Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697753453397.pdf (Georgia)
Financial Statements and Independent Auditor's Report Nikora 7 LLC 31 December 2017 Contents Independent auditor’s report Statement of financial position Statement of profit or loss and other comprehensive income Statement of changes in equity Statement of cash flows Notes to the financial statements 3 7 9 10 11 13 Nikora 7 LLC Financial statements 31 December 2017 2 Independent auditor’s report შშპს გრანთ თორნთონ ქეთევან წამებულის გამზირი 54 0144, თბილისი, საქართველო ტ.+ 995 322 604 406 Grant Thornton LLC 54 Ketevan Tsamebuli Avenue 0144 Tbilisi, Georgia T + 995 322 604 406 To the shareholders of Nikora 7 LLC Qualified Opinion We have audited the accompanying financial statements of Nikora 7 LLC (the “Company”), which comprise the statement of financial position as of 31 December 2017, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion section of our report, the accompanying financial statements give a true and fair view of the financial position of the Company as of 31 December 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”).
Basis for Qualified Opinion Machinery and equipment are stated at Georgian lari 1,915 thousand on the statement of financial position as at 31 December 2017 (31 December 2016: Georgian lari 2,060 thousand) (refer to note 4 to the financial statements).

Because of the nature of the Company’s accounting records we were unable to obtain sufficient appropriate audit evidence about the amount of the opening balance of accumulated depreciation of the Company’s machinery and equipment.
Consequently, we were unable to determine whether any adjustment might have been necessary to the carrying amount of the Company’s machinery and equipment included in the statement of financial position as at 31 December 2017 and to the depreciation expense of Georgian lari 469 thousand related to the noted part of the machinery and equipment included in the statement of profit and loss and other comprehensive income and to the cash flows from operating activities for the year then ended.
We conducted our audit in accordance with International Standards on Auditing (“ISAs”).

Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (the “IESBA Code”) together with the ethical requirements that are relevant to our audit of the financial statements in Georgia, and we have fulfilled our other ethical responsibilities in accordance with those ethical requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
www.grantthornton.ge 4 Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements.

Key audit matters are selected from the matters communicated with those charged with governance, but are not intended to represent all matters that were discussed with them.
In addition to the matters described in the Basis for Qualified Opinion section of our report, we have determined the matters described below to be the key audit matters.

Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole.

Our opinion on the financial statements is not modified with respect to any of the key audit matters described below, and we do not express an opinion on these individual matters.
Inventory valuation As at 31 December 2017, the Company held inventories of Georgian lari 1,444 thousand (2016: Georgian lari 1,014 thousand).

Given the size of the inventory balance relative to the total assets of the Company and the estimates and judgments described below, the valuation of inventory required significant audit attention.

As disclosed in note 3.6 inventories are held at the lower of cost determined using the FIFO cost method and net realizable value.
At the year end, the valuation of inventory is reviewed by management and the cost of inventory is reduced where inventory is forecast to be sold below cost.

The determination of whether inventory will be realized for a value less than cost requires management to exercise judgments and apply assumptions.
Management undertake the following procedures for determining the level of write down required: Use inventory ageing reports together with historical trends to estimate the likely future saleability of slow moving and older inventory lines; Perform a line-by-line analysis of remaining inventory to ensure it is stated at the lower of cost and net realisable value and a specific write down is recognized if required.
We have performed the following procedures over the valuation of inventory: For all inventory items of the Company, re-performed the FIFO cost calculation and compared inventory balance as at 31 December 2017 with the Company’s figures; On a sample basis we tested the net realisable value of inventory lines to recent selling prices; For a sample of inventory categories we reviewed the dynamics of last purchase invoices and subsequent period gross profit margins; We tested that the aging report used by management correctly aged inventory items agreeing a sample of aged inventory items to the last recorded invoice.
Revaluation of land and buildings The Company has land and building with a net book value of Georgian lari 2,601 thousand (2016: Georgian lari 2,352 thousand).

Given the size of the land and buildings balance relative to the total assets of the Company and the estimates and judgments described below, the revaluation of land and buildings required significant audit attention.
As disclosed in note 3.3, land and buildings held for use in the production or supply of goods or services, or for administrative purposes are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation.

The revaluation was performed by independent certified valuator, external for the Company.

Details of the revaluation are disclosed in the note 4 to the financial statements.
www.grantthornton.ge 5 We have performed the following audit procedures: Appraisal of the objectivity, completeness and independence of the external independent valuator; Obtaining an understanding of the work of the valuator, by reviewing the valuation report prepared by external valuator to determine the appropriateness of the nature, scope and objectives of the work performed; Comparison of key inputs, used by the external independent valuator, with publicly accessible data and/or historical available data; Considering of the methodology of accounting for the gains/(losses) on the revaluation; Review the disclosures included in the Company’s financial statements against the requirements of the accounting standards; Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit.
We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
www.grantthornton.ge Statement of financial position In thousands of Georgian lari Year ended 31 December 2017 (Audited) Year ended 31 December 2016 (Unaudited) Year ended 31 December 2015 (Unaudited) Note Assets Non-current assets Property, plant and equipment Intangible assets Current assets Inventories Trade and other receivables Other current assets Cash and bank balances 5,572 269 5,841 1,444 1,417 125 165 3,151 5,270 11 5,281 1,014 877 228 84 2,203 5,196 7 5,203 807 6,614 185 139 7,745 Total assets 8,992 7,484 12,948 The statement of financial position is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 13 to 36.
Nikora 7 LLC Financial statements 31 December 2017 7 Statement of profit or loss and other comprehensive income In thousands of Georgian lari Revenue Cost of sales Gross profit Other income Distribution and marketing expenses Administrative expenses Other expenses Results from operating activities Finance costs Other financial items Other non-operating expenses Profit before income tax Income tax (expense)/recovery Profit for the year Other comprehensive income Items that will not be reclassified subsequently to profit or loss Revaluation of property, plant and equipment Total comprehensive income for the year Note 12 13 14 15 Year ended December 31 2017 (Audited) Year ended December 31 2016 (Unaudited) 29,580 (20,982) 8,598 207 (2,606) (2,945) (663) 2,591 (159) (74) (424) 31,371 (24,259) 7,112 659 (645) (3,260) (420) 3,446 (192) (102) (428) 1,934 2,724 (136) 1,798 (390) 2,334 238 2,036 (288) 2,046 The statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 13 to 36.
Nikora 7 LLC Financial statements 31 December 2017 9 Statement of changes in equity In thousands of Georgian lari as of 1 January 2016 (Unaudited) Profit for the year Other comprehensive income for the year Total comprehensive income for Charter capital Revaluation reserve Accumulated profit/(loss) Total - - - 1,142 3,366 4,508 - 2,334 2,334 (288) - (288) the year - (288) 2,334 2,046 Dividends declared Transactions with owners - - - - (1,650) (1,650) (1,650) (1,650) as of 31 December 2016 (Unaudited) Profit for the year Revaluation surplus Total comprehensive income for the year - - - 854 4,050 4,904 - 1,798 1,798 238 - 238 - 238 1,798 2,036 Issue of share capital Dividends declared 700 - - - Transactions with owners 700 - - 700 (2,511) (2,511) (2,511) (1,811) as of 31 December 2017 (Audited) 700 1,092 3,337 5,129 The statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 13 to 36.
Nikora 7 LLC Financial statements 31 December 2017 10 Statement of cash flows In thousands of Georgian lari Cash flows from operating activities Profit for the year Adjustments for: Depreciation and amortization Interest expense Income tax expense Foreign exchange loss Operating profit before working capital changes Change in trade and other receivables Change in inventories Change in trade and other payables Change in prepayments Cash generated from operations Interest paid Income tax paid Net cash from operating activities Year ended December 31 2017 (Audited) Year ended December 31 2016 (Unaudited) 1,798 2,334 880 159 136 74 3,047 (540) (429) 903 102 3,083 (158) (136) 2,789 856 192 390 102 3,874 5,729 (207) 57 (331) 9,122 (183) (439) 8,500 Cash flows from investing activities Acquisition of property, plant and equipment and intangible assets Acquisition of intangible assets Proceeds from disposal property, plant and equipment Net cash used in investing activities (662) (214) (1,076) (5) 31 147 (845) (934) The statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 13 to 36.
Nikora 7 LLC Financial statements 31 December 2017 11 Statement of cash flows (continued) In thousands of Georgian lari Cash flows from financing activities Proceeds from loans and borrowings Repayment of loans and borrowings Contributions to charter capital Dividends paid Net cash used in financing activities Year ended December 31 2017 (Audited) Year ended December 31 2016 (Unaudited) 12,514 (12,558) 700 (2,511) (1,855) 1,154 (7,123) - (1,650) (7,619) Net increase/(decrease) in cash and bank balances 89 (53) Foreign exchange effect on cash Cash and bank balances at the beginning of the year Cash and bank balances at the end of the year (8) (2) 84 165 139 84 The statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 13 to 36.
Nikora 7 LLC Financial statements 31 December 2017 12 Notes to the financial statements 1 Nature of operations and general information Nikora 7 LLC (the Company) was established as a limited liability company in 2006 and from the day of the establishment until now it produces meat products, - having its business address at Poti, 7th km settlement.

Joint Stock Company Nikora, a company incorporated and registered in Georgia, is the 100% owner of Nikora 7 LLC.
The average number of employees of the Company during 2017 was 284 employees (2016: 221 employees).

2 Basis of preparation 2.1 Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).
2.2 Basis of measurement The financial statements have been prepared on the historical cost basis with the exception for certain financial instruments that are stated at present discounted value of future cash flows and certain groups of property, plant and equipment which are stated at revalued amounts.

The details of measurement for each category of assets and liabilities are disclosed further in these notes.
2.3 Functional and presentation currency The national currency of Georgia is the Georgian lari (“lari”), which is the Company’s functional currency, since this currency best reflects the economic substance of the underlying events and transactions of the Company.

These financial statements are presented in thousands of Georgian lari.

All financial information presented in Georgian lari has been rounded to the nearest thousand.
2.4 Use of estimates and judgment The preparation of financial statements in conformity with IFRSs requires management to make critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in the note 17 to the financial statements.
2.5 Adoption of new and revised standards In the current year the Company has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the “IASB”) and International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on 1 January 2017.

The nature and the effect of these changes are disclosed below.
Although these new standards and amendments are applied for the first time in 2017, they did not have a material impact on the annual financial statements of the Company.
Nikora 7 LLC Financial statements 31 December 2017 13 New and revised standards and interpretations that are effective for annual periods beginning on or after 1 January 2017 Disclosure Initiative (Amendments to IAS 7 Statements of Cash Flows) The amendments to IAS 7, effective 1 January 2017, require the Company to provide disclosures about the changes in liabilities from financing activities.
The Company categorizes those changes into changes arising from cash flows and non-cash changes with further sub-categories as required by IAS 7 (refer to note 23).

Annual Improvements 2014-2016 The Annual Improvements 2014-2016 made several minor amendments to a number of IFRSs.

The amendments relevant to the Company are summarized below: IFRS 12 Disclosure of Interests in Other Entities Clarification of the scope of the Standard.
IFRS 12 is required to be applied retrospectively in accordance with IAS 8.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Company At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company.
Management anticipates that all of the relevant pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the effective date of the pronouncement.

Information on new standards, amendments and interpretations that are expected to be relevant to the Company’s financial statements is provided below.

Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s financial statements.
IFRS 9 Financial Instruments The IASB released IFRS 9 Financial Instruments, representing the completion of its project to replace IAS 39 Financial Instruments: Recognition and Measurement.

The new standard introduces extensive changes to IAS 39’s guidance on the classification and measurement of financial assets and introduces a new “expected credit loss” model for the impairment of financial assets.

IFRS 9 also provides new guidance on the application of hedge accounting.
The Company’s management have yet to assess the impact of this new standard on the Company’s financial statements.

The new standard is required to be applied for annual reporting periods beginning on or after 1 January 2018.

IFRS 16 Leases IFRS 16 presents new requirements and amendments to the accounting of leases.

IFRS 16 will require lessees to account for leases “on-balance sheet” by recognizing a “right-of-use” asset and a lease liability.
IFRS 16 also: changes the definition of a lease; sets requirements on how to account for the asset and liability, including complexities such as non-lease elements, variable lease payments and option periods; provides exemptions for short-term leases and leases of low value assets; changes the accounting for sale and leaseback arrangements; largely retains IAS 17’s approach to lessor accounting; introduces new disclosure requirements.
Nikora 7 LLC Financial statements 31 December 2017 14 IFRS 16 is effective for annual periods beginning on or after 1 January 2019.

Early application is permitted provided IFRS 15 Revenue from Contracts with Customers is also applied.

The Company’s management have not yet assessed the impact of IFRS 16 on these financial statements.
IFRS 15 Revenue from Contracts with Customers IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 Revenue, IAS 11 Construction Contracts, and several revenue-related Interpretations.
The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities.

IFRS 15 is effective for reporting periods beginning on or after 1 January 2018.
The Company’s management have not yet assessed the impact of IFRS 15 on these financial statements.

3 Significant accounting policies 3.1 General conditions and first time adoption of IFRSs The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) which were valid as of 31 December 2017.

The concepts of accounting policy were applied to each period presented in the financial statements.
Though the Company was preparing certain financial information for the consolidation purposes of the parent company, which did produce IFRS-compliant general purpose financial statements in the preceding years, the Company itself did not produce general purpose financial statements for external users in the preceding periods, therefore these financial statements are the first set of the Company’s financial statements prepared in accordance with IFRS.
The Company has used IFRS 1 First Time Adoption of International Financial Reporting Standards in preparing these financial statements.

Refer to note 2.5 for standards and interpretations that were issued, but were not yet effective and were not early adopted by the Company.

The significant accounting policies applied for the preparation of the financial statements are presented below.
3.2 Foreign currencies Foreign currency transactions In preparing the financial statements, transactions in currencies other than the functional currency are recorded at the rates of exchange defined by the National Bank of Georgia prevailing on the dates of the transactions.
At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates defined by the National Bank of Georgia prevailing on the reporting date, which is 2.5922 lari for 1 US dollar and 3.1044 lari for 1 euro as of 31 December 2017 (31 December 2016: 2.6468 lari for 1 US dollar, 2.7940 lari for 1 euro).
Non-monetary items are not retranslated and are measured at historic cost (translated using the exchange rates at the transaction date), except for non-monetary items carried at fair value that are denominated in foreign currencies which are retranslated at the rates prevailing on the date when the fair value was determined.

Exchange differences arising on the settlement and retranslation of monetary items, are included in profit or loss for the period.
Nikora 7 LLC Financial statements 31 December 2017 15 3.3 Property, plant and equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset.

Revaluations are performed with sufficient regularity by independent valuators such that the carrying amounts do not differ materially from those that would be determined using fair values at the reporting date.
Any revaluation increase arising on the revaluation of such property, plant and equipment is recognized in other comprehensive income (except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged) and is shown as revaluation reserve in shareholder’s equity.
A decrease in the carrying amount arising on the revaluation of such property, plant and equipment is charged to profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset.

The revaluation surplus remaining in the revaluation reserve attributable to an item of property, plant and equipment is transferred directly to the accumulated profit when the asset is sold or otherwise derecognized.
Other items of property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Cost comprises purchase price including import duties and non- refundable purchase taxes and other directly attributable costs.

When an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment.
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognized impairment loss.

Cost includes directly attributable expenditures, site preparation, installation and assembly costs, professional fees and for qualifying assets, borrowing costs capitalized in accordance with the Company’s accounting policy.
Buildings that are leasehold property are also included in property, plant and equipment if they are held under a finance lease.

Such assets are depreciated over their expected useful or over the term of the lease, if shorter.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
Expenditure to replace a component of an item of property, plant and equipment that is accounted for separately is capitalized with the carrying amount of the component being written off.

Other subsequent expenditure is capitalized if future economic benefits will arise from the expenditure.

All other expenditure, including repair and maintenance, is recognized in profit or loss as incurred.
Depreciation is charged to profit or loss or is added to the cost of other asset on a reducing balance basis over the estimated useful lives of the individual assets.

Depreciation commences when assets are available for use.
The estimated useful lives are as follows: Buildings and facilities Machinery and equipment - 30 years - 5 years Office equipment, furniture and fixtures - 5-years Vehicles Leasehold improvements - 5 years - 7-10 years Nikora 7 LLC Financial statements 31 December 2017 16 3.4 Intangible assets Intangible assets, which are acquired by the Company and which have finite useful lives, are stated at cost less accumulated amortization and impairment losses.
Amortization of intangible assets with finite useful lives is charged to profit or loss on a reducing balance basis over the estimated useful lives of the intangible assets, which is estimated at 5-7 years for software, rights and others.

Intangible asset with an indefinite useful life are not amortized, instead they are tested for impairment by comparing its recoverable amount with its carrying amount annually, and whenever there is an indication that the intangible asset may be impaired.
3.5 Leased assets In accordance with IAS 17 Leases, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset.

The related asset is then recognized at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any.
A corresponding amount is recognized as an obligation under finance lease, irrespective of whether some of these lease payments are payable up-front at the date of inception of the lease.

Subsequent accounting for assets held under finance lease agreements, i.e.

depreciation methods and useful lives, correspond to those applied to comparable assets which are legally owned by the Company.
The corresponding obligation under finance lease is reduced by lease payments less finance charges, which are expensed to finance costs.

The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss over the period of the lease.

All other leases are treated as operating leases.

Payments on operating lease agreements are recognized as an expense on a reducing balance basis.
Associated costs, such as maintenance and insurance, are expensed as incurred.

3.6 Inventories Inventories are assets held for sale in the ordinary course of business or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Items such as spare parts, stand-by equipment and servicing equipment are also recognized as inventories unless they meet the definition of property and equipment.
Inventories are stated at the lower of cost and net realizable value.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The cost of inventories is based on the first-in first out (FIFO)-method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.
3.7 Financial instruments Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognized when the Company becomes a part to the contractual provisions of the financial instrument.

Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.
Financial liabilities are derecognized when they are extinguished, discharged, cancelled or expire.

Financial assets and financial liabilities are measured initially at fair value plus transaction costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value.
Nikora 7 LLC Financial statements 31 December 2017 17 Classification and subsequent measurement of financial assets For the purpose of subsequent measurement financial assets are divided into the following categories upon initial recognition: loans and receivables financial assets at fair value through profit or loss available-for-sale financial assets held-to-maturity investments.
Financial assets are assigned to different categories on initial recognition, depending on the characteristics of the instrument and its purpose.

A financial instrument's category is relevant for the way it is measured and whether any resulting income and expenses are recognized in profit or loss or in other comprehensive income Refer to note 18 for a summary of the Company’s financial assets by category.

Generally, the Company recognizes all financial assets using settlement date accounting.
An assessment of whether a financial asset is impaired is made at least at each reporting date.

All income and expenses relating to financial assets that are recognized in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other non-operating expenses.
i Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include trade and other receivables as well as cash and bank balances.

Trade and other receivables Current accounts receivable are initially recognized at fair value.

Subsequently they are measured at amortized cost less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables.

Significant financial difficulties of the debtor and default and delinquency in payments are considered indicators that the trade receivable is impaired.
The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.

The balance of the allowance is adjusted by recording a charge or income to profit or loss of the reporting period.

Any amount written-off with respect to customer account balances is charged against the existing allowance for doubtful accounts.
All accounts receivable for which collection is not considered probable are written-off.

Cash and bank balances The Company’s cash and bank balances comprise cash in hand, bank accounts and cash in transit ii Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or are designated by the entity to be carried at fair value through profit or loss upon initial recognition.
By definition, all derivative financial instruments that do not qualify for hedge accounting fall into this category.

Any gain or loss arising from derivative financial instruments is based on changes in fair value, which is determined by direct reference to active market transactions or using a valuation technique where no active market exists.

Classification and subsequent measurement of financial liabilities The Company's financial liabilities include loans and borrowings and trade and other payables.
A summary of the Company's financial liabilities by category is given in note 18.

Nikora 7 LLC Financial statements 31 December 2017 18 i Loans and borrowings Loans and borrowings are recognized initially at fair value, net of issuance costs associated with the borrowing.

The difference between fair value and nominal value is recognized in profit or loss, except when the borrowing was received from the owners.
In this instance the difference between fair value and nominal value is recognized in equity as additional capital.

Subsequent to initial recognition, loans and borrowings are stated at amortized cost with any difference between cost and redemption value recognized in profit or loss over the period of the borrowings on an effective interest basis.
Interest and other costs incurred in connection with borrowings are expensed as incurred as part of finance expenses, except for the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, which are capitalized as part of that asset.

ii Trade and other payables Trade and other payables are stated at fair value and subsequently stated at amortized cost.
3.8 Impairment For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units).

As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

Impairment of property, plant and equipment and intangible assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment.
Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.

Recoverable amount is the higher of net selling price and value in use.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.

Impairment losses are recognized as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss recognized for the asset or cash-generating unit in prior years.
A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount, in which case any reversal of impairment loss is treated as a revaluation increase.

Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each reporting date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account.
With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
In respect of available-for-sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity.

Nikora 7 LLC Financial statements 31 December 2017 19 3.9 Equity The amount of Company’s charter capital is defined by the Company’s Charter.

The changes in the Company’s Charter (including changes in charter capital, ownership, etc.)

shall be made only based on the decision of the Company’s owners.
The authorized capital is recognized as charter capital in the equity of the Company to the extent that it was actually contributed by the owners to the Company.

Accumulated profit/(loss) includes all current and prior periods’ profits and losses.

Dividends are recognized as a liability in the period in which they are declared.

Revaluation reserve comprises gains and losses from the revaluation of land and buildings.
3.10 Provisions A provision is recognized in the statement of financial position when the Company has a legal or constructive obligation as a result of past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
3.11 Income tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary differences.

Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.
Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Changes in corporate income tax effective from 1 January 2017 Effective 1 January 2017, there are significant amendments to the Tax Code of Georgia.

Most significant changes relate to introduction of new model for corporate income taxation.
Nikora 7 LLC Financial statements 31 December 2017 20 The new model 2017, implies zero corporate tax rate on retained earnings and a 15% corporate tax rate on distributed earnings, compared to the previous model of 15% tax rate charged to the company’s profit before tax, regardless of profit retention or distribution.
As a result of changes, starting 1 January 2017 companies pays corporate income tax on profit distribution (dividends) and on individual transactions that may be considered as indirect distribution of profits (benefits, gifts, payments and expenses not related to economic activities, etc).

In the case of profit distribution, the tax rate is 15/85.
According to the amended concept of corporate income taxation, there is no temporary differences between the carrying amounts of assets and liabilities in the statement of financial position and their tax bases.

Therefore, deferred tax assets and liabilities, as defined in IAS 12 Income Taxes, cannot be formed subsequent to 1 January 2017.
3.12 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and rebates allowed by the Company.

Revenue is reduced for estimated customer returns, rebates and other similar allowances.
Sale of goods Revenue from the sale of goods is recognized when all the following conditions are satisfied: the Company has transferred to the buyer the significant risks and rewards of ownership of the goods; the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
3.13 Cash and cash equivalents For the purpose of the statement of cash flows, cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.
The Company classifies investments as a cash equivalent if it is readily convertible to a known amount of cash and is subject to an insignificant risk of changes in value.
Nikora 7 LLC Financial statements 31 December 2017 21 l a t o T 5 2 8 , 8 7 7 0 , 1 ) 4 3 4 ( 8 6 4 , 9 6 4 9 ) 0 8 1 ( 6 8 0 2 3 , 0 1 5 5 8 9 2 6 , 3 ) 6 8 2 ( 8 9 1 , 4 3 5 8 ) 1 5 1 ( ) 2 5 1 ( 8 4 7 , 4 6 9 1 , 5 0 7 2 , 5 2 7 5 , - 8 7 1 ) 8 7 1 ( - 1 - - 1 6 7 1 2 ) 7 9 ( - - - - - - 1 2 0 1 C L L 7 a r o k N i - - - - - - 4 4 4 4 - - - - - - - - - - 4 4 - 5 5 ) 8 ( 7 4 7 3 - - 4 8 0 4 3 ) 8 ( 5 3 0 4 - - 5 7 5 1 2 1 9 9 7 0 , 1 3 8 1 ) 6 9 1 ( 6 6 0 , 1 2 7 2 ) 6 6 1 ( - 2 7 1 , 1 2 2 5 7 0 1 ) 3 4 1 ( 6 8 4 0 4 1 ) 8 3 1 ( - 8 8 4 7 5 5 0 8 5 4 8 6 - - 5 9 4 5 9 4 6 0 1 ) 1 ( - 0 0 6 7 8 2 - 3 7 0 6 3 8 5 ) 1 ( - 7 1 4 8 0 2 5 3 1 3 8 1 3 8 2 6 9 ) 1 ( 8 7 3 5 3 ) 8 ( - 5 0 4 0 2 1 8 2 1 ) 1 ( 7 4 2 9 2 ) 6 ( - 0 7 2 3 6 1 1 3 1 5 3 1 8 9 7 ) 1 5 ( 8 4 3 , 4 5 9 0 , 5 - 3 2 3 ) 5 ( - - 5 1 3 , 2 8 2 1 - 1 7 5 1 3 , 2 3 1 4 , 5 4 1 5 , 2 8 8 4 ) 7 3 ( 4 8 5 , 2 5 3 0 , 3 - 9 6 4 ) 6 ( 8 9 4 , 3 4 6 7 , 1 0 6 0 , 2 5 1 9 , 1 - 5 3 - 5 3 - - 7 1 1 ) 2 5 1 ( 5 1 3 , 2 0 8 2 , 2 4 1 5 , 2 - - 2 7 2 7 - - 5 1 7 8 - - - - - - - - ) d e t i d u a n U ( 6 1 0 2 r e b m e c e D 1 3 f o s a ) d e t i d u a n U ( 7 1 0 2 r e b m e c e D 1 3 f o s a ) d e t i d u A ( t n u o m a i g n y r r a C ) s g n d i l i u b & d n a l l d e u a v e r ( u
, y t r e p o r P l 4 Property, plant and equipment of the Company at the carrying amount of lari 5,572 thousand have been pledged as a security for loans and borrowings as of 31 December 2017 (31 December 2016: Georgian lari 5,270 thousand).
Land and buildings are stated at revaluated amounts.

Revalued amounts are fair values based on appraisals conducted by external professional valuators once every two years or more frequently if market factors indicate a material change in fair values.

The Company’s land and buildings were last revalued as of 31 December 2017 by independent valuators.

Valuations were made using the sales comparison, the cost and the income capitalization approaches.
Depreciation expense Georgian lari 433 thousand (31 December 2016: Georgian lari 420 thousand) has been charged to cost of goods sold (refer to note 12).
5 Intangible assets In thousands of Georgian lari Software Other IA Rights Total Cost as of 1 January 2016 Additions Disposals as of 31 December 2016 Additions Disposals as of 31 December 2017 Accumulated amortization as of 1 January 2016 Charge for the year Eliminated on disposal as of 31 December 2016 Charge for the year Eliminated on disposal as of 31 December 2017 Carrying amount as of January 1, 2016 (Unaudited) as of December 31, 2016 (Unaudited) as of December 31, 2017 (Audited) 14 5 - 19 119 - 138 7 1 - 8 26 - 34 7 11 104 - - - - - - - - - - - 166 - 166 - - - - - - - - - - - 1 - 1 - - - - - 165 14 5 - 19 285 - 304 7 1 - 8 27 - 35 7 11 269 Nikora 7 LLC Financial statements 31 December 2017 23 6 Inventories In thousands of Georgian lari Raw materials Finished goods Work-in-progress Other Inventories As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) As of 31 December 2015 (Unaudited) 779 255 8 402 1,444 611 398 3 2 1,014 526 210 2 69 807 All of the inventories have been pledged as a security for loans and borrowings from banks as of 31 December 2017.
7 Trade and other receivables In thousands of Georgian lari Trade receivables Other receivables Allowances for doubtful trade receivables Net trade receivables As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) As of 31 December 2015 (Unaudited) 1,358 59 1,417 - 1,417 877 6,614 - - 877 - 877 6,614 - 6,614 All amounts are short-term.

The net carrying value of trade receivables is considered a reasonable approximation of fair value.
Trade receivables are generally settled on 30-90 days terms.

No interest is charged on the trade receivables.

No trade and other receivables were overdue beyond 365 days.

The Company’s management has not created allowance for trade and other receivables as there was no indication of impairment loss on events that could cast a doubt the collectability of trade and other receivables.

Refer to note 19 for the currencies in which the trade and other receivables are denominated.
8 Cash and bank balances In thousands of Georgian lari Bank accounts Cash in hand As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) As of 31 December 2015 (Unaudited) 160 5 165 63 21 84 128 11 139 Refer to note 19 for the currencies in which the cash and bank balances are denominated.

Nikora 7 LLC Financial statements 31 December 2017 24 9 Capital and reserves 9.1 Charter capital The Company’s charter capital as of 31 December 2017 amounted Georgian lari 700 thousand.
In 2016 the Company’s charter capital was nil.

9.2 Dividends In 2017 dividends amounting to Georgian lari 2,511 thousand have been paid to 100% owner of the Company JSC Nikora (2016: Georgian lari 1,650 thousand).

9.3 Revaluation reserve The revaluation reserve arises on the revaluation of land and buildings.

Most recent revaluation was performed at 31 December 2017.
10 Loans and borrowings In thousands of Georgian lari As of 31 December 2017 (Audited) - 346 346 Current As of 31 December 2016 (Unaudited) - 1,517 1,517 Non-current As of 31 December 2015 (Unaudited) As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) As of 31 December 2015 (Unaudited) - 1,191 1,905 1,905 - 1,191 - - - 5,503 - 5,503 Borrowings Overdraft The Company’s non-current borrowing is from the parent company Nikora JSC with the maturity date 28 June 2019 and an annual interest rate of 9%.
Refer to note 19 for more information about the Company’s exposure to interest rate and foreign currency risks.
11 Trade and other payables In thousands of Georgian lari Trade payables Payables to employees Tax payables As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) As of 31 December 2015 (Unaudited) 2,267 31 18 974 13 65 2,316 1,052 751 12 4 767 Nikora 7 LLC Financial statements 31 December 2017 25 12 Cost of sales In thousands of Georgian lari Direct materials Resale of goods Employee compensations Utilities Depreciation Additional materials Repair and maintenance Transportation Other Year ended 31 December 2017 (Audited) Year ended 31 December 2016 (Unaudited) 10,454 8,278 998 494 433 186 2 - 137 20,982 14,805 8,031 519 326 420 36 25 3 94 24,259 13 Distribution and marketing expenses The Distribution and marketing expenses include fuel expense, transportation service expense, advertisement expense and other related expenses.
In thousands of Georgian lari Marketing expenses Distribution Depreciation expenses Salary expenses Rent expenses 14 Administrative expenses In thousands of Georgian lari Employee compensation Depreciation & amortization Maintenance Office expenses Packing expenses Consultation and professional service Loss on write off of inventory Utility expenses Year ended 31 December 2017 (Audited) Year ended 31 December 2016 (Unaudited) 2,055 427 58 49 17 2,606 174 341 98 32 - 645 Year ended 31 December 2017 (Audited) Year ended 31 December 2016 (Unaudited) 2,196 389 162 62 49 45 23 19 2,303 338 355 57 76 54 19 58 2,945 3,260 Nikora 7 LLC Financial statements 31 December 2017 26 15 Other financial items In thousands of Georgian lari Loss from exchange differences on: Cash and receivables Financial liabilities measured at amortized cost 16 Income tax expense/(recovery) In thousands of Georgian lari Current tax Deferred tax Reconciliation of effective tax rate for 2017 is as follows: In thousands of Georgian lari Dividends declared Tax calculated at tax rate of 15/85 Tax credit for income tax paid on undistributed earnings prior to 1 January 2017 Income tax on non-deductible transactions Income tax expense/(recovery) Reconciliation of effective tax rate for 2016 is as follows: In thousands of Georgian lari Profit/(loss) before taxation (under IFRS) Tax calculated at tax rate of 15% (2016: 15%) (Non-taxable)/non-deductible items, net Income tax expense/(recovery) Year ended 31 December 2017 (Audited) Year ended 31 December 2016 (Unaudited) 8 66 74 2 100 102 Year ended 31 December 2017 Year ended 31 December 2016 136 - 136 595 (205) 390 Year ended 31 December 2017 Effective tax rate (%) 2,511 443 (355) 48 136 17.65 14.14 1.92 5.43 Year ended 31 December 2016 Effective tax rate (%) 2,724 409 (19) 390 15.00 0.67 14.33 17 Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to
 be reasonable under the circumstances.
Nikora 7 LLC Financial statements 31 December 2017 27 17.1 Critical accounting estimates The Company makes estimates and assumptions concerning the future.

The resulting accounting estimates may be different from the related actual results.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Useful lives of property and equipment Management has estimated useful lives of the property, plant and equipment.

Management believes that estimated useful lives of the property, plant and equipment are not materially different from economic lives of those assets.

If actual useful lives of property, plant and equipment are different from estimations, financial statements may be materially different.
Fair values of property and equipment accounted for using the revaluation model Land and buildings of the Company are stated at fair value.

Fair value of these classes of property, plant and equipment was approximated based on valuation report of professional independent valuators who performed valuation of these assets.

Valuation itself requires use of estimates and assumptions.

Thus the actual fair value of the Company's PP&E may differ from the amount disclosed in these financial statements.
Bad debts The Company estimates collectability of trade receivables based on its experience and future expectations.

Actual collectability rates of receivables may differ from management’s current assessment.

Market interest rate Management has estimated market interest rates which are used to evaluate fair value of Company’s financial instruments.

Changes in market interest rates may affect reported amounts of financial liabilities and finance costs.
17.2 Key assumptions concerning the future Management strongly believes that gross profit margin will continue to increase and reach to the certain point.

This assumption is based on the strong market position of the Company.
18 Financial instruments 18.1 Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3.
Nikora 7 LLC Financial statements 31 December 2017 28 18.2 Categories of financial instruments The carrying amounts presented in the statement of financial position relate to the following categories of assets and liabilities: Financial assets In thousands of Georgian lari Loans and receivables: Trade and other receivables Cash and bank balances Financial liabilities In thousands of Georgian lari Financial liabilities measured at amortized cost: Loans and borrowings Trade and other payables As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) 1,417 165 1,582 877 84 961 As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) 1,537 2,298 3,835 1,517 987 2,504 19 Financial risk management The Company is exposed to various risks in relation to financial instruments.
The main types of risks are market risk, credit risk and liquidity risk.

The Company does not actively engage in the trading of financial assets for speculative purposes nor does it write options.

The most significant financial risks to which the Company is exposed are described below.
Financial risk factors a) Market risk The Company is exposed to market risk through its use of financial instruments and specifically to currency risk and interest rate risk which result from both its operating and investing activities.

Foreign currency risk The Company undertakes certain transactions denominated in foreign currencies.

Hence, exposures to exchange rate fluctuations arise.
Nikora 7 LLC Financial statements 31 December 2017 29 Most of the Company’s trade transactions are carried out in Georgian lari.

Exposures to currency exchange rates risk mainly arise from the Company’s loans which are denominated in foreign currencies.

Foreign currency denominated financial assets and liabilities which expose the Company to currency risk are disclosed below.
The amounts shown are those reported to key management translated into Georgian lari at the closing rate: Item As of 31 December 2017 (Audited) US dollar Euro Other Financial assets Trade and other receivable - - Cash and cash equivalents - - Total financial assets - - Financial liabilities Loans and borrowings 1,191 - Trade and other payables - 12 Total financial liabilities 1,191 12 Net position (1,191) (12) - - - - - - - Item As of 31 December 2016 (Unaudited) US dollar Euro Other Financial assets Cash and cash equivalents - - Total financial assets - - Financial liabilities Loans and borrowings Bonds - 1,177 - - Trade and other payables - - Total financial liabilities - 1,177 Net position - (1,177) - - - - - - - The following table details the Company’s sensitivity to a 10% (2016: 10%) increase and decrease in Georgian lari against US dollar.
10% (2016: 10%) represents management’s assessment of the possible change in foreign exchange rates.

The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% (2016: 10%) change in foreign currency rates.
If Georgian lari had strengthened against US dollar by 10% (2016: 10%) then this would have had the following impact: Nikora 7 LLC Financial statements 31 December 2017 30 In thousands of Georgian lari Profit or loss US dollar impact Euro impact 2017 119 119 2016 - - 2017 118 118 2016 118 118 Exposures to foreign exchange rates vary during the year depending on the volume of foreign currency transactions and balances.
Nonetheless, the analysis above is considered to be representative of the Company’s exposure to currency risk.

Interest rate risk As of 31 December 2017 the Company’s obligations are at fixed interest rates.
The following table reconciles the average contract and effective interest rates: 2017 (Audited) Liabilities Loans and borrowings US dollar 2016 (Unaudited) Liabilities Loans and borrowings EURO a) Credit risk Average interest rate Contract Effective 9% 9% Average interest rate Contract Effective 8% 9% Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company.
The effect of this risk for the Company arises from different financial instruments, such as accounts receivable.
The maximum exposure to credit risk is represented by the carrying amounts of the following financial instruments: In thousands of Georgian lari Financial assets at carrying amounts Accounts receivable Bank balances As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) 1,417 160 1,577 877 63 940 At the reporting date there was no significant concentration of credit risk in respect of trade and other receivables.
The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks.

Nikora 7 LLC Financial statements 31 December 2017 31 b) Liquidity risk Liquidity risk is the risk that the Company will be unable to meet its obligations.
The Company’s policy is to run a prudent liquidity management policy by means of holding sufficient cash and bank balances, as well as highly liquid assets for making all operational and debt service related payments when those become due.

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods.
The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay.

The table includes both interest and principal cash flows.
9% 53 Total 2,351 433 1,243 2017 (Audited) Weighted average effective interest rate (%) Non- interest bearing Variable interest rate instruments Fixed interest rate instruments Less than 6 months 2,298 - 6 months to 1 year - - 433 1-5 years - - 1,243 More than 5 years - - - - 2,298 - 1,729 4,027 2016 (Unaudited) Weighted average effective interest rate (%) Non- interest bearing Variable interest rate instruments Fixed interest rate instruments Total 9% Less than 6 months 987 - 1,581 2,568 6 months to 1 year - - - - 1-5 years - - - - More than 5 years - - - - 987 - 1,581 2,568 The Company considers expected cash flows from financial assets in assessing and managing liquidity risk, particularly its cash resources and trade receivables.
20 Fair value measurement The Company provides an analysis of its assets and liabilities that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
These Levels are described below: Level 1 - fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e.

as prices) or indirectly (i.e.


derived from prices); and Level 3 - fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Nikora 7 LLC Financial statements 31 December 2017 32 20.1 Fair value measurement of financial instruments The Company has no financial assets or financial liabilities measured at fair value on a recurring basis as of 31 December 2017 and 31 December 2016.

Fair values of financial instruments measured at amortized cost approximate their fair values.

20.2 Fair value measurement of non-financial assets The land and buildings of the Company are stated at revalued amount.
The estimated fair values of the land and buildings are categorized within Level 3 of the fair value hierarchy.

The fair values of those assets are estimated based on appraisals performed by independent, professionally-qualified property valuators who hold necessary licenses.

The significant inputs and assumptions are developed in close consultation with management.

Further information is set out below.


Assets measured at fair value Land Buildings Date of valuation 31 December 2017 31 December 2017 Total 87 2,514 Quoted prices in active market (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) - - - - 87 2,514 The appraisal was carried out using market approach.

The valuation was performed as at 31 December 2017.
The market approach reflects observed prices for recent market transactions for similar properties and incorporates adjustments for factors specific to the land in question, including plot size, location, encumbrances and purpose of use.

The significant unobservable input is the adjustment for factors specific to the land or property in question.
The extent and direction of this adjustment depends on the number and characteristics of the observable market transactions in similar properties that are used as the starting point for valuation.

Although this input is subjective judgment, management considers that the overall valuation would not be materially affected by reasonably possible alternative assumptions.
21 Capital risk management The Company manages its capital to ensure that it will be able to continue as a going concern and provide adequate return to stakeholders.

The capital structure of the Company consists of equity comprising charter capital and accumulated profits and debt, which includes borrowings disclosed in note 10.

Management assesses the Company’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage.
This takes into account the subordination levels of the Company’s various classes of debt.

The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
Nikora 7 LLC Financial statements 31 December 2017 33 The amounts managed as capital by the Company for the reporting periods are summarized as follows: In thousands of Georgian lari Total equity Less: cash and bank balances Capital Total equity Borrowings Overall financing As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) 5,129 (165) 4,964 5,129 1,537 6,666 4,904 (84) 4,820 4,904 1,517 6,421 Capital to overall financing ratio 0.74 0.75 22 Contingencies 22.1 Business environment Georgia continues to undergo political and economic changes.
As an emerging market, Georgia does not possess a developed business and regulatory infrastructure that generally exists in a more mature free market economy.

In addition, economic conditions continue to limit the volume of activity in the financial markets, which may not be reflective of the values for financial instruments.
The main obstacle to further economic development is a low level of economic and institutional development, along with a centralized economic base, regional instability and international economic crisis.

Deterioration of economic situation of countries collaborating with Georgia led to the shortage of money transfers from abroad, upon which the economy of Georgia is significantly dependent.

Further depreciation of the national currency leads to increase of prices on imported goods.
There are uncertainties over attraction of significant volumes of direct capital investments.

These and other circumstances may lead to deterioration of situation in the Georgian economy and of the Company.

However, as there are a number of variables and assumptions involved in these uncertainties, management cannot make a reliable estimate of the amounts by which the carrying amounts of assets and liabilities of the Company may be affected.
Management of the Company believes that in the current conditions appropriate measures are implemented in order to ensure economic stability of the Company.

22.2 Insurance The Georgian insurance industry is in its development stage and many forms of insurance protection common in other parts of the world are not yet generally available in Georgia.
The Company does not have full coverage for its facilities, business interruption, or third party liability in respect of property or environmental damage relating to the Company operations.

Until the Company obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a materially adverse effect on the Company’s operations and financial position.
22.3 Taxes The taxation system in Georgia is relatively new and is characterized by frequently changing legislation, which is often subject to interpretation.

Often differing interpretations exist among various taxation authorities and jurisdictions.

Taxes are subject to review and investigations by tax authorities, which are enabled by law to impose severe fines and penalties.

These facts may create tax risks in Georgia substantially more than in other developed countries.
Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation.

However, the relevant authorities may have differing interpretations and the effects could be significant.

Nikora 7 LLC Financial statements 31 December 2017 34 22.4 Environmental matters Environmental legislation in Georgia is in process of development and there may be some changes in the legislation which may be relevant for the Company’s operations.
However, the management is of the opinion that the Company has met the Government’s requirements concerning environmental matters and believes that the Company does not have any current material environmental liabilities and it is not expected that material environmental liabilities will arise in the future periods.
23 Reconciliation of liabilities arising from financing activities The changes in the Company’s liabilities arising from financing activities can be classified as follows: In thousands of Georgian lari Long-term borrowings Short-term borrowings as of 1 January 2017 (Unaudited) - 1,517 Total 1,517 Cash-flows Proceeds Repayment of principal and interest Non-cash Interest accrued Foreign exchange (gain)/loss as of 31 December 2017 (Audited) 24 Related parties 1,128 11,386 12,514 - - 63 1,191 (12,716) (12,716) 159 - 346 159 63 1,537 The Company's related parties include its parent and entities under common control and key management.
24.1 Control relationships The Company is controlled by Nikora JSC, who owns 100% of the Company’s capital.

24.2 Transactions with related parties During the reporting year the Company had the following transactions with the related parties and as of the reporting date had the following outstanding balances.
In thousands of Georgian lari Transactions Entities under common control Sale of goods Acquisition of goods and raw materials Acquisition of services Proceeds from borrowings Provision of services Acquisition of PPE Year ended 31 December 2017 (Audited) Year ended 31 December 2016 (Unaudited) 13,841 14,800 1,863 1,103 173 22 11,557 16,563 578 1,650 39 - Nikora 7 LLC Financial statements 31 December 2017 35 In thousands of Georgian lari Outstanding balances Entities under common control Trade and other receivables Borrowings received Trade and other payables As of 31 December 2017 (Audited) As of 31 December 2016 (Unaudited) As of 31 December 2016 (Unaudited) 859 (1,191) (1,327) (1,659) 312 - (975) (663) 6,110 (5,503) (556) 51 24.3 Transactions with management and close family members Key management received the following remuneration during the year, which is included in employee compensation.
In thousands of Georgian lari Salaries and bonuses Year ended 31 December 2017 Year ended 31 December 2016 133 133 120 120 Nikora 7 LLC Financial statements 31 December 2017 36