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JSC Liberty Consumer

Consolidated financial statements

Year ended 31 December 2017 Together with independent auditor’s report

JSC Liberty Consumer Consolidated financial statements

Contents

Independent auditor’s report

Consolidated financial statements

Consolidated statement of financial position ..................................................................................................................... 3 Consolidated statement of profit and loss ......................................................................................................................... 4 Consolidated statement of comprehensive income .......................................................................................................... 5 Consolidated statement of changes in equity ................................................................................................................... 6 Consolidated statement of cash flows .............................................................................................................................. 7 Notes to the consolidated financial statements………………………………………………………….……………..…….8-28


Consolidated statement of profit and loss

For the year ended 31 December 2017

(Thousands of Georgian lari)

The accompanying notes from pages 8 to 28 are an integral part of these consolidated financial statements.

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Note 2017 2016

Restated*

Revenues Revenue from sale of goods – 9,084

Gain from sale of property – 222

– 9,306

Operating expenses Cost of goods sold – (5,290) General and administrative expenses 9 (122) (2,620) Selling and administrative salaries and other employee benefits (76) (1,371) Share of loss of an associate 4 (4,330) (443) Allowance on receivables 6 – (99) Depreciation and amortization – (673)

Other operating expenses – (98)

(4,528) (10,594)

Operating loss (4,528) (1,288)

Gain on dilution of investment in associate 4 1,395 – Result from loss of control in a subsidiary 2.1 – (7,254) Finance income – 32 Finance cost – (381) Foreign exchange gain, net 15 1,102

Other non-operating expenses (30) (61)

Loss before tax (3,148) (7,850)

Income tax benefit 5 – 603

Loss for the year (3,148) (7,247)

Attributable to:

- Shareholders of the Group (3,148) (7,319)

- Non-controlling interests – 72

(3,148) (7,247)

Net loss per share attributable to the shareholders of the Group (presented in GEL):

- Basic and diluted loss per share 8 (0.02) (0.06)

* Certain amounts shown here do not correspond to the 2016 consolidated financial statements and reflect adjustments made, refer to Note 2.

JSC Liberty Consumer 2017 Consolidated financial statements

Consolidated statement of other comprehensive income




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Note 2017 2016

Restated*

Loss for the year (3,148) (7,247)

Other comprehensive income Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods

Share of other comprehensive income of an associate 22 171

Exchange difference on translation of foreign operations – (322)

Net other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods 22 (151)

Total comprehensive loss for the year (3,126) (7,398)

Attributable to: - Shareholders of the Group (3,126) (7,309)

- Non-controlling interests – (89)

(3,126) (7,398)



Consolidated statement of changes in equity




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Attributable to shareholders of the Group

Non-controlling interests

Total equity

Share capital

Additional paid-in capital

Accumula-ted loss

Revalua-tion

reserve

Foreign currency

translation reserve Total

1 January 2016 603 36,409 (21,712) 949 (986) 15,263 8,833 24,096 Adjustment on voluntary

change of accounting policy in associate – – – (949) – (949) (940) (1,889)

At 1 January 2016 (restated*) 603 36,409 (21,712) – (986) 14,314 7,893 22,207

Loss for the year – – (7,319) – – (7,319) 72 (7,247) Other comprehensive loss

for the year – – – – 10 10 (161) (151)

Total comprehensive loss – – (7,319) – 10 (7,309) (89) (7,398)

Issue of share capital

(Note 8) 1,068 11,997 – – – 13,065 – 13,065 Loss of control in a subsidiary

(Note 2.1) – – – – 1,147 1,147 (7,804) (6,657)

31 December 2016 1,671 48,406 (29,031) – 171 21,217 – 21,217 Modified retrospective

transition to IFRS 15 in associate (Note 2) – – (190) – – (190) – (190)

As at 1 January 2017 1,671 48,406 (29,221) – 171 21,027 – 21,027

Loss for the year – – (3,148) – – (3,148) – (3,148) Other comprehensive income

for the year – – – – 22 22 – 22

Total comprehensive loss – – (3,148) – 22 (3,126) – (3,126)

31 December 2017 1,671 48,406 (32,369) – 193 17,901 – 17,901


JSC Liberty Consumer and subsidiaries Consolidated financial statements

Consolidated statement of cash flows




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Notes 2017 2016

Restated*

Operating activities Loss before tax (3,148) (7,850) Adjustments to reconcile loss before tax to net cash flows Share of loss of an associate 4 4,330 443 Gain on dilution of investment in associate 4 (1,395) – Result from loss of control in a subsidiary 2.1 – 7,254 Depreciation of property and equipment – 665 Amortization of intangible assets – 8 Finance cost – 381 Finance income – (32) Allowance on receivables 6 – 99 Gain from sale of property – (222)

Net foreign exchange gain on financing and investing activities – (1,731)

Cash used in operating activities before changes in working capital (213) (985)

Working capital adjustments Changes in prepayments and other current assets (32) (685) Changes in trade payables (71) 145 Changes in other current liabilities (6) 131 Changes in inventories – 1,132 Changes in trade and other receivables – 1,575 Changes in prepaid taxes, other than income tax – (40)

Changes in tax liabilities, other than income tax – (724)

Cash flows (used in) / from operating activities before income tax and interest (322) 549

Interest paid – (216)

Income tax paid – (171)

Net cash (used in)/from operating activities (322) 162

Investing activities Acquisition of addition shares in existing investments 2.1 (2,447) (13,065) Purchases of intangible assets (2) – Purchases of property and equipment – (653) Receipts of amounts from the financial institutions – 3,481 Proceeds from the sale of property – 2,503 Prepayments made for acquisition of property and equipment – (2,396) Interest received – 32

Cash disposed as a result of deconsolidation – (3,357)

Net cash used in investing activities (2,449) (13,455)

Financing activities Proceeds from share issuance 14 – 13,065 Repayment of borrowings – (1,614)

Proceeds from borrowings – 1,445

Net cash from financing activities – 12,896

Net decrease in cash and cash equivalents (2,771) (397)

Effect of exchange rate difference from cash and cash equivalents – 82

Cash and cash equivalents at the beginning of the year 7 3,165 3,480

Cash and cash equivalents at the end of the year 7 394 3,165


Significant Non-cash transactions are disclosed in Note 13.

JSC Liberty Consumer Notes to the consolidated financial statements


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1. Principal activities JSC Liberty Consumer (the “Company”), is a joint stock company founded on 24 May 2006 under the laws of Georgia. The registered office of the Company is 74a Chavchavadze Avenue, Tbilisi, Georgia. The consolidated financial statements of the Group comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates. The Company’s principal activities include strategic investing in Georgian companies. Its subsidiaries and associates are disclosed in Note 2.1. As at 31 December 2017 and 2016, the following shareholders owned more than 1% of the outstanding shares of the Group. Other shareholders individually owned less than 1% of the outstanding shares.

Shareholders 31 December

2017 31 December

2016

JSC Georgia Capital (former JSC BGEO Investments) 98.23% 72.18% JSC BGEO Group – 26.02%

Other 1.77% 1.80%

Total 100.00% 100.00%

The members of the supervisory board of the Group do not have any shares of the Group. The ultimate controlling party of the Group is BGEO Group PLC.

2. Significant accounting policies

2.1 Basis of preparation General

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). These consolidated financial statements are prepared under the historical cost convention except for the measurement at fair value of investment securities available-for-sale. These consolidated financial statements are presented in thousands of Georgian lari (“GEL”), unless otherwise indicated.

The consolidated financial statements provide comparative information in respect of the previous period. In addition, the Group presents an additional statement of financial position at the beginning of the preceding period when there is a retrospective application of an accounting policy, a retrospective restatement, or a reclassification of items in consolidated financial statements. An additional statement of financial position as at 1 January 2016 is presented in these consolidated financial statements due to retrospective application of an accounting policy. See Note 2.5. Going concern

The decision of the annual general meeting (AGM) held on 19 December 2009 recommended that within following two to three years the management of the Group should dispose of its assets (equity interest in subsidiaries, investment in associates and available for sale securities) and distribute earnings among the shareholders. By the end of 2012 the Group had already disposed major loss generating subsidiaries, associates and available for sale securities, maintaining a portfolio of revenue generating and marketable assets that can be liquidated in the event of unforeseen interruption of cash flows. The AGM held on 23 July 2013 decided to extend the period of disposal of all assets, expecting market improvement and better disposal value. Management does not consider these decisions by the AGM to be indicators of possible risks related to the Group’s ability to continue as a going concern. There is no pressure on the management, either from shareholders or from economic conditions, to be forced into sale of its investments under stressful conditions. Therefore, the sale of existing investments will occur only under favourable conditions. The consolidated financial statements are prepared on the basis that the Group will continue to be a going concern and that the Group will realize its assets and discharge its liabilities in the ordinary course of business. Subsidiaries and associates

In May 2016, JSC Teliani Valley issued new shares for existing shareholders. The Company paid GEL 13,065 to acquire 93,599,348 additionally issued shares which was not proportional with its existing shareholding and therefore its stake in JSC Teliani Valley reduced from 50.23% effective ownership to 47.75%. This led to the loss of control and deconsolidation of JSC Teliani Valley and its subsidiaries in May 2016. The deconsolidation resulted in net loss of GEL 7,254. Portion of the loss attributable to measuring retained investment at its fair value at the date when control was lost amounted to GEL 3,564. The remaining investment is accounted for as investment in associate.



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2. Significant accounting policies (continued) 2.1 Basis of preparation (continued) During 2017 JSC Teliani Valley issued additional 242,905,745 shares, out of which the Company acquired 13,571,428 shares. The acquired shares were not in proportion with existing share ownership and as a result, the Company’s stake in JSC Teliani Valley decreased from 47.75% to 28.06% as of 31 December 2017. The consolidated financial statements as of 31 December 2017 and 2016 include the following direct and second level subsidiaries:

Subsidiary

31 December 2017 Effective

ownership

31 December 2016 Effective

ownership Country Industry

JSC Prime Fitness 100.00% 100.00% Georgia Real estate property JSC Intertour 99.97% 99.97% Georgia Travel agency As of 31 December 2017 the Group holds following associates:

2017 2016

Associates Ownership and voting

Ownership and voting Country Industry

Year of acquisition

JSC Teliani Valley and

subsidiaries 28.06% 47.75% Georgia Alcohol and soft

drinks 2010 JSC iCall 27.03% 27.03% Georgia Call centre 2006 Stili+ 32.45% 32.45% Georgia Advertising 2008 N-Tour 30.00% 30.00% Georgia Travel services 2008 Carrying value of JSC iCall, Stili+, N-Tour is impaired to nill.

2.2 Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2017. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

• Exposure, or rights, to variable returns from its involvement with the investee; and

• The ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee;

• Rights arising from other contractual arrangements;

• The Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full.



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2. Significant accounting policies (continued)

2.2 Basis of consolidation (continued)

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

• Derecognises the assets (including goodwill) and liabilities of the subsidiary;

• Derecognises the carrying amount of any non-controlling interest;

• Derecognises the cumulative translation differences recorded in equity;

• Recognises the fair value of the consideration received;

• Recognises the fair value of any investment retained;

• Recognises any surplus or deficit in profit or loss;

• Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.

2.3 Summary of significant accounting policies a) Investments in associates

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. The Group’s investments in its associate is accounted for using the equity method. Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment separately. The consolidated statement of profit or loss reflects the Group’s share of the results of operations of the associate. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The aggregate of the Group’s share of profit or loss of an associate is shown on the face of the consolidated statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the loss as ‘Share of profit of an associate’ in the consolidated statement of profit or loss. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.



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2. Significant accounting policies (continued) 2.3 Summary of significant accounting policies (continued) b) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability; or

• In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 – quoted (unadjusted) market prices in active markets for identical assets or liabilities.

• Level 2 – valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

• Level 3 – valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. c) Current versus non-current classification The Group presents assets and liabilities in statement of financial position based on current/non-current classification. An asset as current when it is:

• Expected to be realized or intended to sold or consumed in normal operating cycle;

• Held primarily for the purpose of trading;

• Expected to be realized within twelve months after the reporting period; or

• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current. A liability is current when:

• It is expected to be settled in normal operating cycle;

• It is held primarily for the purpose of trading;

• It is due to be settled within twelve months after the reporting period; or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

The Group classifies all other liabilities as non-current.



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2. Significant accounting policies (continued) 2.3 Summary of significant accounting policies (continued) d) Foreign currency translation The Group’s consolidated financial statements are presented in GEL, which is also the Group’s functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation. i) Transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). e) Revenue recognition Sale of goods Revenue from the sale of finished goods is recognised when the Group satisfies the performance obligation, i.e. when the control of the goods has passed to the buyer, usually on delivery of the goods. For the finished goods sold on consignment basis, revenue is recognized when the goods are transferred to the end-customer or on expiration of specified period during which the retailer can return unsold goods. Revenue is recognized in connection to the sale of finished goods at net transaction price reflecting adjustments for the consideration payable to the customer (cash amounts that the Group pays, or expects to pay, to a customer) and for any volume discounts. Interest income For all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the consolidated statement of profit and loss. f) Taxes Current income tax The annual profit earned by entities other than banks, insurance companies and microfinance organizations is not taxed in Georgia starting from 1 January 2017 (Note 5). Corporate income tax is paid on dividends is levied on profit distributed as dividends to the shareholders that are individuals or non-residents of Georgia at the rate of 15/85 of net distribution. The corporate income tax arising from the payment of dividends is accounted for as a liability and expense in the period in which dividends are declared, regardless of the actual payment date or the period for which the dividends are paid. In certain circumstances, deductions from income tax charge payable are available that are accounted as reduction of income tax expense related to respective distribution. Due to the nature of the Georgian taxation system, no deferred tax assets and liabilities arise for the entities registered in Georgia. Withholding tax payable in respect of dividend distribution to the shareholders of the Company is recognized as deduction from equity in the consolidated statement of changes in equity. Georgian tax legislation also provides for charging corporate income tax on certain transactions that are considered deemed profit distributions (for example, transactions at non-market prices, non-business related expenses or supply of goods and services free of charge). Taxation of such transactions is accounted similar to operating taxes and is reported as other taxes within general and administrative expenses in consolidated statement of profit and loss.



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2. Significant accounting policies (continued) 2.3 Summary of significant accounting policies (continued) Value added tax (“VAT”) Revenues, expenses and assets are recognised net of the amount of sales tax, except:

• When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable;

• When receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Net presentation of tax assets and liabilities Starting form 1 January 2016 changes were introduced in Georgian legislation on the rules of tax settlement. Based on new rules, Revenue Service of Georgia monitors taxpayers’ net indebtedness towards to the State by introducing a consolidated accounts of taxpayer. Therefore the Group presents assets and liabilities related to all taxes payables or receivables on a net basis. g) Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property and equipment. When significant parts of property and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the statement of comprehensive income as incurred. Assets are depreciated from the following month the asset is put into operation. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income when the asset is derecognised. h) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in profit and loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement as the expense category that is consistent with the function of the intangible assets. The intangible assets of the Group have useful lives from 5 to 10 years. The Group does not have intangible assets with indefinite useful lives. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.



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2. Significant accounting policies (continued) 2.3 Summary of significant accounting policies (continued) i) Financial instruments – initial recognition & subsequent measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition and subsequent measurement Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss. The Group’s financial assets include cash, trade and other receivables, loans and other receivables, which are all included in loans and receivables category as defined by IAS 39. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are initially recognised at fair value. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the income statement. The losses arising from impairment are recognised in the statement of comprehensive income as finance costs. Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• The rights to receive cash flows from the asset have expired;

• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.



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2. Significant accounting policies (continued) 2.3 Summary of significant accounting policies (continued) If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs. Financial liabilities Initial recognition and subsequent measurement Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. The Group’s financial liabilities are limited to loans and borrowings category, which include trade payables and interest bearing loans and borrowings. After initial recognition, loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortization is included in finance cost in the statement of comprehensive income. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. j) Inventories

Finished goods Inventories are valued at the lower of cost or net realisable value. For 2016, Costs of finished goods sold are assigned on a weighted average cost basis. Included within the cost of inventory is the fair value of the grapes (agricultural produce) at the time the grapes are harvested. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.



16

2. Significant accounting policies (continued) 2.3 Summary of significant accounting policies (continued) i) Agricultural produce Harvesting of the grape crop is ordinarily performed in autumn. Costs incurred in growing the grapes, including any applicable harvest costs incurred on the biological asset that are of operating nature, are initially expensed as other operating cost. At the point of harvest, the harvested produce is recorded at its fair value in accordance with IAS 41 Agriculture. The fair value of grapes is determined by reference to market prices for grapes in the local area, at the time of harvest. Fair value adjustment is recorded net, together with the growing and harvesting costs as other operating costs in 2016. k) Impairment of non-financial assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.. Impairment losses of continuing operations, including impairment on inventories, are recognised in the income statement in expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. l) Cash and cash equivalents

Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and on hand and short-term deposits with original maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above.



17

2. Significant accounting policies (continued)

2.4 Changes in accounting policies and disclosures Change of subsequent accounting for certain classes of property, plant and equipment

The Group’s associate JSC Telliani Valley (hereinafter referred as “TV”) re-assessed its accounting policy for property, plant and equipment with respect to measurement of certain classes of property, plant and equipment after initial recognition. JSC Teliani Valley has previously accounted for land, buildings, vineyards and specialized wine tanks using the revaluation model, whereby after initial recognition, land, buildings, vineyards and specialized wine tanks were measured at fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. On 1 January 2017 JSC Teliani Valley selected to change its accounting policy for land and buildings, vineyards and specialized wine tanks, since the Group believes that cost model more effectively demonstrates the financial position and is more aligned to practices adopted by its competitors. In addition, the cost model is better aligned with the business purpose of the assets as their value is primarily realized through continuous use. After the change of the accounting policy, after initial recognition JSC Teliani Valley uses cost model, whereby all property, plant and equipment will be carried at cost less accumulated depreciation and accumulated impairment losses. JSC Teliani Valley applied the cost model retrospectively. Effects of adjustments on the Group’s consolidated financial statements are presented below:

Extract from consolidated statement of financial position as at 1 January 2016

As at 1 January 2016

As previously reported

Effect of change in accounting

policy

As at 1 January 2016

Restated

Non-current assets Property, plant and equipment 13,012 (2,222) 10,790

Other 7,180 – 7,180

Total non-current assets 20,192 (2,222) 17,970

Total current assets 26,955 – 26,955

Total assets 47,147 (2,222) 44,925

Equity Other reserves (37) (949) (986)

Other 15,300 – 15,300

Total equity attributable to shareholders of the Group 15,263 (949) 14,314

Non-controlling interests 8,833 (940) 7,893

Total equity 24,096 (1,889) 22,207

Non-current liabilities Deferred tax liabilities 1,527 (333) 1,194

Other 9,605 – 9,605

Total non-current liabilities 11,132 (333) 10,799

Total current liabilities 11,919 – 11,919

Total liabilities 23,051 (333) 22,718

Total equity and liabilities 47,147 (2,222) 44,925



18

2. Significant accounting policies (continued) 2.4 Changes in accounting policies and disclosures (continued) Extract from consolidated statement of profit and loss for the year ended 31 December 2016

2016 As previously

reported


policy 2016

Restated Operating loss (1,288) – (1,288)

Result from loss of control in a subsidiary (8,203) 949 (7,254)

Other 692 – 692

Loss before tax (8,799) 949 (7,850) Income tax benefit 603 – 603

Loss for the year (8,196) 949 (7,247)

Extract from consolidated statement of other comprehensive income for the year ended 31 December 2016

2016 As previously

reported


policy 2016

Restated*

Loss for the year (8,196) 949 (7,247)

Net other comprehensive loss to be reclassified to

profit or loss in subsequent periods (151) – (151) Income tax relating to component of other

comprehensive income 540 (540) –

Net other comprehensive income not to be reclassified to profit or loss in subsequent periods 540 (540) –

Total comprehensive loss for the year, net of tax (7,807) 409 (7,398)

Extract from consolidated statement of cash flows for the year ended 31 December 2016

2016 As previously

reported


policy 2016

Restated*

Operating activities Loss before tax (8,799) 949 (7,850) Adjustments to reconcile loss before tax to net

cash flows Result from loss of control in a subsidiary 8,203 (949) 7,254

Other adjustments 758 – 758

Net cash flow from operating activities 162 – 162

Net cash flow used in investing activities (13,455) – (13,455)

Net cash flow from financing activities 12,896 – 12,896

Net decrease in cash and cash equivalents (397) – (397)

Effect of exchange rate difference from cash and cash

equivalents 82 – 82 Cash and cash equivalents at the beginning of the

period 3,480 – 3,480

Cash and cash equivalents at the end of the year 3,165 – 3,165



19

2. Significant accounting policies (continued) 2.4 Changes in accounting policies and disclosures (continued) Adoption of new standards and interpretations and voluntary changes in accounting policies

The nature and the impact of each amendment is described below: IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. The Group’s associate, JSC Teliani valley, early adopted the new revenue recognition standard effective from 1 January 2017 using the modified retrospective approach. The principal activities of JSC Teliani Valley are production and distribution of wine, beer, lemonade and other alcoholic beverages of own produce and distribution of imported beer and other beverages. The alcoholic and non-alcoholic beverages are sold by JSC Teliani Valley to the end users through the retail shops, small supermarkets, restaurants and bars (the intermediate sellers). Management needed to determine whether the Group controls these beverages before they are resold to end-users. Under certain type of sales contract, the intermediate sellers have unconditional right of return of unsold goods to JSC Teliani Valley and JSC Teliani Valley should take back all unsold goods at any time before certain product expiration date is reached. Accordingly, JSC Teliani Valley retains inventory risk under this type of sales contracts, before the goods are resold to the end-user. Under IFRS 15 the management did not recognize revenue generated under such sales contracts until goods are purchased by the end users. Adjustments to the opening balances as at 1 January 2017 was decrease accounts receivable from the sale of goods by GEL 1,001 increase inventories by GEL 604 and decrease of retained earnings by GEL 397 for JSC Teliani Valley. Impact on Investment in associate and on accumulated losses for the Group as at 1 January 2017 was GEL 190. Other effects from early adoption of IFRS 15 only impacted classification of revenue related expenditures during 2017. In accordance with new revenue standard requirements, the disclosure of the impact of early adoption of IFRS 15 were as follows: Extract from consolidated statement of financial position as at 31 December 2016

31 December 2016

Effect of IFRS 15 Adoption

1 January 2017

Investment in an associate 18,198 (190) 18,008

Other non-current assets 44 – 44

Total non-current assets 18,242 (190) 18,052

Total current assets 3,306 – 3,306

Total assets 21,548 (190) 21,358 Equity Accumulated losses (29,031) (190) (29,221)

Other 50,248 – 50,248

Total equity 21,217 (190) 21,027

Total current liabilities 331 – 331

Total liabilities 331 – 331

Total equity and liabilities 21,548 (190) 21,358



20

2. Significant accounting policies (continued) 2.4 Changes in accounting policies and disclosures (continued) Extract from consolidated statement of financial position as at 31 December 2017

31 December 2017

Amount without IFRS 15 adoption


31 December 2017

As reported

Investment in an associate 17,829 (287) 17,542

Other non-current assets 46 – 46

Total non-current assets 17,875 (287) 17,588

Total current assets 567 – 567

Total assets 18,442 (287) 18,155

Equity Accumulated losses (32,082) (287) (32,369)

Other 50,270 – 50,270

Total equity 18,188 (287) 17,901

Total current liabilities 254 – 254

Total liabilities 254 – 254

Total equity and liabilities 18,442 (287) 18,155

Extract from consolidated statement of profit or loss as at 31 December 2017

31 December 2017

Amount without IFRS 15 adoption


31 December 2017

As reported

Share of loss of an associate (2,838) (97) (2,935)

Other (198) – (198)

Operating loss (3,036) (97) (3,133) Other (15) – (15)

Loss for the year (3,051) (97) (3,148)

Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative

The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). This amendment did not have any impact on the Group’s consolidated financial statements. Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of deductible temporary difference related to unrealised losses. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. The amendment did not have any impact on the consolidated financial statements of the Group, as it does not have taxable profit after the introduction of new tax model effective since 1 January 2017 (Note 5).



21

2. Significant accounting policies (continued) 2.4 Changes in accounting policies and disclosures (continued) Standards issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s consolidated financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group plans to adopt the new standard on the required effective date and will not restate comparative information. Overall the Group expects no significant impact on its consolidated statement of financial position and consolidated equity after adoption of IFRS 9. (a) Classification and measurement The adoption of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but no impact on the classification and measurement of the Group’s financial liabilities. The trade receivables of the Group are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payment of principal amount. Thus, the Group expects that these will continue to be measured at amortised cost under IFRS 9. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required. (b) Impairment IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all trade receivables. The Group does not expect a significant impact on its consolidated equity due to unsecured nature of its loans and receivables, but it will perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact.

(c) Hedge accounting The Group currently does not have any hedge relationships, thus the Group does not expect any impact as a result of applying IFRS 9. IFRS 16 Leases IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognized the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognized the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.



22

2. Significant accounting policies (continued) 2.4 Changes in accounting policies and disclosures (continued) Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. The Group does not have lease agreements, therefore this new standard will not have effect on Group’s consolidated financial statements.

3. Significant accounting judgments The preparation of the Group’s consolidated financial statements requires management to make judgments that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities.

Judgments Fair value of retained interest in JSC Teliani Valley At initial recognition, the fair value of the retained interest in JSC Teliani Valley was determined with reference to share price received by third party shareholder of JSC Teliani Valley from JSC BGEO Group. It is management’s judgement that transactions with third parties serves as a best source for share price fair value determination. Following this judgement, fair value of retained interest was determined to be GEL 18,470 as at 25 May 2016.

4. Investment in an associate As at 31 December 2017 the Group’s interest in JSC Teliani Valley is 28.05%. The Group’s interest in JSC Teliani valley is accounted for using the equity method in the consolidated financial statements (Note 2.1). The following table illustrates the summarized financial information of the Group’s investment in JSC Teliani Valley:

2017 2016

Current assets 53,642 38,536 Non-current assets 104,549 69,540 Current liabilities (26,371) (57,773)

Non-current liabilities (61,482) (7,611)

Equity 70,338 42,692

The Group’s share in net assets – 28.05% (2016: 47.75%) 19,729 20,385

Reconciling item (fair valuation of interest retained) (2,187) (2,187)

Carrying amount of the investment 17,542 18,198



23

4. Investment in an associate (continued)

2017 2016

Sale of goods 54,975 29,793 Cost of sales (34,433) (15,774) Other operating income 253 16 Other operating expenses (25,428) (12,392) Finance costs (3,316) (886)

Other non-operating expenses (6,297) (1,008)

Loss before tax (14,246) (251)

Income tax benefit – 41

Loss for the year (14,246) (210)

Other comprehensive (loss)/income to be reclassified to profit or loss in

subsequent periods (42) 37

Total comprehensive loss for the year (14,288) (173)

Group’s share of loss for the year (4,330) (443)

As a result of reduction of the share ownership in JSC Teliani Valley, the Group recognized gain on dilution of GEL 1,395.

Contingencies, commitments attributable of an associate Georgian and Ukrainian tax environment

Georgian and Ukrainian tax and transfer pricing legislation is subject to varying interpretations and changes which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activities of the Group may be challenged by the relevant state authorities. Management believes that its interpretations of laws and regulations is adequate and it has declared and accounted for all tax risks adequately. Collateral on assets

JSC Teliani Valley has provided property, plant and equipment and inventories owned as collateral to guarantee external loans received from the International financial institution. The schedule below discloses assets pledged for the loan from the financial institutions as at 31 December: 2017 2016

Property plant and equipment pledged 96,825 6,532

Inventories pledged 13,558 5,555

110,383 12,087

5. Income tax In June 2016, amendments to the Georgian tax law in respect of corporate income tax became enacted. The amendments became effective from 1 January 2017 for all Georgian companies except the banks, insurance companies and microfinance organization, for which the effective date is 1 January 2019. Under the new regulation, corporate income tax is levied on profit distributed as dividends to the shareholders that are individuals or non-residents of Georgia, rather than on profit earned. The amount of tax payable on a dividend distribution is calculated as 15/85 of the amount of net distribution. The companies are able to offset corporate income tax liability arising from dividend distributions out of profits earned in 2008-2016 by the amount of corporate income tax paid for the respective period under the current regulation. Dividends distributions between Georgian resident companies is not subject to corporate income tax. Following the enactment of the amendments, as at 31 December 2016 the Group reversed in full its deferred tax assets and liabilities based on IAS 12 Income Taxes requirement to measure deferred taxes at 0% tax rate applicable for undistributed profits starting from 1 January 2017. In 2017, the Group did not pay dividend, thus income tax charge on distributed profits (dividends) was nil. In 2016, the Group recognized income tax benefit resulting from reversal of deferred tax assets and liabilities in amount of GEL 603 in profit or loss.



24

5. Income tax (continued) The corporate income tax benefit comprises of:

2017 2016

Restated

Current income tax charge – 250

Deferred income tax benefit – (853)

Income tax benefit reported in the consolidated statement of profit or loss – (603)

Reconciliation between income tax benefit and the product of accounting profit multiplied by Georgia’s domestic tax rate of 15% for the years ended as at 31 December 2017 and 2016 is as follows: 2017 2016

Loss before tax – (8,799)

Income tax using the domestic corporation tax rate 15/85 15%

Effect of higher tax rates in Ukraine (55)

Non-deductible income and expenses Marketing expenses – 46 Free of charge supplies – 57 Income from resident financial institutions – (15) Change in allowance of deferred tax asset – 133 Effect of change in income tax legislation (a) – 551

Other – –

Income tax benefit reported in the consolidated statement of profit or loss – (603)

Deferred tax assets and liabilities as at 31 December and their movements for the respective years follows:

1 January 2016

Restated*

Origination and reversal of temporary differences in the income statement

Change through income

statement

Change through other

comprehensive income 2016

Deferred tax assets Trade and other receivables 275 (275) – – Investments in associates 281 (281) – – Property and equipment 55 (55) – – Other assets 97 (97) – – Other liabilities 65 (65) – – Inventory 49 (49) – – Accounts payables 4 (4) – –

Tax losses carried forward 3,802 (3,802) – –

Gross deferred tax assets 4,628 (4,628) – –

Less: unrecognized deferred tax asset (4,287) 4,287 – –

Total deferred tax assets 341 (341) – –

Deferred tax liabilities Property and equipment (830) 830 – – Biological assets (325) 325 – – Borrowings (44) 44 – – Prepayments 17 (17) – –

Intangible assets (12) 12 – –

Total deferred tax liabilities (1,194) 1,194 – –

Net deferred tax liabilities (853) 853 – –



25

6. Trade and other receivables As at 31 December, trade and other receivables were as follows: 2017 2016

Trade receivables 190 190

Less: allowance for doubtful accounts (123) (123)

Total 67 67

Movement of allowance for doubtful accounts as at 31 December is as follows: 2017 2016

At 1 January 123 1,298

Charge for the year – 99

Deconsolidation effect (Note 2.1) – (1,274)

At 31 December 123 123

Trade and other receivables are non-interest bearing and are generally on 30-90 day terms. As at 31 December, the ageing analysis of trade and other receivables is as follows:

Total

Neither past due nor impaired

Past due but not impaired

<30 days 30-90 days 90-180 days >360 days

31 December 2017 67 67 – – – – 31 December 2016 67 67 – – – –

7. Cash and cash equivalents As at 31 December, cash and cash equivalent were as follows: 2017 2016

Current accounts with banks 391 3,163

Cash on hand 3 2

394 3,165

8. Equity Movements of outstanding issues and fully paid shares during 2017 and 2016 were as follows:

Authorised share

capital

Number of shares issued

and fully paid Amount of

share capital

Amount of additional

paid-in capital

As at 31 December 2017 289,000,000 167,020,805 1,671 48,406 As at 31 December 2016 289,000,000 167,020,805 1,671 48,406 21,117 shares were repurchased by the Group as a treasury stock in 2010.

In May 2016 Group issued 106,736,074 additional shares that were purchased and fully paid by existing shareholders. Total contribution received was GEL 13,065. Each share has a nominal value of one Georgian Tetri (0.01 of Georgian lari).



26

8. Equity (continued)

Earnings per share Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year. The Group’s diluted earnings per share equal basic earnings per share as there are no dilutive potential ordinary shares. The following reflects the loss and share data used in the basic earnings per share computations: 2017 2016

Net loss attributable to ordinary equity holders (3,148) (7,247)

Weighted average number of ordinary shares 167,020,805 124,618,803

Basic and diluted loss per share (0.02) (0.06)

9. General and administrative expenses 2017 2016

Legal and other professional services 93 153 Occupancy and rent 18 235 Current taxes, other than income tax 11 41 Marketing and advertising – 1,864 Travel expenses – 42 Communication – 29 Repairs and maintenance – 20 Banking services – 15 Fuel expenses – 8 Insurance – 4

Other – 209

122 2,620

Legal and other professional services includes fees for the audit of the Group’s consolidated financial statement for the year ended 31 December 2017 of GEL 50 (2016: GEL 71).

10. Risk management The Group’s principal financial liabilities comprise trade payables and other current liabilities. The main purpose of these financial liabilities is to raise finances for the Group’s operations activities. Financial assets comprise of trade and other receivables and cash and current accounts. The Group is exposed to credit risk, liquidity risk and foreign currency risk. The Group’s exposure to market risk is not significant since it does not have significant assets or liabilities for which value of future cash flows will fluctuate because of changes in market prices. The Group’s senior management oversees the management of these risks. The Group’s financial risk-taking activities are very limited. The Group has no derivative activities for risk management or other purposes.



27

10. Risk management (continued)

Credit risk Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The extent of the Group’s credit exposure is represented by the aggregate balance of trade and other receivables and cash and cash equivalents as at 31 December 2017 and 31 December 2016. Trade and other receivables As at 31 December 2017 the Group holds certain trade and other receivables that are overdue by more than 365 days, however, currently the Group is in the negotiations to recover these overdue balances. Cash and cash equivalents

The Group manages the credit risk by depositing the majority of available cash with well-known bank in Georgia.

Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. As at 31 December 2017 the Group did not have foreign exchange risk as the Group’s financial instruments were denominated in GEL. The table below indicates the currencies to which the Group had significant exposure at 31 December 2016 on monetary assets and liabilities expressed in GEL. 2016 GEL USD Total

Assets Cash and cash equivalents 2,167 998 3,165

Trade and other accounts receivable 67 – 67

Liabilities

Trade payables (122) – (122)

Net position 2,112 998 3,110

Analysis provided below calculates the effect of a reasonably possible movement of the currency rate against the Georgian Lari, with all other variables held constant on profit or loss statement. A negative amount in the table reflects a potential net reduction in profit or loss statement or equity, while a positive amount reflects a net potential increase.

Currency

Change in currency rate in %

2016

Effect on profit before tax

2016

USD 10.52% 105

Liquidity risk and funding management Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances. Liquidity risk is managed through an assessment of short, medium and long-term cash flow forecasts and monitoring forecast and actual cash flows and matching cash resources with the maturity profiles of financial statements. The tables below summarises the maturity profiles of the Group’s financial liabilities at 31 December 2017 and 2016 based on contractual undiscounted repayment obligations:

2017 Less than 3 months Total

Trade payables 51 51

Other liabilities 203 203

254 254



28

10. Risk management (continued)

Liquidity risk and funding management (continued)

2016 Less than 3 months Total

Trade payables 122 122

Other liabilities 209 209

331 331

Capital risk management The Group’s policy for capital management is to maintain a sufficient capital base for meeting the Group’s operational and strategic needs.

11. Fair value of financial assets and financial liabilities Fair value of financial assets and financial liabilities approximates carrying value. For financial assets and financial liabilities that are liquid or having a short term maturity (less than three months) it is assumed that the carrying amounts approximate to their fair value.

12. Related party disclosure In accordance with IAS 24 Related Party Disclosures, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.

12.1 Financing transactions The Group holds GEL 394 (2016: GEL 3,163) on its bank account in JSC Bank of Georgia, which is an entity under common control.

12.2 Compensation of key management personnel of the Group During 2017 compensation of key management personnel comprised GEL 57 (2016: 436).

13. Non-cash transactions In May 2016, the Group lost control over its main subsidiary, JSC Teliani Valley resulting in deconsolidation of working capital (Note 2.1) as follows:

2016

Inventories (9,632) Trade and other receivables (4,796) Prepaid taxes, other than income tax (2,096) Prepayments and other current assets (1,188) Trade payables 2,899 Tax liabilities, other than income tax 1,731 Other current liabilities 752 Income tax 471

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