ARMENIAN WATER AND SEWERAGE Closed Joint Stock Company INTERIM FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT for the six months ended 30 June 2015 Yerevan October 2015 B TABLE OF CONTENTS Board of Directors 3 Independent Auditor's Report 4 Statement of Profit or Loss and Other Comprehensive Income 6 Statement of Financial Position 7 Statement of Cash Flows 8 Statement of Changes in Equity 10 Notes to the Financial Statements II I2 Il Il B I I Board of Directors 1 Aram Harutyunyan Head of State Committee for Water Management of the Ministry of Agriculture of the Republic of Armenia, Chairman of the Board of Directors Members of Board Hrayr Yesayan Head of Division of Financial Programming of Current Budget Expenditures in the spheres of Agriculture, Food Safety, Nature Protection and Water Management of the staff of the Ministry of Finance of the Republic of Armenia - Deputy Head of Department Davit Grigoryan Head of Water Use Permits Division of Water Resources Management Agency of the staff of the Ministry of Nature Protection of the Republic of Armenia Gagik Khachatryan Deputy Chairman of State Committee for Water Management of the Ministry of Agriculture of the Republic of Armenia Armen Eganyan Head of Department of Industry Development of the Ministry of Economy of the Republic of Armenia Patrick Lorin General Director, "SAUR" SA I Management of Armenian Water and Sewerage cjsc Patrick Lorin General Director Arnod Biolay Operating Director Norik Gevorgyan Director of Investment Projects Coordination Armen Martirosyan Finance and Administrative Director Vahagn Manandyan Commercial Director Karen Andreasyan Internal Control Director Hamlet Sahakyan Chief Accountant Jivan Margaryan South-Eastern Branch Director Armen Zaqaryan North-West Branch Director K 3 "UOU-WlFrI-1s" Ur "SOS-AUDIT" LTD INDEPENDENT AUDITOR'S REPORT N 92 On the financial slatements of "Armenian Water ond Sewerage " Closed Joint Stock Company for the six months ended 30 June 2015 To the Management of the "Armenian Water and Sewerage" CJSC We have audited the accompanying interim financial statements of "Armenian Water and Sewerage" CJSC (hereafter, the Company) which comprise the statement of financial position as at 30 June 2015, the statement of profit or loss and other comprehensive income, statement of changes in equity and the statement of cash flows for the six months then ended and a summary of significant accounting policies and other explanatory notes. Managements Responsibility for the Financial Statements The Management of the Company is responsible for the preparation and fair presentation of these interim financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these interim financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing issued by the International Federation of Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the interim financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the interim financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the interim financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. OpnnL Inpqwp PbqGbu Uuwiub Uunghwg4w Ulrtwd 19; p. bpLwG 0037, U.SiqpLuGjwG 38/55; lbn.' (+37410) 20 11 51; bupu' (+37410) 20 11 50; www.sosaudit.am; t-inutn' info@s*audit.am An Associate of the Crowe Horwath Business Alliance 38/55 A.Tigranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; Fax: (+37410) 20 11 50; wwwsosauditam; E-mail: info@sosaudit.am "UOU-IfPII Ufe "SOS-AUDIT" LTD We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying interim financial statements present fairly, in all material respects, the financial position of "Armenian Water and Sewerage" CJSC as of 30 June 2015, and of its financial performance and its cash flows for the six months then ended in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw your attention to the Note 3.2 to the financial statement which describes matters that may cast significant doubt about the Company's ability to continue as a going concern. 26 October 2015 "SOS-Audit" LLC aryan Gnel Khachatryan, FCCA Auditor PpnnL Anp4wp Phqabu uuwaGuh UunghwgLjwb UG0qud BB; p. bptzwf 0037, U.Slqpuiju0 38/55; Abn.' (+37410) 20 11 51; twu& (+37410) 20 11 50; wwwsasaudit.am; tt-aLinumf Info@sdfaudit.am f An Associate of the Crowe Horwath Business Alliance 38155A.igranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; Fax: (+37410) 20 11 50; www.sosaudit.am; E-mail: Info@sasauditam STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME "Armenian Water and Sewerage" cjsc For the six months ended 30 June 2015 Six months Six months ended 30.06.20 15 ended 30,06.2014 Note AMD'000 AMD'000 Revenue 4 2,015,019 2,007,316 Cost of sales 5 (3,031,501) (2,924,046) Gross loss (1,016,482) (916,730) Other income 6 1,824,646 1,739,694 Distribution costs 7 (413,124) (379,858) Administrative expenses 8 (955,114) (1,166,196) Other expenses 9 (315,389) (360,482) Finance costs 10 (291,957) (284,378) Other gains/(losses), net II 827,915 (59,921) Loss before income tax (339,505) (1,427,871) Income tax (expense)/reimbursement 23 258,415 (1,203,359) Loss for the year, net (81,090) (2,631,230) Other comprehensive income Items that will not be reclassifled subsequently to profit and loss: Increase/(decrease) on revaluation surplus on property and equipment 23 (99,859) 177,887 items that will not be reclass(fled (99,859) 177,887 subsequently to profit and loss: . Total other comprehensive income (99,859) 177,887 Total comprehensive result for the year (180,949) (2,453,343) The financial statements were approved by the Company's Management on 26 October 2015, The accompanying notes form an integral part of these financial statements Patrick Lorin Hamlet Sahakyan General Director Chief Accountant iF 6 U STATEMENT OF FINANCIAL POSITION "Armenian Water and Sewerage" cjsc As at 30 June 2015 30.06.2015 31.12.2014 Note AMD'000 AMD'000 ASSETS Non-current assets Property and equipment 12 76,329,892 73,570,387 L Intangible assets 13 185,993 177,419 Advances on PPE 555,600 1,194,109 Prepayment on minimum income taxes 23 48,538 48,538 77,120,023 74,990,453 Current assets Inventories 14 1,637,203 1,501,186 Borrowings given 33,326 15,000 Trade and other receivables 15 6,058,057 5,396,010 cash equivalents 16 2,540,055 1,691,686 10,268,641 8,603,882 Total assets 87,388,664 83,594,335 EQUITY AND LIABILITIES Equity Share capital 17 13,083,063 13,057,120 Additional capital 17 2,012,271 42,000 Capital reserves 44,484 44,484 Revaluation surplus on property and equipment i8 31,785,463 31,998,664 Accumulated loss (37,245,586) (37,277,838) Non-current liabilities 9,679,695 7,864,430 Loans and borrowings 19 64,439,979 62,398,928 Grants related to assets 20 8,393,731 8,558,506 Deferred tax liabilities 23 292,862 451,418 73,126,572 71,408,852 L Current liabilities Overdraft 16 171,897 102,305 Loans and borrowings 19 1,403,380 1,064,580 Grants related to income 21 3,285 5,587 Trade and other payables 22 3,003,835 3,148,581 4,582,397 4,321,053 p Total equity and liabilities 87,388,664 83,594,335 7 STATEMENT OF CASH FLOWS "Armenian Water and Sewerage" cjsc For the year ended 30 June 2015 Six months Six months ended ended 30.06.2015 30.06.2014 fl ~Note AMD '000 AMD '000 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss for the year (81,090) (2,631,230) Adjustments for: Income tax expense/(reimbursement) 23 (258,415) 1,203,359 Depreciation and amortization 5,7,8,9 1,761,217 1,626,747 Non-cash expenditures/income 6,8 (308,223) 323,409 Income from grants related to assets 6 (234,556) (233,942) Income from interest released 6 (301,583) (290,396) Increase in receivables provision, direct write- offs, recalculations 9 148,550 308,046 Income from accounts payable write-off 6 (13,493) - Exchange loss/(gain) II (834,578) 58,049 Interest expense 10 291,957 284,378 Inventories write-off and impairment 9 - 11,895 Loss/(gain) on disposal of non-current assets 11 82,887 1,672 252,673 661,987 14, Decrease/(increase) in inventories 12c, 9 (135,297) (244,089) Decrease/(increase) in trade and other receivables 9, 15 (825,615) (1,378,329) Increase/(decrease) in trade and other payables 6,11,22 217,578 306,334 Increase/(decrease) in government grants 2 I (2,302) (269) (492,963) (654,366) Income tax paid 23 - (3,833) Interest paid (12,600) (7,218) Net cash flows from operating activities (505,563) (665,417) CASH FLOWS FROM INVESTING ACTIVITIES 12, II, Acquisition of property and equipment 17, 22 (3,788,996) (4,863,837) Proceeds from property and equipment disposal 11 5,239 1,510 13, Acquisition of intangible assets 12c (25,920) (48,955) Borrowings given (18,326) - Cash flows from investing activities, net (3,828,003) (4,911,282) STATEMENT OF CASH FLOWS (continued) "Armenian Water and Setrerage" cjsc For the half- year ended 30 June 2015 Six months Six months ended ended 30.06.2015 30.06.2014 Note AMD'000 AMD'000 CASH FLOWS FROM FINANCING ACTIVITIES Contributions from shareholder 7 1,970,271 3,487,023 Proceeds/(repayments) from/(of) borrowings, net (a) 8,19 3,136,684 4,323,012 Net cash flows from financing activities 5,106,955 7,810,035 Net increase in cash and cash equivalents 773,389 2,233,336 Cash and cash equivalents at the beginning of the year 16 1,589,381 1,696,354 Exchange differences effect on cash and cash equivalents 11 5,388 (121,254) Cash and cash equivalents at the end of the year 16 2,368,158 3,808,436 19 [1 17 9 о и �с о й t� аа Q о � � а, и `"' ао о� °° '''� �'' о+ и °` � ьD �с q 00 г'L ° о г"' оо `D ; ts � � о v � Q � � � � � �. м ^ гл � - о� а F .. " � о � �_ и n С � � [+ о^0 О � N � �О Q О а0 рр � ,� !'`�, 10 00 W О �� Й � ь�r Ои0 О 0�0 n � ti Й са � и н °�° `� ° n`Di �- N м n � " м �, Q и _ _ _ ° '� 01 � и о0 00 �О � � �Ч � м �D � С � � оо о �а � � � й�°+ С � � 1� 'NC' а г� q� Й С L � � � � � Q: � �% � ..r ... �.r .� � о.� м м м м �.' ? Q- е�, w о � 1 1 1 � � 1 1 1 1 � � � � 01 � � '� '� а д � �v � � � � � � ° �' � 1 1 1 1 Q 1 � 1 1 � � у о гч г.� :: •� � ° � � � � т о а N �р i � � �р о � м � � м � � � о��, о � �i � t� n r и гл � �•� а°о о°о о N о и оо w � м r. � W � z °I � � cv ,� г � и '^ и � . � � � � и а� �. •- � '� � О N и r цу С � �ц � и '� ,_, "G •ц � м и N � а ° Q � � � � а �� у С С � � R'а С � � т д л � _ �т еа G °' � -° ° ы � П Н у-�'�L .. t`" � � м � � й � с�.г м � ' � и .. �LJE '� 3 о � г s°�• д р,х .а м^о es � и и д � и и v н r.,� ei � о «. W °� у Q =_ cs Ё �ы и й �О т �¢СΡ7 й й�р � �а ai г.Gi � �� � и � N � R и - С С h й �� оо _°а V о т т° с� �� аа �. � NOTES TO THE INTERIM FINANCIAL STATEMENTS "Armenian Water and Sewerage " cjsc For the six months ended 30 June 2015 1. Background LL Company and operations Armenian Water and Sewerage closed joint stock company (hereinafter - Company) has been established based on the order of Ministry of Urban Development of the Republic of Armenia N 169 of the year 1997. The Company is the legal successor of Armenian Water and Sewerage State Enterprise (registration no: 286.140.00736, 22.12.1994). The Company has no subsidiaries. 100% shareholder of the Company is the Republic of Armenia represented by State Committee for Water Management of the Ministry of Agriculture of the Republic of Armenia. Legal address of the Company is 8a Vardanants deadlock, Yerevan, the Republic of Armenia. The authority of the Company's Executive Body has been transferred to a private manager - French "SAUR" SA organisation in accordance to the decree N 942-N dated 9 July 2004 of the Government of the Republic of Armenia. On 19 August 2004 the management contract has been signed between the "SAUR" SA and the Company for a period of four years, which was periodically extended. In accordance with Contract Amendment # 4 on 14 October 2011 contract period is extended till 31 December 2013 with possibility of additional one year extension, and in accordance with Contract Amendment # 5 on 12 December 2013 contract period is extended till 31 May 2016. The Company's principal activity is water supply and sewerage services rendered to legal entities and individuals. The Company carries out its activity on the entire territory of the Republic of Armenia, except for Yerevan, Gyumri, Vanadzor and Armavir, and those neighboring areas. During the year 2013, the Company rendered its services through three branches: North-Western, Central-Western and Southern. Since I June 2014 the Company's branches were restructured into two: North-Western and South-Eastem. The branches are responsible for exploitation and maintenance of existing systems (daily regulated water reservoirs, stations of drinking water purification, chlorine stations, water carriers and distribution networks, water removal collectors, sewerage stations and other structures). Most structures are over 20 years old. 2. New and revised IFRSs in issue but not yet effective The Foundation has not applied the following new and revised IFRSs that have been issued but are not effective. The Foundation has not yet determined the potential effect of the new and revised standard on its financial position and performance. * IFRS 15, Revenue from contracts with customers, (issued on May 2014) is effective for annual periods beginning on or after I January 2017. IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. It supersede the following revenue Standards and Interpretations upon its effective date: ] IAS 18, Revenue, ] IAS 11, Construction Contracts, V IFRIC 13, Customer Loyalty Programmes, ' IFRIC 15, Agreement for the Construction ofReal Estate, V IFRIC 18, Transfers of Assets from Customers, V SIC 3 1, Revenue-Barter Transactions Involving Advertising Services. IFRS 15 will only cover revenue arising from contracts with customers. Under IFRS 15, a customer of an entity is a party that has contracted with the entity to obtain goods or services that are an output of the entity's ordinary activities in exchange of consideration. Unlike IAS 18, the recognition and measurement of interest income and dividend income from debt and equity instruments are no longer within the scope of IFRS 15. IFRS 15 has a single model to deal with revenue from contracts with customers. Its core L principal is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. * Amendments to lAS 16, Property, Plant and Equipment, and lAS 38, Intangible Assets, - Clarification ofAcceptable Methods of Depreciation and Amortization (issued on May 2014) is effective for annual periods beginning on or after I January 2016. The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable perception that revenue is not an appropriate basis for amortization of an intangible asset (which can be rebutted in two limited circumstances). * Amendments to lAS 16, Property. Plant and Equipment, and [AS 41, Agriculture, -Bearer Plants (issued on June 2014) is effective for annual periods beginning on or after I January 2016. The amendments define a bearer plant (mature bearer biological assets, which no longer undergo significant biological transformation and are used solely to grow produce) and require biological assets that meet its definition to be accounted for as property, plant and equipment in accordance with lAS 16, instead of IAS 41. The bearer plants can be measured using either the cost model or the revaluation model set out in IAS 16. The producing growing on bearer plants continues to be accounted for in accordance with lAS 41. 12 3. Significant accounting policies 3.1 Statement of compliance These interim financial statements have been prepared and presented in accordance with International Financial Reporting Standards (hereinafter - IFRSs). IFRS are Standards and Interpretations issued by the International Accounting Standards Board (IASB). They comprise: * International Financial Reporting Standards; * International Accounting Standards; * International Financial Reporting Interpretations Committee (IFRIC) Interpretations; * Standing Interpretations Committee (SIC) Interpretations. I The principal accounting policies applied in the preparation of these financial statements are set out bellow. These policies have been consistently applied. 3.2 Going concern The Company has incurred substantial financial losses in recent years, particularly, AMD 81,090 thousand in six months ended at 30 June 2015 (30.06.2014: AMD 2,631,230 thousand). As a result the accumulated loss as at reporting date amounts to AMD 37,245,586 thousand. As at 30.06.2015 Company's net assets amount to AMD 9,679,695 thousand (30.06.2014: AMD 7,864,430 thousand). In accordance with decree N 1366-A dated 05.12.2013, the Government of the Republic of Armenia approved the approach to transfer water system operating rights from "Armenian Water and Sewerage" CJSC to a lessee on tender bases. However, the implementation of the decree was postponed, and it was decided to extend the contract with "SAUR" SA organisation by prolonging the functions of the executive body in the Company till end of May 2016 (Note 1.1.). After making assessments, the Company's management has a reasonable expectation that the Company is able to continue its operational existence in the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its financial statements. 3.3 Basis for measurement The financial statements are prepared on the historical cost basis except for the property and equipment measured at revaluation model. The last revaluation was conducted as at 31.12.2012. 3.4 Functional and presentation currency The functional currency of the Company is the national currency of the Republic of Armenia, the Armenian Dram (AMD). AMD is also the currency in which these financial statements are presented rounded to the nearest thousands. 3.5 Use ofjudgments, estimates and assumptions Management has made a number of judgments, estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with IFRSs. Actual results may differ from those estimates. 13 I 3.5.1 Assessment uncertainties The following are important assumptions and other uncertainties of assessment concerning the future as at the reporting date, which have a significant impact on the current values of assets and liabilities: a) The revalued amount of PPE (Note 12) Some classes of Company's PPE are measured by revaluation model. As there is no market- based evidence of fair value because of the specialised nature of the some items, for example, water supply pipelines, the fair value of those assets are estimated applying depreciated replacement cost approach by an external professional valuator. The last revaluation is implemented as at 31.12.2012 through water supply and sewerage pipelines. As at 31.12.2012 net increase on these PPE from implemented revaluation amounts to AMD 19,259,053 thousand, from which the increase in the amount of AMD 19,567,943 thousand is recognised in equity, and decrease in the amount of AMD 308,890 thousand is recognised in profit or loss. b) The collectability of trade receivables (Note 15 and 24.2) The Company assesses the collectability of trade receivables arisen from water realization through riskiness analyses based on the following three risk categories: legal status of consumer, debt aging and usage of water meter. For each risk category the uncollectability coefficient is determined on the basis of prior year results and future expectations of collectability. As at 30.06.2015 the provision on uncollectability in the amount of AMD 5,831,774 thousand on receivables on water realization in the amount of AMD 8,395,572 thousand is formed (31.12.2014: AMD 5,719,699 thousand on receivables in the amount of AMD 8,145,052 thousand). a 3.6 Foreign currency transactions Transactions in foreign currencies are translated to AMD at exchange rates at the dates of the transactions. Settlement rate established by the Central Bank of the Republic of Armenia is taken as a currency. At the reporting date: a) foreign currency monetary items are reported (restated) using the closing rate (reporting date); b) non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. Foreign exchange gains and losses arising on the settlement of transactions or from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit or loss. 3.7 Financial instruments The following non-derivative financial instruments are available at the Company: Receivables; 14 * Payables; * Loans and borrowings received; * Cash and cash equivalents. Receivables and payables, loans and borrowings received are not designated as financial instruments measured at fair value through profit or loss. Cash and cash equivalents comprise cash at bank and on hand, and cash in transfer. Bank overdrafts that form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 3.7.1 Recognition and initial measurement The financial instrument is recognized on the balance sheet (accounting) when, and only when, the Company becomes a party to the contractual provisions of the transaction. When a financial asset or financial liability is recognized initially, the Company measures it at fair value plus expenditures directly related to the transaction. Fair value of short term (with less than 6 months of maturity period) receivables and payables is equal to the transaction price, i.e. the nominal amount of monetary assets receivable (payable) against receivables (payables), if the effect of discount is immaterial. 3.7.2 Subsequent measurement After initial recognition the payables and receivables, loans and borrowings received are measured at amortized cost, using the effective interest method less impairment losses. Amortized cost of a financial asset or financial liability is the amount at which the financial asset or liability was measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization of any difference between that initial amount and the maturity amount and minus any write-down for impairment or uncollectability. The effective interest method is a method of calculating amortization using the effective interest rate of a financial asset or financial liability. The effective interest rate is the rate that exactly discounts the expected stream of future cash payments through maturity or the next market-based review date to the current net carrying amount of the financial asset or financial liability. It includes all payments paid or received between the contract parties. 3.7.3 Derecognition offinancial instruments Financial assets (receivables) are derecognized when and only when: a) Company's contractual rights to the cash flows from the financial assets expire or b) If the Company transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities (payables, loans and borrowings received) are written off from the company's balance sheet when and only when it is settled, i.e. when the contractual provisions under the contract have been fulfilled or declared void or expired (limitation of action). 3.8 Property and equipment 3.8.1 Initial measurement An item of property and equipment that qualifies for recognition as an asset is measured at its cost. I' The cost of an item of property and equipment comprises its purchase price less trade discounts, import duties and non-refundable purchase taxes and other mandatory payments, transportation costs, and any directly attributable costs of bringing the asset to working condition for its intended use. Exploitation and similar pre-production expenditures are not included in the cost of PPE items. 3.8.2 Subsequent expenditures Expenditures relating to addition of new component to property and equipment or replacement of components of property and equipment are added to the carrying amount of the property and equipment (are capitalized) when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Company, and its value can be reliably measured. Replaced components of property and equipment are derecognized. Apart from the above, other expenditures on property and equipment (e.g. servicing, maintenance), are not added to the book value of the property and equipment (are not capitalised). 3.8.3 Subsequent measurement After recognition as an asset, buildings, structures, pipelines, equipment and vehicles are carried at revalued amount, being its fair value at the date of the revaluation less any accumulated depreciation and any accumulated impairment losses. After recognition as an asset, other items are carried at its cost less any accumulated depreciation and any accumulated impairment losses. If an item of property and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs is revalued. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. The revaluation surplus included in equity is transferred directly to retained earnings when the property and equipment is disposed. 3.8.4 Depreciation The depreciable amount of an item of property and equipment is allocated on a systematic basis over its useful life using the straight-line method. -L Depreciation of the property and equipment is calculated when it is available for exploitation, i.e. when the venue and the status of the property and equipment allow its exploitation per the Company's intentions. Depreciation calculation is ceased at an earlier of the following dates: a) when the property and equipment is classified as available for sale; etc. b) when the property and equipment is derecognized. Depreciation calculation does not cease when the PPE item is no longer used. Useful lives for all property and equipment are expressed in periods. The following are the estimated useful lives: * Buildings 20 to 50 years * Structures 20 to 40 years 16 * Pipelines 20 to 40 years * Equipment 5 to 20 years * Vehicles 5 to 9 years * Other I to 5 years 3.8.5 Construction in Process Unfinished property, plant and plant are those assets in the process of construction. The initial cost includes cost of materials, labor and other direct expenditures. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset, except for the property and equipment curried at revalued value. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The depreciation on construction in process commences since the completion and exploitation of constructed asset. 3.9 Intangible assets 3.9.1 Measurement Intangible assets that are acquired by the Company are measured at cost less accumulated amortization and accumulated impairment losses. 3.9.2 Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset, replaces or services its component, providing that the Company may demonstrate that these expenditures meet the definition and recognition criteria of intangible assets. All other expenditures are recognized in profit or loss when incurred. 3.9.3 Amortization The depreciable amount of an intangible asset is allocated on a systematic basis over its useful life on a straight-line basis. Amortisation of an intangible asset is calculated from the moment since the asset is available for use. Amortisation ceases at an earlier of the following two dates: a) when the intangible asset is classified as held for sale; etc. b) when the intangible asset is derecognized The estimated useful lives are as follows: * Computer software I to 10 years * Water usage rights and licenses 10 years [ Other intangible assets 1 to 10 years Amortization for an intangible asset with an indefinite useful life is not calculated. 17 3.10 Leases 3.10.1 Finance leases Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. The assets under finance lease are recognized by ] Lessee. During the reporting year, the Company does not have assets received or surrendered under finance lease. I 3.10.2 Operating leases Lease other than financial lease is operating lease. The assets under operating lease are ] recognized by Lessor. Payments made or received under operating leases are charged to the income statement on a straight-line basis over the period of the lease. 3.11 Inventories Inventories are measured at the lower of cost and net realizable value. Cost of interchangeable inventories is determined using the weighted average value formula. The cost of inventories includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Materials intended for use in the course of provision of services and other inventories are not revalued lower than their cost if it is expected that the service for the provision of which they will be used, will be sold at a price equal or higher than the cost. 3.12 Impairment At each reporting date, property and equipment and intangible assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset (or group of related assets) is estimated and compared with its carrying amount. If estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount and an impairment loss is recognised immediately in profit or loss. Similarly, at each reporting date, inventories are assessed for impairment by comparing the carrying amount of each item of inventory (or group of similar items) with its selling price less costs to complete and sell. If an item of inventory (or group of similar items) is impaired, its carrying amount is reduced to selling price less costs to complete and sell, and an impairment loss is recognised immediately in profit or loss. The Company assesses at each reporting date whether there is any objective indication that financial assets (or group of similar assets) measured at cost or amortized costs may be impaired. If any such indication exists, the impairment loss is recognized directly in profit and loss. If an impairment loss subsequently reverses, the carrying amount of the asset (or group of related assets) is increased to the revised estimate of its recoverable amount (selling price less costs to complete and sell, in the case of inventories), but not in excess of the amount that would have been determined had no impairment loss been recognised for the asset (group of I 18 I related assets) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. 3.13 Short-term Employee Benefits Short-term employee benefits include wages, salaries short-term compensated absences (such as paid annual leave and paid sick leave), and bonuses. When an employee has rendered service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service: a) as a liability after deducting the amount already paid. If the amount already paid exceeds the undiscounted amount of benefits, the Company recognizes this difference as an asset to the extent that this prepayment will lead e.g. to a decrease in future payments, or recovery of financial resources; and b) as an expense, unless it is included in the carrying amount of another asset. 3.14 Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or F constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. 3.15 Revenue 3.15.1. Services When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction are recognised by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: a) the amount of revenue can be measured reliably; b) it is probable that the economic benefits associated with the transaction will flow to the Company. Revenue from water supply and sewerage services is recognised in parallel with the rendering of services on a monthly basis. The amount of services rendered is determined based on the quantity of water used by customers and tariff approved by Public Services Regulatory Commission of the Republic of Armenia. Stage of completion of other services is estimated based on the review of work performed. 3.15.2 Goods Revenue from the sale of goods is recognised when all the following conditions have been satisfied: a) the Company has transferred to the buyer the significant risks and rewards of ownership of the goods; I 19 I n1 b) The Company retains none of the following: 1. continuing managerial involvement to the degree usually associated with ownership; II. effective control over the goods sold; c) the amount of revenue can be measured reliably; d) it is probable that the economic benefits associated with the transaction will flow to the Company. Company's sale of goods includes sale of water meters and tangible assets available in excess in the Company, or assets which are not suitable for use. Revenue from sale of mentioned goods is recognized at the moment when the ownership towards the goods passes to the buyer. 3.16 Cost of sales The cost of water supplied and sewerage consists of salaries of staff directly involved in service provision; materials used as well as other direct overhead (variable and fixed) related to provision of services. Variable operational overhead expenses are those indirect costs related to provision of services that directly or semi-directly are varied corresponding to sale volume, as an example, supplementary materials related to service provision, salary of supplementary service. Variable overhead costs are allocated to unit of service based on actual operational capacity. Fixed operational overhead expenses are such indirect cost related to provision of services t. that are relatively stable regardless to service volumes, example, depreciation of operational buildings and equipment, maintenance costs of those assets, administration of operational division and general operational costs. Allocation of operational overhead expenses to service cost is done based on standard capacities of operational means used. The standard capacity is the service level that reached in several average periods considering planed idle periods. Fixed operational overhead costs allocated to unit of service are not increased while for low effectiveness or idealness. Unallocated overhead costs are recognized as expense in the period as incurred. Selling and administrative overhead costs are not included in the cost of sales but recognized as expense in the period as incurred. 3.17 Government grants Government grants are recognized as a deferred income if there is reasonable assurance that: a) the Company will comply with the conditions attaching to them; and b) the grants will be received. Government grants are measured at fair value. Government grants recognized as income over the periods necessary to match them with the related consists which they are intended to compensate, on a systematic basis. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs is recognized as income of the period in which it becomes receivable. The Government grants received by the Company include subsidies from the Government, co- [ financing from Government in relation to credits of International Development Association, European Bank of Reconstruction and Development, International Bank of Reconstruction and Development, and Asian Development Bank, as well as computer hardware received from USAID, water meters and other assets. 20 U 3.18 Financial expense and income Finance income comprises interest income accrued on current accounts. Finance expenses comprise interest costs on borrowings. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs expensed in the period I in which they accrued. 3.19 Income taxes 3.19.1 Current tax Income tax on current year profit or loss consists of current tax. Current tax is recognized as an income or expense and are included in the net profit or loss of the period, except to the extent that the taxes arise as a result of an event or a transaction which is recognized directly in equity during the same or another reporting period, in which case taxes are recognized directly in equity. Current tax is the amount of income taxes payable in respect of the taxable profit for a period. Current tax liabilities for the current and prior periods are measured at the amount expected to be paid to the budget, using the tax rates that have been enacted by the reporting date. 3.19.2 Deferred tax Deferred taxes (deferred tax liabilities and deferred tax assets) of the Company are conditioned by carry-forward of temporary differences (taxable and deductible temporary differences) and unused tax losses to the future periods. Deferred taxes arising as a result of temporary differences are calculated using balance sheet liability method, based on the temporary differences between the carrying amounts of assets and liabilities used for preparation of financial statements, and amounts used for taxation purposes (tax base). A deferred tax liability is recognized for all taxable temporary differences unless the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognized for deductible temporary differences to the extent that it is probable that the taxable profit will be available against which the deductible temporary difference can be utilized, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognized for unused tax losses carried forward, to the extent that it is probable that the taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied upon realization of the asset or settlement of liability, based on the tax rates that have been enacted or substantially enacted as of the reporting date. 21 3.20 Changes in accounting policies, changes in accounting estimates and material errors 3.20.1 Changes in accounting policies The Company accounts for a change in accounting policy resulting from the initial application of an IFRS in accordance with the specific transitional provisions, if any, in that IFRS. When the Company changes an accounting policy upon initial application of an IFRS that does not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, the change is applied retrospectively. When a change in accounting policy is applied, the Company adjusts the opening balance of each affected component of retained earnings. Comparative information is restated while it is realizable. There were no accounting policy changes in the reporting year that could have effect in these financial statements. I 3.20.2 Changes in accounting estimates The effect of a change in an accounting estimate is recognised by including it in net profit or fJ loss in: (a) the period of the change, if the change affects that period only; or (b) the period of the change and future periods, if the change affects both. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate. There were no changes in an accounting estimate in the reporting year that has an effect in the financial statements of the current period or is expected to have an effect in future periods. Ii 3.20.3 Prior period errors Prior period material errors are corrected retrospectively after their discovery by: Ui (a) restating the comparative amounts for the prior period(s) presented in which the error occurred; or (b) if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented. 12 1 [ 4. Revenue Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Revenue from provision of services, including: On population, including: - water supply services 1,332,743 1,347,818 - sewerage services 128,815 129,407 I 1,461,558 1,477,225 LI On state entities, including: - water supply services 180,937 173,940 - sewerage services25845,0 25,894 25,803 206,831 199,743 On other entities, including: - water supply services 310,211 293,250 - sewerage services 36,419 37,098 346,630 330,348 2,015,019 2,007,316 In accordance with the Decree N 71N dated 27.02.2009 of Public Services Regulatory Commission of the Republic of Armenia the following tariffs effective from I April 2009 were determined for the services rendered by the Company (Note 6) (AMD/one meter cube water rendered, including value added tax): - water supply services - 154.47, - sewerage services - 25.31, - wholesale water supply - 51.49. 23 5. Cost of sales Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 I Depreciation and amortization 1,678,357 1,560,258 Electricity 469,305 466,205 Employee reimbursement 509,207 494,823 Material expenditures 181,021 205,980 Equipment maintenance 91,509 104,758 Sewerage removal expenses 58,196 50,386 Ecology fee 11,535 12,373 Natural resources utilization fee 8,186 9,296 Purchased water expenses 7,199 6,981 Other expenses 16,986 12,986 3,031,501 2,924,046 6. Other income Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Grants related to assets 234,556 233,942 Subsidy* 841,217 850,268 Grants related to income 310,725 329,243 Income from inventory disposal 3,174 3,965 Interest released 301,583 290,396 Reimbursement of loss 86,401 7,820 Water meters disposal 12,117 5,597 Trade payables write-off 13,493 - Financial income 130 171 Fines, penalties 2,034 Other 19,216 18,292 1,824,646 1,739,694 (*) In the reporting year the Company received a subsidy in accordance with Subsidy contract N I-S on 20.01.2015 designed by the RA 2015 state budget. The subsidy is provided: a) to consumers of service territory for the purpose of according water supply and sewerage provision by procedure established by AR Iaw and other legal acts applying rates stated by 24 Committee on Public Service Regulation of the Republic of Armenia according to decree # 71-N dated 27.02.2009, b) for the purpose of principals redemption of loans provided by the European Bank for Reconstruction and Development and World Bank. 7. Distribution costs Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Employee reimbursement 324,171 316,996 Bank and collection expenses 24,947 25,828 Marketing and advertisement expenses 25,957 13,898 Fuel 8,335 6,059 Depreciation and amortization 7,416 2,012 Other 22,298 15,065 413,124 379,858 8. Administrative expenses Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Management costs (SAUR) 256,852 378,503 Employee reimbursement 329,661 406,868 Audit and advisory services 106,502 125,884 Depreciation and amortization 68,952 61,524 PPE maintenance 43,401 48,566 Lease 14,317 13,400 Postage and communication expenses 50,288 42,513 Electricity 10,398 9,755 Business trip expenses 5,509 10,040 Insurance expenses 27,454 24,976 Expenses from non-reimbursable taxes 17,339 8,971 PPE registration 491 1,720 Bank charges 412 1,270 Other 23,538 32,206 955,114 1,166,196 2$ 9. Other expenses Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Increase in provision for impairment of trade receivables 112,075 234,779 Direct write-off of receivable balances 4,100 10,633 Decrease in receivables as a result of recalculation of services rendered 32,375 62,634 Cost of goods sold 11,258 4,995 Cost of other inventory sold 3,210 3,965 Write-off of inventory - 252 Inventory impairment - 11,643 PPE write-off 76,224 . Depreciation and amortization 6,492 2,954 Reimbursement of loss 5,253 . Employee other reimbursements 33,769 26,708 Other expenses 30,633 1,919 315,389 360,482 10. Finance costs Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Interest on loans 279,357 277,160 Interest on overdrafts 12,600 7,218 6 291,957 284,378 11. Other gains/(losses) Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Exchange difference Doatd sst 834,578 (58,049) (6,742) (1,068) Non-current assets disposal Other79 (604) Other- (200) 827,915 (59,921) 26 �. о _ _ О N г� "" � �о � �` Оо0 � � "'� l� �D N � � N и � о � � � 00 ['�1 00 N _ � r а д;, '''?. N��п �� ?`'� � � � oNO о�о л О � ar И�.`r.. � и О�� � N �� О; С� Ю О� � t� 1Q � Й� N р �"� l ��р v3. о �, �д '�,а ¢ n о� а N N и М � Е' � и �$� у � N r N N N �D �О л л �� � _ иеrмл С �^' и' N 00 м� ао ^ М � и� � � О� м м N о а� о r, е о �о � ао и � ^�о :З 00 � о^ � а cV �д �� ° й и r м � N�. и +'� 00 �D et � ап е+ N N м � Q оо t� �д °O �' N � � л'� �' О� L й рр � О �у �О � ет С GO м 1� [� Q � �в � Q1 �--� Q� �� Q � Q Q� � � � м у г^7 � � �м а г� N Qw О� С й N N N м N N г'�1 � N N N 1'�� та ,", � � «. �о *� г�t и С� �д �^ � е! И � о р 00 гry � � � � м м � � � �,.� �D м т� �О r� � � р и ��� rv оо м л л г� n 00 е^,� о 1}LJ�1 с "" а м й о' N „� "^� м м м м � о Й � т' �, �г oN0« О"« � � N eV N cV +^ 00 О�С � �D 'Л - С� 00 � n � �О С� 00 д' . .. ,.. rr тr iт7 . 0�. еI а0 м оо ^ 00 о м м^,•. р р О �.�, �,,,,, �,�-i OQO Й L. �� о�+ � N и� Т`О й'П � м� О N�� l� � рмр [� N И Q� .: « -- еч "3. « �- « °` �о ..� г� а" а� т`i er оо �п �д« � � � О N � у � � � `^ � ^ 'а' `мо, о� " v t+ t� � v и •--� 00 et � ё � �О �`-' о^' - v� о0 р�р м.. .. N о м v � GO 00 И N � а� t� оо" оо ао м ���О �, r'i гл г�i � ё� > W �.. - л М � С+ й е!' О� � t� � t� fV 7 � N^�О N - � гу � у� �О Q Q� К1 �$ а°�,� о°��с� о � �оо й�qй ° � � or�a о; � _� « � N N N О� Q� � а DO �'7 ^°..° l� � `д м � Об :� О� rм-� с. а�, r3. .° " о о �O оо й°° "� �°,,,,° оио � � г� О оо Ф о .: ,.: и� �о г� ос �� м м г� о м гл rл rгу N N N N ь. �. оо л и оо .-, .. , ,--� OD �О .�-� Оид � N�"� м а' � Й й�� �� � л м � �D � о0 �fi N � м О+ С �� м n � �..� � tt �i N_ � �� О О� [� _ г� N �D И И и 'С � `О � `_' гNл �у о гV N м � "" ь. г`1 � � � � О М 'D � °С � � 0�1 Й � � �_ `1 i. " � �';. � и r 0� ^ � м а�о ^' � " °O �''� Й Й Vi Й о и - ° r n r` � � г�i у н л1 N � ь. '" .' ^. -. � Й .� в+ � � � ✓.в � =i _ _ _ � v v � С7 С' ` ё � �r ё � �л n о Е и Ё '� � гV а� � гЧ � Ct н у`Т г°.� �'л а _ � � д •у С' ��' �L еФч �+ �� г°.� G '` о = ё у о � = ё � г � � � .�е � а � у � _и � � т с v о а е v о= С= �, а, fl с о = ё ет � vi � с = еа �= е� � о о и еб +� .? � '� ,� 1 '� Zt � � ° 1 � s� r`.n = i '� г� �' ё � ��.• � ё°м .. с ё г°•у Zt �.� ё�°м �.� с с г°•1 г' г°� � W а � .. � •°- °- � � ,.� д .� � р .а; � � д .� .а .. .. � � .р � � � W и � а� р р т � о� г^ ё д й= е� е� W �}+�'� �� гд � °'� � е� г` а'��' ti � Е" � Сыi О '� �й �й V V О 'й �й 'й i�i i+ гыJ V •О 'н 'т 4 r�j •V •р 'й 'й V 'L�' � О ~+ О LLL111 р"' � e=s = � � � � .=т. � .о � � � " т ?_' � � �Э = _ � � � `� _ �, :. � � у � '� � и й v �� й й�'� а�о � ��° � еа w еа .� . N �сд ¢о� � т т¢f��� т� тО0�ос т т Ofl� с� т С� в Q� в �. �. � (a) Additions to property and equipment during the reporting six months consist: AMD' 000 Acquisitions, construction, capital expenditures 4,478,644 Free of charge receipt 287 Contribution to the equity 25,943 Interests capitalization 80,602 Other 4 L1tal 4,585,480 (b) Deductions from property and equipment during the reporting six months consist: AMD' 000 Initial cost Accumulated ' Carrying value depreciation and impairment loss Disposals 5,160 - 5,160 Write-off 163,834 87,610 76,224 Total 168,994 87,610 81,384. (c) Reclassifications - other items during the reporting six months consist: AMD' 000 Reclassiried item Initial cost Accumulated Carrying preciation value Inventories 721 1 720 Total 721 1 7201 (d) Revaluation As at 31.12.2012 revaluation of water supply and sewerage pipelines was conducted in accordance with RA Government decree N I 187-A dated 20 September 2012. The revaluation was conducted by a qualified valuer. Revaluation results were approved by the decree of the Government of RA N262-A dated 21.03.2013. As there is no market-based evidence of fair value because of the specialized nature of the some items, for example, water supply and sewerage pipelines, the fair value of those assets are estimated applying depreciated replacement cost approach. As at revaluation date any accumulated depreciation amount of revaluated assets and any accumulated impairment loss were mutually eliminated against the gross cost of the asset and the net amount restated to the revalued amount of the asset. Net increase from revaluation conducted as at 31.12.2012 was AMD 19,259,053 thousand from which AMD 19,567,943 thousand is recognised in equity, and AMD 308,890 thousand decrease in profit or loss. 28 (e) Impairment I As at 31.12.2008 the Company has performed impairment test of property and equipment involving qualified valuer, as a result of which the impairment loss in the amount of 3,307,882 thousand drams was recognized. No impairment loss was recognized during the reporting and the previous six monthss. Il 13. Intangible assets AMD '000 Water usage IT in Other permits develop intangi and ment ble Software licenses process assets Total Cost As at 1 January 2014 183,884 9,334 11,153 4,674 209,045 Additions 13,644 6,361 28.950 48,955 As at 30 June 2014 197,528 15,695 11,l53 33,624 258,000 As at 1 January 2015 271,015 15,768 - 35,659 322,442 Additions 25,600 - 320 25,920 As at 30 June 2015 296,615 15,768 - 35,979 348,362 Accumulated depreciation and impairment loss L. As at I January 2014 104,184 8,669 - 4,674 117,527 Additions 10,991 665 768 12,424 As at 30 June 2014 115,175 9,334 5,442 129,951 As at 1 January 2015 128,740 9,334 - 6,949 145,023 Amortized amount 15,299 322 1,725 17,346 As at 30 June 2015 144,039 9,656 - 8,674 162,369 Carrying amount As at 1 January 2014 79,700 665 11,153 - 91,518 As at 30 June 2014 82,353 6,361 11,153 128,049 As at I January 2015 142,275 6,434 - 28,710 177,419 As at 30 June 2015 152,576 6,112 - 27,305 185,993 14. Inventories As at 30.06.2015 As at 31.12.2014 AMD '000 AMD '000 Materials 1,337,897 1,158,036 Goods 299,306 343,150 1,637,203 1,501,186 1 29 15. Trade and other receivables As at 30.06.2015 As at 31.12.2014 AMD '000 AMD '000 Receivables on water supply and sewerage services Residential customers 7,937,855 7,750,510 Other entities 349,097 326,116 State organisations 108,620 68,426 Provision for impairment of trade receivables (a) (5,831,774) (5,719,699) 2,563,798 2,425,353 Other receivables Sale on goods (water meters) 14,470 9,674 On other sales 60,539 49,894 Provision for possible losses on other sales (25,587) (25,587) Prepayments on purchases 61,183 31,187 Receivable grants 195,827 383,671 On deferred VAT 278,035 301,265 Prepayments on taxes 2,853,063 2,201,299 Other receivables 56,729 19,254 3,494,259 2,970,657 6,058,057 5,396,010 Fair values of financial assets classified as trade and other receivables are as follows: As at 30.06.2015 As at 31.12.2014 AMD '000 AMD '000 Trade receivables 2,563,798 2,425,353 On other sales 34,952 24,307 Sale of goods (water meters) 14,470 9,674 2,613,220 2,459,334 a) Movement on provision for impairment of trade receivables Six Six months months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Opening balance 5,719,699 5,419,603 Creation/Increase in reserve (Note 9) 112,075 234,779 Closing Balance 5,831,774 5,654,382 o 30 1l U 16. Cash and cash equivalents As at 30.06.2015 As at 31.12.2014 AMD '000 AMD '000 Cash at bank 2,540,055 1,691,686 2,540,055 1,691,686 Overdraft (171,897) (102,305) 2,368,158 1,589,381 17. Equity As at 30.06.2015 As at 31.12.2014 Ordinary shares (unit) 1,683,830 1,680,491 Share nominal value (AMD) 7,769.82 7,769.82 Total equity (AMD'000) 13,083,063 13,057,120 100% shareholder of the Company is the Republic of Armenia represented by State Committee for Water Management of the Ministry of Agriculture. Basis changes on the equity in the reporting six months: i. In accordance with the Republic of Armenia Government decree No 1484-A dated 26 December 2013, the Company received an underground pipeline of 7,885 meters length, which is located in Tavush marz from village Haghtanak to village Bagratashen, for AMD 25,943 thousand cost as a equity contribution. The equity contribution was state registered on 3 July 2015. ii. During the first six months of 2015, the state co-financing in the amount of AMD 1,970,271 thousand is classified as additional capital, before making a decision about replenishment of equity by the owner. 18. Revaluation surplus on property and equipment Six months Six months ended ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Opening balance 31,998,664 31,598,693 Decrease/(increase) in deferred tax liability on revaluation (99,859) 177,887 Surplus amount transferred to accumulated loss on disposed/written-off PPE (113,342) (34,495) Six months Balance 31,785,463 31,742,085 Closing Balance 31,785,463 31,998,664 I 31 1I 19. Loans and borrowings As at 30.06.2015 As at 31.12.2014 AMD '000 AMD '000 Credits IDA Credit 3893 (a) 10,690,063 10,960,098 IDA Credit 4514 (a) 9,389,909 9,438,395 ADB Credit 2363 (b) 17,160,327 17,248,938 ADB Credit 2860 (b) 13,097,855 11,795,382 EBRD Credit 37030 (c) 2,406,957 2,578,883 EBRD Credit 40718 (c) 2,892,266 3,288,499 IBRD Credit 8129 (d) 7,087,950 5,612,445 EIB Credit 31.304 (e) 3,118,032 2,540,868 65,843,359 63,463,508 Non-current credits 64,439,979 62,398,928 Current credits 1,403,380 1,064,580 65,843,359 63,463,508 a/ Credits from the International Development Association IDA Credit N 3893-AM Based on the Development Credit Agreement N 3893-AM signed between the Republic of Armenia and International Development Association on 14 June 2004, and the Project Agreement signed between the International Development Association and Armenian Water and Sewerage cjsc on 14 June 2004, a sub-loan agreement has been signed on 5 October 2004 between the Ministry of Finance and Economy of the Republic of Armenia and the Company. According to the sub-loan agreement, the Ministry of Finance and Economy provides USD 23 million targeted loan to the Company. 28 February 2009 has been established as a date for deadline of the loan withdrawals. The principal amount of sub-loan is repaid within 40 years in six months equal installments, including a 10-year grace period. The credit is repayable from 2014. The Company should pay a service fee against used and outstanding amount of the loan at an annual rate of 0.75%. IDA Credit N 4514-AM (Additional Financing to IDA Credit N 3893-AM) Based on the Additional Financing Agreement N 4514-AM to Development Credit Agreement signed between the Republic of Armenia and International Development Association on 24 November 2008, and the Project Agreement-Additional Financing signed between the International Development Association and Armenian Water and Sewerage cjsc on 24 November 2008, a sub-loan agreement has been signed on 23 March 2009 between the Ministry of Finance of the Republic of Armenia and the Company. According to the sub-loan 32 agreement, the Ministry of Finance provides 12.8 million SDR (Special Drawing Rights) targeted loan to the Company. 31 December 2011 has been established as a date for expiry of the loan. The principal amount of sub-loan is repaid within 20 years in six months equal installments, including a 10-year grace period. The credit is repayable from 2019. The Company should pay a service fee against used and outstanding amount of the loan at an annual rate of 0.75%. b/ Credit from the Asian Development Bank (ADB) ADB Credit N 2363-ARM (SF) With the aim of implementing the Project Agreement signed between Armenian Water and Sewerage CJSC and Asian Development Bank on 18 December 2007, a Loan Agreement was signed between the Republic of Armenia (RoA) and the Asian Development Bank on 18 December 2007. According to this Loan Agreement, the Asian Development Bank provides loans to the RoA in different currencies which is equivalent to 23,498,000 Special Drawing Rights. Taking into account the Loan Agreement signed on 18 December 2007 between the Republic of Armenia (RoA) and the Asian Development Bank, on 10 June 2008 a Sub-loan Agreement was signed between the RoA Ministry of Finance and Armenian Water and Sewerage CJSC. The deadline for the loan utilization is set as 30 June 2013 or some other date which will periodically be re-confirmed by the RoA and the Asian Development Bank. The major part of the loan must be repaid within the period of 2016 - 2033 years with the proportion of six months equal payments. During the privileged year the company must pay interest at the rate of 1% per year and afterwards 1.5% per year periodically from loan funds retrieved from loan account and the remaining amount. The interests and the repayments of the main part of the loan must be made once a six months -on I February and I August of every year. As means to secure liabilities subject for payment defined in the Sub-loan Agreement the Armenian Water and Sewerage CJSC issued 48 promissory notes with nominal value of 489,542 Special Drawing Rights equivalent to AMD, and provided them to the RoA Ministry of Finance in accordance with the Contract for custody # 3(03) KK/2009 signed on 23 March 2009. ADB Credit N 2860-ARM (SF) With the aim of implementing the Project Agreement signed between Armenian Water and Sewerage CISC and Asian Development Bank on 18 December 2007, a Loan Agreement was signed between the Republic of Armenia (RoA) and the Asian Development Bank on 10 May 2012. According to this Loan Agreement, the Asian Development Bank provides loans to the RoA in different currencies which is equivalent to 25,886,000 Special Drawing Rights. On 7 September 2012 a Sub-loan Agreement was signed between the RoA Ministry of Finance and Armenian Water and Sewerage CJSC. Credit is additional financing to ADB Credit N2363-ARM (SF). During the privileged year the company must pay interest at the rate of 1% per year and afterwards 1.5% per year periodically from loan funds retrieved from loan account and the remaining amount. The 33 interests and the repayments of the main part of the loan must be made once a six months - on 1 February and I August of every year. The major part of the loan must be repaid within the period of 2020 - 2044 years with the proportion of six months year equal payments. As means to secure liabilities subject for payment defined in the Sub-loan Agreement the Armenian Water and Sewerage CJSC issued 48 noninterest bearing promissory notes with nominal value of 539,232 Special Drawing Rights equivalent to AMD, and collateral of future constructed and purchased asset during project. c) Credit from the European Bank of Reconstruction and Development (EBRD) EBRD Credit 37030 I Based on the Credit Agreement signed between the Republic of Armenia and European Bank of Research and Development on 26 April 2007, and the Project Agreement signed between the European Bank of Research and Development and Armenian Water and Sewerage cjsc on 26 April 2007, a sub-loan agreement has been signed on 10 July 2008 between the Ministry of Finance of the Republic of Armenia and the Company. According to the sub-loan agreement, the Mimstry of Finance provides Euro 7 million loan to the Company to implement environmental project of the lake Seven. The loan is provided in two tranches: * Tranche 1: Euro 5 million with 4.76% annual fixed interest plus fixed 1% interest in accordance to the bank policy, and 0.5% annual commission fee on undrawn principal amount; * Tranche 2: Euro 2 million with floating rate. 9 October 2010 has been established as a date for expiry of the loan. The principal amount of sub-loan is repaid from 16 October 2012 till 16 October 2022 in six months equal installments. The debt is repayable by the Company in AMD (that is expressed in AMD) which determined at the exchange rate when the loan is received. In accordance with decision N1748-N of the Government of RA dated 23.12.2010 the principal payment due is postponed till 1 January 2012. EBRD Credit 40718 Based on the Credit Agreement signed between the Republic of Armenia and European Bank of Research and Development on 14 July 2011, a sub-loan agreement has been signed on 20 July 2012 between the Ministry of Finance of the Republic of Armenia and the Company. According to the sub-loan agreement, the EBRD provides Euro 6, 5 million loan. The loan is available to Company until 30 October 2015. The Company must pay interest at the rate of 0.5% per year on unused amount and annual interest rate of deposits in EUR plus 1% (EURIBOR+1) on used amounts. The principal amount is repaid from 16 October 2014 to 16 April 2026 in 24 equal six months installments. As means to secure liabilities subject for payment defined in the Sub-loan Agreement the Armenian Water and Sewerage CJSC issued 48 noninterest bearing promissory notes with 34 nominal value of 135,416 EUR equivalent to AMD, and also collateral of real estate and technical means for long-term use related to main function's realization. I d) Credit from the International Bank of Reconstruction and Development (IBRD) IBRD Credit N 8129-AM Based on the Credit Agreement signed between the Republic of Armenia and International Bank of Research and Development on 24 February 2012, a sub-loan agreement has been signed on 20 June 2012 between the Ministry of Finance of the Republic of Armenia and the Company. According to the sub-loan agreement, the IBRD provides USD 15 million loan. The loan can be withdrawn till 30 June 2015. The principal amount is repaid from I August 2022 to I February 2037 in 30 equal six months installments. As means to secure liabilities subject for payment defined in the Sub-loan Agreement the Armenian Water and Sewerage CJSC issued 30 noninterest bearing promissory notes with nominal value of 500,000 USD equivalents to AMD, and also collateral of real estate and technical means for long-term use related to main activities of the Company. H e) Credit from European Investment Bank EIB credit 31.304 Based on the Credit Agreement signed between the Republic of Armenia and European Investment Bank (EIB) on 7 August 2012, a sub-loan agreement has been signed on 17 December 2013 between the Ministry of Finance of the Republic of Armenia and the Company. According to the sub-loan agreement, the EIB provides up tp EUR 6.5 million loan. The principal is repaid from 16 April 2021 to 16 October 2038 in 36 equal six months installments. As means to secure liabilities subject for payment defined in the Sub-loan Agreement the Armenian Water and Sewerage CJSC shall issue and consign to borrower noninterest bearing promissory notes. L f0 Exemptions from interest/principal payments In accordance with decision NI 515-N of the Government of the Republic of Armenia dated 18.12.2014 the Company is exempt from payment of interests on loans IDA 3893, IDA 4514, ADB 2363, EBRD 37030, EBRD 40718, IBRD 8129, EIB FIN N31.304. g) Finance costs During the reporting six months interest costs in the amount of 359,959 thousand AMD are L. accrued: 279,357 thousand AMD is recognized as financial cost (30.06.2014: 360,482 thousand AMD) and 80,602 thousand AMD is capitalized adding to the carrying amount of the constructing objects (Note 10.4 a). 35 l s �5 `� � м z а й �`и, м й S2 ?� � х �г �с rxi а а� ,�д о� N r _ м 25 � ,�7,� �= __ '� о�с 3� О ❑ � м � о `т аао О - д� � и С7 � а г�- п р � м � и а а Т r м гч г� м� а � а к � ,^ ^ °0 �G 4 ; ^ - - ' � � q _ v r� о г*1 1 м м о � °0 сС � s � г- � n � °о ш v+ и о� �$ а � � а ,� м � � о fii у+ в о t� ^' - г� n ю х � о, V О Q �о х м n �'+ M1 'O '� g и �„25 ��,j`' а � r й и �$ � х м rлi а� n � - м N ^ н о - - � ^ г�• " м "' а' ° о'°о � z т h м � м СQ С й й � п ^' � ьо _'3 �''_+ �5 '� `а� 6 г,� ''�'� � � м й ��+ Q• м п гм- м � ? о � � � и � 9 .,'а+� и - -0.' еС � сиv х п р� W`'' �т 'r�. = д м � _ � ' ао й$ У � х х ' м � � w � �' '^ о� � + м � .�.i о ... а - ..�.� � $ ё й vиi M1 а � о °og ¢ _ ьрΡ рΡ. а r в} (V �ч е� S � � �D t] N О. х � N L д м П и 7 N хм N . � Ф`1 а•С � л °° � ^i м v' т О� < О С l. м "'� � � r� х �п м а м - � �$ а а н � и � м v оиi � G � м а � х х N � � С �ц�+ д. м м ос и �i �- N т м С Q� м °м n г� � N ��i � (J"�э у С � � г� ОС � � м � р у � гJ о {,..,J у � и � - - � ��j� "' о° - ���$ F т D� м � � � � �it д а У! � g � n т г`� '� а у! ~ д уΡ� х и м r и t� (�j С - �n Uj � 25 х n х и м м а g `� r и т 8 rv Q а �а $ � � � х и Г� 0 /у и ...� ry ry с �Cj �i � ^ `п n 0 ^� " м а L. - � е � и г' о а м � д е '- , о ��� й $ ��� в в а - Q ш � с � r' g � С]O � п и �С �,rj м � �р � р � . О м n ,n � р $ а м г z Р и х ао "' ^S � й .м�ь м � ы с м о, м х а � а°с �i � а _n - т n а n � � х х и х ас н о м х � � т N � M1 - � �n N �о �i � G и � n г4- н r"i �с о а � rv м v� rV м а а м �: � ;и Q - �° о Q а х е м м м И � � � g � � „f r у� а о �� �25 `С � $ сС С � , ь� СОlц '^ ? о С_ � д �i О ц] � v1 и � r` M1 �е v ,� м � й� Ф х м к ас О+ ❑ � � � а � � а - - �^ � а м а M1 n �' г� а м r`ti _ � и� tr х м r х - а � _,� д й й й � j у � � ❑ О О т L] V � а � а 4 ш � ш �? � � � � а ш � ш '� t4 _ х � У - ц � ` ° $9 о $°_ а �с � � � н� sУ гл о ео у� У гтл й с оо сй � а/ i Оа0 и О t�+о� т �'i v а0 � � рм, ��j ь^D �О n р rЧ N N .. оо У � � V .м.. r Н = � � � м � � � ry � N 00 � � ���°°°�'аад��а�5а��д� "� ��N�����QY�x � ��-. .. т т �� О � 1r С и т (� �д+-вnвйш�ишштйь ш[: СС �д"�SОйт т,� т Ф о •-с¢nвг�шСишш .. ш 1. � � 20. Grants related to assets Six months ended Six months ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Opening balance 8,558,506 8,752,956 Grants related to assets received, including: 69,981 174,978 Through settlement of liabilities 69694 149,097 PPE 287 2S781 Reclassification from/(into) grants related to income (Note 2 1) (200) Income recognized (Note 6) (234.556 (233,942) Closing balance 8,393,731. 8,693,892 21. Grants related to income Six months ended Six months ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Opening balance 5,587 11,706 Grants related to income received, from 308,223 329,003 Through settlement ofliabilities 308223 29 Receivable - 32,974 Reclassification from/(into) grants related to assets (Note 20) 200 - Income recognized (Note 6) (310,725) (329,243) Closing balance 3,285 11,466 22. Trade and other payables As at 30.06.2015 As at 31.12.2014 AMD '000 AMD'OOO On property and equipment 1,533,519 1,545,128 On VAT with deferred payment dates 456,459 464,988 Trade payables 373.874 595,103 2,363,852 2,605,219 Prepayments received, including: residential customers 264,899 21P, 004 other legal entities 21,949 2S113 state institutions 9,959 27,364 for other purposes 60 6804 296,866 278A5 On staff reimbursements 277,442 237,155 On taxes (other than income tax) 64,478 27,055 Other payables; 1.197 867 343,117 265,077 ,003,835 3,148,591 37 23. Income tax In accordance with the Republic of Armenia Law "On Corporate Income Tax" the income tax rate is defined 20% (in 2014: 20%). In accordance with the Law, the Company paid minimal income tax advances that are due to settle with the income tax liabilities of the future periods. The requirement of minimal income tax advance is not effective from 01.01.2014. The Company incurred financial losses during the previous years. In accordance to the Law the tax losses are carried forward for five years. a) Minimal income tax payments Six months ended Six months ended 30.06.2015 30.06.2014 AMD '000 AMD '000 Opening balance 48,538 44,705 Payments - 3,833 Closing balance 48,538 48,538 b) Income tax expense/(reimbursement) Six months ended Six months ended 30.06.2015 30.06.2014 AMD '000 AMD '000 On current tax (reimbursement) On deferred tax (reimbursement) (258,415) 1,203,359 (258,415) 1,203,359 c) Deferred taxes and liabilities recognised Deferred taxes and liabilities are presented in the following items: AMD'000 Asset Liability Net value 30.06.2015 31.12.2014 30.06.2015 31.12.2014 30.06.2015 31.12.2014 1. Tax losses transferred 1,023,019 1,010.184 - - 1,023.019 1,010.184 2. Trade receivables 1,171,472 1,149,057 - - 1,171,472 1,149,057 3. Employee benefits 30,724 25,178 - - 30,724 25,178 4. PPE relating to revaluation - - (3,152,394) (3,052,484) (3,152,394) (3.052,484) 5. Other PPE relating to impairment 700,391 500,298 - - 700,391 500,298 6. PPE acquired after 2014 - (27,794) (9,246) (27,794) (9,246) 7. Trade receivables on deferred income (39,165) (76,734) (39,165) (76,734) 8. Impaired inventories 885 2,329 - - 885 2,329 Tax assets (liabilities), net 2,926,491 2,687,046 (3,219,353) (3,138,464) (292,862) (451,418) F 38 d) Movement of deferred taxes AMD'000 For the six months ended Balance as at Recognised Recognised in Balance as at 30.06.2015 01.01.2015 profit or equity 30.06.2015 I. Tax losses transferred 1,010,184 12,835 1,023,019 2. Trade receivables 1,149,057 22,415 - 1,171,472 3. Employee benefits 25,178 5,546 . 30,724 5. Other PPE relating to (3,052,484) (51) (99,859) (3,152,394) impairment 500,298 200,093 . 700,391 6. PPE acquired after 2014 (9,246) (18,548) . (27,794) 7. Trade receivables on deferred income (76.734) 37,569 - (39,165) 8. Impaired inventories 2,329 (1.444) . 885 Tax assets (liabilities),ne-t (451,418)! 258,415 (99,859) (292,862) For the six months ended Balance as at Recognised in Recognised in Balance as at 30.06.2014 01.01.2014 profit or loss equity 30.06.2014 I. Tax losses transferred 1,273,759 3,099 - 1,276,858 2. Trade receivables 1,083,920 46,956 - 1,130,876 3. Employee benefits 15,636 (342,075) - (326,439) 4. PPE relating to revaluation (3,580,315) 129,765 177,887 (3,272,663) 5. Other PPE relating to impairment 503,605 (1,007,201) - (503,596) 6. PPE acquired after 2014 - (3,698) -(3,698) 7. Trade receivables on deferred income - (32,534) - (32.534) 8. Impaired inventories 2,329 2,329 Tax assets (liabilities), net (703,395) (1,203,359) 177,887 (1,728,867) 24. Financial risk factors The Company activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The Company does not employ derivative instruments to hedge risk exposures. 24.1 Market risk 24.11 Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company's exposure to the currency risk relates to the commercial transactions, recognized assets and liabilities expressed in a L 39 currency different from the functional currency. The major currency risk exposure relates to borrowings balances in USD. As of 30 June 2015 the Company had the following financial assets and liabilities in foreign currencies. AMD '000 Db/(Cr) In USD In EUR Total Current assets Cash and cash equivalents 992,000 1,177,442 2,169,442 Non-current liabilities Loans and borrowings (57,195,982) (5,866,551) (63,062,533) Current liabilities Trade and other payables (230,122) (465,351) (695,473) (56,434,104) (5,154,460) (61,588,564) The following average exchange rates are established by the RA Central Bank: 30.06.2015 31.12.2014 30.06.2014 AMD AMD AMD USD rate is 472.53 474.97 407.28 EUR rate is 528.48 577.47 556.06 Sensitivity Analysis The 5% of depreciation of the AMD against the mentioned currencies in comparison to that of 30 June 2015 will reduce the equity by 3,079,428 thousand drams. This analysis assumes that all the other variables, particularly the interest rates will remain unchanged. The 5% of appreciation of the AMD against the mentioned currencies in comparison to that of 30 June 2015 would have the same amount but an opposite impact on the equity based on the assumption that all the other variables would stay unchanged. 1J As at 14 October 2015, the exchange rate changes of the mentioned currencies against AMD in comparison to those is as follows: H AMD appreciation / 20.10.2015 (depreciation) AMD USD average rate is 472.99 (0.10)% EUR average rate is 537.98 (1.80)% 24.1.2 Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company interest rate risk arises from long-term borrowings. The Company has a loans received from the Republic of Armenia 40 LI Ministry of Finance (International Development Association, European Bank of Reconstruction and Development, International Bank of Reconstruction and Development, European Investment Bank) and Asian Development Bank with fixed and floating interest rates. Borrowings in floating interest rate expose the Company to cash flow interest rate risk, and borrowings in fixed interest rate expose the Company to fair value interest rate risk. The relevant information on the mentioned loan is presented in the Note 19. Management does not have a formal policy of determining how much of the Company's exposure is 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. 24.193 Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). The management assessed that the fair value of the financial assets and liabilities does not materially different from their carrying value as at reporting date. 24.2 Credit risk Credit risk is the risk the Company could incur financial losses resulted from the third parties failure to discharge their obligations toward the Company. Credit risk arises from current accounts, trade and other receivables. The Company does not require guarantees (collateral) in respect of trade receivables. The Company may terminate provision of services in case of non-payments. The mentioned L administrative means does not applied in practice, since it may lead to social strain. Currently the Company collects trade receivable through a court procedure. The trade receivables as at FI reporting date are as follows: As at 30.06.2015 As at 31.12.2014 Trade receivables AMD '000 AMD '000 Residential customers 7,937,855 7,750,510 Other entities 349,097 326,116 State entities 108,620 68,426 8,395,572 8,145,052 Provision for impairment of trade receivables (5,831,774) (5,719,699) 2,563,798 2,425,353 The provision for impairment of trade receivables is provided based on risk groups analysis. The above groups are subject to additional credit risk depending on whether the volume of services rendered (used water) is determined through water meters or otherwise. In cases when the amount of receivables is determined in a manner other than water meters, the credit risk is significantly higher. As a result of assessment the provision for impairment as at 30.06.2015 was assessed at the amount of 5,831,774 thousand AMD (31.12.2014: 5,719,699 thousand AMD). I41 The aging analysis of these trade receivables is as follows: Aging As at 30.06.2015 As at 31.12.2014 AMD '000 AMD '000 Up to 3 months 537,406 508,816 3-6 months 252,560 241,065 6-12 months 399,253 338,045 Over 12 months 7,206,353 7,057,125 8,395,572 8,145,051 5 24.3 Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. To manage the liquidity risk the Company prepares three-year cash flow forecasts which serve as LI a basis the next year's budget approved by the board of directors. The cash flow forecasts include state subsides receivable approved at each year state budget. The subsidies are based on tariff calculations for water supply and sewerage services. The payables for credits are included in the cash forecasts based on credit repayment schedules. If the cash budget does not ensure satisfactory cash balances to repay the debt in accordance to credit schedule then the repayments are projected through state resources, particularly, release of payments for previous, current and the next year (Note 19). The Company finance department monitors liquidity of the Company to ensure enough cash balances for operational activity following the approved annual cash budget of the Company. The Company does not have derivative financial liabilities. The following table analysis the Company non-derivative financial liabilities into relevant maturity groupings based on the remaining periods at the reporting date to the contractual maturity date. Maturity Periods up to 6 I 6-12 Non-derivative financial liabilities months months 1-5 years 5 and over IDA Credit 3893 155,889 184,811 1,478,480 8,870,883 IDA Credit 4514 - - - 9,389,909 ADB Credit 2363 - 357,507 2,860,056 13,942, 764 ADB Credit 2860 49,185 - - 13,048,669 EBRD Credit 37030 171,925 171,925 1,375.405 687,702 EBRD Credit 40718 169,008 143,130 1,145,040 1,435,089 IBRD Credit 8129 - - - 7,087,950 EIB Credit 31.304 - - - 3,118,032 Liabilities on credits* 546,007 857,373 6,858,981 57,580,998 On construction works 1,533,519 - - - On purchases 373,874 - - - On staff reimbursement 277,442 - . . Total 2,730,842 857,373 6,858,981 57,580,998 cI 42 * Redemptions of liabilities on credits are forecasted based on approved sub-credit agreements (Note 19), though no repayment of credit liability is projected at tariff approval calculations. 25. Contingencies 25.1Insurance The Company's property and equipment, except vehicles are not insured. The Company does not have coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Company's property or relating to Company's operations, except for third party liabilities arising from car accidents. Until the Company obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Company's operations and financial position. 25.2 Contingent liabilities and provisions It is not anticipated that any material liabilities will arise from the suites brought against the Company or other contingent liabilities, except does that are already recognized in these financial statements. 25.3 Tax regulation The taxation system in Armenia is relatively new and is characterised by frequent changes in legislation, which are sometimes unclear, contradictory and subject to varying interpretation. Taxes are subject to review and investigation by tax authorities, which have the relevant L authority. No tax liabilities are created for reviled tax violations with more than three years of maturity. But in some cases the mentioned maturity period could be suspended. These circumstances may create tax risks in Armenia that are more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Armenian tax legislation. However, the interpretations of the relevant authorities could differ and the effect could be significant if due authorized bodies are successful in enacting their interpretations. 26. Capital management The Company manages its capital to ensure that it will be able to continue as going concerns. The capital structure of the Company consists of debt (current and non-current liabilities) and equity. Both at reporting and end of previous year, most of debt of the Company consist of borrowings and loans. The Company is not subject to any externally imposed capital requirements. 27. Related party transactions Management remuneration The function of the executive body in the Company is performed by the external manager ("SAUR" S.A.S. organisation) and related expenses are included in the Administrative expenses 43 U item (note 8). For the six months ended 30.06.2015 the expense amounted to AMD 256,852 thousand (for the six months ended 30.06.2014: AMD 378,503 thousand). The Company's payable to "SAUR" S.A.S. organisation as of 30 June 2015 is AMD 145,664 thousand (as of 31 December 2014: AMD 337,059 thousand, 30 June 2014: 117,203 thousand). Other related party Turnover for the six months ended 30.06.2015 Related party Transaction Transaction amount Manaing costs 308,223 "Saugh Sevan Service" branch Service rendering 9,889 Borrowing provision 57,000 Good sale 8,808 "Shirak-Water and Sewerage" CJSC Service rendering 2,188 Good acquisition 156 "Lori-Water and Sewerage" CJSC Good sale 5,545 Service rendering 1,816 Good sale 3,921 "Nor Akunq" CJSC Service rendering 1,047 Good acquisition 9,525 Borrowing provision 20,000 Balances as of30 June 2015 Related party Item Amount 0 Receivables on services "Saugh Sevan Service" branch Payables on services 5,044 44 ~ ~Payables on services14,6 "Parpi" WUA Receivables on good sale 2,622 "Shirak-Water and Sewerage" CJSC Receivables on services 797,182 "Lori-Water andReceivables on good sale 4,666 Receivables on services 2,651 Receivables on good sale 25,848 "Nor Akunq" CJSC Receivables on services 2,391 Receivables on prepayments given 8,475 Borrowing 20,000 "Akhuryan-Aras-Jrar" CJSC Borrowing 13,326 I 44 1l nI