000 GEL Note 31 December December 2013

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2 Statement of Financial Position as at 31 December GEL Note 31 December December 2013 Assets Property, plant and equipment 9 12,955 14,886 Intangible assets 6 3 Prepayments for non-current assets 9 1,116 - Deferred tax assets Non-current assets 14,176 14,889 Inventories 10 4,533 2,963 Trade and other receivables 11 2,694 2,160 Taxes receivable Cash and cash equivalents Current assets 8,090 6,352 Total assets 22,266 21,241 Equity Share capital 13 10,464 10,464 Share premium 13 18,203 18,203 Revaluation reserve 2,858 2,927 Accumulated losses (27,889) (23,882) Total Equity 3,636 7,712 Loans and borrowings from a related party 15 14,456 3,150 Non-current liabilities 14,456 3,150 Trade and other payables 16 1,710 1,007 Loans and borrowings from a related party 15 2,464 9,372 Current liabilities 4,174 10,379 Total liabilities 18,630 13,529 Total equity and liabilities 22,266 21,241 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 8 to 39. 4

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4 Statement of Changes in Equity for GEL Paid in share capital Share premium Property, plant and equipment revaluation reserve Accumulated losses Total Balance at 1 January ,950 5,673 2,927 (21,186) (6,636) Total comprehensive income Loss and total comprehensive income for the year Contributions and distributions (2,696) (2,696) Financial liability converted into equity (note 13(c)) 4,514 12, ,044 Balance at 31 December ,464 18,203 2,927 (23,882) 7, GEL Paid in share capital Share premium Property, plant and Accumulated equipment revaluation reserve losses Total Balance at 31 December ,464 18,203 2,927 (23,882) 7,712 Total comprehensive income Loss for the year (4,007) (4,007) Other comprehensive income Revaluation of property, plant and equipment Deferred tax effect - - (500) - (500) Total other comprehensive income - - (69) - (69) Total comprehensive income for the year - - (69) (4,007) (4,076) Balance at 31 December ,464 18,203 2,858 (27,889) 3,636 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 8 to 39. 6

5 Statement of Cash Flows for GEL Note Cash flows from operating activities Receipts from customers 4,386 3,412 Payments to suppliers (4,450) (2,974) Payments to employees (1,367) (1,150) Other payments (33) - Payments for taxes other than on income (346) (285) Cash flows used in operations before income taxes and interest paid (1,810) (997) Interest paid (83) - Net cash flows used in operating activities (1,893) (997) Cash flows from investing activities Acquisition of property, plant and equipment (1,892) (1,850) Net cash used in investing activities (1,892) (1,850) Cash flows from financing activities Proceeds from loans and borrowings 3,527 3,184 Repayment of loans and borrowings (97) - Net cash from in financing activities 3,430 3,184 Net (decrease)/increase in cash and cash equivalents (355) 337 Cash and cash equivalents at 1 January Effect of movements in exchange rates on cash and cash equivalents (42) 58 Cash and cash equivalents at 31 December 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 8 to 39. 7

6 Note Page Note Page Basis of Preparation 9 1. Reporting entity 9 2. Basis of accounting 9 3. Functional and presentation currency Use of estimates and judgments 10 Performance for the year Revenue Expenses Net finance costs 13 Income taxes Income taxes 13 Assets Property, plant and equipment Inventories Trade and other receivables Cash and cash equivalents 20 Equity and liabilities Capital and reserves Capital management Loans and borrowings Trade and other payables 23 Financial instruments Fair values and risk management 23 Other information Commitments Contingencies Related parties 29 Accounting Policies Basis of measurement Changes in accounting policies Significant accounting policies New standards and interpretations not yet adopted 39 8

7 1. Reporting entity (a) Georgian business environment The Company s operations are located in Georgia. Consequently, the Company is exposed to the economic and financial markets of Georgia which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Georgia. The financial statements reflect management s assessment of the impact of the Georgian business environment on the operations and the financial position of the Company. The future business environment may differ from management s assessment. (b) Organisation and operations Chateau Mukhrani is a Georgian closed joint stock company as defined in the Civil Code of Georgia. was incorporated on 12 June 2002 as a Limited Liability Company under the Georgian legislation. On 17 February 2010 the Company was reorganised into a Joint Stock Company. The Company s register office is Mukhrani, Mtskheta, 3309, Georgia. The Company s principal activity is the cultivation of vine, wine production and trading, as well as tourism and hospitality. The Company is based on the historical tradition of winemaking in the Mukhrani region. In 2007, a major investment was made in the new winery of the Company. Now it is equipped with ultra-modern technology and corresponds with ISO 9001:2005 Food Safety and ISO 9001:2008 Quality Management standards. Since 2007, the Company is making wine from grapes harvested in its own vineyards. To make the wine more exquisite and truly unique, the winery receives grapes for processing that are a maximum of 15 minutes from harvesting. As at 31 December 2014 and 2013 the Company is owned by JSC Marussia Georgia (80%), Mamuka Khazaradze (11.97%) and Badri Japaridze (8.03%). The Company s immediate parent company (JSC Marussia Georgia) is wholly owned by Marussia Beverages B.V. The Company s ultimate parent company is Haydn Holding AB. The majority of the Company s funding is from, and credit exposures are to, other entities within the group headed by Haydn Holding AB. As a result the Company is economically dependent upon the group headed by Haydn Holding AB. The country of principal business and incorporation of Haydn Holding AB is Sweden. Related party transactions are disclosed in note 20. The Paulsen Familiae Foundation, a legal entity incorporated under the Jersey law, ultimately controls the Company. 2. Basis of accounting Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRSs ). 9

8 3. Functional and presentation currency The national currency of Georgia is the Georgian Lari ( GEL ), which is the Company s functional currency and the currency in which these financial statements are presented. All financial information presented in GEL has been rounded to the nearest thousands, except when otherwise indicated. 4. Use of estimates and judgments The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes: Notes 9, 23(g) useful lives of property, plant and equipment; Note 17(b)(ii) allowances for trade receivables. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is included in the notes: Note 9 - impairment test: key assumptions underlying recoverable amounts; Note 10 determination of fair value less cost to sell of harvested grapes. Measurement of fair values A number of the Company s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. CFO has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the shareholders and to the Group CFO. The CFO regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as market comparable prices, is used to measure fair values, then the CFO assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuation issues are reported to the shareholders and to the Group CFO. 10

9 When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes: Note 9 property, plant and equipment; and Note 17(a) financial instruments. 5. Revenue Revenue from sales of wine 4,163 3,168 Revenues from wine tours and events Revenue from sales of Spirits Other revenues Total revenues 5,036 3,989 11

10 6. Expenses (a) Administrative expenses Management service fee Salary Depreciation Taxes other than on income Legal, financial and other consulting costs Repair & maintenance Travel and accommodation Property maintenance and office supplies IT consulting & maintenance Representative expenses Communication Other administrative expenses ,819 1,760 (b) Sales and distribution expenses Impairment loss on trade receivables Listing fees Management service fee Degustation Freight cost Salary Other administrative expenses (c) Marketing expenses Advertisement and promotion Travel and accommodation 3 38 Salary - 65 Other

11 (d) Tourism expenses Salary Fuel expenses 9 5 Travel and accommodation 7 4 Communication 4 3 Repair & maintenance 2 2 Other Salary expense of GEL 828 thousand (2013: GEL 556 thousand) has been charged to cost of sales, part of which has been included in the carrying value of inventory. 7. Net finance costs Recognised in profit or loss Interest expense on loan from related party 1, Net foreign exchange loss Net finance costs recognised in profit or loss 1,140 1,556 Taxes 8. Income taxes (a) Amounts recognised in profit or loss The Company s applicable tax rate is the income tax rate of 15% (2013: 15%). Current tax expense Current year - - Deferred tax benefit Origination and reversal of temporary differences

12 (b) Amounts recognised in other comprehensive income Before tax Tax Net of tax Before tax Tax Net of tax Revaluation of property, plant and equipment 431 (65) (65) In 2014 management identified that no deferred tax liability was calculated on the surplus of the property, plant and equipment s revaluation effects in previous years. To correct this omission, in these financial statements the management calculated and recognised GEL 435 thousand as deferred tax liability on the revaluation surplus as at 31 December The opening balances were not restated as the management believes that the effect of such adjustment is not material for the financial statements as a whole, and on the users decisions to be made based on these financial statements. Reconciliation of effective tax rate GEL % 000 GEL % Loss before tax (4,606) 100% (2,696) 100% Tax using the Company s tax rate 691 (15%) 404 (15%) Current year losses for which no deferred tax asset is recognised (168) 4% (332) 12% Non-taxable income/(non-deductible costs) 76 (2%) (72) 3% 599 (13%) - - (c) Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net Property, plant and equipment - - (115) (113) (115) (113) Inventories - - (28) (10) (28) (10) Trade and other receivables Loans and borrowings Tax assets/(liabilities) (143) (123) 99-14

13 (d) Movement in deferred tax balances 000 GEL 1 January 2014 Recognised in profit or loss Recognised in other comprehensive income 31 December 2014 Property, plant and equipment (113) 498 (500) (115) Inventories (10) (18) - (28) Trade and other receivables Loans and borrowings (500) GEL 1 January 2013 Recognised in profit or loss Recognised in other comprehensive income 31 December 2013 Property, plant and equipment - (113) - (113) Inventories - (10) - (10) Trade and other receivables Loans and borrowings (e) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Tax losses 1,402 1,491 Tax losses of GEL 257 thousand for the year ended 31 December 2009 expired in Tax losses of GEL 251 thousand, GEL 651 thousand, GEL 332 thousand and GEL 168 thousand expire in 2016, 2017, 2018 and 2019, respectively. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilise the benefits therefrom. 15

14 9. Property, plant and equipment 000 GEL Land Buildings Cost or deemed cost/revalued amount Under construction Plant and equipment Furniture and office equipment Other assets Vehicles Bearer plants Total Balance at 1 January ,031 2,296 5,652 2, ,987 Additions Balance at 31 December ,031 2,428 6,001 2, ,595 Balance at 1 January ,031 2,428 6,001 2, ,595 Additions Disposals - (1) (2) - - (124) (101) - (228) Elimination of accumulated depreciation - (346) - (428) (75) (115) (102) - (1,066) Revaluation 841 (414) (10) Balance at 31 December ,872 1,667 6,293 2, ,542 Depreciation and impairment losses Balance at 1 January Depreciation for the year Balance at 31 December

15 Land Buildings Under construction Plant and equipment Furniture and office equipment Other assets Vehicles Bearer plants Total Balance at 1 January Depreciation for the year Elimination of accumulated depreciation - (346) - (428) (75) (115) (102) - (1,066) Impairment loss , ,569 Disposals (44) - (44) Balance at 31 December , ,587 Carrying amounts At 1 January ,031 2,182 5,652 2, ,666 At 31 December ,031 2,198 6,001 2, ,886 At 31 December , , ,955 Carrying amounts had no revaluations taken place At 1 January ,770 5,652 2, ,796 At 31 December ,807 6,001 2, ,057 At 31 December , ,659 Depreciation expense of GEL 164 thousand (2013: GEL 146 thousand) has been charged to cost of sales, part of which has been included in the carrying value of inventory. The estimation of the useful life property, plant and equipment is a matter of management estimate based upon experience with similar assets. In determining the useful life of an item of property, plant and equipment, management considers the expected usage, estimated technical obsolescence, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments for future depreciation rates. 17

16 (a) Impairment loss and subsequent reversal As of 31 December 2014 the Company has performed a revaluation of its property, plant and equipment, except for bearer plants, and recognised an impairment loss of GEL 2,569 thousand (2013: nil). (b) Revaluation of land In 2014 management commissioned BDO LLC to independently appraise land as at 31 December The fair value of land was determined to be GEL 3,895 thousand and reflects market prices in recent transactions. (c) Revaluation of property, plant and equipment (excluding land and bearer plants) In 2014, management commissioned BDO LLC to independently appraise property, plant and equipment, except for bearer plants, as at 31 December The fair value of property, plant and equipment was determined to be GEL 8,178 thousand, which has been categorised as a Level 3 fair value based on the inputs to the valuation techniques used (see note 4). The majority of the Company s property, plant and equipment is specialised in nature and is rarely sold on the open market other than as part of a continuing business. Except for land, which was appraised on the basis of recent market transactions, the market for similar property, plant and equipment is not active in Georgia and does not provide a sufficient number of sales of comparable property, plant and equipment for using a market-based approach for determining fair value. Consequently the fair value of property, plant and equipment, except for bearer plants was primarily determined using depreciated replacement cost. This method considers the cost to reproduce or replace the property, plant and equipment, adjusted for physical, functional or economical depreciation, and obsolescence. Depreciated replacement cost was estimated based on internal sources and analysis of the Georgian market for similar property, plant and equipment. Various market data were collected from published information, catalogues, statistical data, etc., and industry experts and suppliers of property, plant and equipment were contacted in Georgia. In addition to the determination of the depreciated replacement cost, management estimated the enterprise value, which represents the fair value less cost to sell of the whole business as of 31 December In determining the enterprise value, management used multiples of comparable companies. The following key assumptions were used by management in calculating the fair value less cost to sell of the business: applied a coefficient 2.17 as the average EV (enterprise value)/revenue multiple of comparable companies; current year revenue amount was used in the calculation; and applied 25% control premium. As at 31 December 2014 the fair value less cost to sell of the whole business was estimated to be GEL 13.6 million. This amount represents the value of profit generating assets (working capital, property, plant and equipment, intangible assets etc.), excluding the assets under construction which does not generate any cash flows yet (and is not considered to be part of the cash generating unit). To calculate economical depreciation and obsolescence of the property, plant and equipment valued using the cost approach, management adjusted the GEL 13.6 million for the net working capital balance of GEL 6.9 million (mainly inventories) and for GEL 4.2 million which was the fair value of the land and other fixed assets valued using the market approach as at 31 December The 18

17 balance of GEL 2.5 million represents recoverable amount of the specialised fixed assets valued using the cost approach, hence, this resulted in the depreciated replacement cost values of those assets being decreased by GEL 3.0 million, out of which GEL 0.4 million was recognised as a decrease in the revaluation reserve and GEL 2.6 million was recognised as an impairment loss for the year ended 31 December Management has identified three key assumptions for which there could be a reasonably possible change that could cause the carrying amount to exceed the discounted amount of future cash flows. The above estimates are particularly sensitive in the following areas: a decrease of the EV (enterprise value)/revenue multiple by 0.5 basis point (from 2.17 to 1.67), would decrease the enterprise value to GEL 10.5 million. a decrease in the revenue amount by 20% would decrease the enterprise value to GEL 10.9 million. a 5% decrease in the control premium would decrease the enterprise value to GEL 13.0 million. (d) Property, plant and equipment under construction Construction in progress represents building of the Mukhjranbatoni palace (Chateau). During 2014, the Company continued construction of the Mukhjranbatoni palace for future development of the hospitality business. The Company commenced reconstruction of the palace in 2010; costs incurred up to the reporting date totalled GEL 6,283 thousand (2013: GEL 6,001 thousand). As described in paragraph c) above, the property, plant and equipment under construction was revalued as at 31 December 2014 using at cost approach. No economical depreciation and obsolescence of the property, plant and equipment under construction was calculated as a result of the revaluation, considering that the construction works are still in process and unique and specific nature of the Mukhjranbatoni palace (Chateau). Prepayments for non-current assets represents the amounts prepaid to different companies during 2014 for reconstruction of the Mukhjranbatoni palace (Chateau). 10. Inventories Work in progress 3,133 1,970 Packaging materials Finished goods Winification and vineyard materials Other inventories ,533 2,963 In 2014 raw materials, consumables and changes in finished goods and work in progress recognized as cost of sales amounted to GEL 2,229 thousand (2013: GEL 1,528 thousand). Work in progress contains the bulk wine of GEL 3,057 thousand as at 31 December 2014 (2013: GEL 1,798 thousand) operating cycle of which is more than 12 months. 19

18 Cost of harvested grapes per grape types: Saperavi Rkatsiteli Goruli Mcvane Chardonnay Tavkveri Cabernet Souvignon Souvignon Blanc Shavkapito Muscat 15 9 Petit Verdot 9 6 Syrah 9 6 Total cost of the harvested grapes Management estimated that costs of harvested grapes were approximate to its fair value less costs to sell at the point of harvest. The total harvested grapes for the year ended 31 December 2014 was 562 tonnes (2013: 587 tonnes). 11. Trade and other receivables Trade receivables 3,230 2,209 Advances received Other receivables Impairment on trade receivables (681) (211) 2,694 2, Cash and cash equivalents Bank balances Cash and cash equivalents in the statement of financial position and in the statement of cash flows The Company s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note

19 13. Capital and reserves (a) Share capital and additional paid-in capital Number of shares unless otherwise stated Ordinary shares In issue at 1 January 10,464 5,950 Issued for cash - 4,514 In issue at 31 December, fully paid 10,464 10,464 Authorised shares - par value GEL 1 GEL 1 All ordinary shares rank equally with regard to the Company s residual assets. (b) Ordinary shares In accordance with Georgian legislation the Company s distributable reserves are limited to the balance of retained earnings as recorded in the Company s statutory financial statements prepared in accordance with International Financial Reporting Standards. As at 31 December 2014 and 2013 the Company had accumulated losses and no distributable reserves were available to be distributed. (c) Share premium On 7 May 2013 the charter capital of the Company was increased by issue of 1,188,000 shares previously authorized but not issued and the issue of 3,326,415 new shares with par value of 1 (one) Georgian Lari each, which were issued to JSC Marussia (Georgia) in return for the conversion of convertible loans. Total converted loans amounted to GEL 17,044 thousand as at the conversion date and the difference between par value of acquired new shares and the then carrying amount of the converted loan, of GEL 12,530 thousand was recognized as share premium. 14. Capital management The Company has no formal policy for capital management but management seeks to maintain a sufficient capital base for meeting the Company s operational and strategic needs, and to maintain confidence of market participants. This is achieved with efficient cash management, constant monitoring of Company s revenues and profit, and long-term investment plans mainly financed by the Company s shareholders and parent companies. With these measures the Company aims for steady profits growth. The Company s debt to capital ratio at the end of the reporting period was as follows: Total liabilities 18,630 13,529 Less: cash and cash equivalents Net debt 18,273 12,775 Total equity 3,636 7,712 Net debt to equity ratio at 31 December

20 15. Loans and borrowings This note provides information about the contractual terms of the Company s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Company s exposure to interest rate, foreign currency and liquidity risk, see note 17. Non-current liabilities Loans from related parties 14,456 3,150 Current liabilities Current portion of loans from related parties - 7,902 Interest on loans from related parties 2,464 1,470 2,464 9,372 16,920 12,522 (a) Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows: 000 GEL Currency Loans from related parties Loans from related parties Loans from related parties Loans from a related party Nominal interest rate Year of maturity GEL 9% 2016 GEL USD EUR 31 December December 2013 Face value Carrying amount Face value Carrying amount 16,920 16, % + 12 m Euribor ,288 3,288 7% + 12 m Euribor % + 12 m Euribor ,274 8,274 Total interest-bearing liabilities 16,920 16,920 12,522 12,522 On 1 January 2014 a new contract was signed between the Company and the related parties according to which, the Company has translated all its loans received from the related parties of GEL 10,956 thousand principal and GEL 1,387 thousand interest into a new loan, which was denominated in GEL, bearing 9% interest rate and with maturity in As a result of these amendments of the original loan terms, the original financial liability was accounted for as extinguished and the new financial liability was recognised. During 2014 the Company obtained loan from related parties of GEL 3,500 thousand maturing in On 31 December 2014 the Company had unused loan amount of GEL 1,000 thousand (2013: nil). Loans and borrowings from related parties are not secured. 22

21 16. Trade and other payables Trade payables 1, Trade payables to related parties Other payables ,710 1,007 The Company s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 17.l in 17. Fair values and risk management (a) Accounting classifications and fair values The estimates of fair value are intended to approximate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However given the uncertainties and the use of subjective judgment, the fair value should not be interpreted as being realizable in an immediate sale of the assets or transfer of liabilities. The Company has determined the fair values of financial assets and liabilities using valuation techniques. The objective of the valuation techniques is to arrive at a fair value determination that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The valuation technique used is the discounted cash flow model. Fair value of all financial assets and liabilities is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Management believes that the fair values of the Company s financial assets and liabilities approximate their carrying amounts. (b) Financial risk management The Company has exposure to the following risks from its use of financial instruments: credit risk (see 17 (b)(ii)); liquidity risk (see 17 (b)(iii)); market risk (see 17 (b)(iv)). (i) Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Company s risk management framework. The Company s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. 23

22 (ii) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company s receivables from customers. Trade receivables The Company s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of the Company s customer base, including the default risk of the industry and country, in which customers operate, particularly in the currently deteriorating economic circumstances. Approximately 39% (2013: 17%) of the Company s revenue is attributable to sales transactions with a single customer. However, geographically there is no concentration of credit risk. The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was as follows: Carrying amount Domestic 89 1,113 CIS countries 1, Euro-zone countries Other regions ,549 1,998 The maximum exposure to credit risk for trade receivables at the reporting date by type of counterparty was as follows: Carrying amount Wholesale customers 1, Retail customers 372 1,263 Other ,549 1,998 The most significant customer of the Company accounts for GEL 324 thousand of the trade and other receivables carrying amount at 31 December 2014 (2013: GEL nil). 24

23 Impairment losses The ageing of trade receivables net of impairment at the reporting date was as follows: Ageing since the date of sale 0-30 days days days days ,549 1,998 In the above table the aging was calculated from the sales date. Average payment duration stipulated in the contract is 90 days. The Company believes that the unimpaired amounts that are past due are still collectible, based on historic payment behavior and analyses on the underlying customers credit ratings, when available. The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows: 000 GEL Individual impairments Balance at beginning of the year (211) (455) Impairment loss recognised (500) (103) Recovery of written off receivables Balance at end of the year (681) (211) At 31 December 2014 an impairment loss of GEL 681 thousand (2013: GEL 211 thousand) relates to several customers that have indicated that they are not expecting to be able to pay their outstanding balances, mainly due to economic circumstances. Cash and cash equivalents The Company held cash and cash equivalents of GEL 357 thousand at 31 December 2014 (2013: GEL 754 thousand), which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with banks which are rated BB-, based on rating agency Fitch ratings. Management does not believe that counterparties will fail to meet their obligations. (iii) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company s reputation. 25

24 The Company aims to maintain the level of cash and cash equivalents at an amount in excess of expected cash outflows on financial liabilities over the succeeding 60 days. Typically the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the shareholders and ultimate parent company of the Company have committed to provide financial and other support as is necessary to permit the Company to continue in operational existence. Exposure to liquidity risk The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements. 31 December 2014 Contractual cash flows 000 GEL Non-derivative financial liabilities Carrying amount Total On demand Less than 2 mths 2-12 mths 1-2 yrs Loans from related parties 16,920 19, ,521 Trade and other payables 1,710 1,710 1, ,630 21,231 1, , December 2013 Contractual cash flows 000 GEL Non-derivative financial liabilities Carrying amount Total On demand Less than 2 mths 2-12 mths 1-2 yrs Loans from related parties 12,522 13,011 9, ,638 Trade and other payables 1,007 1,007 1, ,529 14,018 10, ,638 It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts. (iv) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company incurs financial liabilities, in order to manage market risks. The Company does not apply hedge accounting in order to manage volatility in profit or loss. 26

25 Currency risk The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of The Company. The currencies in which these transactions primarily are denominated are EUR and USD. Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Company, primarily GEL. This provides an economic hedge and no derivatives are entered into. Exposure to currency risk The Company s exposure to foreign currency risk was as follows: 000 GEL USDdenominated EURdenominated USDdenominated EURdenominated Trade receivables 388 1, Cash and cash equivalents Trade payables (55) (249) (244) (301) Loans and borrowings - - (960) (8,274) Net exposure (742) (7,589) The following significant exchange rates have been applied during the year: in GEL Average rate Reporting date spot rate USD EUR Sensitivity analysis A reasonably possible strengthening (weakening) of the GEL, as indicated below, against all other currencies at 31 December would have affected the measurement of financial instruments denominated in a foreign currency and affected profit or loss net of taxes by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. 000 GEL Profit or loss 31 December 2014 Strengthening of GEL Weakening of GEL USD (20% movement) (57) 57 EUR (20% movement) (169) December 2013 USD (20% movement) 126 (126) EUR (20% movement) 1,290 (1,290) 27

26 (v) Interest rate risk Changes in interest rates impact primarily loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy of determining how much of the Company s exposure should be to fixed or variable rates. However, at the time of raising new loans or borrowings management uses its judgment to decide whether it believes that a fixed or variable rate would be more favorable to the Company over the expected period until maturity. Exposure to interest rate risk At the reporting date the interest rate profile of the Company s interest-bearing financial instruments was as follows: 000 GEL Carrying amount Fixed rate instruments Financial liabilities 16,920 - Variable rate instruments 16,920 - Financial liabilities - 12,522 Fair value sensitivity analysis for fixed rate instruments - 12,522 The Company does not account for any fixed-rate financial instruments as fair value through profit or loss or as available-for-sale. Therefore a change in interest rates at the reporting date would not have an effect in profit or loss or in equity. 18. Commitments The Company is committed to incur capital expenditure of GEL 562 thousand (2013: Nil). These commitments are expected to be settled in Contingencies (a) Insurance The insurance industry in Georgia is in a developing state and many forms of insurance protection common in other parts of the world are not yet generally available. The Company has full coverage for its plant facilities and third party liability in respect of property or environmental damage arising from accidents on Company property or relating to Company operations. From August 2014 the Company takes part in the insurance scheme set up by the government of Georgia. This is scheme of agro insurance sector, according to which the harvest of the Company is insured. 28

27 (b) Taxation contingencies The taxation system in Georgia is relatively new and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are sometimes unclear, contradictory and subject to varying interpretation. In the event of a breach of tax legislation, no liabilities for additional taxes, fines or penalties may be imposed by the tax authorities after six years have passed since the end of the year in which the breach occurred. These circumstances may create tax risks in Georgia that are more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Georgian tax legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on these financial statements, if the authorities were successful in enforcing their interpretations, could be significant. 20. Related parties (a) Parent and ultimate controlling party The Company s immediate parent company is JSC Marussia (Georgia). The Company s ultimate parent company is Haydn Holding AB and the Company s ultimate controlling party is The Paulsen Familiae Foundation, a legal entity incorporated under the Jersey law. No publicly available financial statements are produced by the Company s immediate parent company. The next highest parent company that does so is Haydn Holding AB. (b) (i) Transactions with key management personnel Key management remuneration Key management received the following remuneration during the year, which is included in personnel costs (see note 6(a)): Salaries and bonuses (c) Other related party transactions 000 GEL Transaction value for the year ended 31 December Outstanding balance as at 31 December Sale of goods and services: Parent company 1, Fellow subsidiaries 1, ,153 - Supervisory board members Purchase of goods and services: Parent company Fellow subsidiaries

28 000 GEL Loans received from related parties: Transaction value for the year ended 31 December Outstanding balance as at 31 December Parent and ultimate parent company 2,800 2,523 14,858 11,088 Minority shareholders who are presented on Supervisory board ,062 1,254 Other (entities under common control) All outstanding balances with related parties other than loans given, are to be settled in cash within six months of the reporting date. For the loans received from related parties please refer to note 15. None of the balances are secured. 21. Basis of measurement The financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date. Items Property, plant and equipment, except for bearer plants Agricultural produce Fair value Measurement bases Fair value less costs to sell 22. Changes in accounting policies Except for the changes below, the Company has consistently applied the accounting policies set out in note 23 to all periods presented in these financial statements. The Company has adopted the following amendments to a standard and new interpretation with a date of initial application of 1 January 2014: Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41): These amendments require a bearer plant, defined as a living plant, to be accounted for as property, plant and equipment and included in the scope of IAS 16 Property, Plant and Equipment, instead of IAS 41 Agriculture. The amendments are effective for annual reporting periods beginning on or after 1 January 2016, with early adoption permitted. 30

29 23. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by Company entities, except as explained in note 22, which addresses changes in accounting policies. Certain comparative amounts have been adjusted as a result of a change in the accounting policy regarding property, plant and equipment bearer plants (see note 23(k)). Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow: (a) Revenue 31 (b) Finance income and costs 31 (c) Foreign currency 32 (d) Employee benefits 32 (e) Income tax 33 (f) Inventories 33 (g) Property, plant and equipment 33 (h) Financial instruments 35 (i) Impairment 36 (j) Provisions 38 (k) Comparative information 38 (a) (i) Revenue Goods sold Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognized on dispatch when significant risks and rewards of ownership are transferred. (b) Finance income and costs The Company s finance income and finance costs include: interest income; interest expense; the net gain or loss on financial assets at fair value through profit or loss; the foreign currency gain or loss on financial assets and financial liabilities; Interest income or expense is recognised using the effective interest method.. 31

30 (c) (i) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currency of the Company at exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising in translation are recognised in profit or loss. (d) Employee benefits (i) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (e) Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. (i) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from dividends. (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. 32

31 Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. In determining the amount of current and deferred tax the Company takes into account the impact of uncertain tax positions and whether additional taxes, penalties and late-payment interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax expense in the period that such a determination is made. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (f) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The Company does not apply IAS 23 Borrowing Costs standard to borrowing costs directly attributable to the finished goods (wine) that are manufactured, or otherwise produced, in large quantities on a repetitive basis. (g) Property, plant and equipment (i) Recognition and measurement After recognition as an asset, an item of property, plant and equipment, except for bearer plants, whose fair value can be measured reliably is carried at revalued amount, being its far value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. The fair value of land and buildings is determined from market-based evidence by appraisal that is undertaken by professionally qualified valuators. The fair value of the items of plant and equipment is their market value determined by appraisal. If there is no marketbased evidence of fair value because of the specialized nature of the item of property, plant and equipment and the item is rarely sold, except as part of a continuing business, the Company may need to estimate fair value using an income, market or a cost approach. The frequency of revaluation depends upon the changes in fair values of the items of property, plant and equipment being revalued. When fair value of a revalued asset differs materially from its carrying amount, a further revaluation is conducted. 33