International Financial Reporting Standards Interim Condensed Consolidated Financial Information (unaudited)

Transcription

1 PAO KOKS International Financial Reporting Standards Interim Condensed Consolidated Financial Information For the six months ended 30 June 2016

2 Contents Report on review of interim condensed consolidated financial information Interim Condensed Consolidated Statement of Financial Position as of 30 June Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income for the six months ended 30 June Interim Consolidated Statement of Cash Flows for the six months ended 30 June 2016 ( unaudited)... 3 Interim Consolidated Statement of Changes in Equity for the six months ended 30 June General information about PAO Koks and its subsidiaries Basis of preparation Summary of significant accounting policies Critical accounting estimates and judgements in applying accounting policies Acquisition of assets Segment information Property, plant and equipment Other intangible assets Non-current loans issued and long-term interest receivable Inventories Trade and other receivables and advances issued Cash and cash equivalents Share capital Retained earnings Borrowings Trade and other payables Other taxes payable Revenue Cost of sales Taxes other than income tax Distribution costs General and administrative expenses Other operating expenses, net Finance income Finance expenses Income tax expense Balances and transactions with related parties Financial instruments at fair value Financial risks Contingencies, commitments and operating risks Earnings per share Subsequent events... 22

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5 Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income for the six months ended 30 June 2016 (in million RR unless stated otherwise) Note 30 June June 2015 Revenue 18 28,283 29,388 Cost of sales 19 (19,815) (17,849) Gross profit 8,468 11,539 Distribution costs 21 (2,569) (2,113) General and administrative expenses 22 (2,056) (2,393) Taxes other than income tax 20 (341) (314) Other operating expenses, net 23 (270) (27) Operating profit 3,232 6,692 Finance income 24 5, Finance expenses 25 (2,847) (2,121) Profit before income tax 5,631 5,361 Income tax expense 26 (1,113) (1,145) Profit for the period 4,518 4,216 Profit is attributable to: Equity holders of the Company 4,481 4,048 Non-controlling interest Profit for the period 4,518 4,216 Other comprehensive loss: Items that may be reclassified subsequently to profit or loss: Exchange differences arising during the period (17) (4) Total other comprehensive loss for the period (17) (4) Total comprehensive income for the period 4,501 4,212 Total comprehensive income attributable to: Equity holders of the Company 4,464 4,044 Non-controlling interest Total comprehensive income for the period 4,501 4,212 Profit per ordinary share, basic and diluted (in RR per share) The accompanying notes are an integral part of the interim condensed consolidated financial information. 2

6 Interim Condensed Consolidated Statement of Cash Flows for the six months ended 30 June 2016 (in million RR unless stated otherwise) 30 June June 2015 Note Cash flows from operating activities Profit before income tax 5,631 5,361 Adjustments for: Depreciation of property, plant and equipment 19, 22 1,106 1,343 Amortisation of intangible assets Interest income 24 (582) (425) Interest expenses 25 2,756 2,069 (Reversal)/Accrual of vacation reserve (34) 151 Reversal of obsolete stock provision 23 (4) (1) Accrual of bad debt provision Exchange (gain)/loss, net 23, 24, 25 (4,525) (358) Other effects (34) (36) Operating cash flows before working capital changes 4,509 8,242 Changes in working capital Increase in trade and other receivables (169) (943) Increase in inventories (178) (271) Decrease in trade and other payables (140) (345) Increase in taxes other than income tax payable Decrease in other liabilities - (1) Cash from operating activities 4,339 6,951 Income tax returned/(paid) 85 (936) Net cash from operating activities 4,424 6,015 Cash flows from investing activities Purchase of property, plant and equipment (2,514) (3,706) Proceeds from sale of property, plant and equipment Proceeds from acquisition of assets 1 - Acquisition of intangible assets and other non-current assets (1) (7) Loans issued (106) (6,232) Repayment of loans issued Interest received on loans issued Dividend received 8 15 Net cash used in investing activities (2,557) (9,624) The accompanying notes are an integral part of the interim condensed consolidated financial information. 3

7 Interim Condensed Consolidated Statement of Cash Flows for the six months ended 30 June 2016 (in million RR unless stated otherwise) 30 June June 2015 Note Cash flows from financing activities Proceeds from borrowings and bonds issued 15 20,392 14,104 Repayment of borrowings and bonds 15 (23,612) (6,415) Interest paid on loans and borrowings (2,422) (1,926) Purchase of non-controlling interest in subsidiaries - (2) Net cash (used in)/from financing activities (5,642) 5,761 Net (decrease)/increase in cash and cash equivalents (3,775) 2,152 Effects of exchange rate changes on cash and cash equivalents Net cash and cash equivalents at the beginning of the period, including 3, Cash and cash equivalents 4, Bank overdraft (290) - Net cash and cash equivalents at the end of the period, including 120 3,043 Cash and cash equivalents 514 3,672 Bank overdraft (394) (629) The accompanying notes are an integral part of the interim condensed consolidated financial information. 4

8 Interim Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2016 (in million RR unless stated otherwise) Currency translation reserve Total attributable to equity holders of the Company Share capital Treasury shares Revaluation reserve Retained earnings Non-controlling interest Total equity Balance at 31 December (5,928) ,245 10, ,983 Profit for the period ,048 4, ,216 Other comprehensive loss for the period - - (4) - - (4) - (4) Total comprehensive (loss)/income for the period - - (4) 4,048 4, ,212 Disposal of non-controlling interest in subsidiaries, net (14) (2) Revaluation reserve written-off to retained earning (33) (33) (14) (2) Balance at 30 June (5,928) ,338 14, ,193 Balance at 31 December (5,928) ,949 7, ,771 Profit for the period ,481 4, ,518 Other comprehensive loss for the period - - (17) - - (17) - (17) Total comprehensive (loss)/income for the period - - (17) - 4,481 4, ,501 Purchase of non-controlling interest in subsidiaries, net (50) - Revaluation reserve written-off to retained earning (23) (23) (50) - Balance at 30 June (5,928) ,503 11, ,272 The accompanying notes are an integral part of the interim condensed consolidated financial information. 5

9 1 General information about PAO Koks and its subsidiaries PAO Koks (the Company ) was established as state-owned enterprise Kemerovski Koksokhimicheski Kombinat in It was incorporated as an open joint stock company on 30 July 1993 as part of Russia s privatisation programme. The legal form was changed from open joint-stock company to public joint-stock company on 23 June 2016 in accordance with the current legislation of the Russian Federation. The Company s registered office is located at 1 st Stakhanovskaya street, 6, Kemerovo, Russian Federation, PAO Koks and its subsidiaries (together, the Group ) principal activities include coal mining, production of coke and coal concentrate, iron-ore concentrate, pig iron, as well as metal powder production (high purity chrome products). The Group s manufacturing facilities are primarily based in the city of Kemerovo, Kemerovo Region, and in the city of Tula, Tula Region, Russia. Products are sold in Russia as well as in other countries. As at 30 June 2016 and 31 December % of total issued shares of the Company was ultimately owned by members of the Zubitskiy family: Mr B.D. Zubitskiy, Mr E.B. Zubitskiy and Mr A.B. Zubitskiy. The Group s main subsidiaries are: Percentage of voting shares Name Country of incorporation Type of activity 30 June December 2015 PAO Mill Berezovskaya Russia Production of coal concentrate 97.4% 97.4% OOO Uchastok Koksoviy Russia Coal mining 100% 100% ZAO Sibirskie Resursy Russia Coal mining 100% 100% OOO Butovskaya mine Russia Coal mining 100% 100% OOO Tikhova mine Russia Coal mining 100% 100% PАО Tulachermet Russia Pig-iron production 95.1% 95.1% OАО Kombinat КМА Ruda Russia Mining and concentration of iron-ore 100% 100% OAO Polema Russia Production of chrome 100% 100% ZАО Krontif-Centre Russia Production of cast-iron ware 100% 100% PTW Ltd. China Sales activities 100% 100% OOO Consultinvest 2000 Russia Lease of property 100% 100% OOO Management Company Industrial Metallurgical Holding Russia Management services 100% 100% ООО BKF Gorizont Russia Transactions with securities 100% 100% OOO Koks-Mining Russia Management services for coal mines 100% 100% Koks Finance Limited Ireland Structured entity - - PKR Ltd Korea Sales activities 100% 100% IMH Finance DAC Ireland Issue of euro-commercial papers 100% - In April 2016, the Group finalized the establishment of IMH Finance DAC ( Dublin, Ireland). The main activity of IMH Finance DAC is an issue of euro-commercial papers for the sole purpose of financing a loan to the Company (see note 15). As at 30 June 2016 and 31 December 2015, the percentage of the Group s ownership interest in its subsidiaries was equal to the percentage of its voting interest, with exception of PAO Tulachermet, the percentage of the Group s ownership in which was 94.3% at 30 June 2016 and 93.9% at 31 December Basis of preparation This interim condensed consolidated financial information for the six months ended 30 June 2016 has been prepared in accordance with IAS 34 Interim financial reporting. The interim condensed consolidated financial information should be read in conjunction with the consolidated financial statements for the year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards (IFRS). Each company of the Group registered in Russia maintains its own accounting records and prepares financial statements in accordance with the Russian accounting standards ( RAS ). The attached interim condensed consolidated financial information have been prepared using RAS records and reports that have been adjusted and re-classified in compliance with IFRS. 6

10 2 Basis of preparation (continued) Each company of the Group registered outside Russia maintains its own accounting records and prepares financial statements in accordance with the local GAAP. The financial statements of companies outside Russia have been adjusted and reclassified in compliance with IFRS. As at 30 June 2016, the official exchange rate set by the Central Bank of the Russian Federation for transactions denominated in foreign currencies was RR per 1 US dollar ( USD ) (as at 31 December 2015: RR per 1 US dollar) and RR per 1 euro ( EUR ) (as at 31 December 2015: RR per 1 euro). 3 Summary of significant accounting policies The principal accounting policies and methods of computation followed by the Group and the critical accounting judgments in applying accounting policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 December 2015 with the exception of income tax expense, which is recognised based on management s best estimate of the annual effective income tax rate expected for the full financial year (which excludes the impact of deferred tax asset impairment which was recorded for the six months ended 30 June 2016 and 30 June 2015, see note 26). 3.1 Changes in presentation In 2016 the Group has changed its classification of revenue within the Note 18 Revenue. The Group believes that the change provides reliable and more relevant information. In accordance with IAS 8, the change has been made retrospectively and comparatives have been restated accordingly. The effect of reclassifications for presentation purposes was as follows on amounts at 30 June 2015: As originally presented As reclassified at 30 June2015 Reclassification Sales in Russia: Sales of crushed pig iron 469 (469) - Other sales Adoption of new or revised standards and interpretations Certain new standards and interpretations have been issued that are mandatory for annual periods beginning on or after 1 January 2016 or later, which have not had a material impact on the Group s financial position or operations: Accounting for Acquisitions of Interests in Joint Operations Amendments to IFRS 11 (issued on 6 May 2014 and effective for the periods beginning on or after 1 January 2016).); Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016); Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016); Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016); Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued in December 2014 and effective for annual periods on or after 1 January 2016). The Group is considering the implications of the following amendments, the impact on the Group and the timing of their adoption by the Group: IFRS 9, Financial Instruments: Classification and Measurement (issued in July 2014 and effective for annual periods beginning on or after 1 January 2018); IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018); Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB); 7

11 3 Summary of significant accounting policies (continued) Recognition of Deferred Tax Assets for Unrealized Losses Amendments to IAS 12 (issued in January 2016 and effective for annual periods beginning on or after 1 January 2017); Disclosure Initiative Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or after 1 January 2017); IFRS 16 Leases (issued in January 2016 and effective for annual periods beginning on or after 1 January 2019); Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 and effective for annual periods beginning on or after 1 January 2018). 4 Critical accounting estimates and judgements in applying accounting policies The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial period. Estimates and judgements are continually evaluated and are based on management s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying accounting policies. Judgements that have the most significant effect on the amounts recognised in the interim condensed consolidated financial information and estimates that could cause a significant adjustment to the carrying amount of assets and liabilities within the next financial period include the following: 4.1 Going concern As at 30 June 2016, the Group s current liabilities exceeded current assets by RR 28,126 million, principally due to the fact, that a significant portion of borrowings mature in The Group had undrawn borrowing facilities in the amount of RR 2,317 million (see note 15) as at 30 June 2016 (out of which RR 2,132 million are long-term facilities). Also the Group has registered ruble bonds worth RR million and repurchased Eurobonds in the amount of USD 17,452,000 (RR 1,121 million). In July 2016 new loan agreements with the bank were signed for funding in the amount of USD 49,400,000 (RR 3,174 million). Also in July 2016 additional agreements to existing credit line agreements were signed to increase the credit limit for the amount of RR 500 million, and to increase the terms of the existing credit lines agreements in the amount of RR 1,000 million and USD 50,600,000 (RR 3,251 million). In August 2016 credit committee of the bank approved the decision to increase the terms of the existing credit lines agreements in the amount of RR 2,675 million and to increase the credit limit for the amount of RR 2,000 million. The remaining liquidity deficit will be covered by net cash flow from operating activities. Accordingly, management believes that a going concern basis for the preparation of these condensed consolidated financial information is appropriate. 4.2 Estimated useful lives of property, plant and equipment The Group applies a range of useful lives to buildings, installations, plant and equipment, transport vehicles and other assets classified as property, plant and equipment. Significant judgement is required in estimating the useful lives of such assets. When determining economic life, assumptions that were valid at the time of estimation, may change when new information becomes available. Factors that could affect estimation include: changes in environmental and other legislation applicable to the Group s operations; development of new technologies and equipment; and changes in the terms of licences. If management s estimates of useful lives were to decrease by 10%, profit before tax for the six months ended 30 June 2016 would decrease by RR 122 million (for the six months ended 30 June 2015 profit before tax would decrease by RR 148 million). An increase in useful lives by 10% would result in an increase of profit before tax for the six months ended 30 June 2016 by RR 100 million (for the six months ended 30 June 2015: increase of profit before tax by RR 121 million). 8

12 4 Critical accounting estimates and judgements in applying accounting policies (continued) 4.3 Estimated fair value of financial liability In June 2015, OOO Tulachermet-Stal, an entity under common control of the Group s owners, obtained a bank loan facility. PAO Tulachermet together with OOO Stal and DILON Cooperatief U.A. (both companies are under common control of the Group s owners) entered into a number of agreements in connection with OOO Tulachermet-Stal s obligations under this loan facility agreement. As a result, under these agreements, these entities have committed jointly and severally to finance OOO Tulachermet-Stal project funding shortfall, if any, in the amount of up to the outstanding debt under the loan facility. The Group s management believes the fair value of financial obligations under these agreements is not significant as of 30 June Management based this judgement on an assessment of probability of compliance of OOO Tulachermet- Stal with all conditions established by the loan facility agreement. 4.4 Recognition of deferred tax asset The net deferred tax asset represents income taxes recoverable through future deductions from taxable profits. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised. In determining future taxable profits and the amount of tax benefits that are probable in the future, management makes judgements and applies estimates based on taxable profits of the previous three years and expectations of future income that are believed to be reasonable under the circumstances. 5 Acquisition of assets In 2015, the Group issued long-term interest-bearing loans to OOO Gorny otdykh (a company under common control of the Group's shareholder) in the amount of million rubles. Loans were issued for the acquisition of a hotel complex, located in the city of Sochi. The hotel complex includes the hotel, private cottages, land on which the hotel complex is located, and furniture. In June 2016, OAO Kombinat KMAruda and OOO Managing company Industrial metallurgical holding, subsidiaries of the Group, made contribution to the charter capital of OOO Gorny otdykh in the amount of 80 thousand roubles and 10 thousand roubles, respectively. As a result of the transaction OAO Kombinat KMAruda and OOO Managing company Industrial metallurgical holding got a share in the charter capital of OOO Gorny otdykh in the amount of 80 percent and 10 percent, respectively. The Group's management considers the transaction as an acquisition of assets and liabilities, rather than as a business combination in accordance with the definitions in IFRS 3 "business combinations". The main asset of OOO Gorny otdykh is the hotel complex. Currently, the hotel complex is under reconstruction and modernization, operation activities are not conducted. Obligations and liabilities of OOO Gorny otdykh are represented by payables to suppliers and contractors, as well as the outstanding balance of the loan obtained from the shareholder of the Group. On the date of the transaction, the carrying value of the assets acquired exceeded the recoverable amount determined in accordance with IAS 36 "Impairment of assets". However, the Group's management plans to use the hotel complex as a corporate recreation asset for the Group's employees and other corporate purposes. Also, the Group s management considers the possibility of providing part of the services of the hotel complex to the third parties. Thus, the Group's management does not consider the acquired assets as a cash generated unit in accordance with the definition in IAS 36 "Impairment of asset" and includes the value of the assets acquired in the carrying value of the Group s existing cash generated units for the purposes of assessing impairment of assets of the Group. Following the transaction, the Group recognised construction in progress amounted to RR 2,104 million, other assets in the amount of RR 26 million and liabilities in the amount of RR 282 million, including the debt on the loan obtained from the shareholder of the Group in the amount of RR 215 million. Outstanding loans issued by the Group to OOO Gorny otdykh, in the amount of RR 1,551 million, and interest receivebles in the amount of RR 297 million was eliminated in the Group financial statements as intragroup transactions. 9

13 6 Segment information The Group operates as a vertically integrated business. Chief Executive Officer of OOO Management company Industrial Metallurgical Holding is considered to be the Chief Operating Decision Maker ( CODM ). The CODM is responsible for decision-making, estimating results and distributing resources, relying on internal financial information prepared using IFRS principals. The Group s management has determined the following operating segments based on nature of production: Coal coal mining; Coke coke production; Ore & Pig iron production of iron ore concentrate, pig iron, crushed pig iron and cast iron ware; Polema production of powder metallurgy articles (chrome articles); Other other segments. Inter-segment sales are generally composed of: Sales of coal to the Coke segment; Sales of coke to the Ore & Pig iron segment and; Management services rendered to the segments Coke, Ore & Pig iron and Polema. Segment revenue and segment results include transfers between operating segments. Analysis of revenue generated from external sales by the products and services are included in Note 18. The Group s management assess the performance of operating segments based on revenue, a measure of adjusted EBITDA, assets and liabilities. Coal Coke Ore & Pig iron Polema Other Total 30 June 2016 Inter-segment revenue 2,448 5, ,009 External revenue 3,371 7,256 16, ,283 Segment revenue, total 5,819 12,960 16,735 1, ,292 Adjusted EBITDA 1,283 1,647 1, , June 2015 Inter-segment revenue 3,711 5, ,883 External revenue 1,473 8,585 18, ,388 Segment revenue, total 5,184 14,184 18,400 1, ,271 Adjusted EBITDA 1,411 2,777 4, (386) 8,126 There are no reconciling items between external revenue of operating segments and total revenue in the interim condensed consolidated statement of profit or loss and other comprehensive income. 10

14 6 Segment information (continued) The reconciliation between profit/(loss) before income tax and adjusted EBITDA by segments is as follows: 30 June 2016 Profit before income tax Amortisation and depreciation Coal Coke Ore & Pig iron Polema Other Total 1, , , ,631 1,243 Finance income (2) (17) (554) (1) (8) (582) Inter-segment interest income - (263) (253) (8) - (524) Interest expense 491 1, ,756 Inter-segment interest expense Exchange (gain)/loss, net (1,241) (2,586) (746) 48 - (4,525) Adjusted EBITDA 1,283 1,647 1, , June 2015 Profit before income tax Amortisation and depreciation , , (406) 11 5,361 1,479 Finance income (2) (20) (397) (1) (5) (425) Inter-segment interest income - (164) (100) (5) - (269) Interest expense 467 1, ,069 Inter-segment interest expense Exchange (gain)/loss, net (129) (176) (66) 13 - (358) Adjusted EBITDA 1,411 2,777 4, (386) 8,126 Adjusted EBITDA analysed by the CODM is defined as profit/(loss) before income tax adjusted for, exchange gain /(losses), finance income, interest expenses and other finance expenses, depreciation, amortisation and impairment, any extraordinary gains and losses. Segment assets and liabilities Segment assets consist primarily of property, plant and equipment, other intangible assets, inventories, trade and other receivables, advances issued, loans issued, VAT recoverable and cash and cash equivalents. Segment liabilities include accounts payable arising during operating activities, borrowings and interest payable. Capital expenditures comprise additions to property, plant and equipment and intangible assets, including acquisitions resulting from business combinations. Segment assets and liabilities and capital expenditures are presented below: Coal Coke Ore & Pig iron Polema Other Total At 30 June 2016 Segment assets 22,844 20,551 44,747 1,850 3,191 93,183 Segment liabilities 24,525 31,868 27, ,131 85,374 Capital expenditures for the six months ended 30 June , ,106 4,822 At 31 December 2015 Segment assets 21,826 18,373 42,630 1,759 1,028 85,616 Segment liabilities 24,917 32,551 24, ,392 Capital expenditures for the six months ended 30 June , , ,351 The Group s corporate assets are included in the Other. 11

15 6 Segment information (continued) The reconciliation between the assets of operating segments and total assets in the interim condensed consolidated statement of financial position is presented below: At 30 June 2016 At 31 December 2015 Segment assets 93,183 85,616 Items not included in segment assets: Goodwill 4,497 4,497 Deferred income tax asset 3,202 4,169 Other non-current assets Elimination of intersegment balances (24,323) (15,050) Total assets 76,683 79,356 The reconciliation between the liabilities of operating segments and total liabilities in the interim condensed consolidated statement of financial position is presented below: At 30 June 2016 At 31 December 2015 Segment liabilities 85,374 83,392 Items not included in segment liabilities: Deferred income tax liability 1,937 2,148 Taxes payable 1, Provision for restoration liability Elimination of intersegment balances (24,323) (15,050) Total liabilities 64,411 71,585 Information about geographical areas The following table presents revenues from external customers: 30 June June 2015 Total sales: 28,283 29,388 Russia Switzerland 9,816 14,330 9,930 15,707 Ukraine 1,661 2,493 Kazakhstan 1,014 8 Singapore Japan Belarus Poland Taiwan England Korea Germany USA Other For the six months ended 30 June 2016 revenue from the largest customer of the Group s Coke and Ore & Pig Iron segments, which is related party, represented RR 14,254 million of the Group s total revenues (for the six months ended 30 June 2015: RR 15,368 million). 12

16 7 Property, plant and equipment 30 June June 2015 Cost at the beginning of the period 59,184 53,671 Additions 4,821 4,344 Disposals (1,617) (256) Cost at the end of the period 62,388 57,759 Accumulated depreciation and impairment at the beginning of the period (17,617) (15,546) Depreciation charges (1,354) (2,198) Accumulated depreciation and impairment related to disposals 1, Accumulated depreciation and impairment at the end of the period (17,400) (17,576) Net book value at the beginning of the period 41,567 38,125 Net book value at the end of the period 44,988 40,183 During the six months ended 30 June 2016 depreciation expense of RR 1,009 million (six months ended 30 June 2015: RR 1,244 million) was included in cost of sales, a depreciation expense of RR 97 million (six months ended 30 June 2015: RR 99 million) was included in general and administrative expenses and depreciation expense of RR 248 million (six months ended 30 June 2015: RR 855 million) was capitalised. Additions to property, plant and equipment during the six months ended 30 June 2016 include capitalised interest of RR 589 million (six months ended 30 June 2015: RR 398 million) and foreign exchange losses from financing activities in the amount of RR 7 million (six months ended 30 June 2015: 7) directly attributable to the qualifying assets. The capitalisation rate used to determine the amount of capitalised interest for the six months ended 30 June 2016 was 11.3% (six months ended 30 June 2015: 11.17% ). 8 Other intangible assets Movements of other intangible assets are provided below: 30 June June 2015 Cost as at the beginning of the period 7,602 7,589 Accumulated amortisation and impairment (2,565) (2,291) Net book value as at the beginning of the period 5,037 5,298 Additions 1 7 Amortisation charge (137) (136) Net book value at the end of the period 4,901 5,169 Cost as at the end of the period 7,603 7,596 Accumulated amortisation and impairment (2,702) (2,427) 9 Non-current loans issued and long-term interest receivable At 30 June 2016 Interest rate At 31 December 2015 Interest rate Loans issued to related parties and denominated in Russian roubles (note 27) 6, % 8, % Loans issued to related parties and denominated in euros (note 27) % % Long-term interest receivable on loans issued to related parties 1,269 1,065 Total non-current loans issued 8,373 9,692 13

17 10 Inventories At 30 June 2016 At 31 December 2015 Raw materials and supplies held for production purposes 3,563 3,412 Finished goods Work in progress Total inventories 4,433 4,190 Raw materials and supplies held for production purposes are recorded at net realisable value, net of obsolete stock provision which amounted to RR 36 million as at 30 June 2016 (RR 40 million as at 31 December 2015). 11 Trade and other receivables and advances issued At 30 June 2016 At 31 December 2015 Trade receivables (net of impairment amounting to RR 1 million as at 30 June 2016; RR 1 million as at 31 December 2015) 1,855 2,794 Trade receivables from related parties Other accounts receivable (net of impairment amounting to RR 158 million as at 30 June 2016; RR 132 milion as at 31 December 2015) Other accounts receivable from related parties (net of impairment amounting to 4 milion as at 30 June 2016; RR 12 million as at 31 December 2015) 9 13 Taxes receivable Total trade and other receivables 2,530 3,761 Advances issued Less impairment (85) (54) Total advances issued Cash and cash equivalents At 30 June 2016 At 31 December 2015 RR-denominated cash in hand and bank balances Bank balances denominated in foreign currencies RR bank deposits Bank deposits in foreign currencies - 3,258 Total cash and cash equivalents 514 4, Share capital As at 30 June 2016 and 31 December 2015 share capital authorised, issued and paid in totalled RR 213 million and consisted of 330,046,400 ordinary shares with nominal value of RR 0.1 per share. As at 30 June 2016 and 31 December 2015 share capital includes hyperinflation adjustment totaling RR 180 million, which was calculated in accordance with requirements of IAS 29 Financial Reporting in Hyperinflationary Economies and relates to the reporting periods prior to 1 January In June 2010 the Group s subsidiary bought 26,000,278 of the Company s shares from its shareholders for RR 5,928 million. These shares are classified as treasury shares and deducted from equity at cost. 14 Retained earnings The Russian statutory financial statements is the basis for the Company s profit distribution and other appropriations. The basis of distribution is defined by Russian legislation as a company s net profit. The net profit recognised in the Company s published Russian statutory financial statements for the six months ended 30 June 2016 was RR 2,127 million (for the six months ended 30 June 2015: net profit equaled RR 1,683 million) and the accumulated profit after dividends as at 30 June 2016 was equal to RR 4,154 million (31 December 2015: RR 2,032 million). However, legislation and other statutory laws and regulations dealing with profit distribution are open to legal interpretation and, accordingly, management believes that at present it would not be appropriate to disclose the amount for distributable reserves in the interim condensed consolidated financial information. During the six months ended 30 June 2016 and 30 June 2015 no dividends were declared and paid. 14

18 15 Borrowings Short-term borrowings and current portion of long-term borrowings At 30 June 2016 At 31 December 2015 RR-denominated bank overdraft, fixed RR denominated bank loans, fixed 13,217 13,348 USD denominated bank loans, fixed 10,357 8,355 Other USD denominated borrowings, fixed Other RR denominated borrowings, fixed 4 4 Total short term borrowings and current portion of long-term borrowings 24,078 21,997 As at 30 June 2016 the short-term borrowings were secured by Group assets in the amount of RR 6,942 including current portion of long-term borrowings in amount of RR 2,443 million (31 December 2015: in the amount of RR 5,476 including current portion of long-term borrowings in amount of RR 2,676 million). Long-term borrowings At 30 June 2016 At 31 December 2015 USD-denominated bank loans, fixed 10,473 8,887 RR- denominated bank loans, fixed 2,784 4,036 Other RR denominated borrowings, fixed Total long-term borrowings 13,472 12,923 As at 30 June 2016 long-term borrowings of RR 9,834 million (as at 31 December 2015: RR 11,587 million) were secured by assets of the Group. As separate loan agreements do not specify individual pledged assets, the carrying amount of pledged assets is not disclosed in the interim condensed consolidated financial information. Borrowings of the Group are due for repayment as follows: At 30 June 2016 At 31 December 2015 Borrowings to be repaid within one year 24,078 21,997 between one and five years 12,347 11,389 after five years 1,125 1,534 Total borrowings 37,550 34,920 Movements in borrowings are analysed as follows: 30 June June 2015 Short-term borrowings: Balance at the beginning of the period 21,997 7,819 Borrowings received 12,197 13,638 Borrowings repaid (11,609) (6,415) Reclassification of borrowings 2,321 2,120 Bank overdrafts received 8,377 5,738 Bank overdrafts repaid (8,273) (5,109) Effect of changes in exchange rates (932) 55 Balance at the end of the period 24,078 17,846 Long-term borrowings: Balance at the beginning of the period 12,923 14,158 Borrowings received 6, Borrowings received resulting from acquisition of assets Borrowings repaid (2,813) - Reclassification of borrowings (2,321) (2,120) Effect of changes in exchange rates (1,023) (133) Balance at the end of the period 13,472 12,371 As at 30 June 2016 the Group has the undrawn borrowing facilities in the amount of RR 2,317 million, including longterm facilities in amount of RR 2,132 million (as at 31 December 2015: RR 9,137 million, including long-term: RR 6,548 million). 15

19 16 Borrowings (continued) Bonds Eurobonds On 23 June 2011 the Group issued five year maturity 350,000,000 eurobonds in the amount of USD 350 million at a coupon rate of 7.75% through its structured entity, Koks Finance Ltd. The coupons are payable semi-annually. In November-December 2011 the Group repurchased 34,000,000 eurobonds for the total amount of USD 31 million. In February 2013 the Group sold 18,000,000 of repurchased eurobonds for USD 17.6 million. In July-August 2013 the Group repurchased 4,000,000 eurobonds for USD 3.8 million. In March 2014 the Group repurchased 2,979,000 eurobonds for USD 2.7 million, and in October-December 2014 it repurchased 12,880,000 eurobonds for USD 11 million. On 2 July 2015 the Group entered into an exchanged offer (the «Exchange Offer») whereby the holders of the Existing Notes were given the opportunity to offer to exchange any or all of the Existing Notes for (i) loan participating notes to be issued by the Group (the «New Notes»); and (ii) the cash amount. As a result of the Exchange Offer, USD 150,845, % loan participation notes due 2016 were cancelled and new USD 136,496, % loan participation notes due 2018 were issued. As part of this exchange, the bonds were partially repaid in the amount of USD 14,349,000. In March 2016 the Group entered into another exchange (the «Exchange Offer») whereby the holders of the Existing Notes were given the opportunity to offer to exchange any or all of the Existing Notes for (i) loan participating notes to be issued by the Group (the «New Notes»); and (ii) the cash amount. As a result of the Exchange Offer, USD 64,849, % loan participation notes due 2016 were cancelled and new USD 64,849, % loan participation notes due 2018 were issued. In April 2016 the Group sold U.S. 7,000,000 of repurchased Eurobonds for USD 6.2 million. In June 2016 the Group sold USD 8,000,000 of repurchased eurobonds for USD 7 million. On 23 June 2016 the Group repaid the five-year eurobond issue in the amount of USD 134,306,000 in full. As at 30 June 2016, the carrying value of the eurobonds amounts is RR 10,554 million (USD million), net of transaction costs (as at 31 December 2015, the carrying value of the eurobonds is RR 21,201 million (USD 290,9 million), including the current portion of the bonds, which is equal to RR 14,618 million (USD 200,6 million)). The Group is subject to external requirements imposed on Eurobonds and loans provided by certain banks based on a net debt to adjusted EBITDA ratio. As at 30 June 2016, the Group was restricted from incurring additional loans and borrowings in an aggregate amount exceeding USD 150 million (or its ruble equivalent) except for refinancing of existing borrowings owing to the increase in the net debt to adjusted EBITDA ratio. This restriction does not create breach or event of default for Eurobonds and other loans Euro-commercial papers In April 2016, the Group finalized the establishment of IMH Finance DAC ( Dublin, Ireland). The main activity of IMH Finance DAC is an issue of euro-commercial papers for the sole purpose of financing a loan to the Company. On 18 May 2016 the Group completed a placement of USD 14,560,000 12% Discount Notes due 16 May 2017 through IMH Finance DAC as Series 1 under the Programme. Interest shall accrue monthly based on the actual number of days elapsed and be payable together with the principal of the loan. As at 30 June 2016, the carrying value of the euro-commercial papers is RR 832 million, net of transaction costs. 16

20 16 Trade and other payables At 30 June 2016 At 31 December 2015 Financial liabilities Trade accounts payables 4,621 3,814 Dividends payable 2 2 Other accounts payable Bank interest payable Total financial liabilities 5,004 4,001 Non-financial liabilities Advances received 5,938 7,078 Wages and salaries payable 1,106 1,142 Total non-financial liabilities 7,044 8,220 Total trade and other payables 12,048 12, Other taxes payable At 30 June 2016 At 31 December 2015 VAT Contributions to the state pension and social insurance funds Property tax Individual income tax Other taxes Total other taxes payable 1, Revenue 30 June June 2015 Sales in Russia: Sales of coke and coking products 3,397 4,689 Sales of pig iron 1,436 1,660 Sales of coal and coal concentrate 3,131 1,467 Sales of cast-iron ware Sales of powder metallurgy products Sales of crushed pig iron 14 - Sales of services Other sales Total sales in Russia 9,816 9,930 Sales to other countries: Sales of pig iron 13,830 15,057 Sales of coke and coking products 3,760 3,885 Sales of chrome Sales of powder metallurgy products Sales of cast-iron ware Sales of coal and coal concentrate Other sales Total sales to other countries 18,467 19,458 Total revenues 28,283 29, Cost of sales 30 June June 2015 Raw materials and supplies 14,600 12,477 Wages and salaries including associated taxes 2,963 3,034 Depreciation of property, plant and equipment 1,009 1,244 Energy Other expenses Amortisation of intangible assets Other services Changes in finished goods and work in progress (110) (107) Total of cost of sales 19,815 17,849 17

21 20 Taxes other than income tax 30 June June 2015 Property tax Mineral resources extraction tax Land tax Accrual of other taxes Total taxes other than income tax Distribution costs 30 June June 2015 Transportation services 2,542 2,090 Other selling expenses Total distribution costs 2,569 2, General and administrative expenses 30 June June 2015 Wages and salaries including associated taxes 1,396 1,768 Other purchased services Depreciation of property, plant and equipment Materials Other Total general and administrative expenses 2,056 2, Other operating expenses, net 30 June June 2015 Charity payments (Gain)/Losses on disposal of property, plant and equipment (11) 48 Accrual of bad debt provision 58 2 Reversal of obsolete stock provision (4) (1) Exchange loss/(gain), net 48 (45) Reimbursement of losses Other 35 (73) Other operating expenses, net Finance income 30 June June 2015 Financial foreign exchange gain on bond issued and on interest accrued on bonds issued 2, Financial foreign exchange gain on loans received and on interest accrued on loans received 1, Interest income Total finance income 5,

22 25 Finance expenses 30 June June 2015 Interest expense 2,756 2,069 Financial foreign exchange loss on loans issued and on interest accrued on loans issued Financial foreign exchange loss on deposits Total finance expenses 2,847 2, Income tax expense Income tax expense recorded in the interim condensed consolidated statement of profit or loss comprises the following: 30 June June 2015 Current income tax expense Impairment of deferred tax asset 1 10 Deferred income tax expense Income tax expense 1,113 1,145 Income tax expense is accrued based on management s best estimates of annual effective income tax rate. The estimated effective income tax rate for the six months ended 30 June 2016 and 30 June 2015 is 20% (it excludes the impact deferred tax asset impairment recorded in the reporting period). 27 Balances and transactions with related parties Parties are generally considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Information about the parties who ultimately own and control the Company is disclosed in Note 1. Accounts receivable and accounts payable shareholders and companies under common conrtol of Group s shareholders: At 30 June 2016 At 31 December 2015 Trade and other receivables Advances issued Other accounts receivable (including long-term) Loans issued 7,124 8,658 Interest on loans issued (including long-term loans) 1,271 1,071 Trade and other payables (37) (39) Advances received (4,762) (6,412) Loans received (219) (4) Interest payable (including long-term) (26) (4) Related party transactions Companies under common control 30 June June 2015 Sales in Russia: Services Other sales Sales to other countries: Sales of pig iron 13,723 14,965 Sales of coke and coking products Other income: Interest income Dividends 8 15 Purchase of goods and services: Transportation services (855) (844) Purchase of raw materials and supplies (230) (112) Other operating income, net

23 27 Balances and transactions with related parties (continued) Payments to key management personnel Payments to key management personnel included in general and administrative expenses amounted to RR 383 million for the six months ended 30 June 2016 (RR 576 million for the six months ended 30 June 2015). All these payments are short-term employee benefits. The number of people to whom this compensation relates is 26 for the six months ended 30 June 2016 and 27 for the six months ended 30 June Financial instruments at fair value The Group financial instruments are presented below: Note At 30 June 2016 At 31 December 2015 Assets Non-current: Loans issued and long-term interest receivable 9 8,373 9,692 Other non-current accounts receivable Current: Trade and other accounts receivable 11 2,339 3,119 Loans issued Cash and cash equivalents ,125 Total carrying value 11,467 17,137 Liabilities Long-term: Long-term borrowings 15 13,472 12,923 Long-term bonds 15 10,294 6,583 Short-term: Short-term borrowings and current portion of long-term borrowings 15 24,078 21,997 Trade accounts payable 16 4,621 3,814 Short-term bonds 15 1,092 14,618 Other accounts payable Bank interest payable Dividends payable Total carrying value 53,940 60,122 Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) (ii) (iii) level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, level 2 measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and level 3 measurements are valuations not based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety. Financial assets carried at amortised cost Carrying amounts of trade and other financial receivables, loans issued approximate fair values. Liabilities carried at amortised cost The fair value of Eurobonds as of 30 June 2016 was RR 11,323 million and was based on quoted market prices which are level 1 measurements. Fair values of other long-term and short-term debt carried at amortised cost was determined using valuation techniques. The estimated fair value of fixed interest rate instruments with stated maturity was estimated based on level 2 measurements as expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity. 20

24 28 Financial instruments at fair value (continued) The fair values of term loans and bonds are presented in the following table. 30 June December 2015 Carrying amount Fair value Carrying amount Fair value Term loans (excluding overdrafts) 37,156 37,949 34,630 35,036 Bonds 11,386 11,323 21,201 20,859 Total borrowings 48,542 49,272 55,831 55,895 The carrying amounts of overdrafts carried at amortised cost in the interim condensed consolidated statement of financial position approximate its fair value. 29 Financial risks The Group s risk management is based on determining risks to which the Group is exposed in the course of ordinary operations. The Group is exposed to the following major risks: (а) credit risk, (b) market risk (including foreign currency risk, interest rate risk), and (с) liquidity risk. Management works proactively to control and manage all opportunities, threats and risks arising in connection with the objectives of the Group s operations. The interim condensed consolidated financial information do not include all the financial risk management information and disclosures (other than the changes in the Group s liquidity discussed in note 4) required in the annual financial statements and should be read in conjunction with the consolidated financial statements for the year ended 31 December There have been no significant changes in the risk management policies since 2015 year end. 30 Contingencies, commitments and operating risks There were no significant changes to the operating environment, in which the Group operates, legal and tax risks the Group is subject for, environmental matters, insurance policies, licences compared to those, disclosed in the annual consolidated financial statements for the year ended 31 December Capital commitments As at 30 June 2016 the amount of the Group s capital commitments was RR million 1,651 million (at 31 December 2015: RR 2,134 million). Financial liability In June 2015, OOO Tulachermet-Stal, an entity under common control of the Group s owners, obtained a bank loan facility with a limit of million euros. As of 30 June 2016, 2,860 million roubles was outstanding under this facility. In November 2015, PAO Tulachermet together with OOO Stal and DILON Cooperatief U.A. (both companies are under common control of the Group s owners) entered into a number of agreements in connection with OOO Tulachermet- Stal s obligations under this loan facility agreement. As a result, under these agreements, these entities have committed jointly and severally to finance OOO Tulachermet-Stal project funding shortfall, if any, in the amount of up to the outstanding debt under the loan facility. The Group s management believes the fair value of financial obligations under these agreements is not significant as of 30 June 2016 (note 4). 31 Earnings per share Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, excluding treasury shares. The Company has no dilutive potential ordinary shares; therefore, the diluted earnings per share equal to the basic earnings per share. 21