31<br />

December 2010, as compared to LVL 752,000 for the year ended 31 December 2009, representing an increase of<br />

83.2%. The increase was primarily due to increase in landfilling tariffs on the back of increased Natural<br />

Resource Tax, as well as due to growth in volume of collected waste.<br />

Costs of rent of production premises and related costs were LVL 1,204,000 for the year ended 31 December<br />

2010, as compared to LVL 822,000 for the year ended 31 December 2009, representing an increase of 46.5%.<br />

The increase was primarily due to entering a new rent contract for larger warehouse premises for recycling<br />

segment.<br />

Costs of professional services were LVL 532,000 for the year ended 31 December 2010, as compared to LVL<br />

421,000 for the year ended 31 December 2009, representing an increase of 26.1%. The increase was primarily<br />

due to increase of production equipment maintenance related costs in the recycling segment.<br />

Other expenses, amounted to LVL 142,000 for the year ended 31 December 2010, as compared to LVL 387,000<br />

for the year ended 31 December 2009, representing a decrease of 63.0%. The decrease was primarily due to the<br />

fact that in the year ended 31 December 2009 the <strong>Company</strong> has one time written-off a number of obsolete<br />

equipment items which did not happen in the year ended 31 December 2010.<br />

Costs of sales by the business segments<br />

The following table sets forth the breakdown of the Group’s costs of sales by business segment for years ended<br />

31 December 2010 and 2009.<br />

For the year ended 31 December<br />

2010 2009 Change<br />

(LVL in thousands) (%)<br />

Recycling (7,515) (3,864) 94.5<br />

Waste collection (3,965) (3,258) 21.7<br />

Organisation of waste recovery (3,371) (3,126) 7.8<br />

Recyclables sorting and trading (2,492) (1,181) 111.0<br />

Other expenses (195) (150) 30.0<br />

Consolidation adjustments and eliminations 3,824 2,790 37.1<br />

Total* (13,714) (8,789) 56.0<br />

* In segment report cost of sales are showed before depreciation and amortisation<br />

Source: Consolidated Financial Statements<br />

The Group’s cost of sales in the recycling segment was LVL 7,515,000 for the year ended 31 December 2010, as<br />

compared to LVL 3,864,000 for the year ended 31 December 2009, representing an increase of 94.5%. The<br />

increase was primarily due to the increase in sales volumes of PET flakes by 128.6% as well as the purchase<br />

price of raw materials. Additionally, the increase was caused by increase of costs of energy.<br />

The Group’s cost of sales in the waste collection segment was LVL 3,965,000 for the year ended 31 December<br />

2010, as compared to LVL 3,258,000 for the year ended 31 December 2009, representing an increase of 21.7%.<br />

The increase was primarily due to the increase of 8.7% in amount of waste collected by the Group. Additionally,<br />

the increase was caused by increase of fuel and landfilling costs.<br />

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BMWARDOCS232112v37<br />

The Group’s cost of sales in the organisation of waste recovery segment was LVL 3,371,000 for the year ended<br />

31 December 2010, as compared to LVL 3,126,000 for the year ended 31 December 2009, representing an<br />

increase of 7.8%. The increase was primarily due to higher volume of waste (excluding oil filters) under<br />

recovery.<br />

The Group’s cost of sales in the recyclables sorting and trading segment was LVL 2,492,000 for the year ended<br />

31 December 2010, as compared to LVL 1,181,000 for the year ended 31 December 2009, representing an<br />

increase of 111.0%. The increase was primarily due to the increase in volume of recyclables traded by the<br />

Group. Additionally, the increase was caused by increase of costs of transportation of raw materials (partly due<br />

to increase of fuels costs).<br />

Cost of sales from other activities, including mainly consulting costs for the holding company, was LVL 195,000<br />

for the year ended 31 December 2010, as compared to LVL 150,000 for the year ended 31 December 2009,<br />

representing an increase of 30.0%. The increase was caused by more extensive use of different type of advisers<br />

(i.e. legal, financial and other).<br />

Gross profit<br />

The Group’s consolidated gross profit was LVL 6,009,000 for the year ended 31 December 2010, as compared<br />

to LVL 3,677,000 for the year ended 31 December 2009, representing an increase of 63.4%. The gross profit<br />

margin for the year ended 31 December 2010 was 28.5%, as compared to 26.5% for the year ended 31 December<br />

2009.<br />

The following table sets forth the breakdown of the Group’s gross profit by business segment for the years ended<br />

31 December 2010 and 2009.<br />

For the year ended 31 December<br />

2010 2009 Change<br />

(LVL in thousands) (%)<br />

Recycling 3,215 866 271.2<br />

Waste collection 2,772 2,662 4.1<br />

Organisation of waste recovery 880 1,036 (15.1)<br />

Recyclables sorting and trading 609 589 3.4<br />

Other 67 (28) 339.3<br />

Consolidation adjustments and eliminations (169) (63) 168.3<br />

Total* 7,374 5,062 45.7<br />

* In segment report gross profit is showed before depreciation and amortisation<br />

Source: Consolidated Financial Statements<br />

Taking into consideration that gross profit by segment is presented excluding depreciation and amortization,<br />

changes in gross profit for waste collection, organization of waste recovery and recyclables sorting and trading<br />

could be considered as relatively immaterial, except for the recycling segment which has experienced the most<br />

significant growth.<br />

The gross profit in recycling segment increased by 271.2% to LVL 3,215,000 for the year ended 31 December<br />

2010 from LVL 866,000 for the year ended 31 December 2009. The increase in gross profit in the year ended 31<br />

December 2010 was primarily driven by increase of production, and as a consequence, sales volume of PET<br />

flakes.<br />

The gross profit in waste collection segment increased by 4.1% to LVL 2,772,000 for the year ended 31<br />

December 2010 from LVL 2,662,000 for the year ended 31 December 2009. The increase in gross profit in the<br />

year ended 31 December 2010 was mainly influenced by getting new contracts and, in consequence, increase of<br />

volume of waste collected.<br />

The gross profit in organisation of waste recovery segment decreased by 15.1% to LVL 880,000 for the year<br />

ended 31 December 2010 from LVL 1,036,000 for the year ended 31 December 2009. The decrease in gross<br />

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BMWARDOCS232112v37<br />

profit in the year ended 31 December 2010 was mainly influenced by issuing discounts to key customers and, in<br />

consequence, decrease of average fees.<br />

The gross profit in recyclables sorting and trading segment increased by 3.4% to LVL 609,000 for the year<br />

ended 31 December 2010 from LVL 589,000 for the year ended 31 December 2009. The increase in gross profit<br />

in the year ended 31 December 2010 was mainly influenced by increase of volumes of sorted and traded<br />

materials as well as increase of average sales price of recyclables.<br />

Selling expenses<br />

The Group’s selling expenses were LVL 484,000 (2.3% of revenue) for the year ended 31 December 2010, as<br />

compared to LVL 323,000 (2.3% of revenue) for the year ended 31 December 2009, representing an increase of<br />

49.8%.<br />

The following table sets forth the elements of the Group’s selling expenses for the years ended 31 December<br />

2010 and 2009.<br />

For the year ended 31 December<br />

2010 2009 Change<br />

(LVL in thousands) (%)<br />

Salaries and wages (149) (147) 1.4<br />

Social security taxes (36) (35) 2.9<br />

Depreciation and amortization (13) (14) (7.1)<br />

Marketing expenses (18) (23) (21.7)<br />

Transportation expenses (12) (13) (7.7)<br />

Bad debt write-off expense (162) - -<br />

Other expenses (94) (91) 3.3<br />

Total (484) (323) 49.8<br />

Source: Consolidated Financial Statements<br />

The increase in selling expenses in the year ended 31 December 2010 was primarily due to the increase in bad<br />

debt write-off expense. This increase was caused by the fact that one of the clients of recycling business located<br />

in Estonia went bankrupt and could not settle its liabilities.<br />

Administrative expenses<br />

The Group’s administrative expenses were LVL 2,629,000 (12.5% of revenue) for the year ended 31 December<br />

2010, as compared to LVL 2,682,000 (19.4% of revenue) for the year ended 31 December 2009, representing a<br />

decrease of 1.98%.<br />

The following table sets forth the elements of the Group’s administrative expenses for the years ended 31<br />

December 2010 and 2009.<br />

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BMWARDOCS232112v37<br />

For the year ended 31 December<br />

2010 2009 Change<br />

(LVL in thousands) (%)<br />

Salaries and wages (910) (905) 0.6<br />

Consultations of business development and organization (981) (1 004) (2.3)<br />

Social security taxes (179) (175) 2.3<br />

Transportation expenses (75) (62) 21.0<br />

Communications expenses (46) (51) (9.8)<br />

Auditing fees (23) (21) 9.5<br />

Rent of premises and related costs (71) (69) 2.9<br />

Office expenses (15) (18) (16.7)<br />

Depreciation and amortization (36) (43) (16.3)<br />

Legal services (24) (52) (53.8)<br />

Business trips expenses (27) (13) 107.7<br />

Representation expenses (8) (5) 60.0<br />

Other administrative expenses (234) (264) (11.4)<br />

Total (2,629) (2,682) (2.0)<br />

Source: Consolidated Financial Statements<br />

There were no material changes in administrative expenses between the year ended 31 December 2010 and the<br />

year ended 31 December 2009 primarily due to effective administrative costs management carried out by the<br />

Group.<br />

Other operating income<br />

The Group’s other operating income was LVL 236,000 for the year ended 31 December 2010, as compared to<br />

LVL 191,000 for the year ended 31 December 2009, representing an increase of 23.6%. The increase in other<br />

operating income was primarily the result of reversal in allowances for doubtful debts.<br />

Other operating expenses<br />

The Group’s other operating expenses were LVL 807,000 for the year ended 31 December 2010, as compared to<br />

LVL 1,007,000 for the year ended 31 December 2009, representing a decrease of 19.9%. The decrease in other<br />

operating expenses was primarily the result of the lower amount of goodwill impairment recognized in year<br />

ended 31 December 2010 as compared to year ended 31 December 2009.<br />

Operating profit<br />

The Group’s operating profit was LVL 2,325,000 for the year ended 31 December 2010, as compared to loss of<br />

LVL 144,000 for the year ended 31 December 2009.<br />

The operating profit margin for the year ended 31 December 2010 was 11.0%, as compared to negative operating<br />

profit margin for the year ended 31 December 2009.<br />

EBITDA<br />

The Group’s EBITDA was LVL 3,739,000 for the year ended 31 December 2010, as compared to LVL<br />

1,302,000 for the year ended 31 December 2009, representing an increase of 187.2%. EBITDA margin was 18%<br />

for the year ended 31 December 2010, as compared to 9.4% for the year ended 31 December 2009.<br />

The Group’s EBITDA, if adjusted for goodwill impairment (LVL 656,000 and LVL 823,000 for the year ended<br />

31 December 2010 and 2009, respectively), was LVL 4,395,000 for the year ended 31 December 2010, as<br />

compared to LVL 2,125,000 for the year ended 31 December 2009, representing an increase of 106.8%.<br />

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BMWARDOCS232112v37<br />

EBITDA margin (adjusted for goodwill impairment) was 20.8% for the year ended 31 December 2010, as<br />

compared to 15.3% for the year ended 31 December 2009.<br />

Interest income/(expense) and similar income/(expenses)<br />

The Group’s net financial expenses for the year ended 31 December 2010 were LVL 262,000 as compared to<br />

LVL 202,000 for the year ended 31 December 2009, representing an increase of 39.1%. The increase in net<br />

financial expenses was primarily due to decrease in interest and similar income and increase of interest and<br />

similar expenses. The Group’s interest and similar income was LVL 18,000 for the year ended 31 December<br />

2010, as compared to LVL 55,000 for the year ended 31 December 2009, representing a decrease of 67.3%. The<br />

Group’s interest and similar expenses were LVL 280,000 for the year ended 31 December 2010, as compared to<br />

LVL 257,000 for the year ended 31 December 2009, representing an increase of 8.95%.<br />

Profit before taxes<br />

The Group’s profit before taxes was LVL 2,044,000 for the year ended 31 December 2010, as compared to<br />

operating loss of LVL 346,000 for the year ended 31 December 2009, representing an increase of 690.8%.<br />

Taxes<br />

The Group had corporate income tax expenses of LVL 248,000 for the year ended 31 December 2010, as<br />

compared to LVL 103,000 for the year ended 31 December 2009, representing an increase of 140.8%. The<br />

increase is attributable to higher taxable income for the year ended 31 December 2010 compared to the year<br />

ended 31 December 2009.<br />

The Group had deferred income tax income of LVL 3,000 for the year ended 31 December 2010, as compared<br />

with deferred income tax expenses of LVL 60,000 for the year ended 31 December 2009.<br />

Current year’s profit<br />

For the reasons discussed above, the Group’s profit for the year ended 31 December 2010 was LVL 1,794,000,<br />

as compared to loss of LVL 515,000 for the year ended 31 December 2009, representing an increase of 448.4%.<br />

The net profit margin for the year ended 31 December 2010 was 8.5%, as compared to negative net profit margin<br />

for the year ended 31 December 2009.<br />

However, the above results were influenced by goodwill impairment in the amount of LVL 656,000 in 2010 and<br />

LVL 823,000 in 2009. The Group’s profit, if adjusted for goodwill impairment, for the year ended 31 December<br />

2010 was LVL 2,450,000, as compared to LVL 308,000 for the year ended 31 December 2009, representing an<br />

increase of 695.5%. The net profit margin (adjusted for goodwill impairment) for the year ended 31 December<br />

2010 was 11.6%, as compared to 2.2% for the year ended 31 December 2009.<br />

Liquidity and Capital Resources<br />

In the periods under review, the Group has met most of its liquidity needs through cash generated from its<br />

operating activities and financing activities.<br />

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Cash flows<br />

BMWARDOCS232112v37<br />

The following table sets forth a summary of the Group’s cash flows for the periods indicated.<br />

Net increase in cash and cash equivalents (179) 104 107 46 791<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

Net cash from operating activities<br />

The Group’s net cash inflow from operating activities decreased 8.2% to LVL 1,541,000 for three months ended<br />

31 March 2012 from LVL 1,678,000 for three months ended 31 March 2011. The decrease was mainly due to<br />

increase in trade receivables.<br />

The Group’s net cash inflow from operating activities increased 85.2% to LVL 4,989,000 for the year ended 31<br />

December 2011 from LVL 2,694,000 for the year ended 31 December 2010. The increase was mainly due to<br />

increase of revenue from operating activities and also improvement in working capital management.<br />

The Group’s net cash inflow from operating activities was LVL 2,694,000 for the year ended 31 December 2010<br />

as compared with LVL 936,000 for the year ended 31 December 2009, representing an increase of 187.8%. The<br />

increase was primarily due to increase of revenue from operating activities.<br />

Net cash used in investing activities<br />

The Group’s net cash outflow used in investing activities increased 61.6% to LVL 910,000 for three months<br />

ended 31 March 2012 from LVL 563,000 for three months ended 31 March 2011. The increase was mainly due<br />

to purchase of waste collection trucks and containers, renovation of premises, investment into Eko PET (for<br />

more information please see “Business Overview - Investments”) and loans granted to Eko SPV for monthly<br />

payments under Nordea Financing Agreements (Eko SPV was not consolidated in the Condensed Consolidated<br />

Interim Financial Statements as of 31 March 2012).<br />

The Group’s net cash outflow used in investing activities increased 745.8% to LVL 7,764,000 for the year ended<br />

31 December 2011 from LVL 918,000 for the year ended 31 December 2010. The increase was mainly due to<br />

loan in amount of LVL 1,852,000 granted to Eko SPV, which was used to partially finance management buyout<br />

of Eko Baltija Group (Eko SPV was not consolidated in the Consolidated Financial Statements as of 31<br />

December 2011) and reorganization carried out in the year ended 31 December 2011 (for more information on<br />

reorganization please see note 25(b) to the Consolidated Financial Statements).<br />

The Group’s net cash outflow used in investing activities was LVL 918,000 for the year ended 31 December<br />

2010 as compared with LVL 42,000 for the year ended 31 December 2009, representing an increase of<br />

2,805.7%. The increase was primarily due to increased volume of small investments into purchase of property,<br />

plant and equipment.<br />

Net cash used in financing activities<br />

For three months<br />

ended 31 March<br />

For the year ended 31<br />

December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Net cash from operating activities 1,541 1,678 4,989 2,694 936<br />

Net cash used in investing activities (910) (563) (7,764) (918) (42)<br />

Net cash used in financing activities (810) (1,011) 2,885 (1,730) (100)<br />

Profit or loss from currency fluctuations - - (3) - (3)<br />

The Group’s net cash outflow in financing activities decreased 19.9% to LVL 810,000 for three months ended 31<br />

March 2012 from LVL 1,011,000 for three months ended 31 March 2011. The decrease was mainly due to<br />

receiving of new loans to finance acquisition of assets.<br />

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BMWARDOCS232112v37<br />

The Group’s net cash inflow in financing activities for the year ended 31 December 2011 increased to LVL<br />

2,885,000 from net cash outflow of LVL 1,730,000 for the year ended 31 December 2010. The increase was<br />

mainly due to attracting additional debt financing.<br />

The Group’s net cash outflow in financing activities was LVL 1,730,000 for the year ended 31 December 2010<br />

as compared with net cash outflow of LVL 100,000 for the year ended 31 December 2009. The increase was<br />

primarily due to increase in amount of repaid loans.<br />

Borrowings<br />

The Group’s operations are financed through a combination of cash flows generated by its operations and shortterm<br />

and long-term loan facilities that have been granted to various members of the Group.<br />

It should be noted that information on borrowings presented below is based on the Consolidated Financial<br />

Statements and the Condensed Consolidated Interim Financial Statements. For more information regarding<br />

borrowing and capitalisation and indebtedness of the Group please see: “Capitalisation and Indebtedness” and<br />

“Pro Forma Financial Information”.<br />

The table below sets forth details of the Group’s short-term and non-current borrowings as at the dates indicated.<br />

As at 31 March As at 31 December<br />

2012 2011 2010 2009<br />

(LVL in thousands)<br />

Short-term bank borrowings 1,323 1,409 1,934 600<br />

Credit lines 773 983 1,190 1,379<br />

Non-current bank borrowings 5,363 5,556 736 2,689<br />

Total 7,459 7,948 3,860 4,668<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

Until May 2011 the loans of the Group were placed in Swedbank and SEB. Starting from May 2011 all banking<br />

loans were refinanced by a new arrangement with Nordea Bank. Below is summary of loan agreements<br />

concluded with Nordea Bank (the “Nordea Financing Agreements”):<br />

Overdraft Agreement No 2011-134-OD between Eko Reverss and Nordea Bank, dated 3 May 2011, with<br />

overdraft limit of EUR 280,000, maturing on 31 May 2013. The interest rate is the aggregate of the<br />

margin of 2% and EONIA. As of 31 December 2011 the outstanding amount of loan was EUR 280,000<br />

(LVL 196,785).<br />

Loan Agreement No 2011-173-A between Eko Reverss and Nordea Bank, dated 3 May 2011, as<br />

amended, for the total amount of EUR 33,438, maturing on 30 June 2012. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of<br />

loan was EUR 13,399 (LVL 9,417).<br />

Loan Agreement No 2011-165-A between Eko Baltija and Nordea Bank, dated 3 May 2011, as amended,<br />

for the total amount of EUR 6,200,000, maturing on 31 December 2016. The interest rate is the aggregate<br />

of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of loan was<br />

EUR 5,478,352 (LVL 3,850,208).<br />

Loan Agreement No 2011-166-A between PET Baltija and Nordea Bank, dated 3 May 2011, as amended,<br />

for the total amount of EUR 1,570,100, maturing on 31 December 2016. The interest rate is the aggregate<br />

of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of loan was<br />

EUR 1,406,060 (LVL 988,185).<br />

Overdraft Agreement No 2011-167-OD between PET Baltija and Nordea Bank, dated 3 May 2011, as<br />

amended, with overdraft limit of EUR 1,330,000, maturing on 31 May 2013. The interest rate is the<br />

aggregate of the margin of 2% and EONIA. As of 31 December 2011 the outstanding amount of loan was<br />

EUR 591,157 (LVL 415,468).<br />

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BMWARDOCS232112v37<br />

Overdraft Agreement No 2011-169-OD between LZP and Nordea Bank, dated 3 May 2011, as amended,<br />

with overdraft limit of EUR 600,000, maturing on 31 May 2013. The interest rate is the aggregate of the<br />

margin of 2% and EONIA. As of 31 December 2011 the outstanding amount of loan was EUR 271,411<br />

(LVL 190,749).<br />

Overdraft Agreement No 2011-168-OD between Nordic Plast and Nordea Bank, dated 3 May 2011, as<br />

amended, with overdraft limit of EUR 290,000, maturing on 31 May 2013. The interest rate is the<br />

aggregate of the margin of 2% and EONIA. As of 31 December 2011 the outstanding amount of loan was<br />

EUR 258,954 (LVL 181,988).<br />

Loan Agreement No 2011-170-A between Jurmalas ATU and Nordea Bank, dated 3 May 2011, as<br />

amended, for the total amount of EUR 1,386,000, maturing on 31 December 2016. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of<br />

loan was EUR 1,214,529 (LVL 853,576).<br />

Loan Agreement No 2011-171-A between Kurzemes Ainava and Nordea Bank, dated 3 May 2011, as<br />

amended, for the total amount of EUR 881,000, maturing on 31 December 2016. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of<br />

loan was EUR 771,442 (LVL 542,172).<br />

Loan Agreement No 2011-172-A between Eko Kurzeme and Nordea Bank, dated 3 May 2011, as<br />

amended, for the total amount of EUR 1,155,000, maturing on 31 December 2016. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of<br />

loan was EUR 1,011,044 (LVL 710,566).<br />

Pursuant to the Nordea Financing Agreements, the Group Companies have to comply with number of financial<br />

covenants, namely:<br />

(i) total equity/total assets ratio, calculated by the bank 4 times per year using the data from the Group<br />

Companies, should not be less than 20% in 2011, not less than 30% in 2012 and not less than 35% starting<br />

from the first quarter of 2013;<br />

(ii) the total interest bearing debt/EBITDA ratio, calculated by the bank 4 times a year using data from the<br />

Group Companies, should not exceed 3.6 in 2011; starting from 2012 it should not exceed 3; and<br />

(iii) Debt-Service Coverage Ratio, calculated by the bank 4 times a year using data from the Group Companies<br />

and Jumis, should not be less than 1.3.<br />

According to the Management, as of the date of the Prospectus, the above indicators are fulfilled. Please see:<br />

“Risk Factors – Risks Relating to the Group’s Business – Certain of the Group’s credit facilities are subject to<br />

certain covenants and restrictions”.<br />

Additionally Jurmalas ATU has concluded Loan Agreement No 2011-515-A with Nordea Bank, dated 15<br />

February 2012, for the total amount of EUR 100,000, maturing 28 February 2014. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. According to the agreement financial covenants which<br />

should be followed are similar to the ones stipulated with Nordea Financing Agreements.<br />

Working Capital Statement<br />

Having done due analysis, the Management Board is of the opinion that the working capital available to the<br />

Group is sufficient to meet its present requirements for at least the next 12 months following the date of<br />

publication of the Prospectus.<br />

Recent Trends and Developments<br />

In April 2012 PET Baltija started deliveries of PET bottles from Belarus which considerably strengthens<br />

situation with sourcing of raw materials.<br />

In recyclables trading segment Eko Reverss has started experimental deliveries of semi-final RDF material.<br />

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BMWARDOCS232112v37<br />

In April 2012 Eko Riga won waste collection tender in Marupe region, neighbourhood of Riga City. Contract<br />

was signed on 13 April 2012 and the Group expects to start servicing the new region from 1 July 2012.<br />

Estimated annually collected volume in this area is 40,000 m 3 . The whole contractual price amounted to<br />

approximately LVL 451,496. Also in 2012 Eko Riga won tender for waste collection organised by Rigas Udens<br />

(water utilities’ supplier in Riga).<br />

Starting from April 2012 the Group increased its fees for recovery of packaging waste.<br />

The Group launched moving headquarters of Eko Baltija, LZP, Eko Reverss and Eko Riga to one office space.<br />

This process should be finished in June 2012. This will allow the Group to consolidate operations and decrease<br />

administrative expenses.<br />

On 19 April 2012 merger of Tukuma Ainava into its subsidiary Kurzemes Ainava has been registered with the<br />

Commercial Register.<br />

Critical Accounting Policies<br />

These are Group’s first consolidated financial statements that have been prepared in accordance with and comply<br />

with International Financial Reporting Standards as adopted by EU (IFRS) and Interpretations issued by its<br />

International Financial Reporting Interpretations Committee (IFRIC) as endorsed by the European Union.<br />

The functional currency of the Group and the reporting currency for the Consolidated Financial Statements and<br />

the Condensed Consolidated Interim Financial Statements is the Latvian lat. Balances disclosed as at 31<br />

December and 31 March reflects the position as at the close of business on that date.<br />

Estimates and judgments<br />

The preparation of consolidated financial statements in conformity with IFRS as adopted by the EU requires the<br />

management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue<br />

and expenses, and disclosure of contingencies. The significant areas of estimation used in the preparation of the<br />

accompanying consolidated financial statements relate to revenue recognition, depreciation, allowance for bad<br />

debts and inventories, and impairment evaluation. Although these estimates are based on the management’s best<br />

knowledge of current events and actions, the actual results may ultimately differ from those estimates. The areas<br />

involving a higher degree of judgment or complexity are described below.<br />

Useful lives for property, plant and equipment<br />

Asset useful lives are assessed annually and changed when necessary to reflect current thinking on their<br />

remaining lives in light of technological change, prospective economic utilisation and physical condition of the<br />

assets concerned.<br />

Inventories<br />

The Group performs estimates for calculation of net realisable values for slow-moving and obsolete inventories<br />

to determine the loss of decrease in the value of inventories. Typically net realisable values are determined for<br />

each position separately, if it is not possible historical experience is used to estimate possible loss.<br />

Revenue recognition<br />

Revenue from sales of goods is recognised when significant risks and rewards of ownership of the goods have<br />

passed to the buyer, usually on delivery of goods, recovery of the consideration is probable, the associated costs<br />

and possible return of goods can be estimated reliably, there is no continuing management involvement with the<br />

goods, and the amount of revenue can be measured reliably.<br />

Revenue from services is recognised when services are rendered to customers in accordance with contractual<br />

terms and conditions.<br />

The Group recognises revenue based on the amount invoiced to customer net of value added tax when it has<br />

earned revenue from sale of the goods or services and the net amount retained (that is, the amount billed to<br />

customer less the amount paid to service provider) when it has earned a commission or fee.<br />

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BMWARDOCS232112v37<br />

Allowances for doubtful debts<br />

The Group makes allowances for doubtful accounts receivable. Estimates based on historical experience are used<br />

in determining the level of debts that management believes will not be collected.<br />

Provisions<br />

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events,<br />

and it is probable that an outflow of resources embodying economic benefits will be required to settle the<br />

obligation, and a reliable estimate of the amount of the obligation can be made.<br />

Provisions are measured in the statement of financial position at the best estimate of the expenditure required to<br />

settle the present obligation at the end of the reporting period date. Provisions are used only for expenditures for<br />

which the provisions were originally recognised and are reversed if an outflow of resources is no longer<br />

probable.<br />

Provisions for restructuring costs include employee termination benefits and are recognised in the period when<br />

the Group takes on legal or logical obligations to pay out such expenses; when the Group has developed a<br />

detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out<br />

the restructuring by starting to implement the plan or announcing its main features to those affected by it. The<br />

measurement of a restructuring provision includes only the direct expenditures arising from the restructuring.<br />

Goodwill impairment<br />

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units<br />

to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future<br />

cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate<br />

present value.<br />

Basis of consolidation<br />

Subsidiaries<br />

The consolidated financial statements include subsidiaries that are controlled by the parent company. Control is<br />

presumed to exist where more than a half of the subsidiary’s voting rights are controlled by the parent company<br />

or it otherwise has the power to exercise control over the operating and financial policies so as to obtain benefits<br />

from its activities. Subsidiaries are consolidated from the date on which control is transferred to the Group and<br />

until the date that control ceases. The financial statements of the subsidiaries are prepared for the same reporting<br />

year as the parent company, using consistent accounting policies.<br />

The purchase method of accounting is used to account for the acquisition of subsidiaries other than those<br />

acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities<br />

assumed in a business combination are measured at their fair values at the acquisition date.<br />

The consideration transferred for the acquirer is measured at the fair value of the assets given up, equity<br />

instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent<br />

consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar<br />

professional services. Transaction costs incurred for issuing equity instruments are deducted from equity;<br />

transaction costs incurred for issuing debt are deducted from its carrying amount and all other transaction costs<br />

associated with the acquisition are expensed.<br />

Associated companies<br />

Investments in associated companies are accounted for by the equity method and are recognised initially at cost.<br />

These are undertakings in which the Group holds from 20% to 50% of the voting rights and over which the<br />

Group exercises significant influence, but which it does not control.<br />

Equity method of accounting involves recognising in the profit or loss the Group’s share of the associate’s net<br />

profit or loss for the year and eliminating unrealised gains and unrealised losses on transactions between the<br />

Group and the associated undertaking to the extent of the Group’s interest in the associates. Dividends received<br />

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BMWARDOCS232112v37<br />

from the associate reduce the carrying amount of the investment. The Group’s interest in the associate is carried<br />

in the statement of financial position at an amount that reflects its share of the net assets of the associate<br />

including any goodwill on acquisition. Investments in associated undertakings are reported as non-current assets<br />

in the Group’s consolidated statement of financial position.<br />

Transactions eliminated on consolidation<br />

The consolidated financial statements comprise the financial statements of the parent company and its<br />

subsidiaries as at 31 December 2011. All intra-group balances, income and expenses and unrealised gains and<br />

losses resulting from intra-group transactions are eliminated in preparing the consolidated financial statements.<br />

Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment<br />

to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as<br />

unrealised gains, but only to the extent that there is no evidence of impairment.<br />

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BMWARDOCS232112v37<br />

Formation and Reorganisation of the Group<br />

PRO FORMA FINANCIAL INFORMATION<br />

The Group’s assets have been gradually consolidated under Eko Baltija as a holding company of Eko Baltija<br />

Group since 2007. The Issuer, as well as Eko SPV. were not a member of Eko Baltija Group (but were related<br />

parties) until the below described legal restructuring was completed on 25 April 2012. In the preparation for the<br />

Offering, the Group has completed the reorganisation to change its corporate structure. The legal restructuring<br />

consisted of in-kind contribution of 58% of shares in Eko Baltija to Eko SPV, which allowed Eko SPV to hold<br />

100% of shares in Eko Baltija, and the following in-kind contribution of 100% of shares in Eko SPV into the<br />

Issuer (for more information on current Group structure please see: “Group Structure”).<br />

The Issuer was incorporated on 11 August 2011 and during the financial year ended 31 December 2011 did not<br />

carry out active commercial operations. As of 31 December 2011 the balance sheet value of the Issuer was LVL<br />

25,336, where the liabilities consisted of paid up share capital of LVL 25,000, non-allocated profit of the year of<br />

account LVL 286 and short term liabilities in relation to taxes and compulsory state social insurance payments of<br />

LVL 50, but the assets consisted of loans to related companies of LVL 24,927 and cash of LVL 409.<br />

Before the legal restructuring the Issuer did not have control over all of the Group Companies as of 31 December<br />

2011 and therefore was not permitted to present consolidated financial statements for the whole Group for the<br />

year ended 31 December 2011. In-kind contribution of 100% of shares in Eko SPV into the Issuer had a material<br />

influence on the financial condition of the Group, due to the fact that Eko SPV is a party to financial agreements<br />

with Nordea Bank, which provided financing for management buyout of Eko Baltija Group, which was finalized<br />

in 2011.<br />

Eko SPV is party to the following agreements with Nordea Bank:<br />

Loan Agreement No 2011-387-A between Eko SPV and Nordea Bank, dated 15 September 2011, as<br />

amended, for the total amount of EUR 14,000,000, maturing on 15 September 2018. The interest rate is<br />

the aggregate of the margin of 4.5% and EURIBOR 3M. As of 31 December 2011 the outstanding<br />

amount of loan was EUR 13,662,650 (LVL 9,602,165).<br />

Nordea Client Agreement on Transactions with Derivative Financial Instruments No 11/2011 between<br />

Eko SPV and Nordea Bank, dated 15 September 2011. In accordance with the agreement the maximum<br />

exposure amount of the base currency equals to EUR 960,000 (LVL 674,692).<br />

Moreover, in-kind contribution of 100% of shares in Eko SPV into the Issuer would have influence on the results<br />

of operations of the Group for the year ended 31 December 2011, if it had been carried out in the year ended 31<br />

December 2011.<br />

Therefore, in addition to the Consolidated Financial Statements for the years ended on 31 December 2011, 2010<br />

and 2009 and the Condensed Consolidated Interim Financial Statements for the three months ended on 31 March<br />

2012, the pro forma consolidated financial information of <strong>Eco</strong> <strong>Baltia</strong> for the year ended 31 December 2011 (the<br />

“Pro Forma Financial Information”) was prepared to provide information about how the restructuring operations<br />

might have affected the financial information of the Group, if these operations had been completed by 31<br />

December 2011. The Pro Forma Financial Information was also prepared in order to ensure potential investors<br />

with comparable information about the Group and process of formation and reorganisation of the Group.<br />

The Pro Forma Financial Information has been prepared on the basis of the financial reports of the following<br />

companies of the Group: Eko Baltija, Eko SPV and the Issuer. The principles used in preparation of the Pro<br />

Forma Financial Information will be used when preparing consolidated financial reports of the Issuer for<br />

upcoming financial years.<br />

The Prospectus does not include the non-consolidated financial report of the Issuer as for period from 11 August<br />

2011 till 31 December 2011 due to the following reasons:<br />

information about the Issuer from non-consolidated financial report of the Issuer as for period from 11<br />

August 2011 till 31 December 2011 is reflected in the Pro Forma Financial Information;<br />

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BMWARDOCS232112v37<br />

the non-consolidated report of the Issuer as for period from 11 August 2011 till 31 December 2011 does<br />

not reflect legal structure of the Group as of the date of the Prospectus and therefore could be misleading;<br />

and<br />

the non-consolidated report of the Issuer as for period from 11 August 2011 till 31 December 2011 is not<br />

material for proper presentation of the operations and financial results of the Group.<br />

Items derived from the Pro Forma Financial Information are presented below.<br />

Pro Forma Statement of Comprehensive Income<br />

As of 31<br />

December<br />

2011<br />

Historical Adjustments<br />

(LVL in thousands)<br />

As of 31<br />

December<br />

2011<br />

Pro Forma<br />

Net sales 26,595 - 26,595<br />

Cost of sales (19,354) - (19,354)<br />

Gross profit 7,241 - 7,241<br />

Selling expenses (325) - (325)<br />

Administrative expenses (2,932) - (2,932)<br />

Other operating income 284 - 284<br />

Other operating expenses (287) - (287)<br />

Write-off of long-term financial investments - - -<br />

Interest income and similar income 70 (23) 47<br />

Interest expenses and similar expenses (324) (453) (777)<br />

Other taxes (5) - (5)<br />

Profit before corporate income tax 3,722 (476) 3,246<br />

Corporate income tax for the reporting year (211) 71 (140)<br />

Deferred income tax (133) - (133)<br />

Current year profit/ (loss) and comprehensive income 3,378 (405) 2,973<br />

Attributable to:<br />

Owners of the parent 3,203 (405) 2,798<br />

Non-controlling interests 175 - 175<br />

Source: Pro Forma Financial Information<br />

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BMWARDOCS232112v37<br />

Pro Forma Statement of Financial Position<br />

ASSETS<br />

Non-current assets<br />

As of 31<br />

December<br />

2011<br />

Historical Adjustments<br />

(LVL in thousands)<br />

As of 31<br />

December<br />

2011<br />

Pro Forma<br />

Goodwill 5,056 28,971 34,027<br />

Intangible assets 40 - 40<br />

Property, plant and equipment 5,662 - 5,662<br />

Investments in subsidiaries and associates 2 - 2<br />

Long-term loans and receivables - 25 25<br />

Other financial assets 140 - 140<br />

Total non-current assets 10,900 28,996 39,896<br />

Current assets<br />

Inventories 1,459 - 1,459<br />

Trade and other receivables 1,626 - 1,626<br />

Loans to related companies 1,852 (1,852) -<br />

Other short-term receivables 1,546 - 1,546<br />

Corporate income tax 116 - 116<br />

Other short-term financial investments 1 - 1<br />

Cash and cash equivalents 966 - 966<br />

Total current assets 7,566 (1,852) 5,714<br />

Total assets 18,466 27,144 45,610<br />

Source: Pro Forma Financial Information<br />

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BMWARDOCS232112v37<br />

EQUITY AND LIABILITIES<br />

Capital and reserves<br />

As of 31<br />

December<br />

2011<br />

Historical Adjustments<br />

(LVL in thousands)<br />

As of 31<br />

December<br />

2011<br />

Pro Forma<br />

Share capital 150 22,275 22,425<br />

Share premium 5,442 (5,442) -<br />

Reorganization reserve (4,625) 4,625 -<br />

Retained earnings 4,072 (4,072) -<br />

Equity attributed to the shareholders 5,039 17,386 22,425<br />

Non-controlling interests 1,080 - 1,080<br />

Total equity 6,119 17,386 23,505<br />

Non-current liabilities<br />

Interest bearing borrowings 5,556 8,111 13,667<br />

Finance lease liabilities 1,085 - 1,085<br />

Deferred tax liabilities 317 - 317<br />

Deferred income 182 - 182<br />

Total non-current liabilities 7,140 8,111 15,251<br />

Current liabilities<br />

Trade and other payables 999 - 999<br />

Interest bearing borrowings 2,392 1,437 3,829<br />

Finance lease liabilities 595 - 595<br />

Deferred income and customer prepayments 215 - 215<br />

Corporate income tax liabilities 43 - 43<br />

Derivatives - 210 210<br />

Tax liabilities 246 - 246<br />

Other liabilities 717 - 717<br />

Total current liabilities 5,207 1,647 6,854<br />

Total liabilities 12,347 9,758 22,105<br />

Total equity and liabilities 18,466 27,144 45,610<br />

Source: Pro Forma Financial Information<br />

80


BMWARDOCS232112v37<br />

Pro Forma Statement of Cash Flows<br />

As of 31<br />

December<br />

2011<br />

Historical Adjustments<br />

(LVL in thousands)<br />

As of 31<br />

December<br />

2011<br />

Pro Forma<br />

Net cash from operating activities 4,989 298 5,287<br />

Net cash used in investing activities (7,764) (9,393) (17,157)<br />

Net cash used in financing activities 2,885 9,095 11,980<br />

Profit or loss from currency fluctuations (3) - (3)<br />

Net increase in cash and cash equivalents 107 - 107<br />

Source: Pro Forma Financial Information<br />

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BMWARDOCS232112v37<br />

Macroeconomic data in Latvia and the Baltics<br />

INDUSTRY OVERVIEW<br />

The Group concentrates its business activities in Latvia, however it is also active in other Baltic countries -<br />

Lithuania and Estonia.<br />

Latvia<br />

In 2004 Latvia became a member of the EU. Since May 2005 Latvia has been part of the ERM II and committed<br />

to observe a central exchange rate of LVL 0.702804 to EUR 1 with a fluctuation band of ±15%, but Latvia<br />

unilaterally maintains a 1% fluctuation band around the central rate.<br />

The table below presents the population in Latvia in years 2007-2011 (in millions).<br />

2011 2010 2009 2008 2007<br />

Population 2.23 2.25 2.26 2.27 2.28<br />

Source: Eurostat<br />

Latvia with its 2.23 million population is one of the smallest countries in Europe. The population has been<br />

slowly decreasing during the past five years.<br />

The table below presents main macroeconomic indicators in Latvia in years 2007-2013.<br />

real GDP growth rate (% change on<br />

previous year)<br />

GDP per capita, market prices<br />

(EUR thousand)<br />

2013 2012 2011 2010 2009 2008 2007<br />

3.6* 2.2* 5.5 (0.3) (17.7) (3.3) 9.6<br />

- - 9.7 8.0 8.2 10.1 9.2<br />

inflation rate (%) - - 4.2 (1.2) 3.3 15.3 10.1<br />

unemployment rate (%) - - 16.2 18.7 17.1 7.5 6.0<br />

* forecast<br />

Source: Eurostat<br />

The economic growth of Latvia after accession in 2004 remained one of the highest in the EU until 2007. The<br />

Latvian economy was heavily affected by the crisis and the GDP growth rate started to decrease in 2008 and<br />

plummeted in 2009 by almost 18%. The Latvian government nationalized Parex Bank, the country’s second<br />

largest bank and was forced to ask the International Monetary Fund and the European Union for an emergency<br />

bailout loan. The state authorities reacted to the crisis by, inter alia, increase in taxes and sharp cuts in the state<br />

expenses. In accordance with Eurostat in 2011 GDP in Latvia increased by 5.5% as compared to 2010.<br />

Moreover, Eurostat estimates that Latvian GDP will continue to increase in 2012 and 2013.<br />

The GDP per capita decreased after 2008 as a result of the crisis, partially reflecting the measures undertaken by<br />

the government in response to the economic situation. However, it should be underlined that in 2011 GDP per<br />

capita in Latvia was EUR 9,700, constituting a 21.3% growth as compared to 2010.<br />

After accession to the EU the inflation rate in Latvia was growing continuously reaching peak in 2008. The<br />

dynamic of the inflation rate growth in 2008 resulted from overheating of the economy, fuelled by, inter alia,<br />

easy access to crediting. The decrease in the following years was attributable to down turn of the economic.<br />

According to Eurostat, in 2011 inflation rate was 4.2%.<br />

The unemployment rate in Latvia increased dramatically, reaching double digits, after 2008 financial turmoil. In<br />

accordance with Eurostat in 2011 the unemployment rate in Latvia was 16.2%.<br />

The table below sets forth data on annual disposable income per household (constant 2010 value) in Latvia in<br />

years 2011-2020.<br />

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BMWARDOCS232112v37<br />

2020 2015 2011 Change<br />

(in thousands of households) (%)<br />

above USD 500 799 805 809 (1.2)<br />

above USD 1000 797 802 805 (1.1)<br />

above USD 5000 751 742 732 2.5<br />

above USD 10,000 657 622 589 11.6<br />

above USD 25,000 352 280 222 58.6<br />

above USD 45,000 131 87 60 119.7<br />

above USD 75,000 39 28 22 82.6<br />

above USD 150,000 14 11 9 56.4<br />

Source: Euromonitor International<br />

The provided data indicate that in general the number of households with the lowest annual disposable income<br />

will decrease by 2020. At the same time framework, the number of households with annual disposable income<br />

per household above USD 25,000 will increase significantly which should drive the increase in consumer<br />

spending in the future.<br />

Lithuania<br />

Lithuania became member of the EU in 2004. Since June 2004 Lithuania has been part of the ERM II and<br />

committed to observe a central exchange rate of litas 3.45280 to EUR 1.00 with a fluctuation band of ±15%, but<br />

Lithuania unilaterally maintains a 0% fluctuation band around the central rate.<br />

The table below presents main macroeconomic indicators in Lithuania in years 2007-2013.<br />

2013 2012 2011 2010 2009 2008 2007<br />

population (millions) - - 3.24 3.33 3.35 3.37 3.38<br />

real GDP growth rate (% change on<br />

previous year)<br />

GDP per capita, market prices<br />

(EUR thousand)<br />

3.5* 2.4* 5.9 1.4 (14.8) 2.9 9.8<br />

- - 9.5 8.4 8.0 9.7 8.5<br />

inflation rate (%) - - 4.1 1.2 4.2 11.1 5.8<br />

unemployment rate (%) - - 15.4 17.8 13.7 5.8 4.3<br />

* forecast<br />

Source: Eurostat<br />

Estonia<br />

Estonia became member of the EU in 2004. Since 1 January 2011 has been part of the euro zone.<br />

The table below presents main macroeconomic indicators in Estonia in years 2007-2013.<br />

2013 2012 2011 2010 2009 2008 2007<br />

population (millions) - - 1.34 1.34 1.34 1.34 1.34<br />

real GDP growth rate (% change on<br />

previous year)<br />

GDP per capita, market prices<br />

(EUR thousand)<br />

3.8* 1.6* 7.6 2.3 (14.3) (3.7) 7.5<br />

- - 11.9 10.7 10.3 12.2 12.0<br />

inflation rate (%) - - 5.1 2.7 0.2 10.6 6.7<br />

unemployment rate (%) - - 12.5 16.9 13.8 5.5 4.7<br />

* forecast<br />

Source: Eurostat<br />

83


Comparison<br />

BMWARDOCS232112v37<br />

The chart below presents real GDP per capita (EUR in thousands) in the selected European countries in 2011.<br />

40<br />

30<br />

20<br />

10<br />

0<br />

Austria<br />

* data for 2010<br />

Source: Eurostat<br />

35.8<br />

Finland<br />

35.6<br />

Belgium<br />

33.5<br />

Germany<br />

31.4<br />

26.0<br />

Italy<br />

EU average<br />

25.1<br />

Spain<br />

23.3<br />

Greece<br />

19.0<br />

Portugal<br />

With its GDP per capita in 2011 amounting to EUR 6,400 Latvia belongs to the EU members with the lowest<br />

GDP per capita also behind Estonia (EUR 9,000) and Lithuania (EUR 7,300). Moreover, Latvian GDP per capita<br />

is much lower than the EU average of EUR 23,300 providing significant room for convergence.<br />

Characteristics of Waste Management in the EU<br />

16.1<br />

By definition waste means any substance or object which the holder discards or intends or is required to discard.<br />

There are different types and divisions of waste. There are, e.g., municipal waste (meaning waste from<br />

households, as well as other waste which, because of its nature or composition, is similar to waste from<br />

household), commercial waste (consisting of waste from premises used wholly or mainly for the purposes of a<br />

trade or business or for the purpose of sport, recreation, education or entertainment), industrial waste (being a<br />

type of waste produced by industrial activity, such as that of factories, mills and mines), construction waste<br />

(consisting of unwanted material produced directly or incidentally by the construction or industries) and<br />

demolition waste (meaning waste debris from destruction of a building). In accordance with other classifications<br />

waste could be divided into, e.g., packaging waste (where packaging means all products made of any materials<br />

of any nature to be used for the containment, protection, handling, delivery and presentation of goods, from raw<br />

materials to processed goods, from the producer to the user or the consumer), waste electrical and electronic<br />

equipment or WEEE (covering variety of household appliances, IT and telecommunication equipment etc.),<br />

waste goods harmful to the environment or GHE (including, e.g., batteries, tires, oils filters etc.) or hazardous<br />

waste (covering broad set of, e.g., toxic, explosive, flammable, corrosive waste).<br />

Waste management is a process, which consists of collection, transportation, recovery and disposal of waste,<br />

including the supervision of such operations and the after-care of disposal sites, as well as actions taken as a<br />

dealer or broker. Collection of waste is, in general, the process of gathering of waste, including the preliminary<br />

sorting and storage of waste, for the purposes of transport to a waste treatment facility. Further, generated waste,<br />

which was collected, could be treated, what means carrying out certain activities required to ensure that waste<br />

has the least impact on the environment.<br />

Waste could be treated in various ways, including, e.g., deposit into or onto land (e.g. landfill etc.), biological<br />

treatment (e.g. composting), incineration and recovery (including recycling). Before landfilling the waste can be<br />

pre-treated, meaning extraction of certain recyclable waste by means of mechanical sorting. Process of recovery<br />

is understood as any operation the principal result of which is waste serving a useful purpose by replacing other<br />

materials which would otherwise have been used to fulfil a particular function. Recycling is any recovery<br />

Slovakia<br />

12.7<br />

Estonia<br />

11.9<br />

Hungary<br />

10.1<br />

Latvia<br />

9.7<br />

Lithuania<br />

9.5<br />

Poland*<br />

9.3<br />

Romania*<br />

5.8<br />

Bulgaria*<br />

4.8<br />

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BMWARDOCS232112v37<br />

operation by which waste materials (named recyclables) are reprocessed into products, materials or substances<br />

whether for the original or other purposes.<br />

Waste management occupies an important place in the EU policy. First of all, one of the main objectives of the<br />

EU regarding waste management, as manifested in many EU framework documents (programs and strategies), is<br />

to decouple the generation of waste from economic growth. Second of all, the EU aims at minimising the<br />

negative effects of the generation and management of waste on human health and the environment, and reducing<br />

the use of resources. To support the second aim the EU adopted the waste hierarchy, which should apply as a<br />

priority order in waste prevention legislation and policy throughout the EU. The waste hierarchy is as follows: (i)<br />

prevention; (ii) preparing for re-use; (iii) recycling; (iv) other recovery, e.g., energy recovery; and (v) disposal.<br />

In general the EU legislation implements the polluter-pays principal, where the costs of waste management<br />

should be borne by the original waste producers or by the current waste holders. Moreover, the EU has<br />

implemented various steps to encourage either original waste producers or current waste holders to recover waste<br />

in order to reduce the final disposal of waste. In accordance with European Parliament and Council Directive<br />

94/62/EC of 20 December 1994 on packaging and packaging waste Member States have been obliged to achieve<br />

certain levels of recovery and recycling of packaging waste. Certain obligations have been also imposed on the<br />

Member States in regard to recovery and recycling of WEEE (in accordance with Directive 2002/96/EC of the<br />

European Parliament and of the Council of 27 January 2003 on waste electrical and electronic equipment<br />

(WEEE)). Detailed regulations on means to meet obligations contained in above mentioned acts should have<br />

been implemented in legal framework of each Member State.<br />

The following tables summarize basic data on waste management in the EU.<br />

The table below presents data on municipal waste generated in selected EU countries in years 2007 – 2010<br />

(kilogram per capita).<br />

2010 2009 2008 2007<br />

Denmark 673* 762 830 790<br />

Germany 583* 592 589 582<br />

Finland 470 480 521 506<br />

Slovenia 422 448 457 439<br />

Hungary 413 430 454 457<br />

Bulgaria 410 470 474 433<br />

Lithuania 381 361 408 401<br />

Romania 365* 362* 392* 379*<br />

Slovakia 333 322 328 309<br />

Czech Republic 317 316 305 293<br />

Poland 315* 316* 320* 322*<br />

Estonia 311 346 391 449<br />

Latvia 304 334 332 378<br />

EU (27 countries) 503 510 520 523<br />

Euro area (16 countries) 542 549 555 556<br />

* estimated values<br />

Source: Eurostat<br />

As the table above presents, generation of waste per capita in Latvia in years 2007 – 2010 was substantially<br />

lower than the average for the EU countries. In the presented period the amount of waste generated in Latvia per<br />

capita was also lower than in the neighbouring Lithuania and Estonia. This trend is in general due to lower GDP<br />

per capita in Latvia in comparison with most of the EU countries.<br />

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BMWARDOCS232112v37<br />

The table below presents data on waste by category of treatment in selected EU countries in 2010 (in kilogram<br />

per capita).<br />

Waste treated Landfilled Recycled* Incinerated**<br />

Denmark 673 23 284 365<br />

Germany 583 2 361 220<br />

Slovenia 471 272 194 5<br />

Finland 470 212 154 104<br />

Hungary 413 284 89 41<br />

Bulgaria 404 404 0 0<br />

Lithuania 348 328 19 0<br />

Slovakia 322 260 29 34<br />

Latvia 304 275 29 0<br />

Czech Republic 303 205 50 47<br />

Romania 294 290 4 0<br />

Poland 263 193 68 3<br />

Estonia 261 199 61 0<br />

EU (27 countries) 487 186 193 108<br />

Euro area (16 countries) 530 163 230 137<br />

* Material recycling and other forms of recycling (including composting)<br />

** Including energy recovery<br />

Source: Eurostat<br />

Presented data indicates that waste in Latvia is mostly disposed at the landfills (app. 91%) and to the less extend<br />

recycled (app. 9%). Latvia does not use incineration as a category of treatment. In comparison to the average for<br />

the entire EU (where app. 38% of waste is landfilled, app. 40% of waste is recycled and incineration covers app.<br />

22% of waste treatment), it should be noted that Latvia is well below those averages. Similar trends could be<br />

observed for other Baltic countries and Central and Eastern Europe in general.<br />

Characteristics of Waste Management Industry in the Baltics<br />

Overview<br />

The Group concentrates its operations on waste management industry in Latvia. However, due to limited<br />

capacity of the Latvian market, some business operations of the Group are carried throughout the Baltics.<br />

The table below presents main indicators regarding waste generation in the Baltics in years 2007-2010 (in<br />

thousands tonnes).<br />

Latvia 2010 2009 2008 2007<br />

Waste generated 680 753 752 861<br />

Waste collected (total treatment) 680 753 756 782<br />

Waste treated as percentage of waste generated 100% 100% 101% 91%<br />

Deposit onto or into land 617 694 705 735<br />

Waste deposited onto or into land as percentage of<br />

waste treated<br />

91% 92% 93% 94%<br />

Material recycling 60 56 43 38<br />

Waste recycled as percentage of waste treated 9% 7% 6% 5%<br />

Other treatment* 3 3 8 9<br />

Waste treated in other way as percentage of waste<br />

treated<br />

0% 0% 1% 1%<br />

* Including other than material recycling forms of recycling (e.g. composting)<br />

Source: Eurostat<br />

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BMWARDOCS232112v37<br />

Lithuania 2010 2009 2008 2007<br />

Waste generated 1,253 1,206 1,369 1,354<br />

Waste collected (total treatment) 1,142 1,146 1,292 1,297<br />

Waste treated as percentage of waste<br />

generated<br />

91% 95% 94% 96%<br />

Deposit onto or into land 1,079 1,093 1,237 1,245<br />

Waste deposited onto or into land as<br />

percentage of waste treated<br />

94% 95% 96% 96%<br />

Material recycling 43 37 40 29<br />

Waste recycled as percentage of waste<br />

treated<br />

4% 3% 3% 2%<br />

Other treatment* 20 16 15 23<br />

Waste treated in other way as percentage<br />

of waste treated<br />

2% 1% 1% 2%<br />

* Including other than material recycling forms of recycling (e.g. composting)<br />

Source: Eurostat<br />

Estonia 2010 2009 2008 2007<br />

Waste generated 417 464 524 602<br />

Waste collected (total treatment) 349 383 440 531<br />

Waste treated as percentage of waste<br />

generated<br />

84% 83% 84% 88%<br />

Deposit onto or into land 267 287 333 390<br />

Waste deposited onto or into land as<br />

percentage of waste treated<br />

77% 75% 76% 73%<br />

Material recycling 50 52 78 122<br />

Waste recycled as percentage of waste<br />

treated<br />

14% 14% 18% 23%<br />

Other treatment* 32 44 29 19<br />

Waste treated in other way as percentage<br />

of waste treated<br />

9% 11% 6% 4%<br />

* Including other than material recycling forms of recycling (e.g. composting)<br />

Source: Eurostat<br />

In accordance with presented data, in 2010 in Latvia 100% of generated waste was treated (either landfilled or<br />

recycled). It should be noted that the same trend wasn’t observed in Estonia and Lithuania, where not all<br />

generated waste was treated. In years 2007 – 2010 in all three Baltic countries majority of waste was landfilled.<br />

Other treatment ways as percentage of total waste treated ranged in 2010 from 23% in Estonia, 9% in Latvia to<br />

6% in Lithuania. In all three Baltic States material recycling was the most popular way of waste treatment (apart<br />

from depositing onto or into land). Waste recycled as percentage of total waste treated ranged in 2010 from 14%<br />

in Estonia, 9% in Latvia to 4% in Lithuania.<br />

Major competitors of the Group in waste management industry in the Baltics<br />

Latvia<br />

The Group is the largest player in the waste management industry in Latvian market in terms of turnover, while<br />

the second largest player is Finnish Lassila & Tikanoja (L&T). Largest part of revenues generated by<br />

competitors of <strong>Eco</strong> <strong>Baltia</strong> is generated from waste collection services.<br />

The table below sets forth financial data of four biggest waste management companies in Latvia for periods<br />

indicated.<br />

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Revenue for the<br />

year ended 31<br />

December 2011<br />

Revenue for the<br />

year ended 31<br />

December 2010<br />

Change<br />

2011/2010<br />

EBITDA margin<br />

for the year ended<br />

31 December 2011<br />

LVL in thousands % %<br />

The Group 26,595 21,088 26 20<br />

L&T* 12,041 12,977 (7) 25<br />

Vides Investicijas** 4,811 4,214 14 11<br />

Ragn Sells 1,892 1,565 21 6<br />

* Revenue of L&T in the year ended 31 December 2011 are taken from the annual report for the year ended 31 December 2011 and EBITDA<br />

margin is presented as of year ended 31 December 2010 (latest available information);<br />

** Formerly Veolia.<br />

Source: Annual reports of L&T, <strong>Eco</strong> <strong>Baltia</strong>, Veolia and Ragn Sells; available through: www.lursoft.lv<br />

Lithuania<br />

Leaders of Lithuanian waste management industry are: <strong>Eco</strong>novus (owned by local investors - Avestis Group)<br />

and <strong>Eco</strong>service (owned by large facility management company - City Service). Smaller market player is VSA<br />

Vilnius.<br />

The table below sets forth data on revenues of three biggest waste management companies in Lithuania for the<br />

year ended 31 December 2010.<br />

Revenue<br />

LVL in thousands<br />

<strong>Eco</strong>novus 9,157<br />

<strong>Eco</strong>service 7,306<br />

VSA Vilnius<br />

3,722<br />

Source: Annual reports of <strong>Eco</strong>service and VSA Vilnius; available through: www.registrucentras.lt; information on revenues of <strong>Eco</strong>novus was<br />

obtained from: http://www.avestis.lt/index.php?page_id=19&news_id=99<br />

Estonia<br />

Estonian waste management market is dominated by Swedish Ŗagn-Sells and French Veolia.<br />

The table below sets forth data on revenues of three biggest waste management companies in Estonia for the<br />

year ended 31 December 2010.<br />

Revenue<br />

LVL in thousands<br />

Ragn Sells 14,171<br />

Veolia EE 11,648<br />

Eesti Pakendiringlus<br />

Source: Annual reports of Ragn Sells, Veolia EE and Eesti Pakendiringlus; available through: www.ariregister.rik.ee<br />

Characteristics of Waste Management Industry in Latvia<br />

Waste management industry in Latvia could be divided into the following segments: organisation of waste<br />

recovery, waste collection, sorting and trading of recyclables, recycling and landfilling.<br />

Organisation of waste recovery<br />

Overview<br />

In accordance with European Parliament and Council Directive 94/62/EC of 20 December 1994 on packaging<br />

and packaging waste Latvia has been obliged to achieve certain levels of recovery and recycling of packaging<br />

materials.<br />

3,167<br />

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The table below presents Latvia’s annual recovery targets for different types of packaging materials for years<br />

2007-2015 (in %).<br />

2015 2014 2013 2012 2011 2010 2009 2008 2007<br />

Glass 65 63 61 58 55 50 45 40 35<br />

Plastic 41 40 39 37 36 35 32 28 21<br />

Metal 50 49 48 46 45 44 42 38 30<br />

Wood 29 28 28 27 27 26 25 25 24<br />

Paper, cardboard 83 82 81 79 78 77 76 74 67<br />

Total all materials 60 59 58 56 55 54 52 51 50<br />

Source: Cabinet Regulation No. 983 to the Packaging Law, dated 19 September 2010<br />

In order to meet the required levels of recovery of packaging waste, as well as to encourage proper treatment of<br />

other types of waste, the legislation of the Republic of Latvia set out the producers’ and importers’ responsibility<br />

for the environmental impact of packaging and disposable tableware and accessories, WEEE, as well as GHE.<br />

The system applies the principal ‘polluter pays’, where all the producers and importers of packaged goods,<br />

electric and electronic equipment and goods harmful to the environment are obliged either to collect and recycle<br />

those waste by themselves and pay the NRT or transfer the collection and recycling duties to the producers’<br />

responsibility organization (“PRO”). The clients of PRO transfer the responsibility for execution of recycling<br />

quota of the certain types of waste to PRO, which procure waste recovery so that their clients are exempted from<br />

the NRT. For more information please see: “Regulatory Information – Environmental and other Licenses and<br />

Permits”.<br />

The table below presents NRT rates for different types of packaging products (EUR per ton).<br />

Since 2009 2008 2007<br />

Glass 357 286 229<br />

Polymers (including PET) 929 857 571<br />

Metal 1,000 643 343<br />

Wood, paper, cardboard 214 214 71<br />

Source: Natural Resources Tax Law of the Republic of Latvia, dated 15 December 2005<br />

PRO in cooperation with waste management organisations (collectors, traders, recyclers) develops the system for<br />

separate collection of waste and organises recycling of the collected materials and implements activities to<br />

educate and motivate the inhabitants. The payment for the services provided by PRO is even up to 95 % lower<br />

than the amount of NRT for an identical volume of materials.<br />

The table below presents data on fees for waste recovery in 2012 in different EU countries (EUR per tonne, VAT<br />

excluded).<br />

Material<br />

Latvia<br />

Estonia (Sales<br />

packaging)<br />

Estonia<br />

(Transport<br />

packaging) Lithuania<br />

Glass 56.3 102.0 - 59.37<br />

Paper, cardboard 33.0 105.0 93.0 1.3<br />

Plastics (polymers) 149.1 409.0 109.0 27.51*<br />

Metal 68.3 255.0 128.0 27.51<br />

Wood 15.6 41.0 41.0 1.3<br />

* excluding PET<br />

Source: Official website of PRO Europe, http://pro-e.org/Overviewoflicensefees.html<br />

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The table below presents amounts of different types of packaging waste under PRO recovery in Latvia in years<br />

2009 – 2013 (in tonnes).<br />

2011 2010 2009<br />

Glass 51,200 49,042 42,608<br />

Polymers 34,203 33,078 27,984<br />

Metal 9,852 9,279 7,777<br />

Paper, cardboard 60,207 59,846 54,707<br />

Wood 47,205 48,885 39,948<br />

Total 202,667 200,130 173,024<br />

Source: The Latvian Environmental Protection Fund Administration<br />

The table below presents amounts of WEEE under PRO management in years 2009 – 2011 (in tonnes).<br />

2011 2010 2009<br />

WEEE 15,704 15,441 15,555<br />

Source: The Latvian Environmental Protection Fund Administration<br />

The table below presents amounts of different types of GHE under PRO management in years 2009 – 2011 (in<br />

tonnes and pieces).<br />

2011 2010 2009<br />

Lubricant oils 18,532 16,275 12,737<br />

Electric batteries, led 4,940 3,788 2,623<br />

Electric batteries, Ni-Cd and Fe-Ni 44 42 36<br />

Galvanic elements and galvanic batteries 349 330 290<br />

Other electric batteries 61 59 21<br />

All types of tires 12,100 8,601 5,437<br />

Total 36,026 29,094 21,144<br />

Oil filters (piece) 557,321 556,399 488,684<br />

Source: The Latvian Environmental Protection Fund Administration<br />

Market structure<br />

According to calculations based on data from Latvian Environmental Protection Fund Administration (calculated<br />

as percentage of total volume of waste under PRO’s management) LZP had 52% market share in organisation of<br />

waste recovery segment in 2011.<br />

Due to the high market entry barriers (high capital investments and licensing requirement) the packaging waste<br />

segment is dominated by two local players: LZP (the Group <strong>Company</strong>) and Zala Josta. The smallest market<br />

player Zalais Centrs is locally owned company, mainly competing with lower prices. In 2011 LZP had 60%<br />

market share (calculated as percentage of total volume of packaging waste under PRO’s management) in<br />

packaging waste recovery segment.<br />

The WEEE segment is also characterized by the high market entry barriers due to capital investments and<br />

licensing requirements. There are three main players operating in this segment: LZP, Latvijas Zalais Elektrons<br />

and Zala Josta. In 2011 LZP had 23% market share (calculated as percentage of total volume of WEEE under<br />

PRO’s management) in WEEE recovery segment. The other two market players have been increasing their<br />

market shares by decreasing prices, while LZP has maintained a loyal client base, mainly servicing those<br />

companies, which also have packaging waste or GHE to be recovered.<br />

As two other organisations of waste recovery segments, the GHE segment is also characterized by the high<br />

market entry barriers due to capital investments and licensing requirements. The main market participants are<br />

LZP and Zala Josta. Other relatively small market participants are locally owned companies. In 2011 LZP had<br />

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20% market share (calculated as percentage of total volume of GHE, excluding oil filters, under PRO’s<br />

management) in GHE recovery segment.<br />

Waste Collection<br />

Overview<br />

Municipal solid waste forms the major part of total waste collected in Latvia, followed by construction and bulky<br />

waste, WEEE and GHE. Waste collection companies collect different types of waste and transport them to:<br />

landfills, companies that purchase, sort and trade recyclable waste, or waste recyclers.<br />

Market for waste collection is regionally fragmented – there are 10 waste management regions, each having its<br />

rules, tariffs and market participants. This is caused by the delegation of waste management tasks to<br />

municipalities in accordance with the legislation (please see: “Regulatory Information - Environmental and other<br />

Licenses and Permits”). In 5 out of 10 waste management regions the waste collection market is still controlled<br />

by companies which are owned by municipalities. The regions where private waste collection companies operate<br />

are: capital city of Riga and its region, Piejura, Liepaja, Austrumlatgale and Zemgale.<br />

The chart below presents percentage breakdown of waste landfilled in Latvian regions in 2010.<br />

* In English: Costal region<br />

** In English: Southern Latgale<br />

*** In English: Eastern Latgale<br />

Source: Latvian Environment, Geology and Meteorology Centre<br />

According to the chart presented above almost half of waste landfilled in Latvia, are disposed in Riga region.<br />

Based on the assumption, that most of waste generated in the region is landfilled in the same region (due to costs<br />

of transportation), it could be stated that Riga region generates almost half of total volume of waste generated in<br />

Latvia.<br />

Waste collection companies are also involved in providing broader range of services, e.g., street and beach<br />

cleaning; communal services: city cleaning in winter and summer, grass mowing, planting of greenery and daily<br />

maintenance, biological waste management and sewage and pit services.<br />

Market structure<br />

Zemgale<br />

7%<br />

Piejura*<br />

6%<br />

Liepaja region<br />

7%<br />

Others<br />

14%<br />

Dienvidlatgale**<br />

7%<br />

Austrumlatgale***<br />

11%<br />

Riga region<br />

48%<br />

Both local and international companies are present on the Latvian waste collection market. International market<br />

participants include Finnish Lassila & Tikanoja (hereinafter L&T) and Swedish Ragn Sells. Each of 5 regions,<br />

where private waste collection companies operate, differs in terms of companies present on the waste collection<br />

market.<br />

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Riga and its region, as the biggest, is the most competitive. The following companies are active in this market:<br />

L&T, Vides Investicijas (company which acquired business of Veolia in Latvia in May 2012), Ragn Sells, and<br />

the Group.<br />

In Piejura (Costal) region, the biggest market share belongs to the Group Companies - Jurmalas ATU and<br />

Kurzemes Ainava, with minor competition from other waste collection companies.<br />

Waste collection market in Liepaja region is divided between Eko Kurzeme (Group <strong>Company</strong>), having strong<br />

position and company Nordia.<br />

Waste collection market in Austrumlatgale (Eastern Latgale) region is divided between Vides Investicijas<br />

(formerly Veolia), L&T and regional municipal companies.<br />

Waste collection market in Zemgale region is dominated by Jelgava Kulk, with smaller market share of regional<br />

municipal companies.<br />

Recyclables Sorting and Trading<br />

Overview<br />

Companies active in this market purchase or collect materials that can be recycled from waste management<br />

companies and companies that generate packaging waste. The major part of materials being recycled are:<br />

packaging waste (paper and cardboard, polymers, glass, metal), GHE and WEEE. The purchased material is then<br />

sorted and sold as raw materials to recyclers (both in Latvia and abroad) for further recycling or regeneration.<br />

Sorting and trading market is closely correlated with organisation of waste recovery market and companies<br />

present in this market widely cooperate with PROs.<br />

Market structure<br />

Both Latvian and international companies are active on sorting and trading market. Key market players are: the<br />

Group <strong>Company</strong> - Eko Reverss (paper and cardboard, PET and PE, glass, metal, tires, mineral oils and WEEE ),<br />

L&T (paper and cardboard, PET and PE), Vides Investicijas (paper and cardboard, PET and PE, glass), Ragn<br />

Sells (paper and cardboard), Gofre Baltija (paper and cardboard, PET and PE), Juglas Papirs (paper and<br />

cardboard), MKK (paper and cardboard), Pak Demiks (PET and PE) and Riork (paper and cardboard, PET and<br />

PE). Depending on their strategy and core activities market participants implement different business models: (i)<br />

sorting of recyclables collected by group companies, buying additional recyclables and then exporting them or<br />

supplying group companies (Eko Reverss), (ii) sorting own (collected) recyclables, buying small amount of<br />

recyclable material from industrial companies and then exporting them (L&T, Vides Investicijas, Ragn Sells),<br />

(iii) buying recyclables and then exporting them (Gofre Baltija, Juglas Papirs, MKK, Pak Demiks, Riork).<br />

The chart below sets forth market structure in export of recyclables in 2010.<br />

Source: Latvian Environment, Geology and Meteorology Centre<br />

Eko Reverss<br />

41%<br />

Other market<br />

players<br />

41%<br />

L&T<br />

18%<br />

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In accordance with data from Latvian Environment, Geology and Meteorology Centre 41% of total amount of<br />

recyclables exported from Latvia was exported by Eko Reverss. The second biggest exporter was L&T with 18%<br />

share. Other market participants had 41% export market share.<br />

Recycling<br />

Overview<br />

Latvian recycling market cannot be treated as purely local market, but part of regional market instead. Therefore<br />

it is difficult to estimate its size on the country level. Recycling companies usually specialize in one specific<br />

sector depending on the type of material they recycle.<br />

All market participants in Latvia are niche oriented with focus on one specific type of material. Main Latvian<br />

companies operating on the recycling market are as follows: Nordic Plast (LDPE and HDPE pellets), PET Baltija<br />

(PET flakes), Ligatnes paper mill (paper and cardboard), Juglas papirs (paper and cardboard), Tolmets (scrap<br />

metal) and Liepajas Metalurgs (scrap metal).<br />

PET and polymers collected in Latvia are mainly recycled locally. PET Baltija has strong position in the Baltic<br />

region in PET bottles recycling, while Nordic Plast is the leading PE recycler in Latvia and has strong position in<br />

the Baltics. Other independent market participants in the region are: Preformia (Finland) and Plastitehase<br />

(Estonia).<br />

Paper and cardboard waste collected in Latvia is mainly exported for recycling and regeneration due to<br />

insufficient local processing capacities. Lithuanian recycling factories obtain the most paper and cardboard waste<br />

for recycling in the Baltics. Key players in the region are: Klaipedos Kartonas (Lithuania), Ligatnes paper mill<br />

and V.L.T. (both Latvia).<br />

Glass waste from Latvia is mainly exported to recyclers in Estonia, Lithuania, Belarus and Ukraine, since local<br />

recycling factories have terminated their operations due to their small size. Key market participants in the region<br />

are: Jarvakandi klaas (Estonia), Jelizava (Belarus), Warta Glass Panevezys (Lithuania) and Vetropac (Ukraine).<br />

PET recycling<br />

The Group is active in recycling of PET raw material into PET flakes.<br />

The chart below presents data on maximum output capacity of European PET recycling industry in years 2003-<br />

2011 (tonnes in thousands).<br />

Source: Petcore, 2012<br />

1500<br />

1000<br />

500<br />

0<br />

562<br />

603<br />

693<br />

825<br />

935<br />

952<br />

1102<br />

1218<br />

1305<br />

2003 2004 2005 2006 2007 2008 2009 2010 2011<br />

According to estimates based on data from Petcore in 2011 PET Baltija was market leader in both Latvia and the<br />

Baltics with 100% and 86% market share respectively. Looking on the broader perspective, market share of PET<br />

Baltija could be estimated (based on data from Petcore) on: 9% in CEE and Scandinavia and 1.8% in Europe.<br />

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Landfilling<br />

BMWARDOCS232112v37<br />

Landfills are currently primarily places to dispose waste. During last 10 years more than 500 waste disposal sites<br />

were closed in Latvia. Currently, 10 up to date landfill sites are operational. Each waste management region has<br />

one landfill, which is owned by the regional municipality. The biggest landfill in Latvia is Eko Getlini, which is<br />

located 15 kilometres from the centre of Riga.<br />

As of today vast majority of waste is disposed without any treatment. Although, in accordance with EU<br />

regulations implemented in the Latvian law, in the nearest future all landfilled waste should be pre-treated,<br />

meaning that before being disposed of in landfill, all waste must be treated to reduce its quantity and/or its<br />

environmental impact.<br />

According to data released by the Latvian Public Utilities Commission landfill tariffs in Latvia in 2012 range<br />

from EUR 20 per tonne to EUR 32.2 per tonne, amounting to EUR 23.7 per tonne in Getlini Eko, EUR 31.9 per<br />

tonne on Liepajas RAS and EUR 27.5 per tonne on Piejura (all presented amounts excluding VAT).<br />

The chart below presents data on average price for waste disposal on landfills in certain EU countries in 2012 (in<br />

EUR per tonne).<br />

200<br />

150<br />

100<br />

50<br />

0<br />

182<br />

135<br />

128 126 110<br />

98 96 100<br />

87<br />

43 40 35 33<br />

Source: Confederation of European Waste-to-Energy Plants, Landfill taxes & bans, 12 December 2011<br />

28 23<br />

In accordance with the chart presented above, average price for waste disposal on landfills in Latvia is<br />

substantially lower than in other EU countries. It should be underlined that average price for waste disposal on<br />

landfills in Latvia is lower than in other Baltic States - Lithuania and Estonia.<br />

Industry Prospects<br />

The waste management industry in Latvia, as well as in other Baltic States, is undergoing rapid convergence<br />

with developed Western European countries. The following factors could be deemed as having crucial role in<br />

future development of waste management industry in Latvia:<br />

Increase in waste generation. While undergoing economical and social convergence to the levels of<br />

development of Western European countries and level of residual income and domestic consumption<br />

levels of per capita waste produced in Latvia should increase in accordance with increase in average<br />

income levels of the population.<br />

Decrease in waste disposal on landfills. In accordance with the EU policy, Latvia should decrease volume<br />

of waste disposed into or onto land. This could be reached by, e.g. pre-treatment of waste. In other EU<br />

countries (including, e.g., Estonia) this target was reached by increase of taxes for landfill waste. In<br />

accordance with Confederation of European Waste-to-Energy Plants dated 12 December 2011 the<br />

environmental tax for landfill in Estonia will raise 20% per year until 2015.<br />

Increase in packaging waste recycling and recovery ratio. In accordance with EU legislation implemented<br />

in Latvia the ratios of recovered waste in 2015 should reach 60% (from 55% in 2011) of total packaging<br />

waste generated.<br />

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BMWARDOCS232112v37<br />

Opening market for waste collection in certain regions. Currently 5 out of 10 waste collection regions in<br />

Latvia are open (meaning that private waste collection companies are allowed to operate there), while in<br />

other regions the waste collection markets are still controlled by companies which are owned by<br />

municipalities. Opening of waste collection markets in those regions could give development<br />

opportunities for privately owned waste management companies. In accordance with Latvian law, it’s<br />

municipality’s decision to open the waste collection market in its region.<br />

Changes in tariffs calculation. The waste collection industry will observe a shift from collection tariff<br />

calculation on per person/m 3 basis towards calculation based on actual amount collected, which could<br />

increase waste collection tariffs.<br />

Implementation of deposit system for one-way soft drink bottles. Expected implementation of one-way soft<br />

drink bottles deposit system in next 2-3 years in Latvia will significantly increase the domestic supply of<br />

raw materials, including PET bottles.<br />

Increase in fees for packaging waste recovery under PRO. The expected fee growth should be based on<br />

increasing recycling targets (i.e., more amount of packaging waste should be recovered), which will lead<br />

to increase of marginal cost of packaging recovery.<br />

Innovation in recycling technology. Continuous development of technology allows introducing new<br />

recycling methods. This provides opportunity to, e.g., produce higher value added products in recycling.<br />

Increase in environmental public awareness. Educating society in order to urge people to sort different<br />

types of waste in the households could lead to increase availability and value of recyclable material. This<br />

allows more efficient treatment of waste.<br />

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BMWARDOCS232112v37<br />

REGULATORY INFORMATION<br />

This section provides a short summary of laws and legal regulations in Latvia binding at the date of this<br />

Prospectus that, in the <strong>Company</strong>’s opinion, are relevant for carrying out waste management business activities<br />

by the Group. Please note that the selection of legal provisions has been made at the sole discretion of the<br />

<strong>Company</strong> and this does not purport to be a complete overview of the relevant regulatory systems. Please note<br />

that laws and regulations are subject to changes and amendments, and the information contained herein is not<br />

updated following the issuance of the Prospectus. Investors are advised to make their own investigation and<br />

obtain independent legal advice should they wish to incorporate regulatory information into their investment<br />

decisions.<br />

Environmental and other Licenses and Permits<br />

The Group Companies operate in the environment management sector and in particular in the waste<br />

management, including waste collection, transport, reloading, storage, sorting and, trading, as well as waste<br />

recycling. However, one of the Group Companies LZP maintains the major producers’ responsibility system in<br />

Latvia, which ensures the management of packaging waste, waste electric and electronic equipment and waste of<br />

goods harmful to the environment. Pursuant to the general principles provided in the Waste Management Law of<br />

the Republic of Latvia, dated 28 October 2010, as amended (the “Waste Management Law”), waste management<br />

should not negatively affect the environment and should be performed in such a way which would not threaten<br />

human life and health. Accordingly, the operations of waste management companies are subject to various<br />

mandatory environmental and licensing requirements. In addition, operations of waste managers are subject to<br />

the so-called strict liability, i.e. in case of environmental damage or imminent threat of damage to environment<br />

occurred, waste managers would be liable for environmental damage or imminent threat of damage irrespective<br />

of their fault.<br />

Pursuant to the definition provided in the Waste Management Law, waste is any object or substance, which the<br />

holder discards or intends or is required to discard. For regulatory purposes 3 groups of waste may be separated:<br />

(i) household waste, (ii) hazardous waste, and (iii) waste packaging and goods harmful to the environment,<br />

including without limitation waste accumulators, used vehicles and waste electrical and electronic equipment.<br />

Any activities with waste in Latvia may be performed only in accordance with the provisions of the Waste<br />

Management Law and secondary legislation adopted on the basis of this law. For the purposes, inter alia, of<br />

ensuring of establishment of a rational packaging waste management system in the state and thereby reducing<br />

the undesirable impact of packaging waste on the environment the legislator has adopted the Packaging Law of<br />

the Republic of Latvia, dated 20 December 2001, as amended (the “Packaging Law”). However, waste<br />

packaging should be managed in accordance with the requirements of the Waste Management Law.<br />

In accordance with the Waste Management Law, waste management includes the collection, storage, transport,<br />

recovery and disposal of waste, supervision of such activities, after-care of disposal sites (landfills) after their<br />

closure, as well as trade with recyclables and mediation in the waste management. The collection, reloading,<br />

sorting, recovery or disposal of waste should be permitted only in places equipped for these purposes. Prior to<br />

commencement of performance of the relevant waste management activities the waste manager should obtain a<br />

permit from the State Environmental Service for collection, transport, reloading, sorting and storage of waste.<br />

Procedure for issue of permits is prescribed in the Regulations on Procedure for Issue and Annul of Waste<br />

Collection, Transportation, Reloading, Sorting or Storage, as well as on State Duty and Payment of it approved<br />

by the Latvian government. The permit may be issued for the term of 10 years or for a shorter term, if requested<br />

by the waste manager. In case a waste manager performs transportation of animal by-products and derived<br />

products not intended for human consumption, the waste manager should comply with the conditions set by the<br />

21 October 2009 European Parliament and Council Regulation (EC) No 1069/2009 laying down health rules as<br />

regards animal by-products and derived products not intended for human consumption and repealing Regulation<br />

(EC) No 1774/2002 and the waste manager should be registered with the Food and Veterinary Service. Whereas<br />

if a waste manager performs other activities which fall within the category of polluting activities, a separate<br />

permit for performance of category A, B or C polluting activities should be obtained in accordance with the Law<br />

on Pollution of the Republic of Latvia, dated 15 March 2001, as amended (the “Law on Pollution”). If a waste<br />

manager receives a permit for performance of category A or B polluting activities and requirements of waste<br />

collection, reloading, sorting or storage are included in this permit, the waste manager should not be obliged to<br />

receive a separate permit for waste collection, reloading, sorting or storage.<br />

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BMWARDOCS232112v37<br />

Pursuant to the Waste Management Law, the responsibility for waste management is divided in two levels –<br />

regional level and state level. Local municipalities are responsible for organisation of household waste<br />

management in the territory of the respective municipality. The state is responsible for organisation of hazardous<br />

waste management.<br />

The municipalities should, inter alia, (i) organise the management of household waste, including household<br />

produced hazardous waste, in conformity with the binding regulations of the municipality regarding management<br />

of household waste, taking into account the state waste management plan and regional plans within the<br />

administrative territory thereof; (ii) issue binding regulations regarding the management of household waste<br />

within the administrative territory thereof, determining the division of such territory into municipal waste<br />

management zones, the requirements for waste collection, also for the minimum frequency of household waste<br />

collection, transport, reloading and storage, as well as the procedures according to which payments for such<br />

waste management should be made; (iii) organise a separate waste collection within the administrative territory<br />

thereof in compliance with the state waste management plan and regional plans. Municipalities should in<br />

accordance with the procedures specified in the regulatory enactments regulating public procurement or publicprivate<br />

partnership, select a waste manager, which will perform collection, transportation, reloading and storage<br />

of household waste in the relevant household management zone. Waste producers (e.g. households) should enter<br />

into a contract with the selected waste manager. Only the waste producer, which has been exempted from paying<br />

the Natural Resources Tax (as described further in this section), is entitled to enter into a contract with the waste<br />

manager selected by the waste producer itself.<br />

In case of application of a public procurement procedure for selection of a household waste manager the<br />

municipality and the waste manager should enter into the contract for a term not shorter than 3 years and not<br />

longer than 5 years. The contract based on a public-private partnership may be entered into for a term not<br />

exceeding 20 years. According to the transitional provisions of the currently effective Waste Management Law,<br />

the contracts concluded for a definite period of time prior to 26 July 2005 without undergoing public<br />

procurement procedure, should end on the date determined in the contract; the contracts granting rights to<br />

provide waste management services concluded with municipality prior to 26 July 2005 without determining their<br />

validity and contracts entered into or extended after 26 July 2005 without applying the regulatory enactments<br />

regarding public procurement have to be terminated no later than by 1 July 2013 and the municipality should<br />

select a municipal waste manager in accordance with the procedures specified in the regulatory enactments<br />

regulating public procurement or public-private partnership. When the waste manager has been selected,<br />

municipal authorities should conclude waste management contracts with the selected entity and should terminate<br />

the former waste management contracts no later than one month after the new contract of the municipality with<br />

the selected waste manager comes into force.<br />

In parallel collection of separate waste goods in Latvia are facilitated by application of the exemption from the<br />

NRT payments for packaging and goods harmful to the environment. According to the Natural Resources Tax<br />

Law of the Republic of Latvia, dated 15 December 2005, as amended (the “Natural Resource Tax Law”)<br />

packaging and disposable tableware and accessories (including electrical and electronic equipment), as well as<br />

goods harmful to the environment and vehicles are the objects of the NRT. The NRT in relation to management<br />

of goods harmful to the environment should be by paid by a person, who first in the territory of the Republic of<br />

Latvia: (i) sells goods harmful to the environment, or (ii) for ensuring of economic activities uses goods harmful<br />

to the environment. However, in relation to packaging and disposal tableware and accessories the NRT should be<br />

paid by a person, who first in the territory of the Republic of Latvia: (i) sells goods in packaging; (ii) upon<br />

provision of a service, attaches packaging to the product; or (iii) in public catering and retail trade sells<br />

disposable tableware and accessories which are manufactured from plastic (polymers), paper, cardboard,<br />

composite materials thereof (laminates) with polymer or metal components and metal foil.<br />

Tax rates are provided in the Waste Management Law for each type of goods and packaging either for item or<br />

for kilogram of them. However, the law provides that a taxpayer should not pay the NRT for packaging or<br />

disposable tableware and accessories and for goods harmful to the environment, if the tax payer ensures<br />

fulfilment of the norms for recovery specified in the regulatory enactments regarding environment protection or<br />

has entered into agreement with the manager, which in turn has entered into an agreement with the Ministry of<br />

Environment Protection and Regional Development and the Latvian Environmental Protection Fund<br />

Administration regarding participation in the waste recovery system.<br />

On 3 November 2009 the Latvian Government has adopted two regulations on the procedure for exemption from<br />

payment of the NRT for goods harmful to the environment, including waste electrical and electronic equipment,<br />

and for packaging and disposable tableware and accessories. Namely, the Cabinet of Ministers of the Republic of<br />

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BMWARDOCS232112v37<br />

Latvia adopted the Cabinet Regulations No. 1294 Order of exemption of payment of the natural resources tax for<br />

goods harmful to the environment and the Cabinet Regulations No. 1293 Order of exemption of payment of the<br />

natural resources tax for packaging and disposal tableware and accessories. Pursuant to those regulations, the<br />

manager should co-ordinate with the Latvian Environmental Protection Fund Administration a waste recovery<br />

plan with the maximum term of 3 years on the grounds whereof the respective waste recovery system should be<br />

implemented. Prior to expiration of the indicated maximum term of 3 years a new waste recovery plan should be<br />

coordinated with competent authorities and the term may be extended for additional 3 years (the number of such<br />

extensions is currently not limited).<br />

A tax payer is entitled to enter into a contract on the management of one kind of goods harmful to the<br />

environment or waste packaging and disposal tableware and accessories only with one waste manager at a time.<br />

The manager of waste packaging and disposal tableware and accessories may be changed once a year, however,<br />

the manager of goods harmful to the environment – not more frequently than once a quarter.<br />

Production Facilities and Technological Processes<br />

Collection, reloading, sorting, storage, recovery or disposal of waste should be permitted only in places equipped<br />

for these purposes. Licenses and permits for certain processes of waste management are valid only for the places<br />

specified in the respective license or permit, and particular activities cannot be performed in other places. Waste<br />

items dangerous to environment can be collected, only if a company owns specific equipment for storage and/or<br />

utilization of such waste.<br />

According to the Waste Management Law, waste management should be performed ensuring that it does not<br />

negatively affect the environment, inter alia, does not cause threat to the water, air, soil, as well as plants and<br />

animals, does not cause a nuisance through noise or odours, does not negatively affect the countryside and<br />

specially protected nature territories or pollute or litter the environment.<br />

Fire, Health and Safety Regulation<br />

Facilities and equipment (including storage facilities, manufacturing units, waste collection and transportation<br />

vehicles) used by the Group may be considered as hazardous facilities and place of work with increased risk, and<br />

therefore they are subject to various fire, health and safety requirements.<br />

Fire safety<br />

According to the Latvian Fire Safety and Fire-fighting Law of the Republic of Latvia, dated 24 October 2002, as<br />

amended, and secondary regulatory enactments, the management board of the company is responsible for fire<br />

safety in the company. The management board of the company may delegate individual obligations in relation to<br />

fire safety to a responsible employee. The company should have instructions applicable in case of fire, as well as<br />

fire safety instructions. In a company employing more than 10 employees a responsible person and persons<br />

developing instructions applicable in case of fire and fire safety instructions must have completed specific<br />

educational programs accepted by the state authorities. Evacuation plans should be developed for facilities and<br />

premises, where more than 50 persons may be present at the same time. Prior to commencement of operation of<br />

a newly constructed facility, the permit from the State Fire and Rescue Service (the “SFRS”) must be obtained.<br />

If a fire safety violation occurs, the SFRS may impose fines, oblige the entity to eliminate the shortages or apply<br />

preventive measures on the relevant entity (including suspension of its operations, manufacturing facilities, or<br />

use of buildings, premises and equipment).<br />

Health and safety<br />

The management of waste involves employees performing certain hazardous tasks, such as collection and<br />

transportation of waste materials, working with potentially dangerous substances, operating storage and<br />

transportation facilities, loading and unloading potentially dangerous materials, operating manufacturing<br />

equipment, etc. Each of these tasks can raise the risks of accidents at workplace. Companies, operating in Latvia<br />

and employing employees, are subject to various requirements in relation to safety of workplace.<br />

According to the Labour Protection Law of the Republic of Latvia, dated 20 June 2001, as amended, an<br />

employer is obliged to organise a labour protection system, which includes internal supervision of the working<br />

environment, evaluation of the working environment risks, establishment of an organisational structure of the<br />

labour protection (appointing responsible person in relation to labour protection, development of labour<br />

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BMWARDOCS232112v37<br />

protection documents, including, development of labour protection instructions), consultation with employees in<br />

order to involve them in the improvement of labour protection. The State Labour Inspectorate (the “SLI”)<br />

monitors correspondence of operations of employers to the labour protection and safety requirements. The SLI<br />

has the power to inspect the work process, working environment and labour protection measures of a company at<br />

any time. The SLI also has wide powers to apply remedial measures, including, to issue warnings and orders to<br />

employers or possessors of dangerous equipment requiring elimination of inconsistency with labour safety<br />

requirements and to suspend all activities of a company, the operations whereof do not comply with the<br />

applicable law and regulations regarding labour safety. The SLI is authorised to impose fines on employers for<br />

violation of applicable regulations.<br />

Price Controls<br />

As from 18 November 2010 pursuant to the new Waste Management Law, the Latvian Public Utilities<br />

Commission (the “LPUC”) is obliged to approve the tariffs for disposal of household waste in waste landfill sites<br />

and waste dumps. Municipalities approve the binding regulations regarding fees for household waste<br />

management (except for household waste recovery) to be paid by waste producers or waste holders. On the basis<br />

of the procedures provided for in the binding regulations, municipalities determine the fees for household waste<br />

management (except household waste recovery) by their decisions, and such fees include: (i) payment for<br />

collection, transport, reloading, storage, maintaining of separate waste collection, sorting and reloading<br />

infrastructure objects in compliance with a contract, which has been entered into with the waste manager, (ii) the<br />

tariff for the municipal waste disposal in landfill sites and waste dumps approved by the LPUC; and (iii) NRT<br />

for disposal of waste in the amount specified in the regulatory enactments. The waste manager determines its<br />

fees for collection, transport, reloading, storage, maintaining of separate waste collection, sorting and reloading<br />

infrastructure objects in a competitive manner with an aim to be selected in accordance with the public<br />

procurement procedure for entering into a contracts on household waste management with municipalities.<br />

Municipalities are entitled to adjust these fees due to changes in the tariff for the municipal waste disposal in<br />

landfill sites and waste dumps approved by the LPUC or in the natural resources tax for disposal of waste in the<br />

amount, specified in the regulatory enactments.<br />

Pursuant to the Waste Management Law, during the transition period (until municipalities have entered into a<br />

contracts on household waste management with waste management companies selected in accordance with the<br />

public procurement procedures), the fees for household waste management should comply with the last tariff<br />

approved by the LPUC for household waste management which has been determined prior to 18 November<br />

2010. Municipalities are entitled to adjust the tariff for household waste management due to the changes in the<br />

tariff for the municipal waste disposal in landfill sites and waste dumps approved by the LPUC or in the natural<br />

resources tax for disposal of waste in the amount specified in the regulatory enactments.<br />

Antimonopoly Laws<br />

Under Competition Law of the Republic of Latvia, dated 1 October 2001, as amended, a market participant<br />

(including all entities connected to it by virtue of control) or several market participants jointly having position<br />

of economic strength which enables them individually or jointly to significantly hinder, restrict or distort<br />

competition in any relevant market for a sufficient period of time by acting with full or partial independence<br />

from competitors, clients, suppliers or consumers are considered to have an individual or collective dominant<br />

position in the relevant market. Although Latvian laws do not provide for a particular market share in the<br />

relevant market at which a dominant position should be presumed, determining of the market share is an<br />

important criterion for establishment of a dominant position under the law. The Latvian Competition Council<br />

(the “LCC”) and courts when analysing dominance of a market player in the relevant market refer to the<br />

European Court of Justice (the “ECJ”) case law in relation to the market shares as one of the criteria for<br />

establishment of dominance. A market participant having market share of 50% in the relevant market is<br />

presumed to have a dominant position in the relevant product market, unless it can prove that significant<br />

competition exists in that relevant market and that it is subject to such competition. A company with a market<br />

share of 35% or less can still be recognised as having a dominant market position if such company does not face<br />

high competition in relation to the relevant market, for example, due to low market shares of its competitors.<br />

Being in a dominant position is not itself punishable. However, the law applies additional restrictions on<br />

companies in a dominant position and the LCC reviews the activities of such companies with particular scrutiny.<br />

Potentially dominant companies should regularly perform self-evaluation of their positions in the relevant<br />

markets and in case of finding themselves in a dominant position in any of relevant market, should make sure<br />

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BMWARDOCS232112v37<br />

that they observe the provisions binding upon the dominant market participants, which in particular prohibit<br />

abuse of such a dominant position.<br />

Latvian law provides a non-exhaustive list of activities that may be regarded as abuses of one’s dominant market<br />

position. The abuse of one’s dominant position is prohibited by law and is punishable with an administrative fine<br />

of up to 10% of the net annual global group turnover of the company and its related entities in the preceding<br />

financial year.<br />

Latvian law provides that if damages are caused to third parties as a result of abuse by a company of its dominant<br />

position, such damages can be sought by third parties through court proceedings.<br />

Activities that can be regarded as abuse of a dominant position include, but are not limited to: refusal to enter<br />

into transactions or to amend provisions of a transaction without an objectively justifiable reason, limiting<br />

production, markets or technical development to the prejudice of consumers, making conclusion of contracts<br />

subject to acceptance by other parties of supplementary obligations, which, by their nature or according to<br />

commercial usage, have no connection with the subject of such contracts, imposing unfair purchase or selling<br />

prices or other unfair trading conditions, applying dissimilar conditions to equivalent transactions with other<br />

trading parties, thereby placing them at a competitive disadvantage.<br />

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The Issuer<br />

BMWARDOCS232112v37<br />

GENERAL INFORMATION ON THE ISSUER<br />

The Issuer was incorporated in Latvia as <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> KREDO TONIKA on 11 August 2011. On 25<br />

April 2012 it was renamed into <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> <strong>Eco</strong> <strong>Baltia</strong>. The registered office of the Issuer is at Darza<br />

iela 2, Riga, LV-1007, Latvia. The telephone and fax number of the registered office is +371 6784 3796 and<br />

+371 6784 3765 respectively.<br />

<strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> <strong>Eco</strong> <strong>Baltia</strong> is a holding company of the Group whose principal assets are interests in equity<br />

of the Group Companies incorporated and/or operating in Latvia in waste management industry. The Issuer does<br />

not carry any business operations except for direct and indirect holding of interests in equity in the Group<br />

Companies. The Group’s business operations are conducted through its Latvian subsidiaries.<br />

Corporate Purpose<br />

The Articles of Association of the <strong>Company</strong> are in conformity with the requirements of the Latvian law. The<br />

latest version of the Articles of Association was registered with the Commercial Register on 18 May 2012.<br />

The <strong>Company</strong> has been established to gain profit by carrying out commercial activities efficiently and<br />

productively as provided in Article 1 of the Latvian Commercial Law. The <strong>Company</strong> is a holding company for a<br />

number of waste management companies. The main types of commercial activities of the <strong>Company</strong> are provided<br />

in Article 3 and are the following: (i) activities of holding companies, (ii) activities of head offices, and (iii)<br />

management consultancy activities.<br />

Corporate Resolutions and the Share Capital<br />

Upon the Issuer’s incorporation on 11 August 2011 its issued share capital amounted to LVL 25,000<br />

consisting of 25,000 ordinary registered shares, with a nominal value of LVL 1.00 each.<br />

On 25 April 2012 the Issuer’s share capital was increased up to LVL 22,425,000 consisting of 22,425,000<br />

ordinary registered shares, with a nominal value of LVL 1.00 each.<br />

On 18 May 2012 the Issuer’s 22,425,000 ordinary registered shares with a nominal value of LVL 1.00<br />

each were converted into 22,425,000 bearer shares with a nominal value of LVL 1.00 each.<br />

On 17 May 2012 the Supervisory Board consented to and the Management Board adopted the decision to<br />

increase the share capital of the Issuer up to LVL 6,279,000, by issuing up to 6,279,000 new bearer shares<br />

with the nominal value of LVL 1.00 each.<br />

As at the date of this Prospectus, all of the Shares, including the Sale Shares, are bearer shares and are fully paid<br />

up and rank pari passu with each other and there is no other class of shares authorised. There are no different<br />

voting rights, and each share should carry one vote. The Shares, including the Sale Shares, are registered with<br />

the LCD under ISIN number LV0000101350. The Issuer offers for subscription also the New Shares. The<br />

shareholders will acquire the rights arising from the New Shares after their issue. The New Shares, when issued,<br />

will be bearer shares and will rank pari passu with other Shares, including the Sale Shares. The New Shares will<br />

be provided with the same ISIN number. No depositary receipts for Shares in the capital of the Issuer have been<br />

issued with the agreement of the Issuer, and the Issuer has not been informed that depositary receipts for Shares<br />

in the capital of the Issuer have been issued without its agreement.<br />

The Issuer has not issued any shares that do not represent participation in the share capital. No shares in the<br />

Issuer are held by or on behalf of the Issuer or by direct and indirect subsidiaries of the Issuer. The Issuer has not<br />

issued any convertible shares or bonds, exchangeable shares or shares with warrants. The Issuer has not issued<br />

any acquisition rights or obligations over authorized but unissued capital or an undertaking to increase the<br />

capital. The Issuer has not issued any share options.<br />

Furthermore, there are no provisions of the Issuer’s Articles of Association or other documentation that would<br />

have an effect of delaying, deferring or preventing a change in control of the Issuer, also governing the<br />

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BMWARDOCS232112v37<br />

ownership threshold, above which the shareholder ownership must be disclosed. Moreover, there are no<br />

conditions imposed by the Articles of Association governing changes in the capital, where such conditions are<br />

more stringent than is required by the law.<br />

All the Shares, including the Offer Shares, have been or will be issued under the Latvian Financial Instrument<br />

Market Law, the Latvian Commercial Law, the Latvian Civil Law dated 28 January 1937, as amended, and other<br />

related legal acts.<br />

The table below shows the current Issuer’s issued and paid-up share capital and the Issuer’s issued and paid-up<br />

share capital assuming all of the New Shares have been issued.<br />

Cumulative number<br />

of shares<br />

Nominal value<br />

(LVL per share)<br />

Current shares issued as at the date of the Prospectus 22,425,000 1.00<br />

Shares to be issued for the Offering 6,279,000 1.00<br />

Total issued shares post-Offering 28,704,000 1.00<br />

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BMWARDOCS232112v37<br />

Description of the Group<br />

GROUP STRUCTURE<br />

The following chart sets out the Issuer’s principal subsidiaries and interests in those subsidiaries, as well as the<br />

structure of the Group, in each case as on the date of the Prospectus. For a more detailed description of the<br />

assets, see “Business”.<br />

<strong>Eco</strong> <strong>Baltia</strong> (the Issuer)<br />

The Issuer is the parent company of the Group. The table below sets forth certain important information on the<br />

Issuer.<br />

For further information on <strong>Eco</strong> <strong>Baltia</strong>, please see: “General Information on the Issuer.”<br />

<strong>Company</strong> name: <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> <strong>Eco</strong> <strong>Baltia</strong><br />

Registered office: Darza iela 2, Riga, LV-1007, Latvia<br />

Date of incorporation: 11 August 2011<br />

Corporate code: 40103446506<br />

Profile of business: Holding company<br />

Members of the<br />

Management Board:<br />

Members of the<br />

Supervisory Board:<br />

Latvijas Zalais punkts<br />

Eko Reverss<br />

Maris Simanovics (chairman of the Management Board)<br />

Undine Bude<br />

Viesturs Tamuzs<br />

Olaf Martens<br />

Raitis Maurans (chairman of the Supervisory Board)<br />

Eduards Ekarts (deputy chairman of the Supervisory Board)<br />

Lelde Vitina<br />

Ugis Treilons<br />

75.13%<br />

100%<br />

Martins Knipsis<br />

Authorized capital: LVL 22,425,000<br />

<strong>Eco</strong> <strong>Baltia</strong><br />

Eko SPV<br />

Eko Baltija<br />

100%<br />

100%<br />

91.03%<br />

100%<br />

100%<br />

90%<br />

100%<br />

100%<br />

100%<br />

PET Baltija<br />

Nordic Plast<br />

Eko Riga<br />

Vaania<br />

Eko Kurzeme<br />

Jurmalas ATU<br />

Kurzemes Ainava<br />

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BMWARDOCS232112v37<br />

Shares: 22,425,000 bearer shares with a nominal value of LVL 1.00 each<br />

Subsidiaries<br />

The Issuer is a sole direct shareholder of Eko SPV, which is the sole direct shareholder of Eko Baltija, holding<br />

company of the Group Companies. Eko Baltija is a Latvian holding company that is the direct and indirect<br />

shareholder of Latvian operating companies.<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Eko SPV<br />

Registered office: Darza iela 2, Riga, LV-1007, Latvia<br />

Date of incorporation: 8 July 2011<br />

Corporate code: 40103435432<br />

Profile of business: Holding company<br />

Members of the<br />

management board:<br />

Maris Simanovics<br />

Undine Bude<br />

Viesturs Tamuzs<br />

Authorized capital: LVL 10,000<br />

Shares: 10,000 one class capital shares with nominal value LVL 1.00 each<br />

Shareholders: <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> <strong>Eco</strong> <strong>Baltia</strong> – 10,000 shares (100% of the share capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Eko Baltija<br />

Registered office: Darza iela 2, Riga, LV-1007, Latvia<br />

Date of incorporation: 12 February 2002<br />

Corporate code: 40003582465<br />

Profile of business: Holding company<br />

Members of the<br />

management board:<br />

Members of the supervisory<br />

board:<br />

Maris Simanovics (chairman of the management board)<br />

Undine Bude<br />

Viesturs Tamuzs<br />

Eduards Ekarts (chairman of the supervisory board)<br />

Raitis Maurans (deputy chairman of the supervisory board)<br />

Lelde Vitina<br />

Authorized capital: LVL 150,000<br />

Shares: 150 one class capital shares with nominal value LVL 1,000 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko SPV – 150 shares (100% of the share capital)<br />

The Group’s business is carried out by operating companies incorporated under the laws of Latvia. The tables<br />

below indicate the most important corporate information on the Group’s operating companies:<br />

<strong>Company</strong> name: <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> Latvijas Zalais punkts<br />

Registered office: Maskavas iela 240-3, Riga, LV-1063, Latvia<br />

Date of incorporation: 11 January 2000<br />

Corporate code: 40003475890<br />

Profile of business: Packaging recovery organization<br />

Members of the<br />

management board:<br />

Maris Simanovics (chairman of the management board)<br />

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BMWARDOCS232112v37<br />

Members of the supervisory<br />

board:<br />

Edmunds Jansons<br />

Sigita Namateva<br />

Kaspars Zakulis<br />

Undine Bude (chairman of the supervisory board)<br />

Viesturs Tamuzs (deputy chairman of the supervisory board)<br />

Martins Knipsis<br />

Iveta Krauja<br />

Egils Svars<br />

Authorized capital: LVL 764,000<br />

Shares: 764 ordinary registered shares with nominal value LVL 1,000 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 574 shares (75.13% of the share<br />

capital)<br />

Latvian Packaging Association – 38 shares (4.97% of the share capital)<br />

Limited Liability <strong>Company</strong> TETRA PAK – 102 shares (13.35% of the share<br />

capital)<br />

Limited Liability <strong>Company</strong> Zala Josta – 50 shares (6.54% of the share capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Eko Riga<br />

Registered office: Maskavas iela 240-3, Riga, LV-1063, Latvia<br />

Date of incorporation: 27 February 2004<br />

Corporate code: 40003667382<br />

Profile of business: Waste collection<br />

Members of the<br />

management board:<br />

Management board should consist of 4 members. Currently 3 members are<br />

elected to the board; Mr. Petur Valdimarsson has resigned from the<br />

management board member position on 17 October 2011; the changes have not<br />

been made public with the Commercial Register. Consequently, as of the date of<br />

the Prospectus one position is vacant, and the management board consist of:<br />

Edmunds Jansons (chairman of the management board)<br />

Maris Simanovics<br />

Gints Barkovskis<br />

Authorized capital: LVL 258,330<br />

Shares: 25,833 one class capital shares with nominal value LVL 10 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 25,833 shares (100% of the share<br />

capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Eko Kurzeme<br />

Registered office: Ezermalas iela 11, Liepaja, LV-3401, Latvia<br />

Date of incorporation: 28 April 2003<br />

Corporate code: 42103030389<br />

Profile of business: Waste collection<br />

Members of the<br />

management board:<br />

Gints Barkovskis (chairman of the management board)<br />

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BMWARDOCS232112v37<br />

Laura Berga<br />

Edmunds Jansons<br />

Sigita Namateva<br />

Maris Simanovics<br />

Authorized capital: LVL 123,120<br />

Shares: 144 one class capital shares with nominal value LVL 855 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 144 shares (100% of the share capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Jurmalas ATU<br />

Registered office: Dzirnavu iela 5A, Jurmala, LV-2011, Latvia<br />

Date of incorporation: 20 September 1996<br />

Corporate code: 40003309841<br />

Profile of business: Waste collection<br />

Members of the<br />

management board:<br />

Gints Barkovskis (chairman of the management board)<br />

Laura Berga<br />

Edmunds Jansons<br />

Sigita Namateva<br />

Maris Simanovics<br />

Authorized capital: LVL 143,000<br />

Shares: 286 one class capital shares with nominal value LVL 500 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 286 shares (100% of the share capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Kurzemes Ainava<br />

Registered office: Dienvidu iela 2, Tukums, Tukums District, LV-3101, Latvia<br />

Date of incorporation: 11 June 1998<br />

Corporate code: 40003397793<br />

Profile of business: Waste collection<br />

Members of the<br />

management board:<br />

Edmunds Jansons (chairman of the management board)<br />

Sigita Namateva<br />

Maris Simanovics<br />

Gints Barkovskis<br />

Laura Berga<br />

Authorized capital: LVL 69,000<br />

Shares: 1,380 one class capital shares with nominal value LVL 50 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 1,380 shares (100% of the share<br />

capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Vaania<br />

Registered office: Rudolfa Blaumana iela 10, Sigulda, Sigulda District, LV-2150, Latvia<br />

Date of incorporation: 15 May 2003<br />

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BMWARDOCS232112v37<br />

Corporate code: 40003630534<br />

Profile of business: Holding concession to use Jumis<br />

Members of the<br />

management board:<br />

Management board should consist of 3 members. Currently 2 members are<br />

elected to the board. Mr. Petur Valdimarsson has resigned from the<br />

management board member position on 17 October 2011; the changes have not<br />

been made public with the Commercial Register. Consequently, as of the date of<br />

the Prospectus and one position is vacant, and the management board consist of:<br />

Janis Pukis (chairman of the management board)<br />

Ausma Ece<br />

Authorized capital: LVL 52,000<br />

Shares: 52,000 one class capital shares with nominal value LVL 1.00 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 46,800 shares (90% of the share<br />

capital)<br />

Aktsiaselts VSA Eesti – 5,200 shares (10% of the share capital)<br />

Vaania holds 30-year concession to provide waste management services in the territory of Sigulda municipality<br />

using the municipality owned Jumis as the pool of property. For more information on the concession please see:<br />

“Material agreements – Waste Management Agreements – Concession agreement to use Jumis”.<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Jumis<br />

Registered office: Rudolfa Blaumana iela 10, Sigulda, Sigulda District, LV-2150, Latvia<br />

Date of incorporation: 5 December 1991<br />

Corporate code: 40103032305<br />

Profile of business: Waste collection<br />

Member of the<br />

management board:<br />

Janis Pukis<br />

Authorized capital: LVL 40,000<br />

Shares: 40,000 one class capital shares with nominal value LVL 1.00 each<br />

Shareholders: Sigulda Town Council – 40,000 shares (100% of the share capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Eko Reverss<br />

Registered office: Maskavas iela 240-3, Riga, LV-1063, Latvia<br />

Date of incorporation: 23 March 2001<br />

Corporate code: 50003537891<br />

Profile of business: Recyclables sorting and trading<br />

Members of the<br />

management board:<br />

Kaspars Zakulis (chairman of the management board)<br />

Edmunds Jansons<br />

Ausma Ece<br />

Authorized capital: LVL 60,000<br />

Shares: 6,000 one class capital shares with nominal value LVL 10 each<br />

Shareholders: <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> Latvijas Zalais punkts – 6,000 shares (100% of the share<br />

capital)<br />

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BMWARDOCS232112v37<br />

<strong>Company</strong> name: <strong>Joint</strong> <strong>Stock</strong> <strong>Company</strong> PET Baltija<br />

Registered office: Aviacijas iela 18, Jelgava, LV-3004, Latvia<br />

Date of incorporation: 2 January 2003<br />

Corporate code: 42103029708<br />

Profile of business: Recycling<br />

Members of the<br />

management board:<br />

Members of the supervisory<br />

board:<br />

Undine Bude (chairman of the management board)<br />

Edmunds Jansons<br />

Ausma Ece<br />

Maris Simanovics (chairman of the supervisory board)<br />

Viesturs Tamuzs (deputy chairman of the supervisory board)<br />

Eduards Ekarts<br />

Authorized capital: LVL 1,560,000<br />

Shares: 15,600 ordinary registered shares with nominal value LVL 100 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 14,200 shares (91.03% of the share<br />

capital)<br />

PREVIERO N. S.R.L. – 1,400 shares (8.97% of the share capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> Nordic Plast<br />

Registered office: Rupnicu iela 4, Olaine, Olaine District, LV-2114, Latvia<br />

Date of incorporation: 24 May 2000<br />

Corporate code: 40003495810<br />

Profile of business: Recycling<br />

Members of the<br />

management board:<br />

Undine Bude (chairman of the management board)<br />

Edmunds Jansons<br />

Ausma Ece<br />

Authorized capital: LVL 1,524,324<br />

Shares: 1,524,324 one class capital shares with nominal value LVL 1.00 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 1,524,324 shares (100% of the share<br />

capital)<br />

<strong>Company</strong> name: Limited Liability <strong>Company</strong> MRTL<br />

Registered office: Darza iela 2, Riga, LV-1007, Latvia<br />

Date of incorporation: 8 April 2011<br />

Corporate code: 40103404377<br />

Profile of business: Holding real estates<br />

Member of the<br />

management board:<br />

Gints Barkovskis<br />

Authorized capital: LVL 2,000<br />

Shares: 2,000 one class capital shares with nominal value LVL 1.00 each<br />

Shareholders: Limited Liability <strong>Company</strong> Eko Baltija – 2,000 shares (100% of the share<br />

capital)<br />

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Overview<br />

BMWARDOCS232112v37<br />

BUSINESS OVERVIEW<br />

The Group is the largest vertically integrated multi-service waste management group in the Baltics in terms of<br />

turnover, consisting of companies that operate in four different waste management segments, providing wide<br />

variety of services, starting from (i) organisation of waste recovery, (ii) waste collection, (iii) recyclables sorting<br />

and trading, and finally (iv) recycling. The Group is market leader in Latvia in organisation of waste recovery<br />

segment in terms of market share and turnover and the Group is one of the largest waste collectors in Latvia in<br />

terms of turnover and the leader in terms of geographical coverage. The Group collects waste in cities and<br />

surrounding regions of Riga, Liepaja, Talsi, Tukums, Jurmala and Sigulda. The Group also holds large market<br />

share in terms of volume in recyclables sorting and trading segment in the Baltics. Moreover, the Group has an<br />

unrivalled position in polyethylene terephthalate (“PET”) bottle and polyethylene (“PE”) recycling segments in<br />

the Baltics in terms of amount of recycled material and turnover. The Group has a long lasting cooperation with<br />

all key customers and municipalities.<br />

In the three months period ended 31 March 2012 the Group had consolidated revenue of LVL 6,969,000 and net<br />

profit of LVL 1,052,000. In the three months period ended 31 March 2012 55.5% of revenue was generated by<br />

waste recycling segment, 22.7% by waste collection segment, 14.6% by organisation of waste recovery segment<br />

and 7.2% by recyclables sorting and trading segment. In 2011 the Eko Baltija Group recorded consolidated<br />

revenue of LVL 26,595,000 and net profit of LVL 3,378,000. In 2011 54.5% of revenue was generated by waste<br />

recycling segment, 21.9% by waste collection segment, 15.9% by organisation of waste recovery segment and<br />

7.7% by recyclables sorting and trading segment. For the avoidance of doubt it should be noted that the above<br />

mentioned financial results were derived from the Consolidated Financial Statements and the Condensed<br />

Consolidated Interim Financial Statements and are financial results of Eko Baltija Group and not of the Group as<br />

it is at the date of the Prospectus.<br />

History and Development of the Group<br />

2000 Latvijas Zalais punkts (which can be translated into English as Green Dot Latvia) is established as<br />

a “non-profit” organization by Latvian Packaging Association, Latvian Packaging Institute and<br />

four industry players (Gutta, Laima, PTC and Tetra-Pak).<br />

2001 Eko Investors, company established by Viesturs Tamuzs, establishes Eko Reverss, the company<br />

engaged in sorting and trading of recyclable material.<br />

2002 Mrs. Undine Bude and Mr. Maris Simanovics join Eko Investors.<br />

2003 Eko Investors acquires Latvian Packaging Institute and thus becomes shareholder of LZP. Later<br />

Eko Investors together with LZP establishes PET Baltija, the company engaged in PET recycling.<br />

<strong>Company</strong> Vaania is established in order to enter into 30-year long concession agreement with<br />

Sigulda city to operate Sigulda municipality owned waste collection company Jumis.<br />

2004 Eko Investors, together with two individuals, establish Eko Riga. Eko Riga obtains 16-year long<br />

license for providing waste collection services in Riga.<br />

Eko Investors takes over distressed assets of Nordic Plast with the aim to make turnaround.<br />

Eko Investors acquires majority stake in LZP.<br />

2006 LZP broadens services it provides as PRO, by introducing, apart from packaging waste, also<br />

WEEE and GHE recovery systems.<br />

2007 The Group’s assets are separated from Eko Investors and consolidated under Eko Baltija as a<br />

holding company.<br />

Eko Baltija increases the number of shares owned in LZP and reaches 75.13% stake.<br />

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Icelandic strategic investor Gamarjonustan (through its Latvian subsidiary Gamar Holding)<br />

acquires 69.6% stake in Eko Baltija.<br />

2008 Eko Baltija in cooperation with Otrais Eko Fonds, an investment fund established by Eko Investors<br />

and financial investors, starts acquisitions of stakes in 8 regional waste collection companies,<br />

including Eko Kurzeme, Jurmalas ATU, Tukuma Ainava and their subsidiaries. This allows the<br />

Group to enter new regions.<br />

The Group successfully finishes the turnaround of Nordic Plast PE recycling factory in the<br />

industrial park in the city of Olaine.<br />

The Group launches new PET Baltija recycling plant located in industrial park in the city of<br />

Jelgava.<br />

2009 PET Baltija increases the efficiency of its operations by installing two independent sorting lines<br />

that help to decrease the amount of dropouts created during the production process.<br />

2010<br />

Nordic Plast commences the recycling of PET bottle corks and labels in the result of what high<br />

density polyethylene (“HDPE”) pellets are produced.<br />

8 regional waste collection companies are consolidated into the Group and Otrais Eko Fonds<br />

becomes a shareholder of Eko Baltija. As a result of this transaction as well as debt to equity swap<br />

the stake of strategic investor Gamarjonustan decreases to 42%.<br />

2011 Remaining stake (42%) in Eko Baltija of Icelandic strategic investor is bought out by the Group’s<br />

managers (Mrs. Undine Bude, Mr. Maris Simanovics and Mr. Viesturs Tamuzs).<br />

The Group wins 2 large tenders for household waste collection (in Jurmala and Babite<br />

municipalities).<br />

PET Baltija receives the awards “Gazele” and “Zemgales Gazele” for the financial achievements in<br />

2010 and the title “The best exporter” for the achievements in the area of export in 2010.<br />

The Group finishes the reconstruction of polyethylene first stage processing line in Nordic Plast<br />

production facilities, implementing new technology that considerably decreases the energy<br />

consumption.<br />

The Group launches its pilot program for separating different not recyclable waste from the<br />

household waste and deliver to mechanical biological treatment production facilities thus<br />

decreasing the amount of waste deposited to landfills and optimizing the costs.<br />

2012 In the preparation for the Offering, the Group completes the reorganisation to change its corporate<br />

structure. The legal restructuring consists of in-kind contribution of 58% of shares in Eko Baltija to<br />

Eko SPV, which allows Eko SPV to hold 100% of shares in Eko Baltija, and the following in-kind<br />

contribution of 100% of shares in Eko SPV into the Issuer (for more information on current Group<br />

structure please see: “Group Structure”).<br />

Competitive Strengths and Advantages<br />

The Group believes that the competitive strengths and advantages of its business are as follows:<br />

Highly competitive vertically integrated business model. The Group is the largest vertically integrated<br />

multi-service waste management group in the Baltics in terms of turnover, consisting of companies that<br />

operate in four different waste management segments: organisation of waste recovery, waste collection,<br />

recyclables sorting and trading, and recycling. Presence in those waste management segments allows the<br />

Group to efficiently implement and exploit vertical integration of the Group Companies operating in<br />

segments, which are complementary to each other. Vertical integration enables the Group to manage its<br />

operations in more effective way and therefore decreases costs. Moreover, the vertical integration and<br />

economies of scale allow the Group to provide wide range of services at competitive prices.<br />

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Successful experience in accelerated growth. In recent years the Group has executed number of<br />

significant acquisitions and investments, which fuelled the Group’s growth. The acquisitions of other<br />

market players allowed the Group to enter new markets and consolidate waste management industry in<br />

Latvia. The Group has completed numerous restructurings and turnarounds of the waste management and<br />

production companies. The Group was also engaged in number of greenfield investments, including<br />

launch of PET Baltija and Eko Reverss. All those successful investments and projects allowed the<br />

Group’s management to gain extensive experience and rare skills, which are essential in further expansion<br />

and growth of the Group’s business and operations.<br />

Diversified business model. The Group operates in four different waste management segments, what<br />

allows diversifying its cash flows. Moreover, business model implemented by the Group means that in the<br />

financial year ended 31 December 2011 approximately 80% of the Group’s revenue was not tariff driven.<br />

Diversification of business operations mitigates certain risks and facilitates risk management activities.<br />

Modern equipment and unique technologies. Throughout all its operations the Group uses modern and<br />

well maintained equipment. The Group profits especially from modern equipment installed in the<br />

production facilities of PET Baltija and Nordic Plast, which are the only PET and PE recycling facilities<br />

of such kind in the Baltics. Combination of modern and well maintained equipment and high quality of<br />

recycled raw material allows PET Baltija and Nordic Plast to offer products of higher quality and allows<br />

using capacities of its production facilities more efficiently. The Group also implements unique<br />

production technologies in Nordic Plast. Namely, recycling of PET bottle corks and labels in the result of<br />

what HDPE pellets are produced is unique in the Baltics and gives the Group a notable advantage over its<br />

competitors.<br />

Market leadership. The Group is market leader in Latvia in organisation of waste recovery segment and is<br />

one of the largest waste collectors in Latvia in terms of turnover and the leader in terms of geographical<br />

coverage. The Group also holds large market share in terms of volume in recyclables sorting and trading<br />

segment in the Baltics. Moreover, the Group has an unrivalled position in PET and PE recycling segments<br />

in the Baltics. Market leadership allows the Group to capitalize on increased scale of operations, as well<br />

as on introduction of new services and products. Thanks to its market position and broad experience the<br />

Group could exploit appearing market opportunities in more efficient and cost effective way.<br />

Highly competent growth oriented local management. The Group’s management is broadly experienced<br />

in the area of waste management business. Mr. Viesturs Tamuzs and Mrs. Undine Bude have more than<br />

12 and Mr. Maris Simanovics has more than 10 years of experience in waste management industry.<br />

Moreover, throughout its career the Group’s management was engaged in waste management business in<br />

Latvia and therefore has gained unique experience, knowledge and know-how, which is essential for<br />

success in Latvian market. Based on the successful historical track record, the Group’s management has<br />

strong experience in organic development, greenfield project development, business acquisitions and<br />

consolidation which could be used in expansion of Group’s business outside Latvia.<br />

Solid and consistent financial performance. In the three months period ended 31 March 2012 the Group<br />

had consolidated revenue of LVL 6,969,000, EBITDA of LVL 1,562,000 (EBITDA margin of 22.4%)<br />

and net profit of LVL 1,052,000 (net profit margin of 15.1%), as compared to consolidated revenue of<br />

LVL 6,315,000, EBITDA of LVL 1,540,000 (EBITDA margin of 24.4%) and net profit of LVL1,079,000<br />

(net profit margin of 17.1%) in the three months period ended 31 March 2011. In the financial year ended<br />

31 December 2011 the Group had consolidated revenue of LVL 26,595,000 and net profit of LVL<br />

3,378,000 (net profit margin of 12.7%), as compared to consolidated revenue of LVL 21,088,000 and net<br />

profit of LVL 1,794,000 in the financial year ended 31 December 2010 (net profit margin of 8.5%) and<br />

consolidated revenue of LVL 13,851,000, and net loss of LVL 515,000 in the financial year ended 31<br />

December 2009 (including LVL 823,000 recognized as goodwill impairment loss). The Group’s EBITDA<br />

was LVL 5,328,000 for the financial year ended 31 December 2011 (EBITDA margin of 20.0%), as<br />

compared to LVL 3,739,000 for the financial year ended 31 December 2010 (EBITDA margin of 18%),<br />

and LVL 1,302,000 for the financial year ended 31 December 2009 (EBITDA margin of 9.4%). For the<br />

avoidance of doubt it should be noted that the above mentioned financial results were derived from the<br />

Consolidated Financial Statements and the Condensed Consolidated Interim Financial Statements and are<br />

financial results of Eko Baltija Group and not of the Group as it is at the date of the Prospectus.<br />

Excellent ongoing collaboration with local authorities. Throughout its history the Group has established<br />

excellent and long lasting collaboration with local authorities. The Group has been engaged in<br />

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BMWARDOCS232112v37<br />

development of waste management infrastructure in the regions, what increased standard of living of the<br />

local societies. Excellent ongoing collaboration with local authorities is essential in day-to-day operations<br />

of the Group, as well as could be very useful in further expansion and growth of the Group’s business and<br />

operations.<br />

Diversified client and supplier base. The Group profits from broad portfolio of clients and suppliers.<br />

Thanks to that the Group is not dependant on any major client or supplier, what substantially decreases<br />

certain operational risks. Moreover, the Group exploits excellent customers and suppliers network<br />

throughout the Baltics and Europe, what could be essential in further growth and expansion of the Group.<br />

Positive public image. Certain Group Companies are well-recognized and have positive image. LZP<br />

especially profits from use the “Green Dot” trademark, which is recognizable throughout Europe.<br />

Moreover, Eko Baltija is recognized as reputable and trustworthy partner among decision makers,<br />

politicians and local authorities.<br />

Business Strategy<br />

Being the leading waste management group in the Baltics by revenues, the Group believes that it can capitalise<br />

on significant market growth potential and the market’s fragmented structure, by identifying attractive<br />

consolidation opportunities and continuing its organic growth. The Group’s strategy rests on the key pillars<br />

described below:<br />

Investing into sorting of municipal solid waste by construction of the mechanical biological treatment<br />

plant. The Group plans to develop the mechanical biological treatment (the “MBT”) plant to be located<br />

near Getlini landfill. This would potentially be the first MBT plant in Latvia. In general, the waste<br />

entering the MBT plant is split into three major parts: (i) recyclables (ii) material suitable for burning in<br />

cement kilns or incineration plants with certain calorific value and (iii) waste to be disposed in landfill.<br />

Technology will allow extracting up to 20% of recyclable materials from the total input. Development of<br />

the MBT plant would secure supply of new types of recyclable raw materials and therefore would allow<br />

introducing new business lines in the recycling business. The Group sees two alternatives for MBT plant<br />

development: greenfield or acquisition of market players outside Latvia which operate own MBT plant<br />

and transfer this technology to Latvia. Development of the MBT plant would allow the Group to increase<br />

the volume of recyclables traded to 96,500 tonnes in 2013 and 181,000 tonnes in 2015.<br />

Introduction of new products in the recycling business line. The Group plans to expand portfolio of<br />

products of PET Baltija and Nordic Plast. PET Baltija aims at developing production of crystallized PET<br />

pellets, which could be used in food industry (as material for production of food packaging). This would<br />

allow PET Baltija to increase output volume to 22,700 tonnes of products in 2013 and 29,000 tonnes of<br />

products in 2015. Nordic Plast plans to increase its production capacities by adding a new line for<br />

production of polypropylene (“PP”) pellets from woven bags. This would allow Nordic Plast to increase<br />

output volume to 7,400 tonnes of products in 2013 and is planned to stay on the same level until 2015.<br />

Moreover, the Group wants to develop recycling of construction and demolition waste. As above<br />

mentioned recycling business lines have not been developed in Latvia yet, the Group has unique<br />

opportunity to profit from its introduction, as well as capitalize on the first mover advantage.<br />

Geographical expansion. The Group plans to expand its business through acquisitions in waste<br />

management segment across the Baltics. This will allow the Group to strengthen its market position and<br />

enter new, attractive markets. The Group will concentrate on seeking targets in collection and recyclables<br />

sorting and trading segments across the Baltics. Moreover, the Group aims at using opportunities arising<br />

from potential liberalization of waste collection markets in Latvian regions.<br />

Securing raw material base. The Group aims at securing stable, internal supply of raw materials for the<br />

Group Companies, by integrating collection and recyclables sorting and trading segments. This aim<br />

would be reached by local and international expansion in order to create a pan-Baltic collection business,<br />

which would serve as solid raw material base. Not taking into potential acquisitions, the Group plans to<br />

increase volume of waste collected to 1,120,000 m 3 in 2013 and 1,500,000 m 3 in 2015. Moreover, the<br />

Group plans to take part in introduction of one-way soft drink bottles deposit system in Latvia as soon as<br />

it will be possible, which could be developed in accordance with public-private partnership. Introduction<br />

of such system will facilitate the flow of raw materials (including PET packaging) for the Group’s<br />

recycling business. Furthermore, the Group plans to introduce separate waste collection system (i.e. by<br />

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BMWARDOCS232112v37<br />

providing separate waste containers in collection sites), in order to improve sorting efficiency and<br />

therefore obtain access to recyclable material of higher quality. The Group also considers obtaining<br />

concessions on use of municipality owned landfills, which would add additional source of raw materials<br />

flow for the Group Companies. Additionally, the Group plans to increase its presence in collection of<br />

construction and demolition waste and thus facilitate flow of raw material, which would allow<br />

introducing new business lines in the recycling business (i.e., recycling of construction and demolition<br />

waste).<br />

Launching new cross-sector business projects. The Group actively seeks market opportunities for<br />

launching new business lines, which include processing of waste biomass, including wood waste,<br />

agricultural waste, sewage sludge, biological waste from food production, household waste and others.<br />

Projects include development of a biogas plant for production of electricity and heat from anaerobic<br />

digestion of biological waste, and renewable energy power plant for production of electricity and heat<br />

using biomass from municipal solid waste. Cogeneration plants will produce heat for local commercial<br />

entities and households, while electricity will be sold to Latvian national grid according to feed-in tariffs.<br />

The Group is also developing new regional projects for recycling of commercial and industrial waste,<br />

including electronic scrap, construction waste, end-of-life tires. The Group would use its extensive<br />

experience in waste recovery organisation segment to profit from development of such new initiatives.<br />

Introduction of one-stop-shop concept. The Group aims to develop on-stop-shop concept providing wide<br />

range of services for households, including not only waste collection, but also snow removal and sewage<br />

services.<br />

Applying global trends, technologies and processes to local conditions. The Group seeks to make use of<br />

the market opportunities resulting from transition of waste management industry in the Baltics to the<br />

levels of its development in Western European countries. The Group wants to monetize on changes<br />

connected with decrease of waste landfilled, reduction of “grey” part of waste market, increase in waste<br />

recycling and recovery (due to EU requirements), growing social awareness, and PRO introduction aimed<br />

at construction and demolition waste and other types of waste. The Group also aims at implementing of<br />

so-called “zero waste concept”, where separate waste disposal, proper sorting and existence of recycling<br />

facilities makes waste flow a valuable material base. Moreover, the Group is constantly monitoring<br />

appearance of new technologies and processes in the global waste management industry, in order to<br />

identify, adjust to local conditions and implement profitable business and operational solutions.<br />

Actively seeking for the opportunities of financing from the EU. The Group operates in industry, which<br />

has great importance for sustainable growth of EU community and therefore is subject to financing from<br />

different EU funds. In the Management’s view such financing may be invested in various projects, which<br />

could fuel the Group’s further growth. Therefore, the Group aims at active seeking for the opportunities<br />

of obtaining financing from different EU funds.<br />

Principal Business Activities<br />

The Group’s business model represents vertically integrated multi-service waste management provider. The<br />

Group operates in four different waste management segments: (i) organisation of waste recovery, (ii) waste<br />

collection, (iii) sorting and trading of recyclables, and (iv) recycling.<br />

Organisation of waste recovery<br />

Overview<br />

The Group is present in the organisation of waste recovery through LZP, which was the first to enter and now is<br />

one of the leading producers’ responsibility organizations (“PRO”) in Latvia. Since 2000 LZP is a member of<br />

Packaging Recovery Organization Europe (PRO Europe), which unifies “Green Dot” systems from 33 European<br />

and North American countries. In the territory of Latvia the rights to use in respect to financial participation in<br />

system of collection and recycling of packaging and packaging waste and to grant “Green Dot” trademark<br />

belongs exclusively to LZP.<br />

In 2001 Latvia introduced producers’ responsibility system. The system applies the principal ‘polluter pays’,<br />

where all the producers and importers of packaged goods, electric and electronic equipment and goods harmful<br />

to the environment are obliged either to collect and recycle those waste by themselves and pay the NRT or<br />

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transfer the collection and recycling duties to the PRO. The clients of LZP or other PROs transfer the<br />

responsibility for execution of recycling quota of the certain types of waste to LZP or other PRO, which procure<br />

waste recovery so that their clients are exempted from the NRT.<br />

LZP is implementing and coordinating the collection, processing, recycling and utilisation of certain types of<br />

waste. LZP is not involved in physical processes of waste management. LZP acts as coordinator between<br />

companies generating waste (e.g., producers, importers) and waste collectors, sorters, recyclers and traders<br />

(including exporters). By becoming the client of LZP, the company transfers the responsibility for execution of<br />

recycling quota of the certain types of waste to LZP, which procures waste recovery so that its clients are<br />

exempted from NRT (for more information please see “Regulatory Information – Environmental and other<br />

Licenses and Permits”). Throughout the whole cycle of activities LZP is supervised by competent state<br />

institutions.<br />

LZP implements and manages waste recovery system of the following types of waste:<br />

Waste packaging and disposable tableware and accessories. This type of waste includes paper and<br />

cardboard, glass, polymers, metal and wood.<br />

WEEE. This type of waste includes, among others, refrigerators, monitors, electric bulbs, TV sets and<br />

mobile phones.<br />

GHE. This type of waste includes lubricant oils, different types of batteries, tires and oil filters.<br />

The table below presents data on certain types of packaging waste under recovery of LZP in periods indicated (in<br />

tonnes).<br />

For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

Glass 5,685 5,869 27,061 26,504 23,698<br />

Polymers 5,752 5,549 23,619 23,681 21,823<br />

Metal 1,432 1,335 6,101 5,929 4,886<br />

Paper, cardboard 9,256 8,909 37,720 39,508 37,192<br />

Wood 6,622 5,737 27,555 28,063 23,748<br />

Total 28,747 27,399 122,055 123,685 111,346<br />

Source: The Group’s data<br />

The table below presents data on WEEE under recovery of LZP in periods indicated (in tonnes).<br />

For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

WEEE 673 654 3,323 3,711 5,149<br />

Source: The Group’s data<br />

The tables below present data on certain types of GHE under recovery of LZP in periods indicated (in tonnes or<br />

pieces).<br />

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For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

Lubricant oils 1,194 1,076 4,605 4,266 1,980<br />

Electric batteries, led 463 328 1,758 1,470 1,081<br />

Electric batteries, Ni-Cd and Fe-Ni 3 4 16 17 11<br />

Galvanic elements and galvanic batteries 49 35 177 174 142<br />

Other electric batteries 12 11 51 43 12<br />

All types of tires 101 140 642 695 580<br />

Total 1,822 1,594 7,249 6,664 3,806<br />

Oil filters (piece) 53,649 46,054 207,365 202,253 150,132<br />

Source: The Group’s data<br />

The process of providing waste recovery services by LZP is as follows:<br />

Identification of clients. LZP identifies entities, which have the duties under the producers’ responsibility<br />

system and signs contracts with them, in accordance to which the client transfers the responsibility for<br />

execution of recycling quota of the certain types of waste to LZP.<br />

Clients’ reporting. LZP collects clients’ reports on the volume of packaged goods, electric and electronic<br />

equipment and goods harmful to the environment placed by the clients on the market and based on those<br />

reports calculates fees to be paid.<br />

Organisation of collection and delivery of waste. LZP, in cooperation with local municipalities and waste<br />

collectors, ensures collection of packaging waste, WEEE and GHE. LZP usually pays for packing waste,<br />

WEEE and GHE collected (partly covering collection costs) and often finances, together with the waste<br />

collectors, separate collection containers and special collection sites for different types of waste.<br />

Moreover, LZP usually finances the process of delivery of the sorted packaging waste and other collected<br />

goods from waste managers to processing and recycling companies.<br />

Organisation of recycling. LZP organizes the process of recycling of collected packing waste, WEEE and<br />

GHE and submits reports on the results to state institutions. Annually, LZP distributes certificates on<br />

accomplishment of the recovery quotas to the clients.<br />

Educating society. LZP implements projects for educating society in order to urge people to sort different<br />

types of waste in the households. LZP also engages in informative campaigns on the benefits of joining<br />

the waste recovery system and tax exemptions connected therewith. Moreover, LZP engages in<br />

educational activities with current clients through organisation of seminars on compliance procedures,<br />

changes in legislation, accounting issues and other information.<br />

LZP has established long-term cooperation with local municipalities and over 30 major waste collectors in<br />

Latvia. To collect packaging waste from inhabitants, LZP in cooperation with the waste management companies<br />

designated by the municipalities adds to the container sites in densely populated areas special containers for<br />

separate waste collection. In total more than 50 such separate waste collection sites are in operation and more<br />

than 10 000 containers of various volumes have been placed for collecting packaging waste from inhabitants.<br />

This ensures that LZP system for managing waste recovery covers approximately 75% of the territory of Latvia,<br />

where resides approximately 80% of the country’s population.<br />

In accordance with the orders of LZP, the waste packing collected in the containers is sorted on specially<br />

equipped sorting lines. Sorting (e.g. PET bottles sorting by colours) is required to obtain high quality recyclable<br />

material that complies with the requirements of processing and recycling companies. When the waste packing is<br />

sorted on the sorting lines, it is pressed in bales to increase the volumes to be transported and thus decreasing the<br />

transportation costs, because the most distant stage is delivery for processing. To obtain maximum effect from<br />

the technological possibilities of the press, presses of different types and sizes are purchased and used. The<br />

volume of waste packing ordered by LZP after collection and first stage processing (sorting, pressing) is sent to<br />

recycling companies in Latvia and abroad.<br />

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The optimal way for collecting WEEE from inhabitants is setting up collection points in the municipalities of<br />

Latvian regions or at commercial centres, in cooperation with the local waste management companies and<br />

recycled raw material management companies. In WEEE collection sites the inhabitants can dispose free of<br />

charge of all types of household WEEE. The collection of WEEE from inhabitants and companies is also<br />

arranged by using mobile WEEE collection sites. In the WEEE processing all hazardous components and<br />

materials and substances not suitable for recycling, e.g. insulation foam and cotton, are separated from the<br />

WEEE. Such hazardous components as water-resistant substances, waste containing Hg, PCS and other are<br />

delivered to hazardous waste processing companies. Component, which can be recycled are delivered to<br />

recycling companies.<br />

The collection of GHE is done at the separate waste collection sites, equipped in cooperation with waste<br />

management operators, as well as in car services and shops selling GHE. Used batteries are collected in<br />

cooperation with joint-stock company BAO, which services more than 2,500 battery containers in shopping<br />

centres, state, municipal and educational institutions. In approximately 57 sites equipped by LZP cooperation<br />

partners – waste and recycling management companies it is also possible to dispose of car tires and power<br />

batteries, while car lubricant oils and filters are collected mainly through car services and traders selling car<br />

accessories. GHE requires special transport in order to be taken from collection units at the municipalities and<br />

retail shops to processing plants. Such transport is equipped with freight container covers and flooring that<br />

prevent any leaks of polluting material into the environment.<br />

Customers<br />

Majority of clients of LZP are leading importers, producers and retailers in Latvia, including international<br />

corporations. Moreover, most of the companies, which import goods labelled with the Green Dot trademark, are<br />

concluding agreements with LZP. Agreements with clients are usually signed for indefinite period with<br />

possibility to terminate the contract with one or three month written notice. When concluding the agreement on<br />

recovery of packing waste, the customer receives the right to use the “Green Dot” trademark for free.<br />

The biggest clients of LZP are: RIMI Latvia (second leading supermarket chain in Latvia), Maxima Latvia<br />

(leading supermarket chain in Latvia), Cido Grupa (largest producer of beverages and soft drinks in Latvia),<br />

Coca-Cola Latvia, Mobil Plus (one of the oldest alcohol producers and distributors in Latvia owned by Finnish<br />

Altia), Aldaris (the largest brewery in Latvia, owned by Carlsberg), Spilva (leading producer of meals and meal<br />

additives), Procter & Gamble (Latvian branch of the world leading provider of consumer package goods), Greis<br />

Logistika (one of the biggest wholesalers of FMCG products in Latvia) and LATALKO (alcohol wholesaler<br />

serving more than 2,500 clients in Latvia). For detailed information in regard to terms of agreements with certain<br />

major clients of LZP please see: “Material Contracts – Waste management agreements – Waste recovery<br />

agreements of Latvijas Zalais punkts”.<br />

The table below presents number of clients of LZP in the years 2000 – 2011.<br />

Packaging Waste<br />

management<br />

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000<br />

2,424 2,085 2,193 1,690 1,459 1,254 1,050 756 501 286 12 7<br />

WEEE management 558 503 504 468 404 323 32 - - - - -<br />

GHE management 367 308 257 135 105 75 - - - - - -<br />

Total 3,349 2,896 2,954 2,293 1,968 1,652 1,082 756 501 286 12 7<br />

Source: The Group’s data<br />

LZP clients pay two types of fees: one time joining fee (paid only by the clients of packaging waste recovery)<br />

and weight-based or unit-based waste material service fee. Fees are not regulated or controlled by any<br />

authorities. Service fee is usually paid quarterly, based on a report on the volume of packaged goods, electric and<br />

electronic equipment and goods harmful to the environment actually placed by the client on the market. The<br />

service fee is calculated based on the costs of collection, sorting, transportation and recycling of each type of<br />

waste. Service fees received by LZP are on average higher than its main competitor Zala Josta’s fees, because<br />

LZP has competitive advantage providing integrated solutions, including: waste management consultancy, onsite<br />

visits, online reporting, material stream audit, seminars and implementation of efficient packaging waste<br />

recovery solutions in cooperation with Eko Reverss.<br />

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Suppliers<br />

BMWARDOCS232112v37<br />

The main suppliers of LZP are waste collection, recyclables sorting and trading, and recycling companies both in<br />

Latvia and abroad. LZP pays them for collection, transportation, sorting and recycling of certain amounts and<br />

types of waste. Significant part of orders is fulfilled intra-group, mainly with Eko Reverss, Eko Riga, PET<br />

Baltija and Nordic Plast. Other major suppliers of LZP are: ZAAO (municipal waste management company<br />

operating in North-Western Latvia), Eko Osta (GHE waste manager), L&T (waste collection company), Ragn<br />

Sells (Scandinavian waste management company), BAO (GHE waste manager), Eko Latgale (recycling<br />

company operating in the second biggest Latvian city). Agreements with suppliers are usually signed for a longterm<br />

period.<br />

LZP cooperates with recyclers in Latvia and abroad where the following types of products are recycled:<br />

PET. Major part is recycled by PET Baltija.<br />

Polymers. Major part is recycled by Nordic Plast and Scholler Arca Systems.<br />

Glass. Mainly exported to Lithuania (Warta Glass Panevezys) and Ukraine (Vetropac).<br />

Paper and cardboard. Major part is exported to Lithuania and Ukraine, key local suppliers are V.L.T. and<br />

Ligatnes paper mill.<br />

WEEE. Major part is exported for recycling to Lithuania due to limited recycling possibilities in Latvia.<br />

Some metal parts are recycled in Latvia: Liepajas Metalurgs recycles ferrous metals. Refrigerators are<br />

recycled in cooperation with BAO. Lampu demerkurizacijas centrs ensures recycling of fluorescent bulbs.<br />

GHE. Oil and oil filters are recycled by Eko Osta. Used batteries are mainly exported to Germany for<br />

recycling, power batteries are mainly exported to Lithuania for processing and accumulators are exported<br />

to Estonia for recycling at <strong>Eco</strong>metal company. Tires’ recycling is mainly covered by Latvian cement<br />

manufacturing plant Cemex for heating, with some part being pressed into blocks for later use in road<br />

construction through marshlands, as filter material for landfills or as insulation for explosive devices in<br />

use by the military.<br />

Licenses, permits and certificates<br />

LZP has right to establish and implement waste recovery system of: (i) waste harmful to the environment, (ii)<br />

WEEE, and (iii) waste packaging and disposable tableware and accessories, based on orders No 430, 431 and<br />

428 issued on 29 December 2010 by the Ministry of Environment Protection and Regional Development of<br />

Latvia. The orders were issued on the grounds of the plans for implementation of waste recovery systems for<br />

above mentioned types of waste for period 2011-2013 prepared by LZP and accepted by the Ministry of<br />

Environment Protection and Regional Development of Latvia. The orders grant rights to NRT payers, who have<br />

signed the agreement with LZP on participation in the waste recovery system to apply exemption from NRT for<br />

a period indicated in the orders, i.e. until 31 December 2013. Granted rights are conditional on validity of an<br />

agreement entered into between LZP and Latvian Environmental Protection Fund Administration. On 30<br />

December 2010 LZP signed such agreements with Latvian Environmental Protection Fund Administration (for<br />

more information please see: “Material Contracts – Waste Management Agreements – Agreements with the<br />

Latvian Environmental Protection Fund Administration”).<br />

Additionally, LZP carries out the assessment, control and recovery of used packaging waste, WEEE and GHE in<br />

compliance with the requirements set by ISO 9001:2008 standard, which is confirmed by the certificate issued<br />

by the international auditing bureau Det Norske Veritas, stating that the quality control system implemented by<br />

LZP is compliant with the aforementioned standard.<br />

Waste collection<br />

Overview<br />

The following Group Companies, together with their certain subsidiaries, are engaged in the waste collection<br />

business: Eko Riga, Vaania (through Jumis), Eko Kurzeme, Jurmalas ATU and Kurzemes Ainava.<br />

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Eko Riga, Vaania (through Jumis), Eko Kurzeme, Jurmalas ATU and Kurzemes Ainava concentrate their<br />

activities on providing waste collection services, including collection of waste from household and commercial<br />

clients, as well as collection of construction waste. Depending on the season, every Group <strong>Company</strong> operates<br />

twenty to forty different domestic waste collection routes, which are developed with maximum efficiency, so<br />

that no excess passages, near-empty containers or ineffective runs are present. The Group Companies have<br />

enough machinery units at their disposal to ensure persistent waste collection process for all of their customers,<br />

as well as to change the frequency of waste collection from each object and the number and capacity of<br />

containers at any moment, should such need arise or given the customer’s request or suggestion. The Group<br />

Companies ensure high-quality container repair and replacement service – depending on the damage suffered by<br />

the container, it may either be repaired at the object itself (by a mobile brigade) or replaced with another, in case<br />

it’s not possible to repair the container quickly. The Group Companies wash and disinfect the containers up to 4<br />

times a year, offering an innovative solution for the issue – it is possible to disinfect a container at the spot,<br />

having all the hygiene and environmental demands complied with. A container is being washed with a special<br />

compound that has disinfecting capability, but has no impact on the environment whatsoever.<br />

The Group Companies also offer large-size waste collection, using vehicles equipped with a press, vehicles<br />

specialized for the removal of construction and demolition waste or container vehicles with a hydraulic elevator<br />

especially suitable for operations at the objects with limited access (narrow streets, inner courts etc.), as well as<br />

offer transportation of animal by-products and derived products not intended for human consumption.<br />

The waste collected is transported to the landfills or recyclables sorting and trading companies (if it is recyclable<br />

waste).<br />

The Group Companies are present in three out of five waste management regions in Latvia, where private waste<br />

collection companies could operate (for more information please see: “Industry Overview – Characteristics of<br />

Waste Management Industry in Latvia – Waste Collection”). Eko Riga and Vaania (through Jumis) are active in<br />

Riga and its region, Jurmalas ATU and Kurzemes Ainava operate in Piejura region and Eko Kurzeme is active in<br />

Liepaja region.<br />

In accordance with Latvian law each municipality should select a waste manager (based on public procurement<br />

or public-private partnership procedures), which will perform collection, transportation, unloading and storage of<br />

household waste in the relevant household management zone. Waste producers (e.g. households) should enter<br />

into a contract with the selected waste manager. Only the waste producer, which has been exempted from paying<br />

the NRT (e.g. commercial entity), is entitled to enter into a contract with the waste manager selected by itself<br />

(for more information please see: “Regulatory Information – Environmental and other Licenses and Permits”).<br />

Based on above mentioned legal requirements imposed on the municipalities, the Group Companies concluded<br />

number of agreements with municipalities on providing waste management services. Eko Riga signed<br />

agreements with Riga, Carnikava District and Marupe District municipalities. Eko Kurzeme concluded<br />

agreements with, among others, Liepaja and Grobina municipalities. Jurmalas ATU executed similar agreements<br />

with Jurmala and Babite municipalities. Kurzemes Ainava has contracts with, inter alia, numerous<br />

municipalities located in: Talsi, Dundaga, Engure, Jaunpils, Mersrags, Roja, Tukums and Kandava regions.<br />

Jumis signed agreements with Sigulda City Council and Ligatne Region municipality. For more information on<br />

terms and conditions of the above mentioned agreements please see: “Material Contracts – Waste Management<br />

Agreements”.<br />

The Group actively engages in expanding its territorial presence in waste collection industry in Latvia by<br />

participating in public tenders organized by the municipalities. In 2011 the Group won two major public tenders<br />

for waste collection services in Babite municipality and Jurmala.<br />

Moreover, in order to broaden the services provided and satisfy customers’ needs the Group Companies provide<br />

the following services: construction and demolition waste collection, production waste collection, sewage and pit<br />

services, secondary raw materials collection, WEEE and GHE collection, winter services (e.g. snow removal),<br />

waste management services to the municipalities (including street and beach cleaning; communal services: city<br />

cleaning in winter and summer, grass mowing, planting of greenery and daily maintenance, cemetery<br />

maintenance), public events services, cleaning services, BIO toilets rental, non-standard metal constructions,<br />

catching of stray animals, biological waste management, food oil management, “inner” sorting (sorting waste in<br />

offices and staircases), trading in non-slip materials (sand, salt, sand & salt mix available through retail and<br />

delivery) and transportation services of animal by-products and derived products not intended for human<br />

consumption.<br />

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The table below shows certain other services provided by the Group Companies.<br />

Eko Riga Jumis<br />

Jurmalas<br />

ATU<br />

Eko<br />

Kurzeme<br />

Kurzemes<br />

Ainava<br />

Construction and demolition waste<br />

collection x x x x x<br />

Production waste collection x x x x x<br />

Sewage and pit services x x x x -<br />

Secondary raw materials collection x x x x x<br />

WEEE collection x x - x x<br />

GHE collection x x - x -<br />

Winter services x x x x x<br />

Street cleaning - - x - x<br />

Area cleaning / beach cleaning services x - x x -<br />

Cemetery management - - - - x<br />

Public event services x x x x x<br />

Source: The Group’s data<br />

Customers<br />

The Group Companies generate revenues from fees paid by their clients. Waste disposal tariffs for household<br />

waste management depend on the procedure in which the agreement between the municipality and the waste<br />

manager was concluded. In general, if the waste manager is selected through the public procurement procedure,<br />

the tariff is determined in competitive manner during public tender. On the other hand, during the transition<br />

period (until municipalities have entered into contracts on household waste management with waste management<br />

companies selected in accordance with the public procurement procedures), the fees for household waste<br />

management should comply with the last tariff approved by the authorities. For more information please see:<br />

“Regulatory Information – Price Controls”. Agreements with those clients are usually signed in accordance with<br />

provisions prescribed in the agreements between the municipality and waste manager.<br />

Other clients (including: large retail networks, manufacturers) pay for services provided by the Group on the<br />

market basis. Agreements with those clients are usually signed annually.<br />

Some of the big clients of Eko Riga are Vangazu namsaimnieks and CDZP, which are facility managers in Riga,<br />

and Maxima Latvia, the biggest grocery chain in Latvia. The big clients of Eko Kurzeme are Rigas namu<br />

parvaldnieks (Riga municipal facility manager), Liepajas namu apsaimniekotajs (Liepaja municipal facility<br />

manager) and Nam Serviss (facility manager). Jurmalas ATU serves: Jurmala City Council and Jurmalas udens<br />

(utility company). Kurzemes Ainava provides services to: Tukuma nami and Talsu namsaimnieks (both<br />

companies are facility managers).<br />

Selling method for household waste services for potential clients is direct active selling carried by permanent<br />

sales managers of the Group Companies.<br />

Suppliers<br />

The major suppliers of waste collection companies are fuel suppliers and landfills. The Group Companies<br />

purchase the fuel from Statoil Latvia.<br />

The Group Companies pay landfill tariffs per tonne of waste disposed. According to data released by the Latvian<br />

Public Utilities Commission landfill tariffs in 2012 range from EUR 20 per tonne to EUR 32.2 per tonne,<br />

amounting to EUR 23.7 per tonne in Getlini Eko, EUR 31.9 per tonne on Liepajas RAS and EUR 27.5 per tonne<br />

on Piejura (all presented amounts excluding VAT). The following Latvian landfills are major suppliers for the<br />

Group Companies: Getlini Eko (used by Eko Riga, Eko Kurzeme and Jumis), Piejura (used by Jurmalas ATU<br />

and Kurzemes Ainava) and Liepajas RAS (used by Eko Kurzeme).<br />

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Licenses, permits and certificates<br />

As of the date of the Prospectus all the Group Companies involved in the waste collection activities received all<br />

necessary permits for performance of those activities. Those permits include, among others, permits for waste<br />

collection and transportation, including transportation of animal by-products and derived products not intended<br />

for human consumption, as well as permits for performance of category C polluting activities related to waste<br />

transportation, i.e. management of own vehicle repair and maintenance workshop, parking lots and petrol station.<br />

Please see: “Risk Factors – Risks Relating to the Group’s Business – The Group depends on licenses and permits<br />

that could be revoked, the Group may not be able to prolong them or the Group may not be able to obtain<br />

required licenses and permits”.<br />

Eko Riga received ISO 9001:2009 (equal to European Standard EN ISO 9001:2008) certificate, issued by<br />

Bureau Veritas which is valid until 25 September 2014.<br />

Recyclables Sorting and Trading<br />

Overview<br />

The Group operates in the recyclables sorting and trading market through one of the Group Companies – Eko<br />

Reverss. Eko Reverss has a leading position in terms of turnover in recyclables sorting and trading sector in<br />

Latvia. Eko Reverss has also strong position in Lithuania and Estonia in the same segment.<br />

In its business activity Eko Reverss concentrates on obtaining, sorting and trading of recyclables. <strong>Eco</strong> Reverss<br />

obtains recyclables mainly in three ways: (i) by purchasing it from waste management organizations all across<br />

Latvia (those operators generally sell material prepared for further resale, i.e. there is no need in sorting it); (ii)<br />

by purchasing it from industrial customers, i.e. factories, warehouses, logistics centres, retail shops (the material<br />

acquired from these partners has to be sorted and pressed); and (iii) by collecting it from containers for separate<br />

collection placed in different regions (the material gathered from such containers has to be sorted and pressed).<br />

The developed wholesale chain of recyclable raw materials works actively in whole Baltics, allowing Eko<br />

Reverss to purchase materials also from Lithuania and Estonia. Key purchase criteria in the market are price and<br />

quality correlation. Product purchase pricing is very flexible and depends on several issues, e.g. type and sort of<br />

material and its volumes, and transportation costs, which depend on the distance where collected recyclables has<br />

to be picked up from.<br />

Depending on the type of material, its quality and place where it was obtained, the material is either transported<br />

to the Eko Reverss facilities in Riga or delivered directly to the clients.<br />

The material transported to Eko Reverss facilities is processed depending on its type and readiness for further<br />

resale. The processing itself may be divided in two main directions: sorting and pressing the used packaging<br />

material and disassembling and sorting WEEE and GHE. The used packaging material is sorted into different<br />

groups: cardboard; polymers; PET; glass and other materials. The packaging material is being sorted at two<br />

separation lines. The sorted material is then being pressed using three presses, which have different output and<br />

application. When sorted and pressed, the material is kept in a warehouse within the Eko Reverss premises.<br />

WEEE and GHE are sorted by different types of materials, depending on its recyclability value. When sorted, the<br />

material is being kept in a warehouse until it’s sold.<br />

Further, the material is sold both in Latvia and abroad. The prices of products that are sold are calculated based<br />

on prices in international markets for those materials. Eko Reverss maintains database of its clients and contact<br />

them whenever sufficient amount of recyclables for sale is available.<br />

In its business activity Eko Reverss is involved in obtaining, sorting and trading of, inter alia, the following<br />

recyclable materials:<br />

Glass. Obtained both sorted and unsorted. First sort glass of high quality and mixed glass of lower<br />

quality, used as construction material, are sold to the factories in Ukraine and Lithuania.<br />

PE. Sorted by Eko Reverss and later vast majority sold to Nordic Plast. The rest is exported to Lithuania<br />

and Germany.<br />

PET. Sorted by Eko Reverss and sold to PET Baltija only.<br />

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Paper and cardboard. Sorted by Eko Reverss and sold mainly to Ligatnes paper mill in Latvia. Is also<br />

shipped to Klaipedos Kartonas in Lithuania.<br />

Metal. Not sorted by Eko Reverss and sold in Latvia to Kuusakoski, Grobinas Metals and Tolmets.<br />

WEEE. Sorted by Eko Reverss. Metal parts are disassembled and sold as metal scrap. The rest is sold to<br />

Lithuanian recyclers EMP recycling and Baltijos Perdirbimas.<br />

GHE. Used batteries are mainly exported to Germany, power batteries are mainly exported to Zalvaris in<br />

Lithuania and accumulators are exported to Estonia for recycling at <strong>Eco</strong>metal company. Tires are sold<br />

Latvian cement manufacturing plant Cemex.<br />

The table below presents amounts of different types of recyclables sorted by the Group in periods indicated (in<br />

tonnes).<br />

For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

PE 246 281 1,018 1,172 911<br />

Paper and Cardboard 1,096 1,505 5,483 4,575 3,392<br />

PET 23 43 119 42 60<br />

Total 1,365 1,830 6,620 5,789 4,363<br />

Source: The Group’s data<br />

The table below presents amounts of different types of recyclables traded by the Group in periods indicated (in<br />

tonnes).<br />

For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

Glass 4,971 4,625 20,488 19,416 15,081<br />

PET 75 33 454 566 409<br />

PE 1,370 1,303 7,350 5,760 2,900<br />

Paper and Cardboard 3,009 891 10,679 9,180 5,766<br />

WEEE 130 207 993 782 641<br />

Total 9,555 7,059 39,964 35,704 24,797<br />

Source: The Group’s data<br />

Customers<br />

Eko Reverss cooperates broadly with LZP, its biggest client. Eko Reverss has a long-term framework<br />

agreements with LZP and the detailed agreements are signed annually or quarterly for particular volume of<br />

specific type of recyclables (glass, polymers (including PE), PET, paper and cardboard, metal, WEEE, GHE) to<br />

be collected and sent for processing. LZP pays Eko Reverss on the market basis. Eko Reverss also cooperates<br />

with Nordic Plast and PET Baltija.<br />

Apart from LZP and other Group Companies, Eko Reverss cooperates with major waste management companies<br />

and material recyclers active in the Baltics and Ukraine, including: Eko Group (collection and sorting company<br />

in Lithuania), Gemini Corporation (international commodity specialist from Belgium), Virginijus ir KO (waste<br />

purchase, sorting and trading company from Lithuania) and Vetropac (Ukrainian factory which is part of the<br />

Switzerland based Europe's leading manufacturers of packaging glass). Agreements with clients are usually<br />

signed for a one year period and renewed annually.<br />

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Suppliers<br />

BMWARDOCS232112v37<br />

Throughout its business activities Eko Reverss buys recyclable materials (both sorted and unsorted) from waste<br />

collection companies, producers and retail chains. Eko Reverss is active on the whole Latvia, as well as in<br />

Lithuania and Estonia. Eko Reverss doesn’t conclude long-term agreements with its suppliers.<br />

Major suppliers of Eko Reverss are: Ragn Sells (Swedish waste management company), Eko Latgale (recycling<br />

company operating in the second biggest Latvian city), Eko Group (collection and sorting company in<br />

Lithuania), L&T (Finish waste collection company), ZAAO (municipal waste management company operating<br />

in North-Western Latvia) and Piejura landfill.<br />

Licenses, permits and certificates<br />

As of the date of the Prospectus Eko Reverss has been granted all permits necessary for performance of its<br />

business activities, including permit for performance of category B polluting activities (please see: “Regulatory<br />

Information – Environmental and other Licenses and Permits”). Permit for performance of category B polluting<br />

activities for Eko Reverss was issued on 19 September 2007 for period of 5 years. The renewed permit for<br />

performance of category B polluting activities for Eko Reverss was issued on 18 May 2012 for period of 7 years.<br />

Please see: “Risk Factors – Risks Relating to the Group’s Business – The Group depends on licenses and permits<br />

that could be revoked, the Group may not be able to prolong them or the Group may not be able to obtain<br />

required licenses and permits”.<br />

Recycling<br />

Overview<br />

The Group is involved in recycling business through two of the Group Companies: PET Baltija and Nordic Plast.<br />

This allows the Group to engage in two different business lines, namely, recycling of raw materials into PET<br />

flakes (PET Baltija) and PE pellets (Nordic Plast). PET Baltija operates the largest PET bottle recycling plant in<br />

the Baltics in terms of production volume and Nordic Plast is the leading used PE waste recycler in Latvia in<br />

terms of production volume.<br />

PET Baltija<br />

PET Baltija uses clean and mixed colour PET packaging material (e.g. bottles) to recycle them into PET flakes.<br />

The Group aims at recycling raw material of good quality (i.e. lower contamination), that allows it to more<br />

efficiently use capacities of its production facilities.<br />

PET Baltija produces colour sorted, cleaned, hot washed PET flakes that can be further used in production of<br />

food packaging material as well as in fibre and strapping industries. PET Baltija produces high-quality PET<br />

flakes for food grade industry. It offers: clear flakes, light blue flakes, green flakes, brown flakes and dark mix<br />

flakes. PET Baltija also produces several by-products: PET flakes with metal components, PET dust, PET<br />

cuttings, grinded corks and labels, ungrinded corks and labels, ungrinded labels, PET cuttings from sewage<br />

treatment.<br />

The prices of PET flakes are variable depending on various factors, including: seasonality of demand (on the one<br />

hand, increased demand for PET flakes could be observed in spring and summer, but on the other hand PET<br />

Baltija doesn’t sell its products in the second half of December), crude oil and cotton prices, and prices of virgin<br />

PET. The Group is monitoring prices of PET flakes on the daily basis, allowing the Group to faster adjust to<br />

changing prices of PET flakes and raw material used for recycling. Therefore, in the Management’s view, the<br />

Group is able to secure stable and historically higher level of the margins.<br />

The recycling process in PET Baltija begins with used PET packaging in 150-500 kg bales being forwarded by a<br />

conveyor through the bale cleaver and a conveyor system into the hot wash. There the incoming PET packaging<br />

is washed with hot water and steam, thus removing most of the sand and other impurities, moistening the<br />

material and partially removing the labels. Bottle caps are also removed in the process. After the preliminary<br />

wash the PET packaging is forwarded onto the automatic sorting line, where it is sorted by colour and rid of<br />

other polymers and metal objects. Upon the completion of the automatic sorting, several workers are conducting<br />

the final visual inspection of the PET flow. Upon being sorted away, the otherwise coloured PET packaging is<br />

forwarded onto the second processing line where it gets processed into coloured PET flakes. After the sorting is<br />

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complete, the valid main flow is forwarded into the grinder, where it gets ground until the certain size of PET<br />

flakes has been achieved. The ground material is mixed with water and pumped into the washing device, where<br />

the remaining glue, label pieces and other impurities are washed off the material using high temperature and<br />

alkaline chemicals. Most of the impurities are separated after the wash by means of a vibrating sieve. Afterwards<br />

the flakes get into the flotation separator. Since PET is heavier than water, the PET flakes sink onto the bottom<br />

of the device, while the cap and label material is lighter and therefore floats on the surface. Both material flows<br />

are separated and clean PET flakes with no impurities get into the rinsing device. After the rinsing, the PET<br />

flakes get dried with hot air and rid of small dust-like PET particles and small pieces of paper during a spin in<br />

the cyclone. This stage involves the PET flakes being finally cleaned of metal particles using a metal detector.<br />

The dry flakes are packed into bags, which are then stored at the warehouse before being shipped by the clients.<br />

In accordance with common practices in the recycling business PET Baltija cooperates with its clients on the<br />

basis of separate orders without signing any long-term agreements. This is due to the fact that prices of PET<br />

flakes are variable. The sales agreements are signed at the end of each month and the prices are set monthly. The<br />

amount, price, payment terms are fixed in the order application form. PET Baltija services mostly its long term<br />

clients and every year is adding few new clients by standard way of marketing: emails etc.<br />

The major customers of PET Baltija are: Celoplast (international distributor and recycler of plastic raw<br />

materials), IMP Comfort (Polish textile producer which manufactures both polyester staple fibre and fibre-based<br />

products such as high weight non-wovens and interlinings), Lietpak (Lithuanian manufacturer of packaging<br />

materials from the polymer film), Silon (company from Czech Republic producing polyester staple fibres, PE<br />

and PP compounds) and Sky-Light (company from Denmark, being one of the leading companies in Europe<br />

within the development, design and manufacture of extruded plastic sheet and thermoformed plastic packaging).<br />

It should be noted that the major customers of PET Baltija are also the biggest clients of the whole Group (please<br />

see: “Risk Factors - The Group doesn’t conclude long-term agreements with its major customer”). Other<br />

customers of PET Baltija include: Retail Baltic (Lithuania), Boryszew (Poland), Greenfiber (Romania), Liljendal<br />

Bruk (Finland), ORV (Italy), RPC Cobelplast (Italy) and Strapa (Lithuania).<br />

In year ended 31 December 2011 PET Baltija exported 100% of its PET flakes production to the other EU<br />

countries. In year ended 31 December 2011 the main countries of destination of output of PET Baltija were:<br />

Denmark (19.35% of sales), Poland (17.69% of sales), Lithuania (17.13% of sales), Czech Republic (14.32% of<br />

sales), Italy (10.02% of sales) and the Netherlands (8.80% of sales).<br />

The table below presents amounts (in tonnes) and percentage of total amount of PET flakes sold by PET Baltija<br />

by country of destination in periods indicated.<br />

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For three months ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

tonnes % tonnes % tonnes % tonnes % tonnes %<br />

Denmark 1,524 29.87 599 13.26 3,313 19.35 1,889 13.90 1,931 32.46<br />

Poland 473 9.26 924 20.46 3,030 17.69 2,194 16.14 1,380 23.20<br />

Lithuania 603 11.81 665 14.72 2,933 17.13 1,389 10.22 481 8.08<br />

Czech<br />

Republic<br />

699 13.70 773 17.12 2,452 14.32 2,205 16.23 - -<br />

Italy 527 10.33 702 15.54 1,717 10.02 2,575 18.95 831 13.97<br />

The<br />

Netherlands<br />

643 12.59 395 8.75 1,506 8.80 1,827 13.44 624 10.49<br />

Finland 466 9.13 274 6.07 1,164 6.80 637 4.68 - -<br />

Romania 169 3.31 184 4.07 634 3.70 640 4.70 86 1.45<br />

Luxembourg - - - - 346 2.02 235 1.73 - -<br />

Slovenia - - - - 31 0.18 - - - -<br />

Estonia - - - - - - - - 93 1.55<br />

Latvia - - - - - - - - 502 8.44<br />

Austria - - - - - - - - 21 0.36<br />

Total 5,104 100 4,516 100 17,126 100 13,591 100 5,949 100<br />

Source: The Group’s data<br />

Raw materials recycled by PET Baltija are purchased from local and foreign waste handling companies. The<br />

Group aims at purchasing raw material from deposit systems in Scandinavia, due to its better quality (lower<br />

contamination) in comparison with raw material from Germany and CEE countries. The rest of raw material is<br />

purchased on the spot basis.<br />

PET bottle purchase prices are agreed with the sellers based on the spot prices published monthly by German<br />

industry magazine EUWID. Agreements with deposit systems are usually long-term agreements, revised<br />

annually and the terms of the contracts do not include the minimum volume and the fixed price. In the<br />

Management’s opinion this allows to have more flexible procurement policy.<br />

The purchase price of PET bottles depends on seasonality of demand (demand increases in summer and<br />

decreases in winter), fluctuations of supply (mainly from China, where supply of PET bottles depends on, inter<br />

alia, customs policy), crude oil and cotton prices.<br />

PET Baltija purchases most of the raw material from abroad, namely from: Scandinavia (Finland, Denmark), the<br />

Baltics, other European and CIS countries. The major suppliers of PET Baltija are also the biggest suppliers of<br />

the Group. Those major suppliers include: Dansk Retursystem (Denmark), Palpa (Finland), EPP – Eesti<br />

Pandipakend (Estonia), Lidl (Finland), Inland Holding (Estonia). If the planned MBT facilities will be<br />

constructed, this will allow increasing the supply PET Baltija with the raw material from Latvia. For more<br />

information on planned MBT facilities please see: “Use of Proceeds”.<br />

Nordic Plast<br />

Nordic Plast recycles (by sorting, washing, cutting, drying and extruding) used PE waste into different types of<br />

PE pellets. Nordic Plast recycles primarily the post-industrial, retail and agricultural PE films (e.g. shrink films).<br />

The Group aims at recycling less contaminated PE films, what decreases costs of cleaning and allows reaching<br />

the most efficient cost-quality ratio. Moreover, it allows use capacities of the production facilities in more<br />

efficient way.<br />

Nordic Plast produces low density polyethylene (“LDPE”) and high density polyethylene (“HDPE”) pellets. In<br />

the result three types of products are obtained: natural pellets (from clear PE), grey or dark pellets (from dark<br />

colour PE and used packaging bags) and mixed pellets (from different colour PE packaging). The PE pellets can<br />

be further used in production of, e.g., PE films or waste and packaging bags.<br />

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In general, the price of PE pellets depends on the price of primary PE. Moreover, prices of PE pellets are, to<br />

some extent, linked with crude oil prices. The Group is monitoring prices of PE pellets on the daily basis,<br />

allowing the Group to faster adjust to changing prices of end products and raw material. Therefore, in the<br />

Management’s view, the Group is able to secure stable and historically higher level of the margins.<br />

In the beginning of the PE recycling process carried by Nordic Plast, metal, wood, paper and other plastics<br />

admixtures that are unsuitable for the production of pellets are being manually sorted out from the delivered PE<br />

waste (used packaging). The sorted-out PE material is transported by a belt conveyor and reaches the grinder<br />

with water, where the material is crushed into flakes. The flakes are washed in a metallic bath with water. The<br />

flakes are stirred with moving fork-rollers in order to separate sand, dust, fat. Afterwards, the flakes go from the<br />

bath to centrifuge, where the water is removed. After the excessive water is removed, the flakes enter tubes with<br />

the help of a blower, where the flakes are dried with hot air flow. After drying, the flakes are accumulated in a<br />

bunker. After the bunker with a screw and with the help of a belt conveyor, the flakes enter the granulator, where<br />

they are repeatedly cut in smaller fractions. Further, in the beginning of screw in a high temperature, the mass is<br />

melted, filtered, moisture and other admixtures are drained with a degassing unit. The acquired mass is cut in<br />

pellets by rotating knives. The pellets are cooled in a bath with water, dried on a vibrating screen and by a<br />

blower. Finally, the pellets are poured into a bunker and then packaged into bags, which are then stored at the<br />

warehouse before being shipped by the clients.<br />

In accordance with common practices in the recycling business, Nordic Plast cooperates with its clients on the<br />

basis of separate orders without entering into contracts for several orders lasting over period of time. The basic<br />

payment condition for Nordic Plast clients is prepayment. The clients, who do not agree to prepayment, are<br />

offered to work with factoring or guarantee letters. Nordic Plast services mostly its long term clients and every<br />

year is adding few new clients by standard way of marketing: emails etc.<br />

Customers include both local and foreign manufacturers of end PE products (PE films, waste and packaging bags<br />

etc.). The major customers of Nordic Plast include: Trioplast Nyborg (Danish industrial group, which develops,<br />

manufactures, and markets packaging and hygiene films), Sodivas (French trading company), KUFA Polymer<br />

(German waste disposal and recycling company), Sphere Nederland (one of Europe’s largest producers of waste<br />

and packaging bags) and Lenbra (Lithuanian company offering various polyethylene film for packing).<br />

In year ended 31 December 2011 Nordic Plast exported 93.4% of its products. In year ended 31 December 2011<br />

the main countries of destination of output of Nordic Plast were: Denmark (27.4% of sales), the Netherlands<br />

(22.0% of sales), France (19.3% of sales), Germany (15.1% of sales) and Lithuania (7.3% of sales).<br />

The table below presents amounts (in tonnes) and percentage of total amount of products sold by Nordic Plast by<br />

country of destination in periods indicated.<br />

For three months ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

tonnes % tonnes % tonnes % tonnes % Tonnes %<br />

Denmark 113 12.60 333 36.43 1,019 27.4 1,714 47.3 839 23.3<br />

The<br />

Netherlands<br />

22 2.45 242 26.48 817 22.0 1,266 35.0 865 24.0<br />

France 383 42.72 231 25.27 719 19.3 49 1.3 183 5.1<br />

Germany 227 25.32 - - 563 15.1 92 2.5 23 0.6<br />

Lithuania 11 1.17 59 6.46 271 7.3 181 5.0 792 22.0<br />

Latvia 95 10.60 49 5.36 245 6.6 70 1.9 28 0.8<br />

Poland 46 5.13 - - 56 1.5 - - - -<br />

Estonia - - - - 27 0.7 199 5.5 408 11.3<br />

Belgium - - - - - - - - 303 8.4<br />

Italy - - - - - - - - 163 4.5<br />

Others - - - - 1 0.03 49 1.4 2 0.05<br />

Total 897 100 914 100 3,718 100 3,620 100 3,606 100<br />

Source: The Group’s data<br />

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Nordic Plast implements high requirements for quality of raw material for recycling, by purchasing separately<br />

clear and colourful PE. Nordic Plast purchases PE films (e.g. shrink films) primarily obtained from the postindustrial,<br />

retail and agricultural waste. In order to prevent repeated manual sorting and thus lighten the<br />

workload, the Group aims at purchasing less contaminated raw materials.<br />

The price of raw material varies depending on its composition and impurity level. Moreover, the price is, to<br />

some extent, linked with prices of crude oil. Additionally, certain seasonality could be observed in prices of PE<br />

raw material, as demand for it increases in summer period and decreases in winter.<br />

Most of the raw material for Nordic Plast is supplied by Eko Reverss and PET Baltija and the rest is purchased<br />

on the spot basis. In 2011 most of raw material was supplied locally, whereas the rest of material was supplied<br />

from the neighbouring countries: mainly Estonia, Lithuania and Sweden. The main suppliers of raw material for<br />

Nordic Plast are waste management companies, which collect and sort waste.<br />

Licenses, permits and certificates<br />

As of the date of the Prospectus both Nordic Plast and PET Baltija have all permits necessary for performance of<br />

their business activities, including permits for performance of category B polluting activities (please see:<br />

“Regulatory Information – Environmental and other Licenses and Permits”). Permit for performance of category<br />

B polluting activities for Nordic Plast was issued on 3 September 2010 for period of 7 years. Permit for<br />

performance of category B polluting activities for PET Baltija was issued on 7 October 2008 for period of 5<br />

years. Please see: “Risk Factors – Risks Relating to the Group’s Business – The Group depends on licenses and<br />

permits that could be revoked, the Group may not be able to prolong them or the Group may not be able to<br />

obtain required licenses and permits”.<br />

PET Baltija holds ISO 14001:2004 and ISO 9001:2008 certificates issued by DET Norske Veritas Latvia. Both<br />

certificates are valid till 5 November 2014.<br />

Employees<br />

In three months ended 31 March 2012 and years ended 31 December 2011, 2010 and 2009 the Group Companies<br />

(including Jumis) employed 459, 451, 447 and 479 employees respectively.<br />

The table below presents data on headcount of the employees working in the Group Companies and Jumis in<br />

periods indicated.<br />

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As of 31 March As of 31 December<br />

2012 2011 2010 2009<br />

<strong>Eco</strong> <strong>Baltia</strong> - - - -<br />

Eko SPV - - - -<br />

Eko Baltija 9 9 3 3<br />

Latvijas Zalais punkts 21 21 20 19<br />

Eko Riga 58 51 41 35<br />

Eko Kurzeme 51 52 47 48<br />

Jurmalas ATU 75 69 76 74<br />

Kurzemes Ainava 55 62 66 87<br />

Tukuma Ainava* - - 22 24<br />

Eko Reverss 47 46 40 38<br />

PET Baltija 84 83 78 77<br />

Nordic Plast 39 38 35 39<br />

Vaania - - - -<br />

Jumis 20 20 19 35<br />

MRTL - - - -<br />

Total 459 451 447 479<br />

* merged into Kurzemes Ainava<br />

Source: The Group’s data<br />

In three months ended 31 March 2012 and years ended 31 December 2011, 2010 and 2009 respectively the<br />

Group employed its employees in Latvia only.<br />

The Group recognises the importance of its staff in operating a stable and efficient business and the provision of<br />

a high level of customer service and, accordingly, the Group strives to recruit, train, reward and retain the best<br />

personnel. The Group introduces different types of remuneration systems, depending on the Group <strong>Company</strong> and<br />

position held. Those remuneration systems includes: standard gross salary, salary bound to EBITDA on the<br />

Group <strong>Company</strong> level, salary bound to monthly number of new contracts signed (sales managers), salary<br />

depending on aggregated work time (drivers and stackers).<br />

Subject to certain exceptions, personnel is usually employed based on labour agreements concluded in<br />

accordance with Latvian Labour Law. From time to time the Group employs temporary workers, however their<br />

number is marginal. The Group employs disabled persons, however their number is insignificant.<br />

There are no trade unions and workers councils registered in the Group Companies, except from trade union<br />

organized in Jumis. There are no collective bargaining agreements concluded in the Group Companies, except<br />

from Jurmalas ATU and Jumis. The collective bargaining agreements concluded in Jurmalas ATU and Jumis set<br />

out certain obligations of those Group Companies in regard to, among others, minimum wages, additional<br />

holidays and certain social services.<br />

As at the date of this Prospectus, the Group’s employees, except Mr. Maris Simanovics, Mr. Viesturs Tamuzs<br />

and Mrs. Undine Bude, do not have any shareholdings in the Issuer, do not hold any stock options or other rights<br />

to the Shares and do not participate in any other way in the capital of the Issuer. There are no arrangements<br />

relating to such participation.<br />

Investments<br />

The Group didn’t undertake investments that should be considered as principal in the financial years ended 31<br />

December 2009 and 2010.<br />

In the financial year ended 31 December 2011 the Group completed implementation of the project<br />

“Reconstruction of the recycling line of polyethylene of Nordic Plast – improvement of energy efficiency”. The<br />

project was implemented in cooperation with the Environmental Investment Fund of Latvia and the Ministry of<br />

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Environmental Protection and Regional Development. Total costs of the project were estimated at approximately<br />

LVL 348,000 (EUR 495,000) and its implementation in amount of approximately LVL 158,000 (EUR 225,000)<br />

was co-funded by the Climate Change Financial Instrument.<br />

In the financial year ended 31 December 2011 the Group also purchased real estate to be adopted as new<br />

premises for daily operations of Jurmalas ATU. The total investment was approximately LVL 90,000.<br />

At the beginning of 2012 the Group has made investment of approximately LVL 175,000 into Eko PET,<br />

company which was aimed to build PET pelletizing factory and receive EU grant for support of this project. PET<br />

Baltija owns 48% of Eko PET.<br />

Research and Development<br />

PET Baltija aims at developing production of crystallized PET pellets, which could be used in food industry (as<br />

material for production of food packaging). Nordic Plast plans to increase its production capacities by adding a<br />

new line for production of polypropylene (“PP”) pellets from woven bags. Both projects are planned to start in<br />

2012 and finish in 2013. For more information please see: “Use of Proceeds”.<br />

Real Estate<br />

Certain Group Companies own real properties in Latvia. Eko Kurzeme owns real property in Liepaja, composed<br />

of a land plot with the area of 21,381 m 2 and 11 buildings. Jurmalas ATU owns two real properties: (i) real<br />

property in Jurmala, composed of a land plot with the area of 7,880 m 2 and 4 buildings, and (ii) real property in<br />

Jurmala, composed of a land plot with the area of 4,964 m 2 and 5 buildings. Kurzemes Ainava owns: (i) real<br />

property in Talsi, composed of a land plot with the area of 517 m 2 and one office building, (ii) a land plot in<br />

Tukums with the area of 4,576 m 2 , and (iii) number of buildings in Tukums (including administrative building,<br />

garage – workshop, warehouses). Eko Reverss owns land plot located in Olaine district with the area of 124,800<br />

m 2 . Properties in Jurmala and Tukums are used for daily operations of Jurmalas ATU and Kurzemes Ainava,<br />

while properties in Liepaja and Olaine are planned for future new business development projects.<br />

The Group leases number of real estates, including warehouse and industrial premises. PET Baltija leases from<br />

Jelgavas biznesa parks certain premises located in Jelgava, where production facilities are located, including<br />

industrial premises with the area of 3,774 m 2 , office and social premises with the area of 392 m 2 and warehouse<br />

premises with total area of approximately 6,142 m 2 . PET Baltija concluded the lease agreement until 3 March<br />

2018. Nordic Plast leases from Nordic Industrial Park premises located in Olaine, where production facilities are<br />

located, including industrial premises with total area of approximately 3,000 m 2 and warehouse premises with<br />

the area of 432 m 2 . The lease agreements concluded by Nordic Plast are valid until 31 December 2014 and 31<br />

December 2016. Eko Riga leases certain premises in Riga, including: non-residential premises with area of 174<br />

m 2 (lease is valid till 31 August 2013), workshop premises with the area of 239 m 2 (lease is valid till 1 February<br />

2014) and land plot of 1,364 m 2 and two storey buildings (lease is valid till 1 February 2014). Eko Reverss leases<br />

premises in Riga, including: hangar with the total area of 434 m 2 and warehouses with the total area of<br />

approximately 1,400 m 2 (lease is valid till 31 December 2021). All properties are used for daily operations of<br />

respective Group Companies.<br />

Additional, the certain Group Companies lease, inter alia, office and administrative premises in Riga, Kandava<br />

and Tukums.<br />

Property and Equipment<br />

Set below is information regarding material pieces of property (excluding real property) and equipment of the<br />

Group.<br />

Organisation of waste recovery<br />

The major pieces of equipment used by LZP in its business operations are cars, which are either owned by LZP<br />

or leased through financial leasing.<br />

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Waste collection<br />

The Group Companies operating in waste collection segment use vehicles, including: cargo vehicles, waste<br />

collection and transportation trucks and agricultural machinery (including tractors). Vehicles are either owned by<br />

the Group or leased through financial leasing. Additionally, in their business activities the Group Companies use<br />

different types of waste containers, presses and other specialist pieces of equipment, which are either owned by<br />

the Group or leased through financial leasing.<br />

The main assets used by the Group Companies operating in the waste collection segment are listed in the table<br />

below.<br />

Household<br />

waste<br />

collection<br />

trucks<br />

Waste<br />

container<br />

trucks<br />

Construction<br />

rubble<br />

containers<br />

Household<br />

waste<br />

containers<br />

Waste press<br />

containers<br />

Eko Riga 11 6 49 6,600 23<br />

Eko Kurzeme 10 4 50 8,000 -<br />

Jurmalas ATU 7 2 5 10,000 -<br />

Kurzemes Ainava 8 5 20 7,500 -<br />

Vaania 4 2 52 1,000 -<br />

Total 40 19 176 33,100 23<br />

Source: The Group’s data<br />

Recyclables sorting and trading<br />

In its business operations Eko Reverss uses vehicles, including: cargo vehicles and transportation trucks.<br />

Vehicles are either owned by Eko Reverss or leased through financial leasing. Additionally, Eko Reverss uses<br />

different types of waste containers, presses and other specialist pieces of equipment, which are either owned by<br />

the Eko Reverss or leased through financial leasing.<br />

As of the date of the Prospectus sorting capacities of Eko Reverss are on level of 11,400 tonnes per annum.<br />

Recycling<br />

Nordic Plast is equipped with specialist production facilities allowing recycling of used PE. Production facilities<br />

of Nordic Plast were equipped in 2008 with new equipment, including: PE recycling line, PE washing line,<br />

recycling line and drying system equipment, allowing the production of high-quality LDPE pellets. In 2010<br />

Nordic Plast adjusted the technology for recycling of PET bottle corks and labels in the result of what HDPE<br />

pellets are produced. In 2011 the Group completed implementation of the project “Reconstruction of the<br />

recycling line of polyethylene of Nordic Plast – improvement of energy efficiency”. The aim of the project was<br />

to decrease the energy consumption of Nordic Plast and limit CO2 emission into atmosphere. During the project<br />

the polyethylene first stage processing line was reconstructed, replacing the most capacious component in terms<br />

of energy – drying knot – with a new technology that considerably decreases the energy consumption. The<br />

annual saving of energy consumption of the company in the result of the project will be ca. 1,488,000 kWh, thus<br />

decreasing also by 194.95 t the harmful CO2 emission.<br />

As of the date of the Prospectus output capacities of Nordic Plast are on the level of 3,700 tonnes of product per<br />

annum.<br />

PET Baltija uses specialist equipment, which is required in the process of recycling of PET bottles. Production<br />

facilities of PET Baltija were equipped in 2008 with new equipment, including: waste water treatment and<br />

sludge treatment complex, PET bottles sorting line and PET bottles recycling line.<br />

As of the date of the Prospectus output capacities of PET Baltija are on the level of 19,320 tonnes of product per<br />

annum.<br />

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Encumbrances<br />

As of the date of the Prospectus, all current and future assets of Eko SPV, Eko Baltija, Eko Riga, Eko Reverss,<br />

Eko Kurzeme, Kurzemes Ainava, Jurmalas ATU, PET Baltija, Vaania, Nordic Plast and LZP are pledged in<br />

favour of Nordea Bank as security under the Nordea Financing Agreements (for more information please see:<br />

“Material Contracts – Financing Agreements – Agreements with Nordea Bank”). The pledges secure the<br />

obligations under the Nordea Financing Agreements with the maximum secured amount of EUR 38,560,000.<br />

Pledged assets may not be transferred or otherwise disposed of without the consent of Nordea Bank. Moreover,<br />

the Group Companies may not undertake any action, which would reduce the value of the pledged assets, except<br />

actions within the ordinary course of business.<br />

Additionally, the obligations under the Nordea Financing Agreements are secured by mortgages on certain real<br />

properties owned by the Group Companies. The following real properties are encumbered with 8 mortgages<br />

each: real property in Liepaja owned by Eko Kurzeme, real property in Talsi and real properties in Tukums<br />

owned by Kurzemes Ainava, and real property located in Olaine owned by Eko Reverss. The obligations of<br />

Jurmalas ATU under 15 February 2012 Loan Agreement No 2011-515-A are secured by mortgages on real<br />

properties located in Jurmala and owned by Jurmalas ATU. Mortgaged properties may not be, inter alia,<br />

transferred, disposed of and encumbered without the consent of Nordea Bank and the Group Companies may not<br />

undertake any action, which would reduce the value of the mortgaged properties.<br />

Intellectual Property<br />

The Group relies on the strength of its brands, most of which are registered trademarks and are protected in<br />

Latvia. As at the date of the Prospectus, the Group has 9 trademarks registered, including LZP trademark. Use of<br />

LZP trademark is conditional upon validity of the agreement concluded by LZP with Der Grune Punkt – Duales<br />

System Deutschland AG of 2 February 2009 and Packaging Recovery Organisation Europe s.p.r.l. of 27 August<br />

2003 (please see: “Risk Factors – Latvijas Zalais punkts may lose the right to use the “Green Dot” trademark”.<br />

The Group uses 11 registered Internet domains, including: www.zalaispunkts.lv, www.zalais.lv,<br />

www.ekobaltija.lv, www.nordicplast.lv and www.petbaltija.lv.<br />

Insurance<br />

The Group has insured its principal assets (including production equipment of PET Baltija and Nordic Plast),<br />

which have been pledged or mortgaged as collateral for financing granted to the Group Companies against, inter<br />

alia, risks of: fire, storm, hail, leaks from engineering communications, illegal activities of third parties,<br />

vandalism and/or collision.<br />

The Group holds general third party liability and liability for products insurance. This insurance also covers<br />

liability for loss and/or damages to environment, including, among others: (i) sudden and unforeseen damages to<br />

environment caused by individual (not repeated or continued) mistake or negligence of the insured entity; and<br />

(ii) expenses related to necessary preclusive measures in order to prevent direct threat of possible loss to third<br />

parties.<br />

The Group believes that it maintains insurance coverage at the level required by applicable laws and regulations<br />

and in accordance with customary market standards. Please see: “Risk Factors – Risks Relating to the Group’s<br />

Business – The Group’s insurance coverage may be insufficient for any incurred losses”.<br />

Legal and Administrative Proceedings<br />

As of the date of the Prospectus, there are no governmental, legal or arbitration proceedings involving the Issuer<br />

and/or any of the Group Companies, which could have significant effects on the Issuer and/or Group’s financial<br />

position or profitability. In the period of 12 months before the date of the Prospectus there were no<br />

governmental, legal or arbitration proceedings involving the Issuer and/or any of the Group Companies, which<br />

could have significant effects on the Issuer and/or Group’s financial position or profitability.<br />

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MATERIAL CONTRACTS<br />

The following contracts are the contracts that (i) have been entered into by the <strong>Company</strong> or any of its Group<br />

Companies within the two years immediately preceding the date of this Prospectus which are or may be material<br />

to their business or (ii) have been entered into by the <strong>Company</strong> or any of its Group Companies at any other time<br />

but which contain provisions under which the <strong>Company</strong> or any of its Group Companies has an outstanding<br />

obligation or entitlement that is material to the Group as at the date of this Prospectus.<br />

Waste Management Agreements<br />

Agreements with the Latvian Environmental Protection Fund Administration<br />

In accordance with Latvian regulations LZP as an organisation of waste recovery offering services that allow its<br />

clients to be exempted from the NRT should co-ordinate with the Latvian Environmental Protection Fund<br />

Administration a waste recovery plan with the maximum term of 3 years on the grounds whereof the respective<br />

waste recovery system should be implemented (for more information please see: “Regulatory Information –<br />

Environmental and other Licenses and Permits”). On 30 December 2010 LZP concluded three agreements with<br />

the Latvian Environmental Protection Fund Administration regarding implementation of waste recovery system<br />

of: (i) waste harmful to the environment, (ii) WEEE, and (iii) waste packaging and disposable tableware and<br />

accessories. Each agreement is concluded for defined period starting from 1 January 2011 till 31 December 2013.<br />

The agreements may be terminated only in accordance with the procedure set in the Cabinet Regulations No.<br />

1294 Order of exemption of payment of the natural resources tax for goods harmful to the environment and the<br />

Cabinet Regulations No. 1293 Order of exemption of payment of the natural resources tax for packaging and<br />

disposal tableware and accessories (the “Cabinet Regulations”). Any termination is subject to a decision on<br />

termination of the agreement(s) adopted by the Ministry of Environmental Protection and Regional Development.<br />

Term for adoption of such decision is not clearly stated in the Cabinet Regulations. Material conditions of the<br />

agreements are set by the Cabinet Regulations and other laws and regulations to ensure that all agreements are<br />

equal. Therefore, the agreements are subject to changes in accordance to any changes and amendments in the<br />

respective laws and regulations.<br />

Waste recovery agreements of Latvijas Zalais punkts<br />

LZP concluded three agreements with RIMI Latvia on recovery of: (i) packaging waste, (ii) goods harmful to the<br />

environment and (iii) WEEE, generated as a result of activities of RIMI Latvia or placed on the Latvian market.<br />

RIMI Latvia was granted the right to use “Green Dot” trademark. License fees are paid quarterly, based on a<br />

report on the volume of packaged goods, electric and electronic equipment and goods harmful to the<br />

environment placed by RIMI Latvia on the market. Agreements were concluded for unlimited duration. However,<br />

each party is entitled to terminate the agreement(s) with 3 month prior written notice and if RIMI Latvia does not<br />

agree on changes in the tariff it may terminate the agreement(s) by giving a 1 month written notice.<br />

Similar agreements on implementation of recovery system of different types of waste were concluded with other<br />

key clients of LZP, including: Maxima Latvia, Cido Grupa, Coca-Cola Latvia and Mobil Plus. Principal<br />

provisions of the agreements (e.g. condition of payment of license fee and duration) are similar to the provisions<br />

of agreements described above. Although, there are certain differences, including, e.g. duration of termination<br />

notices.<br />

Waste management agreements of Eko Riga<br />

Eko Riga is party to the cooperation agreement with Riga municipality dated 16 December 2004. According to<br />

the agreement Riga municipality grants Eko Riga the rights to collect and transport household waste from natural<br />

and legal persons in the territory of Riga city. Eko Riga should organise and perform regular waste collection in<br />

the territory of Riga city and transportation to the Getlini landfill. Fees paid to Eko Riga for household waste<br />

management should comply with the tariffs approved by authorities (see: “Regulatory Information – Price<br />

Controls”). The agreement was concluded for defined period, until 31 December 2020. Due to the fact that the<br />

agreement was concluded before 26 July 2005, the transitional provisions of the currently effective Waste<br />

Management Law should not be applicable and therefore there is no requirement to terminate the agreement by 1<br />

July 2013. Although, there is a risk that the transitional provisions change materially and the agreement will be<br />

terminated before its term expires (see: “Risk Factors – Risks Relating to the Group’s Business – Agreements on<br />

providing the waste management services with municipalities may be terminated”).<br />

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On 9 July 2009 Eko Riga executed contract with Carnikava District municipality agency Carnikavas<br />

Komunalserviss on collection and removal of household waste from the territory of Carnikava District. The<br />

contract was granted as the result of an open tender. In accordance with the contract Eko Riga should<br />

systematically collect and remove waste to the indicated places using own materially technical means. Eko Riga<br />

should also install containers for sorted waste and regularly empty them. Eko Riga has right to conclude<br />

individual contracts on collection and removal of waste with natural and legal persons – owners of the real<br />

estates in private housing sectors and organisations. Fee for collection and removal of the dry household waste is<br />

LVL 2.84 plus VAT per m 3 and fee for collection and removal of large-size waste amounts to LVL 9.99 plus<br />

VAT per m 3 . Maximum contract fee within the term of contract operation cannot exceed LVL 114,015 plus VAT.<br />

The contract was concluded for defined period of time, from 1 August 2009 till 31 July 2013, but its term ends,<br />

if prior to the contract term the maximum contract amount (i.e. LVL 114,015 plus VAT) is reached.<br />

On 13 April 2012 Eko Riga signed waste management service contract with Marupe District municipality, which<br />

was granted by way of a public tender. Marupe District municipality granted Eko Riga the rights to collect and<br />

transport household waste from natural and legal persons in the territory of Marupe District. Eko Riga should<br />

ensure regular emptying of containers, maintenance of containers, waste collection and removal from the agreed<br />

places. The contractual price amounted to approximately LVL 451,496. The agreement was concluded for<br />

defined period of 5 years. Marupe District municipality is entitled to terminate the contract unilaterally by<br />

written notice, in case Eko Riga, inter alia: fails to fulfil its obligation due to its fault, does not fulfil the<br />

technical specifications, becomes insolvent, as well as in case the required permits of Eko Riga are revoked.<br />

Waste management agreements of Eko Kurzeme<br />

Eko Kurzeme is party to the cooperation agreement with Riga municipality dated 16 December 2004, foreseeing<br />

similar provisions as the agreement entered into between Eko Riga and Riga municipality. For more information<br />

on this agreement please see: “Waste management agreements of Eko Riga” above.<br />

On 3 January 2005 Eko Kurzeme signed service contract with Liepaja City Council regarding management<br />

(sorting, collection, transportation) of household waste generated in Liepaja City. Liepaja City municipality<br />

granted Eko Kurzeme the rights to collect and transport household waste from natural and legal persons in the<br />

territory of Liepaja city. Eko Kurzeme should organise and perform regular waste collection in the territory of<br />

Liepaja city and transportation to the landfill sites. Fees paid to Eko Kurzeme for household waste management<br />

should comply with the tariffs approved by authorities (see: “Regulatory Information – Price Controls”). The<br />

agreement was concluded for defined period, until 31 December 2020. Due to the fact that the agreement was<br />

concluded before 26 July 2005, the transitional provisions of the currently effective Waste Management Law<br />

should not be applicable and therefore there is no requirement to terminate the agreement by 1 July 2013.<br />

Although, there is a risk that the transitional provisions change materially and the agreement will be terminated<br />

before its term expires (see: “Risk Factors – Risks Relating to the Group’s Business – Agreements on providing<br />

the waste management services with municipalities may be terminated”).<br />

Eko Kurzeme is party to an agreement with Grobina municipality dated 2 May 2005 on management (sorting,<br />

collection, transportation) of household waste generated in Grobina municipality. Eko Kurzeme should organise<br />

and perform regular waste collection in the territory of Grobina municipality and transportation to the landfill<br />

sites. Fees paid to Eko Kurzeme for household waste management should comply with the tariffs approved by<br />

authorities (see: “Regulatory Information – Price Controls”). The agreement was concluded for defined period,<br />

until 31 December 2020. Due to the fact that the agreement was concluded before 26 July 2005, the transitional<br />

provisions of the currently effective Waste Management Law should not be applicable and therefore there is no<br />

requirement to terminate the agreement by 1 July 2013. Although, there is a risk that the transitional provisions<br />

change materially and the agreement will be terminated before its term expires (see: “Risk Factors – Risks<br />

Relating to the Group’s Business – Agreements on providing the waste management services with municipalities<br />

may be terminated”).<br />

On 19 April 2010 Eko Kurzeme signed contract, which was granted as the result of an open tender, with RP SIA<br />

Sarkandaugava (which currently is a part of the merged SIA Rigas namu parvaldnieks (Riga municipality facility<br />

manager)) on waste management services in the territory of Riga City managed by RP SIA Sarkandaugava. Eko<br />

Kurzeme provides the clients with waste containers and ensures regular emptying, waste collection and removal<br />

from the agreed places to the places for processing or storing of waste. Prospective monthly volume of waste is<br />

estimated at 3,300 m 3 . In period from 1 June 2010 until 1 December 2012 the waste management tariff was LVL<br />

2.69 plus VAT per m 3 and starting from 1 December 2012 the waste management tariff will amount to LVL 3.98<br />

plus VAT per m 3 . The contract was concluded for defined period of time, from 19 April 2010 till 19 April 2015.<br />

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In case the cooperation agreement with Riga municipality dated 16 December 2004 is terminated before its term<br />

expires and Riga municipality selects a waste manager, pursuant to the transitional provision of the currently<br />

effective Waste Management Law the contract with RP SIA Sarkandaugava will be terminated before its term<br />

expires (see: “Risk Factors – Risks Relating to the Group’s Business – Agreements on providing the waste<br />

management services with municipalities may be terminated”).<br />

Eko Kurzeme concluded number of standard agreements on provision of waste management services with<br />

numerous municipalities located in Liepaja Region (except Liepaja City). According to the agreements, Eko<br />

Kurzeme ensures collection and removal of solid household waste from agreed places. Eko Kurzeme provides<br />

the household clients with waste containers and ensures regular emptying, waste collection and removal. Fees<br />

paid to Eko Kurzeme are in compliance with the tariffs approved by authorities (see: “Regulatory Information –<br />

Price Controls”). The agreements were concluded for unlimited duration. Due to the fact that the agreements<br />

were concluded with municipality prior to 26 July 2005 and without determining their validity, they have to be<br />

terminated no later than by 1 July 2013 (see: “Regulatory Information – Environmental and other Licenses and<br />

Permits”).<br />

Waste management agreements of Jurmalas ATU<br />

On 3 October 2011 Jurmalas ATU (in association with Eko Riga) signed waste management service contract<br />

with Jurmala City Council, which was granted by way of a public tender. Jurmala City Council granted Jurmalas<br />

ATU the rights to collect and transport household waste from natural and legal persons in the territory of Jurmala<br />

city. Jurmalas ATU should ensure regular emptying of containers, maintenance of containers, waste collection<br />

and removal from the agreed places. The contractual price amounted to approximately LVL 2,500,000. The<br />

agreement was concluded for defined period of 5 years. Jurmala City Council is entitled to terminate the contract<br />

unilaterally by written notice in case Jurmalas ATU, inter alia, fails to fulfil its obligation due to its fault, does<br />

not fulfil the technical specifications, becomes insolvent, as well as in case the required permits of Jurmalas<br />

ATU are revoked.<br />

Jurmalas ATU won public tenders and on 22 November 2011 signed number of 3-year agreements with Babite<br />

municipality on providing of waste management services to natural and legal persons in the numerous waste<br />

management zones of Babite municipality. The waste management tariff was set at LVL 2.69 plus VAT per m 3 .<br />

Babite municipality is entitled to terminate the contracts unilaterally by written notice in case Jurmalas ATU,<br />

inter alia: becomes insolvent, fails to fulfil its obligation, as well as in case the required permits of Jurmalas<br />

ATU are revoked.<br />

Waste management agreements of Kurzemes Ainava<br />

Eko Kurzeme concluded number of standard agreements on provision of waste management services with<br />

numerous municipalities located in: Talsi, Dundaga, Engure, Jaunpils, Mersrags, Roja, Tukums and Kandava<br />

Regions. According to the agreements, Kurzemes Ainava ensures collection and removal of solid household<br />

waste from the agreed places. Kurzemes Ainava provides the household clients with waste containers and<br />

ensures regular emptying, waste collection and removal. Fees paid to Kurzemes Ainava are in compliance with<br />

the tariffs approved by authorities (see: “Regulatory Information – Price Controls”). The validity terms depend<br />

on provisions of each agreement, the expiry dates vary from 31 December 2012 to 31 December 2016. Due to<br />

the fact that the agreements were concluded with municipalities without applying public procurement procedure,<br />

the transitional provisions of the currently effective Waste Management Law should be applicable and they have<br />

to be terminated no later than by 1 July 2013 (see: “Regulatory Information – Environmental and other Licenses<br />

and Permits”).<br />

Concession agreement to use Jumis<br />

On 16 June 2003 Vaania concluded a concession agreement with Sigulda City Council. The agreement was<br />

concluded for a defined period of 30 years and could be terminated if Vaania, inter alia, fails to fulfil its<br />

obligations under the agreement, allowed occurrence of insolvency of Jumis, allowed material reduction of<br />

assets of Jumis resulting in the company not being able to provide services in the same capacity as at the time of<br />

entering into agreement. According to the agreement Vaania has exclusive rights to use the municipality owned<br />

Jumis as the pool of property. Jumis has a right to provide waste management services in the territory of Sigulda<br />

municipality (including exclusive rights to provide waste management services to the municipality enterprises<br />

and institutions located in the administrative territory of Sigulda Town). Vaania is the holder of the capital shares<br />

of Jumis and the deputy of the owner (Sigulda Town Council) in the possession of capital rights of Jumis. Rights<br />

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of Vaania arising from the agreement include the rights to vote and to receive dividends. According to the<br />

agreement Vaania is responsible for fulfilment of all the liabilities of Jumis during the validity of the agreement,<br />

even for those arisen before signing of the concession agreement.<br />

Waste management agreements of Jumis<br />

On 2 June 2006 Jumis executed contract with Sigulda City Council of granting rights to perform waste<br />

management services. The contract grants to Jumis rights to provide waste management services to legal and<br />

natural persons in the territory of Sigulda Region. Jumis should provide waste management services, including,<br />

placing containers and ensuring regular emptying and transports of waste to landfills. Moreover, Jumis possess<br />

exclusive rights to provide waste management services to the municipality enterprises and institutions located in<br />

the administrative territory of the Sigulda City. Fees paid to Jumis for household waste management should<br />

comply with the tariffs approved by authorities (see: “Regulatory Information – Price Controls”). Agreement<br />

was concluded for defined period until 31 December 2015. Although, unilateral termination is not permitted, the<br />

contractual penalty for breach of that provision is inconsiderable. In accordance with the transitional provisions<br />

of the currently effective Waste Management Law the agreement, as concluded or extended after 26 July 2005<br />

without undergoing public procurement procedure or in non-compliance with the said legal requirements, should<br />

be terminated no later than by 1 July 2013 (see: “Regulatory Information – Environmental and other Licenses<br />

and Permits”). As the above mentioned provisions apply only to management of household waste, Jumis will<br />

retain its exclusive rights to provide waste management services to the municipality enterprises and institutions<br />

located in the administrative territory of the Sigulda City.<br />

On 1 June 2010 Jumis concluded agreement with Ligatne Region municipality of granting rights to perform<br />

waste management services to legal and natural persons in the territory of Ligatne. Fees paid to Jumis for<br />

household waste management should comply with the tariffs approved by authorities (see: “Regulatory<br />

Information – Price Controls”). Agreement was concluded for defined period until 31 December 2012 and<br />

cannot be unilaterally terminated. Due to the changes in the applicable laws, the agreement will not be prolonged<br />

for another term due to the fact that in accordance to currently applicable laws, municipalities grant commissions<br />

undergoing the public procurement procedures (see: “Regulatory Information – Environmental and other<br />

Licenses and Permits”).<br />

Financing Agreements<br />

Agreements with Nordea Bank<br />

The management buyout of Eko Baltija finalized in 2011 was primarily financed using loans granted to the<br />

Group Companies by Nordea Bank Finland Plc, Riga branch (the “Nordea Bank”). The Group Companies also<br />

use financing of Nordea Bank for operational activities. Therefore, the Group Companies are parties to the<br />

following loan agreements concluded with Nordea Bank (the “Nordea Financing Agreements”):<br />

Overdraft Agreement No 2011-134-OD between Eko Reverss and Nordea Bank, dated 3 May 2011, with<br />

overdraft limit of EUR 280,000, maturing on 31 May 2013. The interest rate is the aggregate of the<br />

margin of 2% and EONIA. As of 31 December 2011 the outstanding amount of loan was EUR 280,000.<br />

Loan Agreement No 2011-173-A between Eko Reverss and Nordea Bank, dated 3 May 2011, as<br />

amended, for the total amount of EUR 33,438, maturing on 30 June 2012. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of<br />

loan was EUR 13,399.<br />

Loan Agreement No 2011-165-A between Eko Baltija and Nordea Bank, dated 3 May 2011, as amended,<br />

for the total amount of EUR 6,200,000, maturing on 31 December 2016. The interest rate is the aggregate<br />

of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of loan was<br />

EUR 5,478,352.<br />

Loan Agreement No 2011-166-A between PET Baltija and Nordea Bank, dated 3 May 2011, as amended,<br />

for the total amount of EUR 1,570,100, maturing on 31 December 2016. The interest rate is the aggregate<br />

of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of loan was<br />

EUR 1,406,060.<br />

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Overdraft Agreement No 2011-167-OD between PET Baltija and Nordea Bank, dated 3 May 2011, as<br />

amended, with overdraft limit of EUR 1,330,000, maturing on 31 May 2013. The interest rate is the<br />

aggregate of the margin of 2% and EONIA. As of 31 December 2011 the outstanding amount of loan was<br />

EUR 591,157.<br />

Overdraft Agreement No 2011-169-OD between LZP and Nordea Bank, dated 3 May 2011, as amended,<br />

with overdraft limit of EUR 600,000, maturing on 31 May 2013. The interest rate is the aggregate of the<br />

margin of 2% and EONIA. As of 31 December 2011 the outstanding amount of loan was EUR 271,411.<br />

Overdraft Agreement No 2011-168-OD between Nordic Plast and Nordea Bank, dated 3 May 2011, as<br />

amended, with overdraft limit of EUR 290,000, maturing on 31 May 2013. The interest rate is the<br />

aggregate of the margin of 2% and EONIA. As of 31 December 2011 the outstanding amount of loan was<br />

EUR 258,954.<br />

Loan Agreement No 2011-170-A between Jurmalas ATU and Nordea Bank, dated 3 May 2011, as<br />

amended, for the total amount of EUR 1,386,000, maturing on 31 December 2016. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of<br />

loan was EUR 1,214,529.<br />

Loan Agreement No 2011-171-A between Kurzemes Ainava and Nordea Bank, dated 3 May 2011, as<br />

amended, for the total amount of EUR 881,000, maturing on 31 December 2016. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of<br />

loan was EUR 771,442.<br />

Loan Agreement No 2011-172-A between Eko Kurzeme and Nordea Bank, dated 3 May 2011, as<br />

amended, for the total amount of EUR 1,155,000, maturing on 31 December 2016. The interest rate is the<br />

aggregate of the margin of 2.5% and EURIBOR 1M. As of 31 December 2011 the outstanding amount of<br />

loan was EUR 1,011,044.<br />

Loan Agreement No 2011-387-A between Eko SPV and Nordea Bank, dated 15 September 2011, as<br />

amended, for the total amount of EUR 14,000,000, maturing on 15 September 2018. The interest rate is<br />

the aggregate of the margin of 4.5% and EURIBOR 3M. As of 31 December 2011 the outstanding<br />

amount of loan was EUR 13,662,650.<br />

Nordea Client Agreement on Transactions with Derivative Financial Instruments No 11/2011 between<br />

Eko SPV and Nordea Bank, dated 15 September 2011. In accordance with the agreement the maximum<br />

exposure amount of the base currency equals to EUR 960,000.<br />

The initial credit amount under the Nordea Financing Agreements was EUR 27,725,538.<br />

The Nordea Financing Agreements are secured by various security instruments, including:<br />

Commercial pledge with the amount of EUR 38,560,000 over: 100% of shares in Eko SPV, 100% of<br />

shares in Eko Baltija, 100% of shares in Jurmalas ATU, 100% of shares in Eko Kurzeme, 100% of shares<br />

in Eko Riga, 100% of shares in Nordic Plast, 75.13% of shares in LZP, 91.03% of shares in PET Baltija,<br />

90% of shares in Vaania, 100% of shares in Kurzemes Ainava and 100% of shares in Eko Reverss.<br />

Pledged shares may not be transferred or otherwise disposed of without the consent of Nordea Bank.<br />

Moreover, the Nordea Financing Agreements and related security agreements provide that consent of<br />

Nordea Bank is required to undertake certain corporate actions by the Group Companies, among others,<br />

to pay out dividends (see: “Risk Factors – Risks Relating to the Group’s Business – Current and future<br />

assets of the Group Companies, certain amount of the Shares in the Issuer, as well as all the shares of the<br />

Group Companies are pledged”).<br />

Commercial pledge with the amount of EUR 38,560,000 over all current and future assets of Group<br />

Companies. Pledged assets may not be transferred or otherwise disposed of without the consent of Nordea<br />

Bank (see: “Risk Factors – Risks Relating to the Group’s Business – Current and future assets of the<br />

Group Companies, certain amount of the Shares in the Issuer, as well as all the shares of the Group<br />

Companies are pledged”).<br />

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Mortgage of real property owned by Eko Reverss, Eko Kurzeme and Kurzemes Ainava (for more<br />

information please see: “Business – Encumbrances” and “Risk Factors – Risks Relating to the Group’s<br />

Business – Current and future assets of the Group Companies, certain amount of the Shares in the Issuer,<br />

as well as all the shares of the Group Companies are pledged”). Mortgaged assets may not be donated,<br />

transferred, divided or encumbered without prior written consent of Nordea Bank.<br />

Guarantees issued by the Group Companies, whereby each Group <strong>Company</strong> has undertaken payment<br />

liabilities, which are due under the Nordea Financing Agreements.<br />

Assignment of receivables of the Group Companies in favour of Nordea Bank, applicable in case of<br />

default.<br />

Financial collateral over the bank accounts of the Group Companies.<br />

Subordination of loans issued intra-group and to related parties.<br />

Insurance of pledged assets in favour of Nordea Bank.<br />

The Nordea Financing Agreements provide, inter alia, the following events of default: failure to pay any amount<br />

according to the Nordea Financing Agreements in a timely manner and not remedying it during the following 15<br />

business days; failure to fulfil any other obligation under the Nordea Financing Agreements and not remedying it<br />

during the following 10 business days; any document submitted to Nordea Bank turns out to be untrue and<br />

Nordea Bank reasonably considers that it may threaten to delay execution of any obligation; procedures of the<br />

borrower’s or owners’ of capital shares/shareholders insolvency or liquidation have been declared which in<br />

Nordea Bank’s opinion materially affects the borrower’s ability to fulfil the Nordea Financing Agreements; any<br />

item of security or any right provided for Nordea Bank by any item of security becomes insufficient or would be<br />

unfeasible after default rights; borrower has failed to pay any other loan granted to borrower and it is not<br />

remedied during the following 30 days.<br />

Moreover, pursuant to the Nordea Financing Agreements, the Group Companies have to comply with number of<br />

financial covenants, namely:<br />

(i) equity ratio, calculated by the bank 4 times per year using the data from the Group Companies and<br />

Jumis, should not be less than 20% in 2011, not less than 30% in 2012 and not less than 35% starting<br />

from the first quarter of 2013;<br />

(ii) the total interest bearing debt/EBITDA ratio, calculated by the bank 4 times a year using data from the<br />

Group Companies, should not exceed 3.6 in 2011; starting from 2012 it should not exceed 3; and<br />

(iii) Debt-Service Coverage Ratio, calculated by the bank 4 times a year using data from the Group<br />

Companies and Jumis, should not be less than 1.3.<br />

According to the Management, as of the date of the Prospectus, the above indicators are fulfilled. Please see:<br />

“Risk Factors – Risks Relating to the Group’s Business – Certain of the Group’s credit facilities are subject to<br />

certain covenants and restrictions”.<br />

In case of failure to fulfil the Nordea Financing Agreements by any of the borrowers or security providers<br />

Nordea Bank would have a right to satisfy its outstanding claims by: (i) enforcement of financial collaterals; (ii)<br />

taking over the receivables of the Group Companies; (iii) enforcement of guarantees; (iv) sale of the pledged and<br />

mortgaged assets (including pledged shares) without court proceedings or auction at a freely determined price<br />

and/or (v) sale of the mortgaged assets at auction at the terms and conditions approved by court or on the basis of<br />

court decision on recovering of the debt secured with mortgage.<br />

On 11 June 2012 the Principal Shareholders, ESOMTAX INVEST LIMITED (Cyprus), certain Group<br />

Companies and Nordea Bank concluded an agreement, whereby the parties agreed that the commercial pledge<br />

over the pledged shares of the Group Companies in favour of Nordea Bank will be cancelled after setting in of<br />

the following conditions: (i) a subscription of at least 5,000,000 (five million) New Shares during the Offering<br />

with the nominal value of LVL 1.00; (ii) at least 50% + 1 Issuer’s Shares are jointly or individually owned by<br />

Viesturs Tamuzs, Maris Simanovics, Undine Bude, ESOMTAX INVEST LIMITED (Cyprus) and those shares<br />

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have been pledged as a financial pledge in favour of Nordea Bank; (iii) amendments to the Nordea Financing<br />

Agreements of Group Companies have been signed indicating that the shares of Group Companies may not be<br />

encumbered in favour of other persons without prior consent of Nordea Bank until Group Companies have<br />

performed all their obligations towards Nordea Bank.<br />

Other Material Contracts<br />

Placement Agreement<br />

The Issuer and the Selling Shareholder intend to enter, prior to the Allotment Date, into a placement agreement<br />

(the “Placement Agreement”) in respect of the Offering with, inter alia, the Managers, in which the Offering<br />

Broker will commit to undertake certain actions in connection with organization of the Offering.<br />

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RELATED PARTY TRANSACTIONS<br />

In the ordinary course of its business, the Group has engaged, and continues to engage, in transactions with<br />

related parties. It is generally not possible to objectively determine whether any transaction with a related party<br />

would have been entered into if the parties had not been related, or whether such transactions would have been<br />

effected on the same terms, conditions and amounts if the parties had not been related.<br />

Related Party Transactions of Eko Baltija Group<br />

The following review describes the related party transactions of Eko Baltija Group for the financial years ended<br />

on 31 December 2011, 2010, 2009 respectively, and for the three months ended 31 March 2012 and 2011<br />

respectively. Information provided in the sub-sections below is based on the Consolidated Financial Statements<br />

and the Condensed Consolidated Interim Financial Statements and should be read in conjunction with the<br />

Consolidated Financial Statements and the Condensed Consolidated Interim Financial Statements. The subsections<br />

below do not present the related party transactions of the Group as it is at the date of the Prospectus.<br />

During the three months ended 31 March 2012 and the years ended 31 December 2011, 2010 and 2009,<br />

respectively, Eko Baltija Group entered into the following transactions with related parties that were not<br />

members of Eko Baltija Group.<br />

Sales of services and goods<br />

For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Related to Eko Baltija Group 31 23 78 29 32<br />

Related parties via key management - 1 1 2 2<br />

Other related parties - - 1 6 6<br />

Total 31 24 80 37 40<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

Purchases of goods and services<br />

For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Related parties via key management (117) (148) (686) (716) (670)<br />

Related to Eko Baltija Group (35) (66) (284) (427) (403)<br />

Other related parties (14) (17) (69) (71) (49)<br />

Total (166) (231) (1,039) (1,214) (1,122)<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

Sales of goods to related parties were made at the usual list prices. Purchases were made at market price<br />

discounted to reflect the quantity of goods purchased and the relationships between the parties.<br />

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BMWARDOCS232112v37<br />

Outstanding balances arising from sale/purchase of goods/services<br />

As of 31 March As of 31 December<br />

2012 2011 2010 2009<br />

(LVL in thousands)<br />

Receivables<br />

Related to Eko Baltija Group 2,575 1,852 290 4<br />

Related parties via key management - - - 1<br />

Other related parties - - 120 114<br />

Total 2,575 1,852 410 119<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

Liabilities<br />

As of 31 March As of 31 December<br />

2012 2011 2010 2009<br />

(LVL in thousands)<br />

Related to Eko Baltija Group 18 6 30 213<br />

Related parties via key management 71 150 109 163<br />

Other related parties 5 7 13 4<br />

Total 94 163 152 380<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.<br />

No expense has been recognised in the current or prior years for bad or doubtful debts in respect of the amounts<br />

owed by related parties.<br />

Employee costs and Key management remuneration<br />

Employee costs<br />

For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Salaries and wages (765) (680) (2,958) (2,784) (2,589)<br />

Social insurance payments (183) (163) (669) (550) (616)<br />

Other benefits (12) (11) (5) (15) (129)<br />

Total (960) (854) (3,632) (3,349) (3,334)<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

Key management remuneration<br />

Employee costs include key management remuneration in following amount.<br />

For three months<br />

ended 31 March For the year ended 31 December<br />

2012 2011 2011 2010 2009<br />

(LVL in thousands)<br />

Salaries (26) (26) (121) (119) (51)<br />

Social insurance payments (6) (6) (35) (29) (12)<br />

Total (32) (32) (156) (148) (63)<br />

Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements<br />

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BMWARDOCS232112v37<br />

Related Party Transactions of the Issuer<br />

The Issuer issued loan to AS Eko Investors, company being a partner with a full liability in Otrais Eko Fonds<br />

(shareholder of the Issuer, holding 28% of the Issuer’s share capital as of the date of the Prospectus). The loan<br />

was issued by the Issuer to AS Eko Investors in amount of LVL 24,500 (EUR 34,860). As of 31 December 2011<br />

the outstanding loan amount issued to AS Eko Investors amounted to LVL 24,500 (EUR 34,860) principal loan<br />

amount and LVL 427 (EUR 608) calculated interest. Annual interest rate of the loan is 6%. The date of<br />

repayment is 15 September 2013.<br />

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BMWARDOCS232112v37<br />

MANAGEMENT AND CORPORATE GOVERNANCE<br />

Set out below is a summary of relevant information concerning the Management Board, the Supervisory Board,<br />

senior management well as a brief summary of certain significant provisions of Latvian corporate law, the<br />

Issuer’s Articles of Association and particular issues from the corporate governance codes in respect of the<br />

Management Board and Supervisory Board.<br />

Management Structure<br />

The Issuer has two-tier board structure consisting of the Management Board and the Supervisory Board.<br />

Management Board<br />

The Management Board is a collegial body jointly managing the <strong>Company</strong> and consisting of 4 members elected<br />

by the Supervisory Board for a maximum term of office of 5 years.<br />

The competence of the Management Board is the same as the competence of the Management Board defined<br />

under the Latvian Commercial Law, in particular:<br />

(i) management and representation of the <strong>Company</strong>;<br />

(ii) supervision and management of the affairs of the <strong>Company</strong>;<br />

(iii) ensuring that the business activities of the <strong>Company</strong> and accounting are compliant with the law;<br />

(iv) administration of the property of the <strong>Company</strong>.<br />

Additionally the Articles of Association of the <strong>Company</strong> authorise the Management Board to increase the share<br />

capital in the amount not exceeding 30 per cent of the share capital of the <strong>Company</strong> at the time of approval of the<br />

Articles of Association by the General Meeting. The Management Board may adopt the decision for increase of<br />

the share capital within 5 years from the approval of the Articles of Association by the General Meeting (i.e.<br />

from 24 April 2012. On 17 May 2012 the Supervisory Board consented to and the Management Board adopted<br />

the decision to increase the share capital of the Issuer up to LVL 6,279,000, by issuing up to 6,279,000 new<br />

bearer shares with the nominal value of LVL 1.00 each. The authorisation of the Management Board to increase<br />

the share capital should not apply to increase the share capital for a special purpose (e.g. for exchange of newly<br />

issued shares for convertible bonds; for exchange of newly issued shares for the shares of a company to be<br />

merged in case of reorganisation; for issuing of employee shares etc.).<br />

The Supervisory Board may recall the members of the Management Board until expiry of their term of office<br />

due to important reasons, inter alia, gross violations of the scope of authorisation, failure to perform his or her<br />

duties, inability to manage the <strong>Company</strong>, causing harm to the interests of the <strong>Company</strong>, as well as due to loss of<br />

confidence expressed at the General Meeting. The Supervisory Board determines that there is a reason for<br />

revocation. The General Meeting may take a decision in relation to loss of confidence of a member of the<br />

Management Board at any time. A member of the Management Board may at any time leave the office by giving<br />

a written notice to the <strong>Company</strong>.<br />

Pursuant to Article 6.7 of Articles of Association, the Management Board should require the consent of the<br />

Supervisory Board to decide on issues of major importance. The following should be deemed to be such issues<br />

of major importance:<br />

(i) acquiring participation in other companies and increasing or decreasing such participation;<br />

(ii) acquisition or disposal of undertakings;<br />

(iii) acquisition of immovable property, disposal of or encumbering thereof with rights in rem, if the value of<br />

each such transaction in aggregate exceeds EUR 1,000,000 (one million euro) or other amount specified<br />

by decisions of the Supervisory Board;<br />

(iv) opening or closing of branches and representative offices;<br />

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BMWARDOCS232112v37<br />

(v) deciding on transactions, if the value of each such transaction in aggregate exceeds EUR 1,000,000 (one<br />

million euro) or other amount specified by decisions of the Supervisory Board;<br />

(vi) issuing of such loans as are not related to the usual commercial activities of the <strong>Company</strong>;<br />

(vii) issuing loans to employees of the <strong>Company</strong>;<br />

(viii) starting new kinds of activities or ceasing existing activities;<br />

(ix) determining the general principles for activities.<br />

As at the date of the Prospectus, the Issuer’s Management Board is composed of 4 members. The table below<br />

sets forth the names, function, appointment date, and terms of office of the current members of the Management<br />

Board as at the date of the Prospectus.<br />

Maris Simanovics<br />

Viesturs Tamuzs<br />

Undine Bude<br />

Olaf Martens<br />

Name Function Date of Appointment Expiration of term of office<br />

Chairman of the Board -<br />

managing the <strong>Company</strong> and<br />

the Board<br />

Member of the Board -<br />

managing the <strong>Company</strong><br />

Member of the Board -<br />

managing the <strong>Company</strong><br />

Member of the Board -<br />

managing the <strong>Company</strong><br />

17 May 2012 17 May 2017<br />

17 May 2012 17 May 2017<br />

17 May 2012 17 May 2017<br />

17 May 2012 17 May 2017<br />

The business address of the Management Board is Darza iela 2, Riga, LV-1007, Latvia.<br />

A brief description of qualifications and professional experience of the members of the Management Board is<br />

presented below.<br />

Maris Simanovics<br />

Mr. Maris Simanovics is the Chairman of the Management Board of the <strong>Company</strong>. Mr. Simanovics joined the<br />

Group in 2002 and since then has served at various executive positions in the Group Companies, which allowed<br />

him to gain valuable experience and knowledge on waste management industry. Before joining the Group Mr.<br />

Simanovics was associated with Latvijas Mobilais Telefons as a financial analyst.<br />

Mr. Maris Simanovics has higher economic education. He graduated from <strong>Stock</strong>holm School of <strong>Eco</strong>nomics in<br />

Riga with B.Sc. in economics and business administration (2001) and from Institute of International Affairs<br />

University of Latvia with M.Sc. in economics (2003). Furthermore, Mr. Simanovics completed various trainings,<br />

seminars and courses in the areas of: waste management, entrepreneurship and business administration.<br />

Viesturs Tamuzs<br />

Mr. Viesturs Tamuzs is a member of the Management Board of the <strong>Company</strong>. Mr. Tamuzs is a founder of the<br />

Group and holds various executive positions in the Group Companies. Mr. Viesturs Tamuzs started his career as<br />

a research associate and lecturer at the Chemistry Faculty of the University of Latvia. In 1993 Mr. Tamuzs<br />

moved to private sector, starting career as director of Iepakojuma centrs. From 1996 until 2000 Mr. Viesturs<br />

Tamuzs was associated with Stora Enso Packaging in Latvia, where he held positions of vice president and<br />

executive director.<br />

Mr. Viesturs Tamuzs holds M.Sc. in chemistry from University of Latvia. Mr. Tamuzs completed various<br />

trainings, seminars and courses in Latvia and abroad in the areas of: waste management, chemistry, quality<br />

management and accounting. Mr. Tamuzs also finished executive education program for professional board<br />

members organised by the Baltic Institute of Corporate Governance.<br />

142


Undine Bude<br />

BMWARDOCS232112v37<br />

Mrs. Undine Bude is a member of the Management Board of the <strong>Company</strong>. Mrs. Bude joined the Group in 2002<br />

and since then has served at various executive positions in the Group Companies. Mrs. Undine Bude has gained<br />

valuable experience and knowledge on waste management industry, while working as deputy director and<br />

director at SIA PTC (1993-1997), director at Packaging Association of Latvia (1997-1998) and director at<br />

Packaging Institute of Latvia (1998-2000). Since 2000 Mrs. Bude has been associated with Latvijas Zalais<br />

punkts.<br />

Mrs. Undine Bude graduated from the University of Latvia with a degree in biology, chemistry and biology<br />

pedagogy. Moreover, in 2005 Mrs. Bude graduated from <strong>Stock</strong>holm School of <strong>Eco</strong>nomics in Riga with MBA<br />

degree. Mrs. Undine Bude also finished executive education program for professional board members organised<br />

by the Baltic Institute of Corporate Governance.<br />

Olaf Martens<br />

Mr. Olaf Martens is a member of the Management Board of the <strong>Company</strong>. Mr. Martens joined the Group in<br />

2012. In years 1997-2007 Mr. Martens was marketing director at Dianos Aleskeviciutes Firma. From 2009 till<br />

2011 he worked for DnB Nord Bankas Lietuva as manager of loan restructuring department. Since 2011 Mr.<br />

Martens has been associated with JSC Putoksnis, where he has hold post of chief executive officer.<br />

Mr. Olaf Martens finished executive education program for professional board members organised by the Baltic<br />

Institute of Corporate Governance.<br />

The following table sets out additional past and current directorships held by the members of the Management<br />

Board of the Issuer in the past five years.<br />

Name of the member of<br />

Management Board Positions Held<br />

Maris Simanovics<br />

Former directorships:<br />

Eko PET – Board member/partner (2009-2010)<br />

SIA Trikatas Logistika – Chairman of the board/partner (2005-2009)<br />

SIA PANKRATOFF KOMPANIJA – Board member/partner (2006-2007)<br />

Trikatas Siers – Board member/partner (2005-2007)<br />

Current directorships:<br />

Malka24.lv - Board member/partner (since 2012)<br />

SIA ENRIAL Obsidione – Board member (since 2011)<br />

Sila Gardedis – Board member/partner (since 2010)<br />

Krasta Investment - Board member/partner (since 2010)<br />

Eko Investors – Board member (2007-2009); Chairman of the board (since 2009)<br />

Enria Capital – Director (since 2009)<br />

SCOTA GRUPA – Chairman of the board/partner (since 2008)<br />

SIA PTC – Chairman of the board (2005-2008); Board member (since 2008)<br />

Sport Federation of Latvian Schools – Board member (since 2008)<br />

SIA Riga Consulting Group – Chairman of the board/partner (since 2005)<br />

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BMWARDOCS232112v37<br />

Viesturs Tamuzs<br />

Undine Bude<br />

Former directorships:<br />

Public and Private Business Partnership (NGO) – Official (2009-2011)<br />

Latvian private equity and venture capital association (NGO) – Official (2005-<br />

2010)<br />

Orienteering club MONA (NGO) – Official (2007-2009)<br />

Current directorships:<br />

Foundation ‘Apdavinatibas sistema nacijas izaugsmei’ (NGO) – Board member<br />

(since 2011)<br />

Eko Investors – Chairman of the management board (2001-2009); chairman of the<br />

supervisory board (since 2009)<br />

Perseus – Chairman of the supervisory board (since 2006)<br />

Former directorships:<br />

Eko PET – Chairman of the board (2009-2010)<br />

Eko Investors – Member of the board (2006-2009)<br />

Eko Media – Chairman of the board (2007-2008)<br />

PACKAGING (Technical committee of Standardization) – Chairman (1998-2007)<br />

Current directorships:<br />

Baltic Institute of Corporate Governance – Board member (since 2012)<br />

Foundation ‘Apdavinatibas sistema nacijas izaugsmei’ (NGO) – Chairman of the<br />

board (since 2011)<br />

Eko Investors – Deputy chairman of the supervisory board (since 2009)<br />

Latvian National Library Foundation (NGO) – Chairman of the board (since 2007)<br />

LZP 2 – Board member (since 2007)<br />

Olaf Martens Former directorships:<br />

Supervisory Board<br />

Perseus – Deputy chairman of the supervisory board (since 2006)<br />

Association of secondary raw material recyclers (NGO) Official (since 2005)<br />

Packaging Association of Latvia (NGO) – Board member (since 1995)<br />

None<br />

Current directorships:<br />

Energijos Tiekimas – Board member (since 2011)<br />

The Supervisory Board of the <strong>Company</strong> is a collegial body supervising the activities of the <strong>Company</strong>. The<br />

Supervisory Board consists of 5 members, elected by the General Meeting of Shareholders for a maximum term<br />

of office of 5 years. The competence of the Supervisory Board is determined by the Latvian Commercial Law<br />

and Articles 5.5 and 6.7 of the Articles of Association, in particular:<br />

(i) election and recalling of the members of the Management Board, regular supervision of the activities of<br />

the Management Board;<br />

(ii) monitoring that the business of the <strong>Company</strong> is conducted in accordance with law, the Articles of<br />

Association and the decisions of the General Meeting;<br />

(iii) examination of the annual report of the <strong>Company</strong> and the proposal of the Management Board for the use<br />

of profit and preparing of a report on the draft annual report prepared by the Management Board prior the<br />

General Meeting is convened for approval of the annual report, pursuant to the Latvian Commercial Law<br />

(Article 174);<br />

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BMWARDOCS232112v37<br />

(iv) representation of the <strong>Company</strong> in a court in all actions brought by the <strong>Company</strong> against members of the<br />

Management Board, as well as in actions brought by the member of the Management Board against the<br />

<strong>Company</strong> and representation the <strong>Company</strong> in other legal relations with members of the Management<br />

Board; approval of concluding transactions between the <strong>Company</strong> and members of the Management<br />

Board or the auditor;<br />

(v) prior examination of all issues, which are within the competence of the General Meeting of Shareholders<br />

or which, pursuant to the proposal of members of the Management Board or the Supervisory Board, have<br />

been proposed for discussion at the meeting, and provision of its opinion on such issues;<br />

(vi) giving consent to decision of the Management Board to increase the share capital of the <strong>Company</strong> in the<br />

case, described below, exercising its authorisation to increase the share capital foreseen in the Articles of<br />

Association of the <strong>Company</strong>, and making amendments to the Articles of Association of the <strong>Company</strong> in<br />

case of capital increase;<br />

(vii) giving consent to the Management Board to decide on acquiring participation in other companies and<br />

increasing or decreasing such participation; acquisition or disposal of undertakings; acquisition of<br />

immovable property, disposal of or encumbering thereof with rights in rem, if the value of each such<br />

transaction in aggregate exceeds EUR 1,000,000 (one million euro) or other amount specified by<br />

decisions of the Supervisory Board; opening or closing of branches and representative offices; deciding<br />

on transactions, if the value of each such transactions in aggregate exceeds EUR 1,000,000 (one million<br />

euro) or other amount specified by decisions of the Supervisory Board; issuing of such loans, which are<br />

not related to the usual commercial activities of the <strong>Company</strong>; issuing loans to employees of the<br />

<strong>Company</strong>; starting new kinds of activities or ceasing existing activities; determining the general principles<br />

for activities;<br />

(viii) at any time to request that the Management Board would report on the circumstances of the <strong>Company</strong> and<br />

to become acquainted with all the activities of the Management Board;<br />

(ix) to examine the <strong>Company</strong>’s registers and documents, as well as the cashier’s office and all of the property<br />

of the <strong>Company</strong>;<br />

(x) to entrust one of the members of the Supervisory Board to perform an examination or invite experts to<br />

perform the examination or to clarify separate issues;<br />

(xi) to convene a General Meeting of Shareholders or to request that the Management Board would convene<br />

the General Meeting if the interests of the <strong>Company</strong> so require.<br />

The members of the Supervisory Board are elected by the General Meeting of Shareholders of the <strong>Company</strong>.<br />

The General Meeting of Shareholders by its decision may recall the members of Supervisory Board at any time.<br />

A member of the Supervisory Board may at any time leave the office by giving a written notice to the <strong>Company</strong>.<br />

As at the date of the Prospectus, the Issuer’s Supervisory Board is composed of 5 members. The table below sets<br />

forth the names, function, appointment date, and terms of office of the current members of the Supervisory<br />

Board as at the date of the Prospectus.<br />

Raitis Maurans<br />

Eduards Ekarts<br />

Name Function Date of Appointment Expiration of term of office<br />

Chairman of the Supervisory<br />

Board –supervising the<br />

activities of the Management<br />

Board and managing the<br />

Supervisory Board<br />

Deputy Chairman of the<br />

Supervisory Board –<br />

supervising the activities of<br />

the Management Board and<br />

managing the Supervisory<br />

Board during absence of the<br />

Chairman<br />

17 May 2012 17 May 2017<br />

17 May 2012 17 May 2017<br />

145


Lelde Vitina<br />

Ugis Treilons<br />

Martins Knipsis<br />

BMWARDOCS232112v37<br />

Member of the Supervisory<br />

Board - supervising the<br />

activities of the Management<br />

Board<br />

Independent member of the<br />

Supervisory Board -<br />

supervising the activities of<br />

the Management Board<br />

Independent member of the<br />

Supervisory Board -<br />

supervising the activities of<br />

the Management Board<br />

17 May 2012 17 May 2017<br />

17 May 2012 17 May 2017<br />

17 May 2012 17 May 2017<br />

The business address of the Supervisory Board is Darza iela 2, Riga, LV-1007, Latvia.<br />

A brief description of qualifications and professional experience of the members of the Supervisory Board is<br />

presented below.<br />

Raitis Maurans<br />

Mr. Raitis Maurans is the Chairman of the Supervisory Board of the <strong>Company</strong>. Mr. Maurans also holds various<br />

executive and non-executive positions in the Group Companies. Mr. Raitis Maurans started his professional<br />

career as an analyst in Magnum Medical in 2002, where he worked till 2003 and later in period 2004-2006. Since<br />

2005 Mr. Raitis Maurans has been associated with Latvijas Zalais punkts, where he has served as a financial<br />

analyst. Moreover, since 2006 Mr. Maurans has been a financial manager and since 2009 board member in Eko<br />

Investors.<br />

Mr. Raitis Maurans received bachelor’s degree in finance (2002) and master’s degree in international economic<br />

affairs (2004) from University of Latvia.<br />

Eduards Ekarts<br />

Mr. Eduards Ekarts holds the position of the Deputy Chairman of the Supervisory Board of the <strong>Company</strong>. Mr.<br />

Eduards Ekarts started his professional career in 1996 as lawyer in Zunda and its group companies. In years<br />

2000-2002 Mr. Ekarts gained experience as lawyer in Zelta Kukulitis. In 2002 Mr. Eduards Ekarts joined Eko<br />

Investors and since then has been associated with the Group.<br />