Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697753136261.pdf (Georgia)
GEORGIAN INDUSTRIAL GROUP HOLDING LLC Special Purpose Separate Financial Information Together with the Auditor’s Report Year ended 31 December 2017 GEORGIAN INDUSTRIAL GROUP HOLDING LLC SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 Contents: INDEPENDENT AUDITOR’S REPORT ...................................................................................... 3 SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION SPECIAL PURPOSE SEPARATE STATEMENT OF FINANCIAL POSITION ............................................... 5 SPECIAL PURPOSE SEPARATE STATEMENT OF COMPREHENSIVE INCOME ......................................... 6 SPECIAL PURPOSE SEPARATE STATEMENT OF CASH FLOWS ........................................................ 7 SPECIAL PURPOSE SEPARATE STATEMENT OF CHANGES IN EQUITY ............................................... 8 NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION 1.
General information................................................................................................. 9 2.

Basis of preparation ................................................................................................ 10 3.

Summary of significant accounting policies .................................................................... 12 4.
Critical accounting estimates and judgments ................................................................. 18 Investment in associates .......................................................................................... 18 5.

Investment in subsidiaries ........................................................................................ 19 6.

7.

Loans issued ......................................................................................................... 20 8.
Trade and other receivables ...................................................................................... 21 9.

Borrowings ........................................................................................................... 22 10.

Trade and other payables ......................................................................................... 22 11.

General and administrative expenses ........................................................................... 23 12.
Other operating expenses ......................................................................................... 23 13.

Finance income ..................................................................................................... 23 14.

Finance costs ........................................................................................................ 23 15.

Income tax expenses ............................................................................................... 23 16.
Changes in Company ownership .................................................................................. 24 17.

Financial instruments – Risk managment ....................................................................... 24 18.

Transactions with related parties ............................................................................... 28 19.

Commitments and contingencies ................................................................................ 29 20.
Post balance sheet events ........................................................................................ 29 Page 2 of 29 r'l t t t I t II II I I I I rl I I I I t I oqsl sr 8s rgz zt q66* :-t 88 tg 8lZ Zt 966* r-I eS opqoopq O aS opq |^,\^r,i @ 'r15 |]r^qslurl)1lef z allual ssaursn€ a.raA !sIlql6/l-0 P!3roag r.uod3u s.uoll0nv rNl0NldS0Nl )'11 gNtO'lOH dnOUg "lVlUlSnONl NYlgUOlg ro srolrarlP Jo prPoq Pue sraploqarPqs 01 :(f'11 gNlo'loH 919) uoluldO Jo uolleuroJur ler)uputJ ale:edas asodtnd 1e1:ads 6ut,(ueduo::e aql psltpnP a^eq al asudruor Llrrq,\ '(,,^uedurof ,, aql lsueulaleq) f'l"l 9Nl01OH dnOU9 ]YlUlSnoNl NVl9UOl9 ateledss aql puP /!02 laqula)ac !t lP se uolllsod )e!
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aq aJD 6Z-6 sa6od uo saloN 6Z lo s e8ed GEORGIAN INDUSTRIAL GROUP HOLDING LLC SPECIAL PURPOSE SEPARATE STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2017 (Thousands of Georgian Lari) Dividend income General and administrative expenses Other operating income and expenses Operating profit Finance income Finance costs Loss before income tax Income tax expenses Total comprehensive loss for the year Note 2017 11 12 13 14 4,630 (475) (2,496) 1,659 2,683 (20,183) (15,841) - (15,841) Notes on pages 9-29 are the integral part of these special purpose financial information.
Page 6 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC SPECIAL PURPOSE SEPARATE STATEMENT OF CASH FLOWS For the year ended 31 December 2017 (Thousands of Georgian Lari) Note 2017 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers Cash paid to employees Dividend Received Cash used in operations Interest paid Taxes paid Net cash used in operating activities Cash flows from investing activities Increase of investment in subsidiary Repayment of loans issued Interest received Purchase of intangible assets Net cash from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Net cash used in financing activities Net decrease in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 9 6 9 9 Notes on pages 9-29 are the integral part of these special purpose financial information.
404 (419) (6) 5,022 5,001 (1,669) (11) 3,321 (3,644) 4 600 (12) (3,052) 986 (1,592) (606) (337) (1) 343 5 Page 7 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC SPECIAL PURPOSE SEPARATE STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2017 (Thousands of Georgian Lari) Note Charter capital Accumulated loss Other reserves Total 01.01.2017 Gain on disposal of subsidiary Contribution from parent Total comprehensive loss for the year 31.12.2017 3,916 (147,572) 47,921 (95,735) 16 16 - 22,319 6,206 - - (15,841) - - - 6,206 22,319 (15,841) 26,235 (157,207) 47,921 (83,051) Notes on pages 9-29 are the integral part of these special purpose financial information.
Page 8 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 1.

General information GEORGIAN INDUSTRIAL GROUP HOLDING LLC (the “Company”) was founded on 28 March 2006 in accordance with the requirements of Georgian legislation.

100% interest holder of the Company is Chemexim international and the Company is ultimately controlled by Mr. Davit Bezhuashvili.
The Company has been set up as a limited liability company in accordance with Georgian regulation.

The Company is a parent of a group of companies incorporated in Georgia, whose primary business activities include: generation and trading of electricity, retail and wholesale of natural gas, coal mining, development and disposal of investment properties.

The Company is located at: N18 Gazapkhuli str.

Vake-Saburtalo District, City Tbilisi, Georgia.

The Company made reorganization in 2016.


Only Companies provided below remained as a subsidiaries and associates of the Company.

The main purpose of the Group for the reorganization was to maintain the only principal activities mentioned in the table below.
Subsidiaries and investments in associates of the Company are presented as follow: Name LLC Georgian Industrial Group LLC Georgian International Energy Corporation (LLC GIEC) LTD Saknakhshiri LLC Mtkvary Energy JSC Georgian Beer Company LLC M Power LLC European School 31.12.2017 Ownership/ voting % 100.00% 01.01.2017 Ownership/ voting % 100.00% Year of acquisition/ establishment 2012 100.00% 100.00% 100.00% 100.00% 24.11% - - 100.00% 51.00% 24.11% 100.00% 100.00% 2005 2006 1999 2011 2016 2006 Industry Managing HPP/TPP electricity generation and trading Coal mine Electricity generation Brewery Electricity generation Education Page 9 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 2.
Basis of preparation Statement of compliance This special purpose separate financial information has been prepared in order to assist the Company in adoption of International Financial Reporting Standard (“IFRS”) as at 31 December 2018.

Special purpose consolidated financial information has been issued on 4 July 2018.
In preparing this special purpose separate financial information management has used its best knowledge of the expected standards and interpretations, facts and circumstances and accounting policies that will be applied when the Company prepares its full set of IFRS separate financial statements as at 31 December 2018.
Because the Company is adopting IFRS in the next financial year no prior period comparative figures are presented in the accompanying special purpose separate statement of comprehensive income, separate cash flows and changes in equity and respective separate notes of these special purpose separate financial information.

Accordingly, this special purpose separate financial information is not considered to present a complete set of separate financial statements of the Company.
This special purpose separate financial information was prepared based on classification, recognition, and measurement principles of International Financial Reporting Standards (IFRS) as described in Note 3.

The financial information is prepared to inform the Company and to comply with the statutory requirements.

As a result, the statements may not be suitable for another purpose.
This special purpose separate financial information includes the special purpose separate statement of financial position as at 31 December 2017 and 1 January 2017, and the separate statement of comprehensive income, the separate statement of changes in equity, the separate statement of cash flows for the years ended 2017 and notes to the special purpose separate financial information.

The reporting period for the Company is the calendar year from 1 January to 31 December.
Until transition date the Company made accounting in accordance with local GAAP.

Conversion to International Financial Reporting Standards has not resulted in adjustments of opening balances.

The special purpose separate financial information has been prepared on the historical cost basis.
Basis of measurement The special purpose separate financial information has been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies in Note 3.
Amendments to IFRSs affecting amounts reported in the financial information a) New standards, interpretations and amendments effective from 1 January 2017 None of the new standards, interpretations and amendments, effective for the first time from 1 January 2017, have had a material effect on the separate financial information, although an amendment to IAS 7 Statement of Cash Flows has resulted in a reconciliation of liabilities disclosed for the first time in Note 9. b) New standards, interpretations and amendments not yet effective Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2017, and which the Company has not early adopted.
This listing of standards and interpretations issued, which the Company reasonably expects to be applicable at a future date, therefore intends to adopt those standards when they become effective: Page 10 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 2.

Basis of preparation (continued) IFRS 15 Revenue from Contracts with Customers.
In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

Specifically, the standard provides a single, principles based five-step model to be applied to all contracts with customers.
The five steps in the model are as follows: • Identify the contract with the customer; • Identify the performance obligations in the contract; • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contracts; • Recognise revenue when (or as) the entity satisfies a performance obligation.

Under IFRS 15, an entity recognises revenue when or as a performance obligation is satisfied, i.e.
when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.

The Company is currently assessing the possible impact of the new standard on its financial statements.
IFRS 9 “Financial Instruments: Classification and Measurement” (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018) Key features of the new standard are: • Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).
• Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI).

If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement.

Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI.
Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives).

Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.

• Investments in equity instruments are always measured at fair value.

However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading.
If the equity instrument is held for trading, changes in fair value are presented in profit or loss.

• Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9.

The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.
• IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model.

There is a ‘three stages’ approach which is based on the change in credit quality of financial assets since initial recognition.

In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables).
Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL.

The model includes operational simplifications for lease and trade receivables.

Page 11 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 2.
Basis of preparation (continued) • Hedge accounting requirements were amended to align accounting more closely with risk management.

The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.

The Company is currently assessing the possible impact of the new standard on its financial statements.

IFRS 16 Leases.
IFRS 16 Leases.

In January 2016 the IASB issued IFRS 16.

IFRS 16 supersedes 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.

The accounting requirements for lessors have largely been carried forward unchanged from IAS 17.

This means that a lessor continues to classify leases as operating or finance.
The major changes are for lessees, with IFRS 16 setting out a single model for lessees which eliminates the distinction between operating and finance leases, and results in the statement of financial position reflecting a ‘right of use’ asset and a corresponding liability for most lease contracts.

The asset is subsequently accounted for as property and equipment or investment property and the liability is unwound using the interest rate implicit in the lease.
However, entities have an option not to bring onto the statement of financial position short term leases (i.e.

those with a term of 12 months or less) and leases of low value items.

As a result, a key question changes from whether a lease is an operating or a finance lease under current guidance, to whether an arrangement gives rise to something that meets the definition of a lease.
The scope of IFRS 16 is wide, and some arrangements involving the use of assets that might be viewed as service contracts (which are executory and not recorded in the statement of financial position) may in fact result in a lease within the scope of IFRS 16.

Significant changes to systems and processes may be required to comply with the new requirements.

In the income statement, the application of IFRS 16 will result in a depreciation charge (within operating expenses) and an interest expense.
Assuming depreciation is charged on a straight-line basis, the total expense will be higher in the first part of a lease in comparison with later periods, because the lease liability and related interest expense will be higher.

The Company is currently assessing the possible impact of the new standard on its financial statements.

Principal accounting policies applied in the preparation of these financial information are set out below.
These policies have been consistently applied to all the periods presented, unless otherwise stated.

3.

Summary of significant accounting policies Foreign currency translation The functional currency of the Company is the currency of the primary economic environment in which the entity operates.

The Company’s functional currency and the Company’s presentation currency is the national currency of Georgia, Lari.
Monetary assets and liabilities are translated into functional currency at the official exchange rate for the respective balance sheet dates.

Foreign exchange gains and losses resulting from the settlement of transactions and from the translation of monetary assets and liabilities at year-end official exchange rates are recognised in profit or loss.

Translation at year-end rates does not apply to non-monetary items.
At 31 December 2017 and 1 January 2017, the closing rates of exchange used for translating foreign currency balances was: Exchange rate as at 31.12.2017 Exchange rate as at 01.01.2017 Official rate of the National Bank of Georgia USD 2.5922 2.6468 EUR 3.1044 2.7940 Page 12 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 3.
Summary of significant accounting policies (Continued) Financial Instruments (a) Financial assets Financial assets in the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, or available for sale financial assets.

The Company determines the classification of its financial assets upon initial recognition.

(a) Fair value through profit or loss This category comprises only in-the-money derivatives.
They are carried in the statement of financial position at fair value with changes in fair value recognised in the statement of comprehensive income in the finance income or expense line other than derivative financial instruments which are not designated as hedging instruments, the Company does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.
(b) Held to maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the Company has positive intention and ability to hold them upon maturity.

The Company does not have any assets as being classified held to maturity.

(c) Loans and receivables These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
(d) Available-for-sale Non-derivative financial assets not included in the above categories are classified as available for sale and comprise principally the Company's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities as well as corporate bonds.
They are carried at fair value with changes in fair value generally recognised in other comprehensive income and accumulated in the available-for-sale reserve; Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognised in other comprehensive income, is recognised in profit or loss.
Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve.

On sale, the cumulative gain or loss recognised in other comprehensive income is reclassified from the available-for-sale reserve to profit or loss.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Fair value is the current bid price for financial assets and current asking price for financial liabilities which are quoted in an active market.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument.

An incremental cost is one that would not have been incurred if the transaction had not taken place.

Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties.
Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses.
Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method.

Page 13 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 3.
Summary of significant accounting policies (Continued) Accrued interest income and accrued interest expense, are not presented separately and are included in the carrying values of related balance sheet items.
Derecognition of financial assets The Company derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Company has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control.
Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

(b) Financial liabilities Financial liabilities are classified as trade and other payables or borrowings.

Financial liabilities are initially measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Derecognition of financial liabilities The Company derecognises financial liabilities when, and only when, The Company’s obligations are discharged, cancelled or they expire.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability.

The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit and loss.
(c) Offsetting Financial assets and liabilities are offset, and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
(d) IFRS 7 fair value measurement hierarchy IFRS 7 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement.
The fair value hierarchy has the following levels: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); • • 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) (Level 2); and Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within which the financial asset or financial liability is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement.

Financial assets and financial liabilities are classified in their entirety into only one of the three levels.
The Company has no financial assets or liabilities measured at fair value; Management of the Company considers that the carrying amounts of financial assets and financial liabilities recorded in the financial statements approximate their fair values.

Page 14 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 3.
Summary of significant accounting policies (Continued) The fair value of cash and cash equivalents was determined using level 1 measurement, fair values of borrowings were determined using the level 2 and other financial assets and liabilities were determined using level 3 measurement.

Financial assets carried at amortised cost.


The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risks and remaining maturities.

Discount rates used depend on the credit risk of the counterparty.

Liabilities carried at amortised cost.


The estimated fair value of fixed interest rate instruments with stated maturities were estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risks and remaining maturities.

Cash and cash equivalents Cash and cash equivalents include cash on hand, non-restricted cash on current accounts in banks, and non-restricted cash on bank deposits with original maturity of less than 3 months.
Associates Associates are entities over which the Company has significant influence (directly or indirectly), but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights.

Investments in associates are accounted for cost.

Investments in associates are classified as non- current assets and presented as one-line item in the balance sheet.
Investments are tested for impairment in accordance with IAS 36, 'Impairment of assets', as single assets if there are impairment indicators under IAS 28 (as amended by IFRS 9.’Financial instruments’).

Subsidiaries Subsidiaries are entities controlled by the Company.

The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and can affect those returns through its power over the entity.
Investments in subsidiaries are accounted for under the cost method from the date that control commences until the date that control ceases.

Trade and other receivables Trade and other receivables are amounts due from customers for provision of service or delivery of goods in the ordinary course of business.

If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets.

If not, they are presented as non-current assets.


Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.
Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Company will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.
For Trade and other receivable, which are reported net such provisions are recorded in a separate allowance account with the loss being recognised within other expenses in the statement of comprehensive income.

On confirmation that the Trade and other receivables will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Property and equipment Items of property and equipment are initially recognised at cost.
Cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
Page 15 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 3.

Summary of significant accounting policies (Continued) The carrying amount of the replaced part is derecognised.

All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.
Property and equipment are carried at historical cost less accumulated depreciation and recognized impairment loss, if any.

Depreciation is charged on the carrying value of property and equipment and is designed to write off assets over their useful economic lives.

Land is not depreciated.

Other property and equipment is charged depreciation under straight line method according to the useful life on an asset.
Intangible assets The Company’s intangible assets have definite useful lives and primarily include accounting softwares.

Intangible assets acquired separately are reported at cost less accumulated amortization and accumulated impairment losses, if any.

Charging amortization on the Intangible assets starts when such intangible assets is ready to use, i.e.

brought to the place and conditions ready for use.


Once it is ready for intended use, the respective amortization is charged to the whole useful life of an item, if the item is not classified to the category of items held for sale according to IFRS 5 Non-current Asset Held for Sale, or upon termination of recognition of the intangible item.

Intangible assets are charged amortization under straight line method according to the useful life on an asset.
Inventories The Company’s inventories are initially recognised at cost, and subsequently at the lower of cost and net realizable value.

Cost comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition.

For example, cost of transportation, import duty and other directly attributable expenses.
Taxation Income taxes have been provided for in the special purpose financial information in accordance with legislation enacted or substantively enacted by the end of the reporting period.
The income tax charge comprises current tax and deferred tax and is recognized in profit or loss for the year, except if it is recognized in other comprehensive income or directly in equity because it relates to transactions that are also recognized, in the same or a different period, in other comprehensive income or directly in equity.

Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods.
Taxable profits or losses are based on estimates if special purpose financial information are authorized prior to filing relevant tax returns.

Taxes other than on income are recorded within the statement of profit or loss.

In May 2016, the parliament of Georgia approved a change in the current corporate taxation model, with changes applicable on January 1, 2017 for all entities apart from certain financial institutions.
The changed model 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 the retention or distribution status.

The change has had an immediate impact on deferred tax asset and deferred tax liability balances attributable to previously recognized temporary differences arising from prior periods.
Page 16 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 3.

Summary of significant accounting policies (Continued) Taxes other than income tax are recognised when obligating events have occurred.

The obligating events are an event that raises a liability to pay a tax.

Taxes are calculated in accordance with Georgian legislation.
Borrowings Borrowings are initially recognized at fair value of consideration received.

Subsequently, amounts due are stated at amortized cost and any difference between net proceeds and the redemption value is recognized in the statement of operations over the period of the borrowings, using the effective interest method.

Charter capital Financial instruments issued by the Company are treated as equity only to the extent that they do not meet the definition of a financial liability.
The Company’s statutory capital is classified as equity instruments.

Dividend income Dividend income is recognized in the period when dividends are declared in subsidiary or associate.

Dividend income is recognized as a separate line item in the statement of comprehensive income.

Recognition of expenses Expenses are recognized in the income statement if there arises any decrease of future economic profit related to the decrease of an asset or increase of a liability that can be reliably assessed.
Expenses incurred during the services rendered are recognized in proportionate calculation with recognized income.

Expenses are recognized in the income statement immediately, if the expenses do not result in future economic profit any more, or if future economic profit do not meet or stop to meet the requirements of recognition as an asset in the balance sheet.

Dividends Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved.
Any dividends declared after the reporting period and before the Special purpose separate financial information are authorised for issue are disclosed in the subsequent events note.

Post balance-sheet events Post-balance sheet events and events before the date of financial statements authorization for issue that provide additional information about the Company’s financial statements are reported in the financial statements.
Post-balance sheet events that do not affect the financial position of the Company at the balance sheet date are disclosed in the notes to the financial statements when material.

Provisions, Contingent Liabilities and Contingent Assets Contingent liabilities are not reflected in the financial statements, except for the cases when the outflow of economic benefits is likely to origin and the amount of such liabilities can be reliably measured.
The information on contingent liabilities is disclosed in the notes to the financial statements except for cases, when the outflow of economic benefits is unlikely.

Contingent assets are not reflected in the financial statements, but the information on them is disclosed when inflow of economic benefits is probable.

If economic benefits are sure to occur, an asset and related income are recognized in the financial statements for the period, when the evaluation change occurred.
A provision is a liability of uncertain timing or amount.

A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

An obligating event is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation.
Page 17 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 3.

Summary of significant accounting policies (Continued) A legal obligation is an obligation that derives from: (a) A contract (through its explicit or implicit terms); (b) Legislation; or (c) Other operation of law.
A constructive obligation is an obligation that derives from an entity's actions where: (a) By an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and (b) As a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

4.
4.

Critical accounting estimates and judgments The Company makes certain estimates and assumptions regarding the future.

Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In the future, actual experience may deviate from these estimates and assumptions.
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.

Impairment of investments.

For impairment purpose, the Company assesses if there are impairment indicators on investments, for which the Company compares carrying amount of investments to its appropriate share of net assets of investee.
If carrying amount of investments exceeds its share of net assets of investee, then Company tests appropriate investment on impairment.

As at 1 January and 31 December 2017 there were impairment indicator on investments in its subsidiary – GIG LLC, accordingly, the Company made impairment test and recognized impairment charge.

Details on the amount of impairment charge see in Note 6.

• Tax legislation and accounting for provisions.


The Company's uncertain tax positions are reassessed by management at every reporting date.

Liabilities are recorded for income tax positions that are determined by management as less likely than not to be sustained if challenged by tax authorities, based on the interpretation of tax laws that have been enacted or substantively enacted by the separate statement of financial position date.
Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the reporting date.

Actual charges could differ from these estimates.

• Initial recognition of related party transactions.

In the normal course of business, the Company enters into transactions with its related parties.

IAS 39 requires initial recognition of financial instruments based on their fair values.
Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions.

The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis.

Terms and conditions of related party balances are disclosed in Note 18.

5.

Investment in associates Investment in associates of the Company Is comprised from investment in JSC Georgian Beer Company.
The Cost of investment amounts to GEL13,629 as at 31 December 2017 and 1 January 2017.

Page 18 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 6.
Investment in subsidiaries Investment in subsidiaries can be presented as follows: 01.01.2017 Changes in ownership LLC GIG LLC GIEC LTD Saqnakhshiri LLC Mtkvary Energy LLC European School LLC M Power Total 631 2,467 20,981 24,261 4,971 3,540 56,851 - 3,540 - 26,509 - - 30,049 Contribution in investment 2,058 1,586 - - - - 3,644 Disposal Impairment* 31.12.2017 - - - (4,971) (3,540) (8,511) (1,803) - - - - - (1,803) 886 7,593 20,981 50,770 - - 80,230 *as at 31 December and 1 January 2017, According to the requirements of IAS 36 - "Impairment of Assets", the Fund assessed impairment indications on investments held in subsidiaries and associates that Fund carried out by the comparison of carrying amount of investments reflected in the separate financial statements and appropriate share of carrying amount of net assets of investee.
Based on the management’s estimation, there was impairment indication revealed on Georgian Industrial Group LLC (GIG LLC), correspondingly, the management made a formal estimate of recoverable amount of investment.

During the impairment testing, future cash flows were identified based on cash flows from net assets held by the Company.

Future cash flows were discounted using WACC which amounted to 15.00%.
The impairment test resulted in positive recoverable amount, hence investment was impaired with the amount of GEL3,009 in 2016.

Additional contribution made by the shareholder in 2017 also was fully impaired.

Impairment loss in 2017 amounted to GEL1,803.

In 2017 investment in subsidiaries LLC M Power and LLC European school were disposed.

In the beginning of 2017 LLC M Power was transferred to LLC GIEC as increase in subsidiary charter capital and finally was merged with LLC C Power.
In December 2017, the Company sold one of its subsidiaries (LLC European School) to its parent company (LTD Chemexim International) for a consideration of GEL11,178.

The consideration was fully received by waiving interest payable on borrowings from parent company.

Page 19 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 7.
Loans issued Loans issued can be presented as follows: Non-current LLC Telekompania Mze LLC Industria Kiri LLC Georgian Media Holding LLC Erisioni Total non-current loans issued Current LLC Rustavi 2 LLC Erisioni LLC GBC LLC Khashuri Glass Package Private Individuals LLC Energomontaji 2011 LLC Durnukis Gorgis Karkhana Total current loans issued Allowance for impairment of current loans issued Total current loans issued, net of impairment allowance Interest rate 31.12.2017 01.01.2017 15.00% 19.00% 15.00% 15.00% 6,557 466 21 - 7,044 6,179 423 19 7,164 13,785 Interest rate 31.12.2017 01.01.2017 15.00% 15.00% 13.00% 15.00% 0.00%-16.00% 16.00% 15.00% 8,696 7,026 1,274 995 244 65 2 18,302 (1,584) 16,718 5,553 - 1,203 927 232 59 2 7,976 (1,497) 6,479 Total loans issued, net of impairment allowance 23,762 20,264 Movements in the provision for impairment of loans issued are as follows: Provision for impairment at 1 January Charge for the year Provision for impairment at 31 December 2017 (1,497) (87) (1,584) Page 20 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 8.
Trade and other receivables Trade and other receivables can be presented as follows: Financial receivables: Trade receivables Dividend receivables Impairment loss provision Total financial receivables Non-financial receivables: Prepayments Total 31.12.2017 01.01.2017 9,919 150 (7,675) 14,322 542 (7,675) 2,394 7,189 77 77 2,471 7,266 The carrying value of trade and other receivables classified as financial assets measured at amortized cost approximates fair value.
The aging of financial trade and other receivables according to credit risk analyse of the Company are provided below: Neither past due nor impaired Past due but not impaired - 180 to 360 days overdue - Over 360 days overdue Total past due but not impaired - Over 360 days overdue Total individually impaired Less impairment provision Total 31.12.2017 1,676 01.01.2017 6,385 15 703 718 - 804 804 7,675 7,675 7,675 7,675 (7,675) 2,394 (7,675) 7,189 Page 21 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 9.
Borrowings Borrowings can be presented as follows: Non-current Loans borrowed from non-related parties JSC TBC Bank Loans borrowed from related parties Chemexim International LTD Total non-current borrowings Current Loans borrowed from non-related parties JSC TBC Bank Total current borrowings Interest rate 31.12.2017 01.01.2017 8.55% 12,074 14,150 8.00% - 12.00% 189,454 179,854 201,528 194,004 Interest rate 31.12.2017 01.01.2017 8.55% 1,881 1,881 1,784 1,784 Total borrowings 203,409 195,788 The carrying values of borrowings classified as financial assets measured at amortized cost approximates fair value.
Properties mentioned below are pledged as collateral for borrowings from JSC TBC Bank: - Property, plant and equipment of GIEC LLC, Neogas LLC and Ritseulahesi LLC with a carrying value of GEL84,956 and GEL80,489 as at 31 December 2017 and 1 January 2017, respectively; - Guaranty of Neogas LLC; Notes supporting statement of cash flows changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes can be presented as follows: As at 1 January Financing cash-flows: Non-financing cash-flows: Interest charge Estimation change Interest offset Foreign exchange loss As at 31 December 10.
Trade and other payables Trade and other payables can be presented as follows: Financial Trade payables Salaries payable Total financial liabilities Customer prepayments Total 195,788 (2,275) 21,686 (8,578) (11,790) 8,578 203,409 31.12.2017 01.01.2017 718 - 718 8 726 704 3 707 8 715 The carrying values of trade and other payables measured at amortized cost approximate fair value.
Page 22 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 11.

General and administrative expenses General and administrative expenses can be presented as follows: Information, consulting and other professional services Depreciation and amortization Operating lease expense for property and equipment Staff costs Total 12.
Other operating expenses Other operating expenses can be presented as follows: Impairment of investment in subsidiary (GIG LLC) Taxes other than on income Provision for impairment of loans issued Charity and sponsorship expenses Derecognition of receivables / liabilities Total 13.

Finance income 2017 (398) (59) (9) (9) (475) 2017 (1,803) (592) (87) (13) (1) (2,496) Finance income is comprised rom interest income received from loans issued with the total amount of GEL2,683.

14.
14.

Finance costs Finance costs can be presented as follows: Interest expenses Estimation change of loan from shareholder Foreign exchange gains less losses Bank fees and charges Total 15.

Income tax expenses 2017 (21,686) 8,578 (7,073) (2) (20,183) In Georgia new model of Corporate Income Tax (Profit Tax) is effective from 1 January 2017.

The purpose of this taxation model is simplification of the tax administration, promotion of business development and economic growth.
The main amendment under the new model of Corporate Income Tax is postponing taxation of corporate income until distribution of net income.

This will increase availability of the funds and promote reinvestment of earned profits into the same or new activities.

Corporate Income Tax rate remains the same as before - 15%, technically, the 15%/85% rate will be applied to the amount of taxable object.
Page 23 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 15.

Income tax benefit (Continued) In addition, instead of annual charge, Corporate Income Tax shall be charged on monthly basis, no later than 15th day of the following month.
According to the new model of Corporate Income Tax, the objects of taxation are following transactions/actual payments: • Payment of dividends • Differences between contract price and market price • Expenses not related to economic activity • Payments not related to economic activity • Free of charge supply and gifts • Representative expenses above limits Owing to the specific nature of the taxation system, there are no differences between the carrying amounts and tax bases of the assets and liabilities of companies registered in Georgia that could result in deferred tax assets or deferred tax liabilities.
16.

Changes in Company ownership In December 2017, the Company sold one of its subsidiaries (European School LLC) to its parent company (Chemexim International LTD) for a consideration of GEL11,178.

The consideration was fully received by waiving interest payable on borrowings from parent company.

Since the book value of the investment of LLC European school as at transaction date was GEL4,972 the company recognised the gain from disposal of subsidiary amounting to GEL6,206 directly in equity.
In December 2017 Chemexim international LTD contributed 100% shares of Business Center Saburtalo LLC with the amount of GEL22,319.

Also, in December 2017 the Company increased its ownership interest in Mtkvary Energy LLC from 51% to 100%.

The Company purchased additional 49% share of the Mtkvary Energy LLC from Gardabani Holdings PP B.V. (Entity under common control).

The consideration given represented 100% share of Business Center Saburtalo LLC.

17.
Financial instruments – Risk managment The Company is exposed through its operations to the following financial risks: • Credit risk • Market risk - Interest rate risk - Currency risk Liquidity risk • Principal financial instruments The principal financial instruments used by the Company, from which financial instrument risk arises, are as follows: Financial assets Loans issued Trade and other receivables Cash and cash equivalents Total financial assets Financial liabilities Borrowings Trade and other payables Total financial liabilities 31.12.2017 23,762 2,394 5 01.01.2017 20,264 7,189 343 26,161 27,796 203,409 718 195,788 707 204,127 196,495 Page 24 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 17.
Financial instruments – Risk management (Continued) General objectives, policies and processes The Board has overall responsibility for the determination of the Company’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company's finance function.
The Board and appropriate committees receive monthly reports from the Managers through which they review the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board is to set polices that seek to reduce risks as far as possible without unduly affecting the Company's competitiveness and flexibility.

Further details regarding these policies are set out below.
Credit risk Credit risk is the risk of financial loss to the Company if counterparty to a financial instrument fails to meet its contractual obligations.

The Company is mainly exposed to credit risk from its credit sales.

Credit risk arises when counterparties face financial difficulties and fail to meet their obligation to return funds to the Company.

The Company may have difficulties while collecting its receivables and as a result, have insufficient funds to manage its activities.
The carrying amount of financial assets represents the maximum credit exposure.

The maximum exposure to credit risk at the reporting date was: Financial assets Loans issued Trade and other receivables Cash and cash equivalents Total financial assets Market risk 31.12.2017 23,762 2,394 5 01.01.2017 20,264 7,189 343 26,161 27,796 Market risk is the risk that the fair value of a financial instrument will decrease because of changes in market factors.
Market risk arises from the Company’s use of interest bearing and foreign currency financial instruments.

It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates and foreign exchange rates.

Interest rate risk The interest rate risk is the risk (with variable value) related to the interest-bearing assets – loans, because of the variable rate.
The Company has given and received all credits at fixed interest rate and respectively is never exposed to the risk of losing even small part of the interest receivables due to the market interest rate fall.

Currency risk Currency risk is defined as the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

The Company is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows.
Page 25 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 17.
Financial instruments – Risk management (Continued) The Company’s exposure to foreign currency exchange rate risk is presented in the table below: Financial assets Loans issued Trade and other receivables Cash and cash equivalents Total financial assets Financial liabilities Borrowings Trade and other payables Total financial liabilities GEL USD EUR 31.12.2017 15,066 2,394 5 17,465 - - - - - 716 716 202,388 2 202,390 8,696 - - 8,696 1,021 - 1,021 23,762 2,394 5 26,161 203,409 718 204,127 Open balance sheet position 16,749 (202,390) 7,675 Financial assets Loans issued Trade and other receivables Cash and cash equivalents Total financial assets Financial liabilities Borrowings Trade and other payables Total financial liabilities GEL USD EUR 01.01.2017 14,711 7,189 97 21,997 - - 246 246 5,553 - - 5,553 20,264 7,189 343 27,796 - 705 705 195,788 2 195,790 - - - 195,788 707 196,495 Open balance sheet position 21,292 (195,544) 5,553 Currency risk sensitivity The following table details the Company’s sensitivity to a 20% increase and decrease in the USD against the GEL.
20% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign currency exchange rates.

The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the period for a 20% change in foreign currency rates.
Impact on net profit and equity based on asset values: 31.12.2017 USD impact EUR impact Profit/(loss) 01.01.2017 GEL/USD 20% GEL/USD -20% GEL/EUR 20% GEL/EUR -20% (40,478) 40,478 1,535 (1,535) USD impact EUR impact GEL/USD 20% GEL/USD -20% GEL/EUR 20% GEL/EUR -20% Profit/(loss) (39,109) 39,109 1,111 (1,111) Page 26 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 17.
Financial instruments – Risk management (Continued) Liquidity risk Liquidity risk refers to the availability of sufficient funds to meet loan repayments and other financial commitments associated with financial instruments as they fall due.

The Company manages liquidity risk by maintaining access to the debt capital and by continuously monitoring forecasted and actual cash flows.

Cash flow forecasting is performed in the operating entities of the Company and aggregated by the Company finance.
Such forecasts take into consideration the Company’s debt refinancing plans.

The Company finance monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits.

An analysis of the liquidity and interest rate risks is presented in the following table.
The presentation below is based upon the information provided internally to key management of the Company.
Financial liabilities Borrowings Trade and other payables Total financial liabilities Financial liabilities Borrowings Trade and other payables Total financial liabilities Capital disclosures Less than 1 year From 1 to 5 years Over 5 years Total 2,900 718 3,618 201,297 3,383 207,580 - - 718 201,297 3,383 208,298 Less than 1 year From 1 to 5 years Over 5 years Total 2,948 707 3,655 191,697 6,415 201,060 - - 707 191,697 6,415 201,767 The Company's objectives when maintaining capital are: • To safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders; and • To provide returns for owner and benefits for other stakeholders and maintain an optimal capital structure to reduce the cost of capital The Company monitors capital on the basis of the gearing ratio.
This ratio is calculated as net debt divided by total capital.

Net debt is calculated as total borrowings (including "current and non-current borrowings” as shown in the statement of financial position) less cash and cash equivalents.

Total capital is calculated as 'equity' as shown in the statement of financial position plus net debt.
The debt to adjusted capital ratios Long/short term borrowings Less: cash and cash equivalents Net debt Total equity Total adjusted capital Debt to adjusted capital ratio (%) 31.12.2017 01.01.2017 203,409 5 203,404 (83,051) (83,051) -245% 195,788 343 195,445 (95,735) (95,735) -204% Page 27 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 18.
Transactions with related parties Control relationships.

Georgian Industrial Group Holding LLC is controlled by Chemexim International Limited B.V., which has been established under the laws of the Republic of the Marshall Islands and has legal address at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH96960.

Chemexim International is controlled by Mr. David Bezhuashvili, who is the ultimate controlling party of the Company.
Related parties or transactions with related parties, as defined by IAS 24 “Related party disclosures”, represent: a) Parties that directly, or indirectly through one or more intermediaries: control, or are controlled by, or are under common control with, the Company (this includes parents, subsidiaries and fellow subsidiaries); have an interest in the Company that gives then significant influence over the Company; and that have joint control over the Company; b) Members of key management personnel of the Company or its parent; c) Close members of the family of any individuals referred to in (a) or (b); d) Parties that are entities controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (c) or (b); In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form.
Details of transactions between the Company and other related parties are disclosed below: 31.12.2017 Gross amount of trade receivables Impairment provisions for trade and other receivables Gross amount of loans issued Borrowings Investments in associates 01.01.2017 Gross amount of trade receivables Impairment provisions for trade and other receivables Gross amount of loans issued Borrowings Investments in associates Parent company Subsidiary Associates 255 - - 189,454 - 262 - - - - 32 - - - 13,629 Parent company Subsidiary Associates 255 - - 179,854 - 262 - - - - 32 - - - 13,629 Entity under common control 3,111 (1,507) 8,509 - - Entity under common control 7,608 (1,507) 8,532 - - Included in the statement of comprehensive income are the following amounts which were recognized in transactions with related parties: 2017 Finance costs Finance income Dividends Parent company Subsidiary (11,894) - - - 4,630 Entity under common control - 576 - Page 28 of 29 GEORGIAN INDUSTRIAL GROUP HOLDING LLC NOTES TO THE SPECIAL PURPOSE SEPARATE FINANCIAL INFORMATION For the year ended 31 December 2017 (Thousands of Georgian Lari) 19.
Commitments and contingencies Legal proceedings - From time to time and in the normal course of business, claims against the Company may be received.

Based on its own estimates, as well as internal and external professional advice, management is of the opinion that no material losses will be incurred in respect of claims.

Therefore, no provisions for litigations and claims have been made in this special purpose separate financial information.
Taxes - Georgian tax legislation may give rise to varying interpretations and amendments.

In addition, as management’s interpretation of tax legislation may differ from that of the tax authorities, transactions may be challenged by the tax authorities, and as a result the Company may be assessed additional taxes, penalties and interest.

The Company believes that it has already made all tax payments, and therefore no allowance has been made in the financial statements.
Tax years remain open to review by the tax authorities for three years.

Operating environment – Emerging markets such as Georgia are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks.

Laws and regulations affecting businesses in Georgia continue to change rapidly, tax and regulatory frameworks are subject to varying interpretations.
The future economic direction of Georgia is heavily influenced by the fiscal and monetary policies adopted by the government, together with developments in the legal, regulatory, and political environment.

Compliance with covenants.

The Company is subject to certain covenants related primarily to its borrowings from JSC TBC Bank.

Non-compliance with such covenants may result in negative consequences for the Company including growth in the cost of borrowings and declaration of default.
The Company was not in compliance with covenants at 31 December 2017.

A wavier from JSC TBC bank was obtained on 29 December 2017, according to which JSC TBC Bank relinquished the legal rights and claims related to breach of covenants.

Environmental matters.

The enforcement of environmental regulation in Georgia is evolving and the enforcement pattern of government authorities is continually being reconsidered.

The Company periodically evaluates its obligations under environmental regulations.
As obligations are determined, they are recognized immediately.

Potential liabilities, which might arise because of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material.

In the current enforcement climate under prevailing legislation, management believes that there are no significant liabilities for environmental damage inflicted.

20.
20.

Post balance sheet events There have been no subsequent events that need to be disclosed in the special purpose separate financial information.

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