Marketing Brochure (Teaser)

JOINT STOCK COMPANY SUGAR FACTORY Zrenjanin ZRENJANIN

April 2009
This Marketing Brochure (Teaser) was prepared by the consultants Dil Inenjering Konsalting d.o.o. Belgrade, the consultant of the Privatization Agency of the Republic of Serbia in the privatization process of Joint Stock Company Sugar Factory "Zrenjanin", Zrenjanin (the Company). It is prepared based on documents and information submitted by Joint Stock Company Sugar Factory Zrenjanin Zrenjanin.

Dil Inenjering Konsalting INTRODUCTORY REMARKS

Marketinki prospekt (Teaser)

The Ministry of Economy of the Republic of Serbia initiated privatization of Joint Stock Company Sugar Factory "Zrenjanin", Zrenjanin (hereunder: the Company), by sale of the state owned block of shares, amounting to 60.55203% of the total registered capital of the Company in accordance with the Law on Privatization. The Company will be privatized in 2009. In view of the size and significance of the Company, on 1 August 2005, the Privatization Agency adopted a decision of the method of privatization by public tender. Dil Inenjering Konsalting is the Consultant of the Privatization Agency in the preparation of the public tender and in contacts with potential buyers. From the aspect of raw materials potential, market outlook, and business, the Company is attractive and worthy of attention of potential investors and strategic partners. The existence raw material potentials, the market position and the business activity of the Company are presented in this document, with the goal to reliably inform interested natural and legal persons about the Company and for them to define their strategic goals and intentions based on the acquired insight. The purpose of this document is to give a brief presentation of the Company, with the goal of acquiring statements of interest from potential buyers relevant to the upcoming tender for privatization which will be implemented by the Privatization Agency. This document contains information that can be used exclusively to consider potential investment in the Company. This document offers only basic information about the Company and its business activities. Potential investors who express interest will be offered the possibility to purchase a package of Tender Documents which encompasses also the Information Memorandum containing detailed information about the Company. We invite you as a potential buyer to express your interest and initiative to participate in the process of Company privatization. You may submit your comments, suggestions, requests for additional information and explanations to the Consultant, Dil Inenjering Konsalting (contact information on the last page of this document). BASIC DATA ABOUT THE COMPANY Full name: Abbreviated name: Seat and address: Official Registration No.: Activity code: Predominant activity: Registration in the Agency for Commercial Registries: Legal form: Company size: General Manager: Phone: Fax: E-mail address: No. of employees: Year of foundation: Joint Stock Company Sugar Factory Zrenjanin Zrenjanin Sugar Factory "Zrenjanin" a.d. Zrenjanin 23000 Zrenjanin, Petra Drapsina st. 1 08000336 15830 Sugar production BD 15041 Open joint stock company Medium sized Miodrag Tomic, Acting Director 023/522-805 023/525-082 seceranazr@mgnet.co.yu 47 1946

Dil Inenjering Konsalting 1. Lokacija

Marketinki prospekt (Teaser)

Sugar factory Zrenjanin (hereunder Sugar Factory) is located in the city of Zrenjanin, in the Autonomous Region of Vojvodina Republic of Serbia. It is 75 km from Belgrade, the capital of Serbia, which is the most important domestic market for sugar, consuming approx. 60,000 tons of sugar annually. It has good connections with intercontinental and main roads (Highway E-70 Zagreb Belgrade - Ni and European corridor 10 Budapest Novi Sad Belgrade - Ni), which link Central and Southeast Europe to Asia. Also, the distance between the Sugar Factory and the main road and port is only 1 km, and from the railroad 0.2 km. The Sugar Factory is located in an area with a long and good tradition of sugar-beet production. All of the above leads to the conclusion that this Sugar Factory is well placed from the aspect of the potential to ensure raw materials and sale of finished products.

2.

Macroeconomic conditions in Serbia 2.1. Basic information Area: Geographic location: 88,361 km Serbia is located in the central region of the Balkan peninsula, between 41 52' and 46 11' north latitude and 18 06' and 23 01' east longitude 7,478,820 (census of 2002, Kosovo and Metohia excluded) Belgrade, population 1,602,226 Member of UN, OECE, IMF, EBRD, WB, Council of Europe, CEFTA. Serbian Dinar (RSD)

Population: Capital: International status of Serbia: Language: Currency: 2.2. Economic environment

After a long period of crisis, economic growth and rehabilitation of the Serbian economy began in 2001, after political changes in the country in October 2000. After seven years of intensive transitional changes the overall economic environment of Serbia can be evaluated as satisfactory. In this past period large changes have taken place pertaining to institutional infrastructure, and especially in the last 2-3 years, a much more favorable economic environment was created. At the same time an improvement of current economic trends was apparent, reflected primarily in the calming of inflation, the continuation of a dynamic growth of industrial production, exports, salaries, as well as a growth of foreign currency reserves, the realization of a budget surplus, a high growth of income from privatization, etc. Still, the Serbian economy faces major problems and challenges.
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Marketinki prospekt (Teaser)

Firstly, there are the high external trade deficit (especially high in 2007), a high level of unemployment (approximately 21%), and high public spending. The analysis of indicators of basic economic trends results in the following conclusion: In the period 2004-2007 there was a high growth of GDP. According to preliminary assessments, per capita GDP in Serbia reached approx. 4,550 USD in 2007. In 2007 there was a dynamic growth of gross domestic product (GDP) of 7.5%. Thus, for four years in a row, Serbia has achieved a high growth of GDP which is among the highest in the region. The dynamic growth of industrial production from 2006 continued in 2007, but with milder intensity. In 2007, the growth of industrial production was 3.7% (compared to 4.7% in 2006). By sectors, in 2007 the most intensive growth was in the processing industry (4.2%), followed by production and distribution of electricity, gas, and water (2.8%), while the mining of ore and stone had an insignificant decrease (0.6%). After a growth of 10.9% in 2006, the volume of activity in construction grew by a record 19.1% in 2007. The intensive growth was prompted primarily by a growth of activity in civil engineering (considerably prompted by National Investment Plan funds), but to a growing extent also by the construction of apartments (to a considerable extent prompted by favorable mortgage loans). In 2007, there were no favorable results in agriculture, primarily as a consequence of the summer drought. It is assessed that in 2007 agricultural production was more then 8% lower than in the previous year. Regardless of significant stimulatory measures and increased (although still insufficient) agricultural budget, results achieved in agriculture are still primarily due to climate conditions. In 2007 trade registered high real growth of the volume of turnover, which was more intensive than in 2006. The growth of real salaries, the credit activity of banks for the population, as well as increased import and offer of goods, with further development of trade, have contributed to such an expansive volume of turnover. In 2007 communications had a modest growth, as opposed to 2006 when this activity had high growth. Such trends are determined firstly by a decrease in passenger transport, accompanied by a dynamic growth in transport of goods, and the continuation of a very high (even though lower than in 2006) growth in telecommunications (39.7%). In 2007, activity in tourism and catering, as opposed to the two preceding years, showed good results. The number of overnight stays of tourists grew by 10.6%, while the real growth in catering was 6.4%. Trends in foreign trade are characterized by an exceptionally high foreign trade and payment deficit. Total external trade of goods of the Republic of Serbia in 2007 amounted to 27,175.2 million USD, with export of goods in the amount of 8,824.8 million USD, and import as high as 18,350.4 million USD. This resulted in a huge foreign trade deficit. The foreign trade deficit for the period January-December 2007 was 9,525.6 million USD (compared to 6,744.4 million USD in 2006), or as much as 41.2% higher compared to the previous year. Coverage of import by export in 2007 was 48.1%, and was lower compared to coverage in 2006, when it was 48.8%. The enormous foreign trade deficit is one of the hotspots undermining macroeconomic stability, and is not sustainable in the long term. Foreign currency reserves of the National Bank of Serbia are high, and at the end of December 2007 they amounted to 14,216 million USD, i.e. were 20% higher than in the same month of 2006. Growth of foreign currency reserves was determined by the influx of income based on foreign securities, changes between currencies, the purchase of foreign currency cash, and sums based on obligatory foreign currency reserves. The existing level of foreign currency reserves is satisfactory and several folds exceeds primary money in circulation, as well as current needs for financing import (sufficient to cover 8-month import requirements). The level of inflation, measured by current trends of retail prices was 10.1%. The realized two digit growth of prices, is higher than the initially projected level, and is a consequence, primarily of unfavorable trends of energy prices on the world market, and the growth of prices of agricultural products, especially in the last months of 2007 (in the previous year, prices of agricultural products grew by 23.7%, and food prices by 13.2%).
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Marketinki prospekt (Teaser)

At the beginning of December 2007, the number of employed persons in Serbia was 1,995 thousands, or approximately 1% less than in the same month of 2006. Regardless of considerable GDP growth, this continued the trend of decrease of the total number employees. The basic factor influencing unfavorable trends in employment is the continuing process of privatization and restructuring, and the still low level of overall economic activity. Parallel with the decrease of the number of employed, there is a tendency of decrease of the number of the unemployed. At the beginning of December 2007, 859 thousand unemployed were registered in Serbia, or approximately 15% less than in the same month of the previous year.

The average nominal growth of salaries in the Republic of Serbia in 2007 was 22.1%, and the actual growth approximately 14.1%, thus continuing the trend of high growth of salaries from the previous year. The average paid salary (exclusive of tax and contributions) in December 2007, was 34,471 RSD, and with taxes and contributions 48,112 RSD. The paid net salary in December was considerably higher than in previous months, which is usual and seasonal.
Monetary trends in 2007 are characterized by a strict and very restrictive policy of the NBS, primarily aimed at limiting inflation (which achieved satisfactory results, having in mind that the base inflation, targeted by NBS in 2007 was 5.4%, which is within limits established by the projection). Monetary mass M1 in December 2007 reached a level of 248.839 billion RSD and was by approximately 24% higher than in the same month of the previous year. At the same time, cash in circulation amounted to 76.949 billion RSD, or 12.4% higher than in December 2006. The speed of circulation in 2007 was similar to the level in the preceding year. Liquid funds of business banks were partially reduced, as a consequence of restrictive monetary policy of the NBS, as well as attractive conditions for placement in NBS repo securities. The pronouncedly restrictive monetary policy managed to limit credit activities of banks only to a certain extent. In 2007, the banking sector in Serbia continued intensive growth. Assets of the banking sector grew by 34%, and with a level of 1.57 thousand billion RSD, reached 65% GDP. At the same time, higher liquidity and better business performance of the domestic economy led to a 63.5% growth of deposits of the economy. In 2007, banks have approved 110 billion RSD of loans to the economy (37% more than in 2006). Loans approved to the population increased by as much as 55% and surpassed 400 billion RSD, with the highest growth, as high as 88%, recorded for housing loans, amounting to 90 billion RSD. Deposits of the population increased by 45.6% and reached 428 billion RSD, with foreign currency savings making up almost 90% of total deposits. This indicates that the development of the banking sector and the trust of the population and economy in banks have led to a significant increase of domestic accumulation, as a source for future activities of banks and overall economic development. The weighed interest rate for loans of business banks decreased compared to the previous year, and in December 2007 it amounted to 11.13%, compared to 15.88% in 2006. Even though in 2007 there was somewhat of a decrease of active and increase of passive interest rates, interest margins in 2007 were still very high, making Serbia, regardless of considerable risk (BB- rating), still a very attractive country for bank operations. In 2007, the influx of direct foreign investments was lower than in the record year of 2006, when foreign investments amounted to 4.389 billion USD (compared to 1.550 billion USD in 2005, and 966 billion USD in 2004). It is encouraging that in addition to income from privatization, a constant and stable growth of greenfield investments can be noted in Serbia. Although final data on investments will not be known before May of 2008, it is assessed that the influx of direct foreign investments in 2007 was approximately 3.4 billion USD. Direct foreign investments in 2007 were mainly aimed toward activities of financial mediation, communication, the processing industry, and real estate operations. Indicators of basic economic trends in Serbia, in the period 2003-2007 - index for the previous year = 100 2003 2004 2005 2006 2007 I-VI 2008 102.5 108.4 106.2 105.7 107.5 108.2* Domestic product fixed prices 2002 Physical volume of production 97.0 107.1 100.8 104.7 103.7 104.1 Industry
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Marketinki prospekt (Teaser) 2007 I-VI 2008 91.9 ... 119.1 112.9* 116.2 ... 122.8 106.2 101.7 ... 98.9 ... 111.0 ... 137.3 139.3 98.9 106.8 114.8 116.0 107.0 106.6 127.9 114.1 79.24 140.5 143.9 99.8** 111.6 113.3 131.2 114.6 108.4 119.4 104.2 78.97

2003 2004 2005 2006 92.8 119.5 94.7 99.7 Agriculture Construction 103.2 109.8 105.8 110.9 Wholesale of goods fixed prices 103.2 124.3 117.0 113.3 Retail of goods fixed prices 113.8 118.0 126.5 107.7 Transport Total 105.0 104.8 104.4 110.4 Passenger transport 104.6 103.8 100.0 108.7 Transport of goods 106.8 109.4 123.7 116.4 Foreign exchange of goods Export 132.8 127.8 127.2 143.4 Import 133.2 143.8 97.3 125.9 Employed 98.8 100.5 100.8 97.9 Prices Retail prices 111.7 110.1 116.5 112.7 Industrial products 107.5 110.3 114.5 112.2 Agricultural products 107.3 103.4 125.3 117.7 Cost of living 109.9 111.4 116.2 111.7 Prices of catering services 110.5 106.6 119.2 123.1 Average salaries exclusive of taxes and contributions Total nominal 124.9 122.7 123.6 124.4 Total actual salaries 113.6 110.1 106.4 111.4 RSD / Euro exchange rate 68.31 78.89 85.50 79.00
*Period Jan-Mar; ** Period Jan-May

In the coming period, economic policy will still be primarily oriented toward limiting inflation (to one digit), as well as providing macroeconomic stability, and continuing accelerated implementation of economic and social reforms. The realization of economic policy goals will primarily be based on strict monetary and fiscal policy, limiting public spending, completion of privatization of socially owned companies, and intensifying privatization of state owned companies, harmonization of laws with EU legislation, continuing development of the financial market, etc. Economic trends and economic policy in 2008 will be strongly influenced by political factors relevant to the status of Kosovo and Metohia, as well as further negotiations on EU accession. If Serbia should sign the agreement of association with the EU, this would influence the creation of a positive climate, and higher utilization of pre-accession and other EU funds (IPA funds, etc.). 2.3. Legal environment (1) Tax framework review By adopting a series of laws in March and April 2001, a comprehensive fiscal reform was initiated in Serbia, and the fiscal system began to acquire characteristics already present in market oriented and other countries in transition. An elementary overview of key forms of taxation in Serbia is presented hereunder. Value Added Tax (VAT) The Law on VAT was adopted in 2004, entering into force on 1 January 2005. The introduction of VAT generally rounded off the reform of the tax system in Serbia. VAT is a general tax on spending calculated and paid for shipment of goods and services rendered, in all phases of turnover of goods and services, as well as for import of goods. Proceeds from VAT belong to the Budget of the Republic. VAT is charged in every external phase of the productionturnover cycle, and is paid only by taxpayers. The general rate of VAT levied for the turnover of goods and services, or the import of goods subject to taxation in Serbia is 18%. A special VAT rate of 8% is applied for certain turnover of goods and services, or import of goods, as follows: bread, milk, flour, sugar, edible oil of sunflower, maize, rape, soy and olives, edible fats originating from animals and plants; fresh and chilled fruits, vegetables, meat, fish and eggs; medicines from the list of medicines prescribed and issued at the expense of
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social security according to provisions on health insurance; orthotic and prosthetic devices, as well as medical devices products surgically implanted in the body; dialysis materials; fertilizers, agents for plant protection, seeds for reproduction, seedling materials and breeding animals; textbooks and teaching devices; daily newspapers; monographs and serial publications; wood for heating; services of accommodation in hotels, motels, resorts, leisure homes and camps; communal services; natural gas delivered to individual producers via the gas distribution network. The distribution of certain good to groups taxed at the general, i.e. the special level is an issue of taxation policy. For example, latest regulations from July 2007 have regulated that computer equipment is taxed at a level of 8%. In addition, amendments to the Law on VAT that entered into force on 8 July 2007 have prescribed the right (under specific conditions) to VAT refund for the purchase of the first apartment. Profit Tax According to the Law on Company Profit Tax, all companies in Serbia are taxpayers of profit tax, as of 1 January 2005 of only 10%. This obligation is valid for both domestic and foreign legal persons. Companies must submit tax returns and tax balance sheets to the Tax Administration by 8 March of the current year for the previous year. The tax established by the tax return, based on the tax balance sheet, represents the tax obligation. Profit tax is paid in advance in monthly intervals, on the 15th of the current month for the previous month, and the final account is made based on the tax balance sheet. Sums for advance payments are calculated based on the profit tax established in the previous year. The final sum of profit is established based on the tax balance sheet which must be submitted within 8 days from the day of submitting the annual financial statement, i.e. by 8 March of the current year for the previous year. If there is the obligation to pay a difference for profit tax according to the tax balance sheet, the taxpayer must pay the established difference by the day of submitting the tax balance sheet. Taxes and contributions for salaries Employers are obliged to pay contributions for invaliditypension insurance, health insurance, and for insurance in case of unemployment. The same rate is applied for contributions for social security paid by employees, and these represent a part of the gross salary. Income tax which amounted to 14% of gross salaries in 2006 was reduced to 12% of gross salaries in 2007, reduced by the sum of 5,000 RSD exempt from taxation. The relationship between burdens for taxes and contributions for salaries and net salaries is not linear, and depends on a series of criteria. In 2007, the burden for taxes and contributions was reduced to an average of 62.7% of net salaries. Property Taxes Property taxes in Serbia are: property tax, tax for inheritance and gift, and tax for transfer of absolute rights. Legal persons who keep business books are taxpayers for property tax, the base being the book value of immovables at a rate of 0.40%. For natural persons, the tax base is the market value of immovables established by the tax authority. Recently tax rates for property belonging to natural persons have become progressive. Property tax is paid quarterly. As of 1 January 2005, property tax is not paid for property from shares issued in the name of and for the share in limited liability companies. The tax for transfer of absolute rights for immovables is paid at the transfer of ownership of immovables or intellectual property, at a rate of 5% of market value (recently adopted regulations have abolished tax for transfer of absolute right for purchase of the first apartment), while since 1 January 2005 the tax rate for turnover of agricultural land and woodland amounts to 2.5%. For sale of shares, the rate was reduced to 0.3%, and other some benefits are also applied. Excise Tax Tobacco products, oil derivatives, alcoholic beverages, refreshing non-alcoholic beverages, coffee and luxury products are burdened by excise tax. As a rule, excise tax is prescribed for each individual product, with the exception only of luxury products for which excise tax is calculated ad valorem. The sum of excise tax calculated in the period from the 1st to the 15th of a month must be paid by the taxpayer at the latest on the last day of the month. The sum of excise tax calculated for the period from the 16th to the end of the month must be paid by the taxpayer at the latest by the 15th of the following month. Income Tax Natural persons, residents and non-residents in Serbia are taxpayers of income tax. Income tax is paid for income from all sources, except those specifically exempt by law. Income
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subject to taxation is the difference between gross income of the taxpayer and expenses sustained to earn the income. Residents pay income tax for income earned in the country and abroad, while non-residents pay income tax only for income earned in Serbia. The general rule is that a legal person has resident status if it was founded in Serbia, or if its seat is in Serbia. A natural person is resident if he stays in Serbia a minimum of 183 days during a fiscal year. Following income is subject to taxation: salaries and other income originating from employment, income from agriculture and forestry, income from individual activities, income from copyrights and industrial property rights, income from capital, income from real estate, capital income and other income. Natural persons paid income tax at a rate of 14% in 2006, i.e. of 12% in 2007. The income tax rate for natural persons for other income (contract of engagement, author's fee, fees for members of management and supervisory boards, lease of immovable and movable objects, income from gambling, etc.) is 20%. Natural persons who have had income during a fiscal year above a certain limit are taxpayers for the annual income tax. This tax is paid at a rate of 10%. The taxpayer must submit a return containing precise data about the income, no later than on 15 March of the following year for the year when the income was earned. Tax is paid within 15 days from submission of the decision of the tax authority. Since 1 January 2007, domestic natural persons pay this tax for a base equal to the triple sum of the average annual income per employee, and foreigners-residents pay tax for a base equal to ten times the sum of the average annual income per employee. Tax benefits Tax incentives for companies: accelerated depreciation of ecological, educational and computer equipment; exemption from profit tax for concessions for a period of five years; Reduction of the base for calculation of income tax based on investment in assets; tax incentives in the amount of 100% of gross salaries for new employees within the taxation period when employment began; exemption from payment of profit tax within 10 years in case of major investments (investment in assets of over 600 million RSD and new employment of over 100 persons). Serbia has concluded bilateral agreements to avoid double taxation of income and capital with several countries: Belgium, Byelorussia, Bulgaria, Cyprus, Check Republic, China, Denmark, Egypt, Finland, France, Germany, Hungary, Italy, Korea, Kuwait, Macedonia, Malaysia, Holland, Norway, Poland, Romania, Russia, Slovenia, Slovakia, Sri Lanka, Sweden, Ukraine, and Great Britain. (2) Legal framework After 2000, a series of laws were adopted in Serbia with the goal to harmonize the economic environment with the EU economic environment as much as possible. The legal system of Serbia is based on principles of Roman law and continental civil law, thus giving a significant place to personal and to rights of private property. Commercial contracts concluded in Serbia in which at least one contracting party is a domestic or a foreign natural person, may contain a provision establishing the competence of foreign trade arbitration of the Chamber of Commerce of Serbia or any other foreign institutional arbitration authority, including also ad hoc arbitration. Contracting parties may, in case when one of the parties is non-resident, freely determine the applicable law, and Serbian regulations do not have to be governing for a contract concluded in Serbia. Most important laws and regulations regulating foreign investments in Serbia, as well as business activities and acts performed by foreign companies are: Law on Foreign Investments ("Official Gazette SRY", No. 3/2002), Labor Law ("Official Gazette RoS", Nos. 24/05 and 61/05), Company Law ("Official Gazette RoS", No. 125/2004) and Law on Privatization ("Official Gazette RoS", Nos. 38/2001, 18/2003 and 45/2005 and 123/2007). Protection and security of foreign investments it is envisaged that economic relations will be based on principles of market economy, founded on principles of free implementation of business activities, competition, liberal foreign trade policy and property protection.

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Marketinki prospekt (Teaser)

Rights and obligations of foreign and domestic investors are treated equally. This further means that foreign investors have the right to: - Manage and participate in management of the company they have founded or in which they have invested, in proportion to the level of investment, - Transfer rights and obligation established by the Memorandum of Association or of investment to another foreign or domestic person, - Participate in profit distribution of the company in proportion to the investment and to freely dispose of these profits, by reinvesting the profit or transferring it to some other country, - Dispose of material assets during the implementation of the Memorandum of Association or of investment, - Invest even in case of infringement or lapse of the term from the Memorandum of Association or of investment, - In case of liquidation of the company, to participate in distribution or to be compensated based on participation in ownership, - Implement daily checks of accounting reports and current business activities of the company in accordance with the Memorandum of Association or of investment, - Personally or via an authorized representative to check or request audit of periodical or annual reports of business activities. Labor Law The Labor Law ("Official Gazette RoS", Nos. 24/2005) is liberal relevant to termination of employment and takes into consideration not only recent EU regulations on employment, but also recommendations of the International Labor Organization (ILO). According to this law, the employer is not under obligation to conclude collective contracts. Employment may be established also based on the bylaws on employment. The obligation to organize negotiations in order to conclude such an agreement will exist only if the employer and trade union reach an agreement that the concluding of a collective contract is indispensable. The Ministry of Labor is authorized to decide that in certain cases the employer is obliged to conclude the collective contract with the goal to realize certain economic and social goals in Serbia. An individual contract of employment may be concluded with limited or unlimited duration. The law envisages the existence of certain specific types of contracts, such as the contract for a trial period which can not last longer than three months, for work in the field, and a contract containing special provisions for employees-trainees. In addition, the Law envisages special rights for employees and employers, as well as deadlines and conditions for termination of the contract of employment. The Company Law ("Official Gazette RoS", No. 125/04), which entered into force on 30 November 2004, regulates the foundation of companies, entrepreneurs, managing of companies, rights and obligations of the founder, partners, members and shareholders, mergers and reorganization (status changes and changes of legal form of companies, reorganization), cessation of entrepreneurs and liquidation of companies. The law created significant preconditions for faster and simpler foundation of companies. The Law represents an upgrade of the function of strengthening legal security relevant to foundation, organization, management and status changes of companies in this country. In addition, the Law covers in detail legal issue of joint stock companies, a legal form which was not present to any greater extent in the recent period. Law on Privatization ("Official Gazette RoS", Nos. 38/2001, 18/2003 and 45/2005 and 123/2007) was adopted in 2001, with amendments adopted at the end of February 2003 and at the end of May 2005, and at the end of December 2007, and forms the basis for privatization of socially owned and state owned companies. This Law envisages obligatory implementation of privatization. Privatization, according to the definition in this Law represents tender or auction sale of 70% of socially owned capital to interested bidders. Remaining socially owned capital is distributed to workers and to the Share Fund RoS. To implement provisions of this Law, the Government of the Republic of Serbia passed a Decree on Sale of Capital and Assets by Public Tender, Decree on Sale of Capital and Assets by Public Auction, and Decree on the Method and Procedure of Restructuring ("Official Gazette RoS", Nos. 45/2005 and 52/2005). In addition, a Law on the Privatization Agency ("Official

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Marketinki prospekt (Teaser)

Gazette RoS", Nos. 38/2001 and 135/04), which is responsible for efficient implementation of procedures of privatization, was adopted. 3. Data on the branch of industry 3.1. Profile of the branch of sugar industry Sugar production, an important branch of industry, in the world and in Europe, is exceptionally capital intensive. Of the total global sugar production, 2/3 is cane sugar and 1/3 sugar-beet sugar. Production costs for cane sugar are approximately 3 times lower than for sugar-beet sugar, however cane sugar can satisfy only 2/3 of the global demand for sugar. The basic problem in regulating production and commodity global flow of sugar results from lack of competitiveness of sugar-beet sugar compared to cane sugar. Absence of production of sugar-beet sugar in the world, would lead to monopolization of production of cane sugar with a special negative effect on its price and the accumulation of enormously high profits by producers of cane sugar, as has already been proven in years when production of sugarbeet sugar was low. In order to avoid unfavorable price effects as described above, an make use of the total positive synergistic effects in production of sugar-beet sugar, manufacturers of this type of sugar, primarily from the EU, have opted for protecting this production by adequate means, with measures pertaining to customs duty, surtax, introduction of quotas, etc. Protection of production of sugar-beet sugar has resulted in longer term security of prices and stable conditions for developing several branches of economy generated by production of sugar-beet sugar (industry of artificial fertilizers, agents for plant protection, machines industry, agriculture, sweets industry, alcohol industry, citric acid industry, yeast industry, quarries, energy industry, transport, sales and services). It is estimated that every hectare of sugar-beet employs a considerable number of workers in the total chain of production of sugar (from the seed to sugar on the market), achieving exceptional effects of employment in this labor and capital highly intensive branch. The industry of sugar is also characteristic by belonging in the group of so-called "total technologies" producing no waste, and with all products of high application value with valorization within a controlled regime of production, processing and sale. All listed effects resulted in strong development of sugar-beet sugar production in Europe, which in turn offers maximum protection for this production, with the CEFS organization ("Comite Europeen des Fabricants de Sucre"), representing the entire sugar industry of 21 countries, EU members and Switzerland, as the most prominent. In Europe, there are 234 factories, producing 21 million tons of sugar from 160 million tons of sugarbeet cultivated on 2.4 million hectares. The sugar industry of Europe employs approx. 1,000,000 workers, of which 60,000 directly connected to the process of sugar production (approx. 250 employees per sugar factory). Largest sugar and sugar-beet producers in Europe are: Saint Louis Sucre, Sudzucker AG and British Sugar as the strongest players in sugar production in Europe. The largest sugar factory in Europe is located in France, with a capacity of 21,500 tons of sugarbeet daily. The view in Europe is that the borderline capacity for sugar-beet processing per factory is 10,000 t/24 hours, however, there are still factories with lower capacity in existence based on preferential treatment, which is however more and more abolished, so that factories with lower that borderline capacities shall have no perspective in the near future.

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Marketinki prospekt (Teaser)

The outlook for production of sugar-beet sugar in Europe will depend on the standpoint of the World Trade Organization (WTO), which is demanding from European countries to open their markets for much cheaper cane sugar. EU countries are preparing a reduction of the product market, with an accompanying package of compensations for sugar factories which shall be abolished in the framework of a reformed regime for production and sale of sugar. It is expected that only sugar factories with high level capacity, that will match the standards of new competition in the new regime to be in place by 2009 will remain in the EU. Food industry in Serbia has exceptional economic importance, with a very pronounced position of the industry of sugar, presently the largest exporter in this branch of industry. Due to the importance of the food industry, since 2000, Serbia has been working to introduce measures to revitalize it by: harmonization with new WTO and EU rules, liberalization of prices, foreign trade, and tariff system, increasing competition, etc. The sugar industry, being a capital and labor intensive activity, played a very important role in the development of the sector of agriculture in the Republic. Until the disintegration of Yugoslavia, (in 1991) sugar factories in Serbia accounted for approx. 70% of total capacities in Yugoslavia, which later, due to the discontinuation of that market, had a negative effect on the economic position of the sugar industry in this Republic. Installed capacities for sugar-beet processing in 2006 in Serbia are: No. 1. 1.1. 1.2. 1.3. 1.4. 2. 2.1. 2.2. 3. 3.1. 3.2. 4. 4.1. 4.2. 5. 6. 7. 7.1. 7.2. Sugar factory SUNOKO group Baka Vrbas Donji Srem Peinci Jedinstvo Kovaica Jugozapadna Baka Ba HELENIK SUGAR INDUSTRY SA Crvenka Crvenka ajkaka abalj SFIR Te-to Senta Star-sugar Nova Crnja SUGAR PLUS Sremska Mitrovica Kovin AD Zrenjanin - Zrenjanin DP PSF Dimitrije Tucovi-1898 in restructuring Beograd TOTAL: Active (1+2+3.1.+ 4.1.) Inactive (3.2.+4.2.+5+6) Daily processing capacity T/24h 18,000 6,000 4,000 4,000 4,000 10,000 6,000 4,000 10,000 6,000 4,000 9,000 5,000 4,000 6,000 6,000 59,000 39,000 20,000

During an average campaign of 80 days, Serbia can process in active factories (39,000 T/day) approx. 3,120,000 T of sugar-beet, and if inactive sugar factories (20,000 T/day) were activated, this would mean the processing of an additional 1,600,000 T of sugar-beet, representing a total nominal processing capacity of 4,720,000 tons of sugar-beet. According to listed nominal capacities, the potential sugar production in Serbia is: - In active factories - In inactive factories TOTAL: 390,000 tons 200,000 tons 590,000 tons
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Dil Inenjering Konsalting

Marketinki prospekt (Teaser)

In the period from 1981 to 2005, Serbia had the following results in the production of sugar-beet and sugar. 1. Sugar-beet planted - ha 2. Sugar-beet yield - T/ha 3. Digestion 4. Sugar production T/ha 5. Sugar production T MAXIMUM 94,551 50.90 16.70 6.84 581,605 MINIMUM 39,516 22.65 13.15 2.72 107,556

Data indicates that the highest achieved production of sugar in Serbia (in 1984) of 581,605 tons, is at the level of presently installed capacities (590,000 t), which means that there are agro-technical and technical condition for production and processing of sugar-beet at the level of existing processing capacities. The industry of sugar of Serbia had the lowest sugar production during UN sanctions in 1993 (107,556 T), and bounced back subsequently with difficulty, achieving the following production results during last five years: Year: 2001 2002 2003 2004 2005 Sugar production tons 211,873 273.,805 209,00 403,73 386,00

The achieved sugar production during the last two years (2004 and 2005) in Serbia, of approx. 400,000 T, is at the level of the capacities of currently active sugar factories, meaning that there is another 200,000 T of verified space in production in inactive sugar factories, with the domestic market presently as the only limiting factor, because adequate areas for sugar-beet production do exist Before privatization, sugar factories in Serbia employed 500 workers each on the average, with the number decreasing to 250 after privatization, which still remains above the standard for Europe, if productivity parameters are considered. 3.2. Characteristics and structure of the market and sale of sugar The potential of a market to absorb food products depends on the size and structure of the market, buying power, habits, and demands of customers, and for sugar-beet sugar, also on the regime of imports and exports that is valid within a certain area. Sugar-beet sugar, being considerably more expensive, can not compete on the market with sugarcane sugar, however, due to other numerous economic effects, countries that produce sugar-beet sugar protect their production by applying adequate measures. The primary market for sugar-beet sugar is the domestic market, with an approximate current size in Serbia of: - consumed by the population - consumed by the processing industry Total Annually (t) 100,000 125,000 225,000

Before UN sanctions, the region of Serbia consumed approx. 400,000 tons of sugar, and it is to be expected that it will soon again reach this level of consumption. In the meantime, until 1 October 2007, the EU has granted preferential sugar export rights from Serbia to EU countries, with an annual quota of 225,000 tons, which makes up for the present lower demand for sugar on the domestic market.

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Dil Inenjering Konsalting The dynamics of Serbia as a sugar market are within following ranges: - Present consumption - Per capita consumption in the near future, at a level of 40 kg - Future per capita consumption at the level of developed countries, of 60 kg

Marketinki prospekt (Teaser)

Annually (t) 225,000 400,000

600,000

The import export regime in Serbia protects production of sugar-beet sugar by applying following instruments: - customs duty 20.5%, - surtax for EU countries 12.00 RSD/kg, for non-EU countries 18.00 RDS/kg, The highest absorption potential for Serbian sugar can be found in neighboring countries in the Balkans and in Southeast Europe, with approx. 80 million consumers, but only if there is an adequate regime for export to these countries. Sharp competition for the Serbian market can be expected among sugar factories, with best chances for the largest factories with a good raw materials base, and a solved issue of financing for this complex and costly business. 4. Company history

After the period of preparations to establish a sugar factory in the town then named Veliki Bekerek, which began in 1899, and were due to political circumstances, continued in 1910, on 12 September 1910, the Founding Assembly of the Sugar Factory was held, during which the share capital was split into 20,000 bearer bonds, with the construction of the factory following immediately after that. Construction, mounting and installation of machines lasted until 25 September 1911. The factory operated, with occasional reconstructions and enlargement of production, also during World War I and World War II. After World war II, in 1946, the company regarded as the predecessor of the present Sugar Factory was formed. From 1946 to 1951, the Company operated as a state owned economic company. The passing of the Basic Law on Management of State Owned Economic Companies resulted in organizational changes, the transfer of the Company to be managed by workers, by the forming of a Workers' Council and Management Board. From the forming of the Workers' Council, until the ownership changes in the 1990ies, the Company operated with assets socially owned in various forms, depending on provisions valid during the particular period. After the passing of the first Company Law in 1989, the then Work Organization Sugar Factory Zrenjanin within IPK Servo Mihalj is organized as the independent Socially Owned Company Sugar Factory Zrenjanin, while the Combine Servo Mihalj ceased to exist. During the process of implementing ownership changes in 1992, the Company was organized as a joint stock company, and based on the then new Company Law, in 1997 it changed its form to a joint stock company, in which form it is still operating today. 5. Legal status and transaction Company ownership structure: 1) State owned capital 2) Private capital

60.54203% 39.45797% 100.00 % On the upcoming tender, the Privatization Agency plans to offer for sale 100% of state owned capital of Sugar Factory "Zrenjanin", Zrenjanin, i.e. 60.54203% of total registered Company capital.
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Dil Inenjering Konsalting 6. Organizational structure

Marketinki prospekt (Teaser)

The Statute of the Company of 14 November 1996 does not contain provisions on Company organization, and the Company has not submitted the relevant general document regulating the issue of organization of work and systematization of jobs. From the submitted diagram of organization and operations, one can conclude that the Company is organized in two basic levels: Sectors, as follows: o o Raw Materials Sector, Production and Technology Sector, Financial and Accounting Sector, Acquisitions and Sales Sector General and Human Resources Sector

Within Sectors, as lower level of organization, departments and other levels are organizes: Raw Materials Sector: Raw Materials Sector Department, Raw Materials Sector Laboratory, Car Mechanic Workshop Production and Technology Sector: Technology Department, Development Department, Machine Department

Lower level units: Depot for Sugar-beet, Cutters, Diffusion, Purification of Juice, Pumps and Compressors, Steaming, Limestone Quarry, Dryer, Vacuum, Centrifuge, Silo, Services, Construction, Electricians, and Laboratory. o o o Financial and Accounting Sector: Planning and Analysis Department, Accounting, Financial and Plant Accounting Department, Financial, Financial Operations, Accounting, Automatic Data Processing Department Acquisitions and Sales Sector: Acquisitions and Sales, Warehouse for Dry Sugar-beet Pulp, Warehouse for Materials, Shop, Warehouse for Sugar, Transport Group Gas Station General and Human Resources Sector: General and Human Resources,

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Dil Inenjering Konsalting 7. Security, Restaurant and Garden. Activity and production program

Marketinki prospekt (Teaser)

According to the decision of the Registry of Business Companies and Notification of Classification from the Republic Statistical Bureau, the predominant activity of the Company is: Production of Sugar, Code 15830. The Company is registered for foreign trade and services in foreign trade. The basic activity of the Company is production of: sugar, molasses, and dry sugar-beet pulp, sugar syrups and liquid sugars (Activity Code 15830), with the following structure: Sugar: consumer refined white sugar Molasses: bulk Dry sugar-beet pulp: bulk pellet

Sugar Factory "Zrenjanin" has a rounded off technological process for sugar-beet processing, from sugar-beet, to sugar, molasses and dry sugar-beet pulp. 8. Production and production capacities

Sugar Factory Zrenjanin is one of the largest sugar factories in Serbia, with following nominal capacities: No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Technological indicator Quantity of processed sugarbeet Working days - sugar-beet cutting - processing of heavy juice Average processing Average digestion Utilization Sugar production Molasses production Dry sugar-beet pulp production Use of technical steam (p=3 bar, 133oC) Use of basic materials: Limestone Coke 11 Balance of utilization of polarization sugar (% of sugarbeet): - total losses - sugar in molasses - overall losses reproduction (t) (% of sugarbeet) (t) (% of sugarbeet) 24,000 5.0 1,900 0.40 Unit (t) (days) (days) (t/day) (%) (% of sugarbeet) (t) (t) (% of sugarbeet) (t) (% of sugarbeet) (kg/t sugarbeet) (t/h) Quantity (units) 480,000 80 40 6,000 16.00 13.20 63,400 20,200 4.20 21,600 4.50 45.0 112.5

0.70 2.10 2.80

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Dil Inenjering Konsalting

Marketinki prospekt (Teaser)

Utilization of capacities in the previous period was from 15.6% (in 2005) to 130% (in 1977), which forms the basis for future business forecasts. A review of campaign results in the period 1995 2005 is contained in the following table: (tons) Dry Year Processing Sugar Molasses sugar-beet Digestion Utilization pulp 1995 83,734 7,848 4,559 1,620 12.50 9.37 1996 130,400 14,532 6,200 4,033 13.81 11.22 1997 91,810 11,561 3,912 2,502 15.15 12.59 1998 92,658 10,001 3,709 13.47 10.79 1999 152,000 15,653 7,501 3,789 13.01 10.30 2000 52,080 6,657 2,589 1,630 15.44 12.78 2001 143,060 16,105 6,634 5,057 13.74 11.26 2002 141,390 13,736 8,211 3,180 13.13 9.71 2003 2004 112,098 12,815 5,756 5,486 14.25 11.43 2005 74,710 5,991 4,538 815 12.52 8.02 Utilization of capacities from 2003 to 2005 is contained in the following table: Machine production line Limestone furnace Diffusion desmet Pulp dryer Centrifuges Silo Unit T-24H T-24H T-24H T-24H T Installed capacity 285 6,500 360 600 40,000 Actual capacity 285 5,500 360 460 40,000 2003 0 0 0 0 0 2004 40% 46% 59.5% 63% 2005 51% 41% 38% 33% 14%

The factory realized its highest sugar production in 1977 (90,600 t), and its lowest in 2005 (5,591 t). Since 2006, Sugar Factory Zrenjanin has not been producing sugar, molasses and sugar-beet pulp. Product 1. Sugar 2. Molasses 3. Dry sugar-beet pulp 2001 16,105 6,634 5,057 2002 13,736 8,211 3,180 2003 2004 12,815 5,756 5,486 2005 5,991 4,538 815

Relevant to total production of sugar in Serbia, from 2000 to 2005, Sugar Factory "Zrenjanin" had following results: Year Sugar production Share of Zrenjanin in (t) Serbian production (%) Serbia Zrenjanin 119,779 6,657 5.56 211,873 16,104 7.60 273,805 13,602 4.97 209,000 403,773 12,815 3.17 386,200 5,991 1.45

2000 2001 2002 2003 2004 2005

As for technical and technological performance, it can be said that this sugar factory in the period 2000 2005 barely sustained, with the sole effect of maintaining the factory in the so-called "standby mode". Regardless of declining production of sugar, this sugar factory produced quality sugar according to JUS standard, even though it does not have the ISO 9001 QC standard.
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Dil Inenjering Konsalting

Marketinki prospekt (Teaser)

The Company is also registered for additional activities (road transport of goods, wholesale and retail trade, internal restaurant). 9. Operating income and stucture

The Company earns basic income from sale of sugar as its basic product, as well as from sale of molasses and dry sugar-beet pulp as byproducts. In the structure of income, sale of sugar has the highest share (approx. 84%), followed by dry sugarbeet pulp (approx. 7.5%), and molasses (7.5%). Income in the period 2001 - 2008 was: Year 2001 2002 2003 2004 2005 2006 2007 2008 Income of the sugar factory (000s EUR) 10,593 10,629 1,271 7,491 4,876 0 92 96

The main competitors of the factory are the now active sugar factories in AP Vojvodina (Vrbas, Crvenka, Kovaica, Peinci, abalj, Senta, Ba and Nova Crnja). 10 Key financial data (31 December 2008) Total income Total expenditures Total operating assets Total capital Total liabilities * Liabilities that will be subject to write-off after successful privatization, as at 31 December 2004 Fixed assets Operating capital Structure of expenses Materials (including electricity) Staff (including social security) Depreciation Other expenses No. of employees (as on 31 March 2009) 4.03% 62.32% 26.7% 6.95% 47 85.2% 14.2% Capital Liabilities 0% 100% 147,655 Euro 2,046,198 Euro 5,827,745 Euro 0 Euro 18,815,950 Euro 5,859,926 Euro

* According to the latest amendments and supplementation of the Law on Privatization, state creditors have the obligation to write off their claims against companies in the privatization process (due unsettled debts of the Company as on 31 December 2004), and in addition to state creditors, all other creditors may also write off claims against a Company in the privatization process, to settle them from proceeds of sale of Company capital or assets of the company undergoing privatization. For the Company, if the process of privatization is completed successfully, debts will be written off and total liabilities on the books reduced by 31.14%, i.e. by 5,859,925.69 EUR, as on 31 December 2008. In this case the opening status of Company liabilities as on 1 January 2009 will be 12,956,024.17 EUR instead of the previous 18,815,950.16 EUR.
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Dil Inenjering Konsalting Balance sheets for the last three years (000s euro)
Balance items A S S E T S A. FIXED ASSETS 1. Unpaid registered capital 2. Goodwill 3. Nonmaterial investments 4. Real estate, facilities, equipment and biological agents 5. Long term financial investments B. REVOLVING ASSETS 1. Inventories 2. Short term collectibles, investments and cash 3. Deferred tax funds C. OPERATING ASSETS D. LOSS ABOVE VALUE OF CAPITAL TOTAL ASSETS LIABILITIES A. CAPITAL 1. Capital assets and other capital 2. Unpaid registered capital 3. Reserves 4. Revalorization reserves 5. Undistributed profit 6. Loss B. LONG TERM RESERVATIONS AND LIABILITIES 1. Long term reservations 2. Long term liabilities 3. Short term liabilities 4. Deferred tax liabilities C. OPERATING LIABILITIES 2006 6,615.1

Marketinki prospekt (Teaser)

2007 6,086.7

2008 5,000.3

6,612.2 2.9 1,232.3 175.4 1,056.9 7,847.3 9,262.0 17,109.3

6,084.6 2.1 296.3 190.7 105.6 6,383.0 12,421.0 18,803.9

4,998.4 1.9 827.5 133.7 693.8 5,827.7 12,988.2 18,816.0

0.0 7,365.9 15.4 7,381.3 17,109.3 2,177.7 14,931.6 17,109.3

0.0 7,357.1

0.0 6,579.2

7,357.1 18,803.9 2,171.3 16,632.7 18,803.9

6,579.2 18,816.0 1,941.8 16,874.2 18,816.0

Income statements for the last three years (000s EUR)

Income statement items 2006 A. INCOME AND EXPENDITURES FROM REGULAR OPERATIONS 1. OPERATING INCOME 0.0 2. OPERATING EXPENDITURES 2,171.1 3. OPERATING PROFIT 4. OPERATING LOSS 2,171.1 5. Financial income 181.5 6. Financial expenditures 1,603.8 7. Other income 1,705.9 8. Other expenditures 934.9 9. PROFIT FROM REGULAR OPERATIONS 10. LOSS FROM REGULAR OPERATIONS 2,822.5 11. Suspended net operating profit 4,148.6 12. Suspended net operating loss 13. PROFIT BEFORE TAXES 14. LOSS BEFORE TAXES 6,971.1 B. PROFIT TAX 1. Tax expenditure for the period 2. Deferred tax expenditures for the period 3. Deferred tax income for the period C. COMPANY NET RESULT 1. PROFIT 2. LOSS 6,971.1
Note: Income statement calculated using mean annual exchange rates 2008: 1EUR=81.4672 RSD; 2007: 1EUR=79.964 RSD; 2006: 1EUR=84.105 RSD; Balance sheet calculated using the exchange rate on 31 December of the relevant year. 2008: 1EUR=88.601 RSD; 2007: 1EUR=79.2362 RSD; 2006: 1EUR=79.0 RSD;

2007 92.0 1,988.2 1,896.2 17.5 363.9 57.2 822.3 3,007.7

2008 96.1 1,785.2 1,689.0 215.5 51.5 45.6 1,898.5

3,007.7

1,898.5

3,007.7

1,898.5

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Dil Inenjering Konsalting 11. Company real estate

Marketinki prospekt (Teaser)

Land and buildings Total area of company land: Total area of buildings: 524,621 m2 30,290 m2

CONTACT: Interested parties should submit a formal Letter of Interest to the Consultant. The Letter of Interest should contain: brief justification for interest; description of business activities of the interested company, including the latest revised data and ownership structure (Annual Report). After receiving the Letter of Interest, the Consultant will provide details pertaining to the sequence and future activities relevant to the process of sale of capital. If you are interested in this possibility to invest, or have additional questions, kindly contact:

DIL INENJERING KONSALTING Miroka St. 1 11000 Belgrade Serbia Boko Vinji, PhD Goran Lukovi

Tel/Fax: +381.(0)11.3231534; +381.(0)11.3223014; +381.(0)11.3242672; +381.(0)11.3231541

e-mail: dil@eunet.rs goran.lukovic@dil.rs

PRIVATIZATION AGENCY Public Tender Center Terazije 23 11000 Belgrade Serbia Jelena Kapisoda Project Manager

Tel: +381.(0)11.3020855; Fax: +381.(0)11.3020816;

e-mail: jkapisoda@priv.rs

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