ANNUAL REPORT 2015 - London Stock Exchange · chagala group annual report 2015 2 3 to provide our...

ANNUAL REPORT 2015

CHAGALA GROUP | ANNUAL REPORT 2015

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CORPORATE GOVERNANCE STATEMENTPAGE 32

BUSINESS STRATEGY & UPDATEPAGE 10

CHAGALA OPERATIONSPAGE 14

CORPORATE SOCIAL RESPONSIBILITYPAGE 42

FINANCIAL STATEMENTSPAGE 46

MISSION & GOALSPAGE 2

MESSAGES FROM CHAIRMAN & CEO

CHAGALA IS AN ADMIRED AND RESPECTED SUCCESS STORY IN KAZAKHSTAN. WE ARE WELL POSITIONED TO CONTINUE TO CAPITALIZE ON THE INVESTMENT BEING MADE IN THE REGION’S HYDROCARBON POTENTIAL.

2015 ACCOMPLISHMENTSPAGE 4

CONTENTS

PAGE 6 PAGE 8


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TO PROVIDE OUR CLIENTS WITH A HOME AWAY FROM HOME IN OUR HOTELS AND SERVICED APARTMENTS IN WESTERN KAZAKHSTAN. CHAGALA PROVIDES FRIENDLY STAFF, POPULAR RESTAURANTS AND THE BEST ALL ROUND ACCOMMODATION VALUE IN THE REGION;

TO PROVIDE OUR STAFF WITH A FRIENDLY, SAFE AND ENJOYABLE WORKING ENVIRONMENT;

TO PROVIDE OUR SHAREHOLDERS WITH THE MEANS TO PROFIT FROM THE CASPIAN OIL BOOM THROUGH A WELL-RUN OIL FIELD SERVICES COMPANY WITH A STRONG BALANCE SHEET AND EXCELLENT MANAGEMENT.

Our goal is to improve the quality of life of our customers, to contribute to the well-being of our staff, and to build a business with long-term stability.

Chagala Group delivers quality accommodation solutions at a reasonable cost to the oil and gas industry in Kazakhstan – we build, own, manage and maintain safe, comfortable properties for the people developing Kazakhstan’s vast oil and gas sector in the Caspian Sea region. Today we own properties in six cities – Atyrau, Aktau, Aksai, Uralsk, Bautino and Almaty – with more than 900 accommodation units (apartments and hotel rooms), 25,000 square meters of commercial rental facilities, and more than 55 hectares of development land.

OUR MISSION

OUR GOAL IS TO IMPROVE THE QUALITY OF LIFE OF OUR CUSTOMERS, TO CONTRIBUTE TO THE WELL-BEING OF OUR STAFF, AND TO BUILD A BUSINESS WITH LONG-TERM STABILITY.

MISSION & GOALS


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DESPITE CHALLENGING CIRCUMSTANCES CHAGALA GROUP HAS CONTINUED SUCCEEDED IN ACHIEVING THE STRATEGIC OBJECTIVES SET BY STAKEHOLDERS, AND DELIVERED THE REQUIRED OPERATING AND FINANCIAL RESULTS TO CONTINUE INTO A HEALTHY FUTURE. 2015 SAW THE GROUP:

Completed construction of supermarket project in the city of Atyrau. 2000 m2 building had been leased long term to Ideal, an operator of large-scale supermarket and grocery stores in Kazakhstan.

Completed construction a new sports complex project for Shell in Atyrau. The complex is built on the territory of Chapala Group near "Saraishyk” Residential Complex.

Begin a project to reconstruct and refurbish an office building in the city of Uralsk in Western Kazakhstan for the headquarters of the Karachaganak Petroleum Operating (KPO) consortium, one of the largest companies involved in the development of gas condensate fields in Kazakhstan. The project is implemented by Kurmangazy Development in partnership with JSC «NC «SEC «Oral».

Admission of issued share capital of the Company consisting of 21,250,000 ordinary shares to the Official List of the United Kingdom Listing Authority and to trading on the London Stock Exchange plc's main market for listed securities under the TIDM code “CGLO”.

DESPITE CHALLENGING CIRCUMSTANCES CHAGALA GROUP HAS CONTINUED SUCCEEDED IN ACHIEVING THE STRATEGIC OBJECTIVES SET BY STAKEHOLDERS, AND DELIVERED THE REQUIRED OPERATING AND FINANCIAL RESULTS TO CONTINUE INTO A HEALTHY FUTURE.

2015 ACCOMPLISHMENTS

2015 FINANCIAL HIGHLIGHTS

2015: USD 23.5 million TOTAL REVENUE

2015: 8.0 million EBITDA

2015: USD 3.8 million OPERATING PROFIT

2015: USD 1.9 million NET PROFIT

2015: USD 92.9 million TOTAL ASSETS

2015: USD 17.5 million ROOM AND RENT REVENUE

2015: USD 3.5 million FOOD AND BEVERAGE REVENUE

2014: USD28.2 MILLION

2014: USD 9.8 MILLION







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We have been able to adjust our business to current conditions, and our labor productivity is at levels unseen in the history of the company. EBITDA has been very resilient in the face of declining revenues, and we continue to reduce our debt. With roughly 65% of our revenues denominated or indexed to the US Dollar, we have been able to sustain our operations and invest in new projects such as the Uralsk office for KPO.

At the Board level we are focused on ensuring that there is a focus on shareholder returns, through investing in value enhancing projects, as well as dividends and share buy-backs. The management’s incentive structure is very much aligned with shareholder interests and returns. In 2015 we moved our listing from a GDR listing to a full London Exchange listing. This move reduced the holding cost for shareholders, and provides a more liquid market for the shares, given the fact that investors find GDR-listed companies less attractive than at the time of our listing.

The difficult external environment and increasing pressures domestically will continue to affect Kazakhstan in 2016, with growth expected to remain low. However, we see the current environment as a chance to develop ourselves and continue to grow our business in Kazakhstan. We know that the Kashagan field will come on stream, leading to increased activity levels in the region, and there are other major oil fields that are looking to expansion plans. Our company should benefit from the increased activity levels, when they come through. Our current efficiency measures should ensure that a strong margin growth will accompany eventual increased activity levels.

In closing, I would like to thank Francisco Parrilla and his management team for delivering results and value to our shareholders in such a difficult business environment. I want also to thank all of the employees who have supported us in ongoing commitment to our clients. Their dedication has laid the groundwork for the Group’s sustainability, new client engagement and new projects in the coming year.

WITH ROUGHLY 65% OF OUR REVENUES DENOMINATED OR INDEXED TO THE US DOLLAR, WE HAVE BEEN ABLE TO SUSTAIN OUR OPERATIONS AND INVEST IN NEW PROJECTS SUCH AS THE URALSK OFFICE FOR KPO.

OUR COMPANY SHOULD BENEFIT FROM THE INCREASED ACTIVITY LEVELS, WHEN THEY COME THROUGH. OUR CURRENT EFFICIENCY MEASURES SHOULD ENSURE THAT A STRONG MARGIN GROWTH WILL ACCOMPANY EVENTUAL INCREASED ACTIVITY LEVELS.

Since I joined the Board of Directors as Chairman in 2014, the fall in commodity prices has had a significant impact on the economic environment of Kazakhstan and on the industry that our business serves. While there was a 48% decline in oil prices in 2014, they were still at levels that the industry saw as sustainable. 2015 has brought oil prices to levels that led to significant cuts in investment and operational expenses by the industry, severely reduced tax income for the government, and elimination of the currency peg to the US Dollar that led to a 45% fall in the tenge after mid-August. In spite of these difficult conditions, I have been impressed by the resilience of the business model that has been developed over the past years.

MICHAEL C. CARTER JR.Chairman

WE HAVE BEEN ABLE TO ADJUST OUR BUSINESS TO CURRENT CONDITIONS, AND OUR LABOR PRODUCTIVITY IS AT LEVELS UNSEEN IN THE HISTORY OF THE COMPANY.

MESSAGE FROM OUR CHAIRMAN


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MESSAGE FROM OUR CEO

river side of the Ural River the first development of Chagala Group started. During these two decades, we were and continue to be blessed with cooperation with many companies, and we are grateful to all our partners and clients for the trust and long-term cooperation. We steadily follow our key principles and we create such conditions, where whoever comes to Chagala Group’s properties feel themselves at home.

The changes in the Group’s Board of Directors that took place in 2014 empowered us to use skills and experience in international finance and in country experience to provide the Group with a strong resource base to deliver stable results in challenging environment.

One of milestones of 2015 was the decision to change the Company’s listing from Global Depository Receipts to Ordinary Shares. It was intended, absent

other factors, to make investing in shares more attractive to a broader range of retail, institutional and professional investors and other members of the investing public. It was difficult and long process but in November issued share capital of the Company consisting of 21,250,000 ordinary shares has been admitted, with a standard listing, to the Official List of the United Kingdom Listing Authority and to trading on the London Stock Exchange main market for listed securities.

There were some other achievements last year – to name a few – Kurmangazy Development, a subsidiary of Chagala Group, embarked on a major renovation project in the city of Uralsk for Karachaganak Production Operation and completed construction of Ideal Supermarket in Atyrau.

Our people are our future, and we continued to pursue our strategy of

employee’s recognition and development program in 2015. We offer staff a rewarding workplace and an array of attractive employee benefits.

Despite the many challenges in global economy and major oil and gas projects implementation, we see certain improvements in our operational and financial performance indicators. Much work needs to be done, and we are facing ever-growing challenges. But all I want you to know and be confident of is that today I more than ever believe in the promise and success of Chagala Group.

I would like to close my comments here with a note of thanks to the staff and management team here at the Chagala Group for your continued dedication and contribution to the success of the company. I would also like to offer my most sincere appreciation to our business partners and our clients.

Despite general financial turbulence and challenging circumstances, it is refreshing to see that the Group has continued succeeded in achieving the strategic objectives set by its stakeholders, and delivered the required operating and financial results to continue into a healthy future. At the core of this, I have to thank: our customers and partners, whose business makes us prosper; and the Group’s employees and managers, whose dedication to work and willingness to provide our guests with the highest level of service and comfort in the region in line with the best international standards, which is key to our success.

Last year, we celebrated the 20th anniversary of Caspi Limited LLP, the Group’s real estate subsidiary in Atyrau. Atyrau is a heart of our business; exactly there 20 years ago, on the

FRANCISCO PARRILLACEO

ONE OF MILESTONES OF 2015 WAS THE DECISION TO CHANGE THE COMPANY’S LISTING FROM GLOBAL DEPOSITORY RECEIPTS TO ORDINARY SHARES. IT WAS INTENDED, ABSENT OTHER FACTORS, TO MAKE INVESTING IN SHARES MORE ATTRACTIVE TO A BROADER RANGE OF RETAIL, INSTITUTIONAL AND PROFESSIONAL INVESTORS AND OTHER MEMBERS OF THE INVESTING PUBLIC.

LAST YEAR, WE CELEBRATED THE 20TH ANNIVERSARY OF CASPI LIMITED LLP, THE GROUP’S REAL ESTATE SUBSIDIARY IN ATYRAU. ATYRAU IS A HEART OF OUR BUSINESS; EXACTLY THERE 20 YEARS AGO, ON THE RIVER SIDE OF THE URAL RIVER THE FIRST DEVELOPMENT OF CHAGALA GROUP STARTED.


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OUR STRATEGY IS SIMPLE:

DESIGN AND INVEST ONLY IN ASSETS THAT HAVE A DEFINED USER WITH LIKELY LONG TERM TENANCY ALREADY IDENTIFIED.

CONTINUE TO BUILD ON OUR BRAND’S REPUTATION FOR QUALITY, SAFETY AND VALUE FOR MONEY.

EMPOWER OUR STAFF TO ACT AND DELIVER ON OUR SERVICE PROMISE WHEN EVER AND WHERE EVER NEEDED.

LEVERAGE OUR RELATIONSHIPS IN ONE LOCATION TO THE BENEFIT OF OUR ASSETS IN OTHER LOCATIONS.

In 2015 Chagala both started and completed a number of projects that have added significantly greater value to our Atyrau development site. We completed the construction of supermarket project in Atyrau with our partners ADM Capital. The supermarket is located at Chagala’s development site and is another step forward in realizing the property’s full potential. 2000 m2 building had been leased long term to Ideal, an operator of large-scale supermarket and grocery stores in Kazakhstan. The project, combined with our Saraishyk apartment development, also advances our goal of creating a desirable address in Atyrau where convenience, comfort and quality accommodations are experienced daily. Chagala completed construction of a recreational facility for Shell Development Kazakhstan. We also started a project to reconstruct and refurbish an office building in the city of Uralsk in Western Kazakhstan for the headquarters of the Karachaganak Petroleum Operating (KPO) consortium, one of the largest companies involved in the development of gas condensate fields in Kazakhstan. The project is implemented by Kurmangazy Development in partnership with JSC «NC «SEC «Oral».

BUSINESS STRATEGY THE CHAGALA GROUP IS KAZAKHSTAN’S PREMIER PROVIDER OF ACCOMMODATION AND OFFICE SPACE SOLUTIONS TO THE COUNTRY’S MAJOR OIL AND GAS PROJECTS. WE HAVE BUILT OUR SUCCESS ON IDENTIFYING THE FUTURE ACCOMMODATION NEEDS OF THE COMPANIES ENGAGED IN DEVELOPING KAZAKHSTAN’S VAST HYDROCARBON POTENTIAL AND THEN DESIGNING, BUILDING AND MANAGING THE ASSETS REQUIRED TO SERVICE THOSE NEEDS.

BUSINESS STRATEGY AND UPDATE


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Despite a difficult trading environment we continue to move ahead with our projects and have maintained our market share across Kazakhstan and in some locations have seen growth in occupancies. Our reputation is built on our product offering and service delivery and our

staff never wavered in their commitment to maintaining the highest standards possible.

Chagala changed the Company’s listing to Shares to make investing in Shares more attractive to a broader range of retail,

institutional and professional investors and other members of the investing public. In November the share capital of the Company has been admitted to the Official List of the United Kingdom Listing Authority and to trading on the London Stock Exchange plc's main market.

force in 2015, a slight drop from 5.2% in 2014. The population was estimated at 17.651 million at year end 2015.

The projections for the Kazakh economy are that it will expand by 2.1% in 2016, although the World Bank has cut its forecasts to 1.1%. The Government reported GDP growth stood at 1.2% in 2015, whereas the World Bank forecasts it to have grown by 0.9%. Inflation for the year has been estimated at 13.6%.

Oil and gas condensate production in Kazakhstan in 2015 amounted to 79.46 million tons. In 2014, Kazakhstan produced 80.8 million tons of oil and condensate. Thus, as it was expected by local and international experts the production decreased by 1.7% in 2015.

Repair works on Kashagan are reported to go according to the schedule. In autumn 2016, the project plans to resume its production activity with up to 75 000 barrels per day.

Karachaganak is still one of the best and most attractive oil and gas projects in the world. In 2015 the project produced 141.7 million barrels of oil and had 20.6 millions of investments. Currently the project continues to implement a concept of further development. Capacity of gas injection will provide an increase of liquid hydrocarbons up to 166 million tons and possibility of stable gas in long run. Works of this concept will

be finished in 2017 and will be put in operation in 2022. Also Karachaganak is still one of the successful projects, where the program of Kazakh content development was successfully implemented – last year a series of contracts on $118 million aimed at the development of local content in the project was signed.

In 2015 total recoverable crude oil in the Tengiz and Korolev fields is estimated to be 750 million to 1.1 billion metric tonnes (6 to 9 billion barrels). Estimated oil in place in the Tengiz field is 3 billion metric tonnes (25 billion barrels) with 190 million metric tonnes (1.5 billion barrels) in the Korolev field. The areal extent of the Tengiz reservoir is large, measuring 20 kilometers (12 miles) by 21 kilometers (13 miles). In January 2016 Minister of Energy Vladimir Shkolnik informed that the second phase of Karachaganak was worth $12 bln and would be launched in 2017.

Current forecasts show that global oil production is likely to decrease in about 15-25 years due to depleted reserves by that time. Kazakhstan’s giant oil fields – Tengiz and Kashagan – are among those fields that are predicted to see reduced output after 2040. New fields need to be found and developed and the Eurasia project offers such a possibility. In June 2015, the project begins it implementation process and was highly supported by KazmunauiGas.

So in 2015 the government was working on consortium establishing and working on the issue of privileges and preferences of fiscal and non-fiscal nature, acceptable to potential investors of the project.

The Eurasia project initiated in Atyrau in 2-14 involves the exploration of deep laying horizons of the Caspian Basin, both on land and at sea, located on the territory of Kazakhstan and Russia. The cost is estimated at about $500 million. It will be carried out in three phases. The first phase envisages the collection and processing of materials from previous years. The second phase includes large-scale research. The last phase includes the drilling of a new support-parametric well called Caspian 1, at the depth of nearly 14-15 kilometers. The potential payoff for Eurasia project is huge – up to some 50 billion tons of oil and oil equivalent.

We continue to see opportunity in Kazakhstan’s oil patch and are encouraged by the efforts that the Government is making to foster economic diversification and attract investment into the non-oil economy, improve transport infrastructure and strengthening public and market institutions, as well as bring additional investment into the country. We remain well positioned to capitalise on these opportunities and are confident that Kazakhstan is able to continue its growth story.

Kazakhstan’s Government responded to the collapse of global oil prices with a series of anti crisis measures, a rapid fiscal adjustment, followed by corresponding monetary and exchange-rate policy adjustments, and roll out a structural reform agenda (the "Hundred Steps").

In August 2015, the authorities decided to move to a floating exchange rate and shift the country’s monetary policy to an inflation-targeting regime. The tenge lost a third of its value against the US dollar by the end of October 2015 and almost 50% by the end of the year, closing out 2015 at a record low.

So far, labor market and poverty reduction outcomes do not seem to have been affected by the downturn – thanks to continued job creation, inter-sectoral and geographic mobility, and new employer “social arrangements.” Unemployment in the country is estimated at 5% of the eligible work

UPDATEKAZAKHSTAN ECONOMY

KAZAKHSTAN’S ECONOMY EXPANDED 1.2% IN 2015 AS A WHOLE, WHICH MARKED A NOTABLE DECELERATION COMPARED TO THE 4.1% INCREASE REGISTERED IN 2014 AND REPRESENTED THE SLOWEST GROWTH RATE SINCE 2009. KAZAKHSTAN WAS SIGNIFICANTLY IMPACTED LAST YEAR BY A DEEP RECESSION IN RUSSIA, LOWER COMMODITIES PRICES AND HARSH FINANCIAL CONDITIONS. THE DELAY OF THE KASHAGAN OIL PROJECT PRODUCTION AND THE RESULTING DROP IN ANTICIPATED OIL PRODUCTION ADDED TO THE DOWNWARD PRESSURE.


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WE CONTINUE TO PROVIDE CUSTOMERS WITH INTERNATIONAL HOSPITALITY STANDARDS IN THE OIL & GAS INDUSTRY, INCLUDING INDUSTRY-BASED HSE STANDARDS, QUALITY FOOD AND BEVERAGE OUTLETS, CLEAN COMFORTABLE ROOMS AND SIMILAR AMENITIES THAT TODAY’S TRAVELLERS EXPECT. AT THE CORE OF OUR SUCCESS ARE THE TEAM’S PROFESSIONALISM AND DEDICATION TO WORK AND WILLINGNESS TO PROVIDE OUR GUESTS WITH THE HIGHEST LEVEL OF SERVICE AND COMFORT IN THE REGION.

CHAGALA’S FACILITIES ARE “OASES” OF THE LANDSCAPE FOR THE EMPLOYEES OF OUR CUSTOMERS IN WESTERN KAZAKHSTAN.

OPERATIONS

MORE THAN 900 ACCOMMODATION UNITS IN 5 LOCATIONS IN WESTERN KAZAKHSTAN


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CHAGALA TOWNHOUSES

CHAGALA SERVICED APARTMENTS

CHAGALA TOWNHOUSES

With a population of over 280,000, Atyrau is the administrative centre for Western Kazakhstan’s oil and gas industry and the production hub for several local and international oil and gas companies. The city is the heart of our busi-ness and features many projects developed by Chagala, particularly a 3-star hotel, serviced apartments, townhouses, office space, sport and entertainment venues, warehouses, restau-rants and bars.

ATYRAU


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CHAGALA HOTEL BAUTINO

CHAGALA HOTEL BAUTINO

Bautino, a small township with a popula-tion just under 6,000, is a strategic point for the offshore oil industry in Kazakh-stan’s sector of the North Caspian Sea. Chagala operations here include 3-star hotel with 147 guest rooms, a new dining facility, a private beach and a fitness facility as well as a 170-bed camp-style accommodation facility in our Residential Commercial Park.

BAUTINO


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AKTAU EXECUTIVE SUITES

CHAGALA HOTEL AKTAU

Aktau is the biggest city in Mangystau region with a pop-ulation of roughly 300,000 The city is a major hub for oil and gas production and transport as the Port of Aktau is the country’s only commercial sea port. Chagala opera-tions in Aktau include an 80 room apart hotel (28 guest rooms, 52 one bedroom apartments) situated close to the coast in a quiet residential area. The development occupies approximately 6,000 square metres of space and includes a restaurant and bar, meeting and banquet facilities as well as fitness facilities.

AKTAU


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CHAGALA SERVICED APARTMENTS

CHAGALA HOTEL URALSK

Uralsk, with a population over 310,000, is the Western gates of Kazakhstan and is the administrative centre for the region surrounding the Karachaganak oil and gas condensate field. Chagala owns and operates a 47 room hotel and a 38 suite apartment building tailored to the needs of the long stay guests, as well as meet-ing and dining facilities.

URALSK


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CHAGALA CAMP

Aksai, with a population of roughly 40,000 people, is an important oil and gas town, serving as an operational base for the nearby Karachaganak oil and condensate field. Chagala’s camp facility at Aksai consists of 125 accommodation units made up of 105 single rooms as well as 20 one bedroom apartments for long stay guests.

AKSAI


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SPORT SOCIAL CLUBChagala Group completed ambitious project in partnership with Shell. The new Sport Social Club consists of a new two storey club house, a swimming pool and tennis court. The new com-plex is the place where on a regular basis events guests are organized. During weekends “pub type” events are taken place for adult and family community. An entertainment room exists for the youngsters with a big screen TV and table tennis and a playroom for the younger children. The complex is built on the territory of Chagala in Atyrau near "Saraishyk” Residential Complex.

NEW PROJECTS


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Kurmangazy Development, a Chagala Group subsidiary, in partnership with JSC «NC «SEC «Oral» is nearing comple-tion on a project to reconstruct and refurbish an office building in the city of Uralsk in Western Kazakhstan. The 4,700 sq. m. building will be completely refurbished into a modern office building for the headquarters of the Karachaganak Petroleum Operating (KPO) consortium, one of the largest companies involved in the development of gas condensate fields in Kazakhstan. The building is set to be commissioned in May 2016. The project is the first experience of cooperation with KPO, which is evidence of Chagala Group’s strengthening presence in Western Kazakhstan. The new Chagala Group project is also sig-nificant for the city of Uralsk given that it will undoubtedly have an effect on infrastructure and the growth of small and medium-sized business in Uralsk and provide the op-portunity for a new level of development.

OFFICE BUILDING FOR THE HEADQUARTERS OF THE KARACHAGANAK PETROLEUM OPERATING CONSORTIUM

NEW PROJECTS


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SUPERMARKET IDEAL IN ATYRAU

Chagala completed the construction of the supermarket project in Atyrau. The supermarket is located at Chagala’s development site and is another step forward in realizing the property’s full potential. Construction of the 2000 m2 building took nine months to complete and has already been leased long term to Ideal, an operator of large scale supermarket and grocery stores in Kazakhstan. The project was completed with the participation of Chagala’s joint venture partner ADM Capital and its Kazakhstan Capital Restructuring Fund.

NEW PROJECTS


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THE RESPONSIBILITY FOR FORMULATING, REVIEWING AND APPROVING CHAGALA’S STRATEGIES, BUDGETS, CAPITAL EXPENDITURES AND APPOINTMENT AND REMUNERATION OF GROUP EXECUTIVES RESTS WITH THE COMPANY’S BOARD OF DIRECTORS.

THE CHAGALA GROUP BOARD OF DIRECTORS SUBMIT THEIR REPORT TOGETHER WITH THE COMPANY’S STATEMENT OF FINANCIAL POSITION, STATEMENT OF COMPREHENSIVE INCOME, STATEMENT OF CHANGES IN EQUITY, STATEMENT OF CASH FLOWS, AND THE RELATED NOTES FOR THE YEAR ENDED 31 DECEMBER 2014, WHICH HAVE BEEN PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) ADOPTED BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD (“IASB”) AND ARE IN AGREEMENT WITH THE ACCOUNTING RECORDS, WHICH HAVE BEEN PROPERLY KEPT IN ACCORDANCE WITH THE BVI BUSINESS COMPANIES ACT OF 2004.

The Company is incorporated under the laws of the British Virgin Islands. On 27 February, 2007, the Company was admitted to the Official List of the London Stock Exchange and its Global Depositary Receipts were admitted for trading on the London Stock Exchange’s Main Market. In April 2010, the UK listing regime was restructured into Premium and Standard Listing categories. In 2015 based on decision made at the Annual General Shareholder Meeting of the Company the Company changed it’s listing on the LSE from GDRs to Shares. The admission to trading of the Company’s GDRs on the Main Market was voluntarily cancelled on 30 October 2015. Reasons for this change include improving investor access to the Company’s Shares and reducing costs associated with the GDR programme. On November 18, 2015 the issued share capital of the Company consisting of 21,250,000 ordinary shares has been admitted, with a standard listing, to the Official List of the United Kingdom Listing Authority and to trading on the London Stock Exchange plc’s main market for listed securities under the TIDM code “CGLO”.

CHAGALA STATEMENT ON CORPORATE GOVERNANCE

THE RESPONSIBILITY FOR FORMULATING, REVIEWING AND APPROVING CHAGALA’S STRATEGIES, BUDGETS, CAPITAL EXPENDITURES AND APPOINTMENT AND REMUNERATION OF GROUP EXECUTIVES RESTS WITH THE COMPANY’S BOARD OF DIRECTORS.

CORPORATE GOVERNANCE


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dispositions, acquisitions and investments outside of the ordinary course of business or not provided for in the approved budgets, long term strategy, organizational development plans and the appointment of senior executive officers.

The Board also expects management to provide the directors on a timely basis with information concerning the business and affairs of the Company, including financial and operating information and information concerning industry developments as they occur, all with a view to enabling the Board to discharge

its stewardship obligations effectively. The Board expects management to efficiently implement its strategic plans for the Company, to keep the Board fully apprised of its progress in doing so and to be fully accountable to the Board in respect to all matters for which it has been assigned responsibility.

As the Company is incorporated in the British Virgin Islands, and being a Standard Listing Category constituent, it is not required to comply with the requirements of the UK Combined Code on Corporate Governance published by the Financial Reporting Council (the “Code”). However, the Company is required to prepare a corporate governance statement. There is no published corporate governance regime equivalent to the Code in the British Virgin Islands. The Board is committed to ensuring proper standards of corporate governance and has

established governance procedures and policies that it believes and considers appropriate having regard to the nature, size and resources of the Company. The following explains how the relevant principles of governance are applied to the Company.

The Board currently has three members – Michael C. Carter Jr., Francisco Parrilla and Javier del Ser. Mr. Alexander Gladyshev resigned from the position of Non-Executive Director on April 20, 2015. Through 31 December 2015, the Chairman of the Board was Michael C. Carter Jr. who

is independent. The Board members will have regard to their obligations to act in the best interests of the Company should potential conflicts of interest arise.

The new Board has extensive experience relevant to the Company and any change in the Board composition can be managed without undue interruption. The Articles require that Directors submit themselves for re-election at each Annual General Meeting. The Directors may be removed and replaced at any time subject to the Articles of Association.

1. APPROVING THE ISSUANCE OF ANY SECURITIES OF THE COMPANY.

2. APPROVING THE INCURRENCE OF ANY DEBT BY THE COMPANY OUTSIDE THE ORDINARY COURSE OF BUSINESS.

3. REVIEWING AND APPROVING THE ANNUAL CAPITAL AND OPERATING BUDGETS.

4. REVIEWING AND APPROVING MAJOR DEVIATIONS FROM THE CAPITAL AND OPERATING BUDGETS.

5. APPROVING THE ANNUAL FINANCIAL STATEMENTS, INCLUDING THE MANAGEMENT DISCUSSION & ANALYSIS, INFORMATION CIRCULARS, ANNUAL INFORMATION FORMS, ANNUAL REPORTS, OFFERING MEMORANDUMS AND PROSPECTUSES.

6. APPROVING MATERIAL INVESTMENTS, DISPOSITIONS AND JOINT VENTURES, AND APPROVING ANY OTHER MAJOR INITIATIVES OUTSIDE THE SCOPE OF APPROVED BUDGETS.

7. REVIEWING AND APPROVING THE COMPANY’S STRATEGIC PLANS, ADOPTING A STRATEGIC PLANNING PROCESS AND MONITORING THE COMPANY’S PERFORMANCE.

8. REVIEWING AND APPROVING THE COMPANY’S INCENTIVE COMPENSATION PLANS.

9. DETERMINING THE COMPOSITION, STRUCTURE, PROCESSES, AND CHARACTERISTICS OF THE BOARD AND THE TERMS OF REFERENCE OF COMMITTEES OF THE BOARD, AND ESTABLISHING A PROCESS FOR MONITORING THE BOARD AND ITS DIRECTORS ON AN ONGOING BASIS.

10. APPOINTING THE MEMBERS OF THE NOMINATING AND REMUNERATION COMMITTEE AND THE AUDIT COMMITTEE.

11. NOMINATING THE CANDIDATES FOR THE BOARD TO THE SHAREHOLDERS, BASED ON RECOMMENDATIONS FROM THE NOMINATING AND REMUNERATION COMMITTEE.

12. ENSURING AN APPROPRIATE ORIENTATION AND EDUCATION PROGRAM FOR NEW DIRECTORS IS PROVIDED.

SPECIFIC RESPONSIBILITIES OF THE BOARD INCLUDE THE FOLLOWING:

ROLE OF THE BOARD THE BOARD IS RESPONSIBLE FOR SUPERVISING THE CONDUCT OF THE COMPANY’S AFFAIRS AND THE MANAGEMENT OF ITS BUSINESS. THIS INCLUDES SETTING LONG TERM GOALS AND OBJECTIVES FOR THE COMPANY, FORMULATING THE PLANS AND STRATEGIES NECESSARY TO ACHIEVE THOSE OBJECTIVES AND SUPERVISING SENIOR MANAGEMENT IN THEIR IMPLEMENTATION. ALTHOUGH THE BOARD DELEGATES THE RESPONSIBILITY FOR MANAGING THE DAY TO DAY AFFAIRS OF THE COMPANY TO SENIOR MANAGEMENT, THE BOARD RETAINS A SUPERVISORY ROLE IN RESPECT OF, AND ULTIMATE RESPONSIBILITY FOR, ALL MATTERS RELATING TO THE COMPANY AND ITS BUSINESS.

The Board needs to be satisfied that the Company’s senior management will manage the affairs of the Company in the best interests of the Shareholders, and that the arrangements made for the management of the Company’s business and affairs are consistent with the Board’s duties described above.

In discharging this responsibility, the Board oversees and monitors significant corporate plans and strategic initiatives. The Board’s strategic planning process includes regular budget reviews and approvals, and discussions with management relating to strategic and budgetary issues. At least one meeting per year is to be devoted substantially to a review of strategic plans proposed by management.

The Board approves annual operating and capital budgets, any material


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13. DETERMINING WHETHER INDIVIDUAL DIRECTORS MEET THE REQUIREMENTS FOR INDEPENDENCE UNDER APPLICABLE REGULATORY REQUIREMENTS.

14. MONITORING THE ETHICAL CONDUCT OF THE COMPANY AND ENSURING THAT IT COMPLIES WITH APPLICABLE LEGAL AND REGULATORY REQUIREMENTS.

15. ENSURING THAT THE DIRECTORS THAT ARE INDEPENDENT OF MANAGEMENT HAVE THE OPPORTUNITY TO MEET REGULARLY.

16. REVIEWING THIS MANDATE AND OTHER BOARD POLICIES AND TERMS OF REFERENCE FOR COMMITTEES IN PLACE FROM TIME TO TIME AND PROPOSING MODIFICATIONS AS APPLICABLE.

17. APPOINTING AND MONITORING THE PERFORMANCE OF SENIOR MANAGEMENT, FORMULATING SUCCESSION PLANS FOR SENIOR MANAGEMENT AND, WITH THE ADVICE OF THE NOMINATION AND REMUNERATION COMMITTEE, APPROVING THE COMPENSATION OF SENIOR MANAGEMENT.

18. ENSURING POLICIES AND PROCESSES ARE IN PLACE FOR IDENTIFYING PRINCIPAL BUSINESS RISKS AND OPPORTUNITIES FOR THE COMPANY, ADDRESSING THE EXTENT TO WHICH SUCH RISKS ARE ACCEPTABLE TO THE COMPANY, AND ENSURING THAT APPROPRIATE SYSTEMS ARE IN PLACE TO MANAGE RISKS.

19. ENSURING APPROPRIATE POLICIES AND PROCESSES ARE IN PLACE TO ENSURE THE COMPANY’S COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS, INCLUDING TIMELY DISCLOSURE OF RELEVANT CORPORATE INFORMATION AND REGULATORY REPORTING.

20. SERVING AS A SOURCE OF ADVICE TO SENIOR MANAGEMENT, BASED ON DIRECTORS’ PARTICULAR BACKGROUNDS AND EXPERIENCE.

21. ENSURING THAT THE DIRECTORS HAVE DIRECT ACCESS TO MANAGEMENT AND, AS NECESSARY AND APPROPRIATE, INDEPENDENT ADVISORS.

22. ENSURING EVALUATIONS OF THE BOARD AND COMMITTEES ARE CARRIED OUT AT LEAST ANNUALLY.

CHIEF EXECUTIVE OFFICER

IN LINE WITH THE ABOVE, THE BOARD HAS DELEGATED DAY TO DAY OPERATIONS OF THE GROUP TO THE CHIEF EXECUTIVE OFFICER AND OUTLINED THE COMPANY’S STRATEGIC GOALS AND MISSION TO HIM.

THE BOARD HAS TWO COMMITTEES: (I) THE REMUNERATION AND NOMINATIONS COMMITTEE AND (II) THE AUDIT COMMITTEE.

REMUNERATION AND NOMINATIONS COMMITTEE

The Remuneration and Nominations Committee is led by Javier del Ser. The other Committee member is Michael C. Carter Jr. This Committee has a number of monitoring roles as well as the main duties of assessing the

suitability of candidates nominated as replacement Directors and determining remuneration for senior executives and ensuring that Chagala has adequate and appropriate human resources to achieve its objectives.

If a member of the Remuneration and Nominations Committee has an interest in a matter being deliberated upon by the Committee, he shall be required to abstain from participating in the review and approval process of the Committee

RESPONSIBILITY STATEMENT AS REQUIRED BY THE TRANSPARENCY DIRECTIVE AND UK CORPORATE GOVERNANCE CODE

Each of the Directors, whose names and functions are listed on pages 34 to 35, confirms that, to the best of each person’s knowledge and belief:

• the Group financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities and

financial position of the Group at 31 December 2015 and its profit for the year then ended;

• the Directors’ report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group together with a description

of the principal risks and uncertain-ties that they face; and

• the Group’s Annual Report and Ac-counts, taken as a whole, are fair, bal-anced and understandable and provide the information necessary for Share-holders to assess the Group’s perfor-mance, business model and strategy.


3938

and processes for internal control of financial, operational, compliance and risk management matters. In carrying out their responsibilities, the directors have put in place a framework of controls to ensure ongoing financial performance is monitored in a timely and corrective manner and risk is identified and mitigated, rather than eliminated, to the extent practicably possible and will only provide reasonable and not absolute assurance against material misstatements and loss. The Company

originally appointed an internal auditor in 2007 but on his resignation, it was decided not to renew this position. The decision not to appoint an internal auditor was made after reviewing potential candidates in Kazakhstan and it was resolved that it would not be possible to find a suitable candidate without paying for a relatively expensive expatriate. Given the size of the Company, and the cost of employing someone with sufficient experience to effectively carry out the role, it was resolved not to

employ someone who simply ticked the compliance box without being effective.

The Board periodically meets and had a total of 3 meetings during 2015. In addition, the Audit and Nominations Committees each met during the year and were attended by all respective members.

A share option scheme is in place and amendments, if any, will be considered and ratified at the Annual General Meeting.

EACH COMMITTEE AND EACH DIRECTOR HAS THE AUTHORITY TO SEEK INDEPENDENT PROFESSIONAL ADVICE WHERE NECESSARY TO DISCHARGE THEIR RESPECTIVE DUTIES IN EACH CASE AT THE COMPANY’S EXPENSE.

The Company also has a policy on Directors’ and senior executives’ dealings in shares, which is based on the Model

Code for Directors’ dealings contained in the London Stock Exchange’s Listing Rules. The Board understands

its responsibility for ensuring that there are sufficient, appropriate and effective systems, procedures, policies

AUDIT COMMITTEE

The Audit Committee assists the Board in overseeing the risk management framework by reviewing any matters of significance affecting financial reporting and internal controls of the Company, and has the duty of, among other things:

i. assisting the Board in its oversight of the integrity of the financial statements, the qualifications, independence and performance of the independent auditors and compliance with relevant legal and regulatory requirements;

ii. reviewing and approving with the external auditors their audit plan, the evaluation of the internal accounting controls, audit reports and any matters which the external auditors

wish to discuss without the presence of board members and ensuring compliance with relevant legal and regulatory requirements;

iii. reviewing and approving with the internal auditors the scope and results of internal audit procedures and their evaluation of the internal control system;

iv. making recommendations to the Board on the appointment or reappointment of external auditors, the audit fee and resignation or dismissal of the external auditors; and

v. pre-approving any non-audit services provided by the external auditors.

The Audit Committee is led by the Chairman. The other Audit Committee member is Javier del Ser.

If a member of the Audit Committee has an interest in a matter being deliberated upon by the Audit Committee, he shall abstain from participating in the review and approval process of the Audit Committee in relation to that matter. If more than one member of the Audit Committee has an interest in a matter being deliberated, then the non-interested Directors who are not members of the Audit Committee will participate in the review and approval process in relation to that matter.

The full description of the Audit Committee’s role is on our company website, www.chagalagroup.com.

BOARD OF DIRECTORSMR. MICHAEL C. CARTER JR.Non Executive Director and Chairman of the Board of Directors

Mr. Carter has over 27 years experience in Capital Markets, Private Equity and Management Consulting, and has a wealth of experience in the Oil & Gas and Oil Service sectors. He has worked in the USA, Western Europe, and has been based in Kazakhstan since 2007. From 2007 to 2011, Mr. Carter worked at Visor Capital in Kazakhstan, initially to manage the creation of what is now the leading Research team covering Central Asia, and from October 2008 as the firm’s CEO. Prior to Visor, Mr. Carter was with ING Bank, where he was Head of Equity and Head of Research in Italy, and a member of the Management Board of ING Bank Milan Branch. From 1995 to 2001, Mr. Carter was part of top-ranked Research teams at UBS, both in London and Milan. His research experience has been in the oil, oil service, transportation and industrial sectors and he has been involved in a number of privatizations and IPOs in Europe. Mr. Carter holds a BA with Honors from U.C. Berkeley and an MBA from Georgetown University. He speaks English, Italian, French and Spanish fluently.

in relation to that matter. If more than one member of the Remuneration and Nominations Committee has an interest in a matter being deliberated, then the

non-interested Directors who are not members of the Nominations Committee will participate in the review and approval process in relation to that matter.

The full description of the Remuneration and Nominations Committee’s role is on our company website, www.chagalagroup.com.

http://www.chagalagroup.com.

http://www.chagalagroup.com.


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SENIOR MANAGEMENT

FRANCISCO PARRILLAChief Executive Officer

VLADISLAV SEMENOVHSE Manager

REGIS DANIELOperational Director

ELMIRA ABDRAKHMANOVA

Legal Director

YULIYA YUDINAHR Director

MADINA YELEBEKOVAGroup Sales and Marketing Director

MARGARITA KAPUSTYANSKAYAChief Financial OfficerEXECUTIVE

MANAGEMENT

MR FRANCISCO PARRILLAExecutive Director and Chief Executive Officer

MR. JAVIER DEL SERNon-Executive Director

Mr. Parrilla joined the Chagala Group as Director of Capital Projects in 2009 where he successfully completed a number of capital projects and continues to develop the project pipeline of the Chagala Group in Kazakhstan. Among others, Mr. Parrilla graduated from Universidad Pontificia de Comillas ICAI, Madrid, Spain in 1997 with a degree in Industrial Engineering and from London Business School, London, UK in 2005 with a Master Business Administration. Mr. Parrilla was elected to the Board of Directors as of 1 June, 2012.

Javier del Ser, a Spanish citizen, assists in overseeing the department responsible for the construction and operation of our hotels, offices, and apartments. Prior to joining the Group in 2000, Javier worked for 4 years for the Kazakhstan Asset Management Company managing the Kazakhstan Investment Fund, as a director responsible for launching the fund, and identifying investment opportunities. Prior to this, he was a managing director for Crescat Developments in Sri Lanka for 2.5 years responsible for construction and arranging financing and marketing the development of mixed use and hotel projects. Javier is the CEO of Steppe Cement Limited, an AIM listed company, and he also holds directorships at a number of non listed companies. Javier holds a masters degree in Structural Engineering from ETSI Caminos, Canales, y Puertos in Madrid and a Masters in Business Administration from HEC Jouy en Josas in France.


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CHAGALA IS COMMITTED TO IMPROVING AND SHAPING THE FUTURE OF THE LOCAL COMMUNITIES IN WHICH WE OPERATE IN KAZAKHSTAN AND TO CREATING VITAL EMPLOYMENT OPPORTUNITIES FOR THE LOCAL POPULATION.

SOCIAL RESPONSIBILITY

CHAGALA GROUP’S CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES REFLECT ITS PHILOSOPHY OF IMPLEMENTING SOUND BUSINESS PRACTICES; PROVIDING HIGH-QUALITY SERVICES; ASSISTING THE COMMUNITIES IN WHICH WE OPERATE; AND HELPING TO SHAPE A BETTER, MORE SUSTAINABLE SOCIETY.

WE BELIEVE THAT THESE ACTIVITIES BOTH BENEFIT SOCIETY AND ENHANCE CORPORATE VALUE.

THIS SECTION OUTLINES OUR KEY EFFORTS TO MAKE THE WORLD A BETTER PLACE WHILE CREATING VALUE FOR OUR CUSTOMERS, PARTNERS, THE ENVIRONMENT AND COMMUNITIES.


4544

TRAINING AND CAREER DEVELOPMENT

Chagala Group has a system in place to support employees who take the initiative to receive education and training. The Group places importance on giving all its employees greater access to knowledge. To meet the desire of employees for self-advancement we offer a range of opportunities and programs for professional growth.

In 2015, 138 employees participated in various internal and external training programs, including English and Kazakh language, marketing, accounting and HSE courses and further education courses and training.

EMPLOYEE RECOGNITION PROGRAM

In 2015 for the third year we continued our employee recognition program,

which is designed to reward those employees who demonstrate exemplary individual achievements, contributions and performance in their jobs and acknowledge those whose efforts have inspired and supported the performance and achievements of others.

In October, we awarded Chagala Group employees who have been with the company for more than 15 and 20 years.

OUR PEOPLE

COMMUNITY SUPPORT

AT THE CORE OF CHAGALA GROUP’S SUCCESS ARE OUR PEOPLE, AND THEY ARE OUR FOCUS. WE EMPLOY OVER 500 PEOPLE, WHO WORK AT OUR PROPERTIES IN SIX AREAS IN KAZAKHSTAN. WE WANT TO ATTRACT AND KEEP THE BEST PEOPLE AND DEVELOP THE BEST TALENTS — TALENTS WHO HAVE IMPACT AND ARE BUILDING THE MOST INCREDIBLE TEAMS.

SINCE THE INCEPTION OF THE COMPANY, WE HAVE SUPPORTED BOTH SMALL AND LARGE LOCAL AND REGIONAL EVENTS THAT HELP MAKE PEOPLE’S LIVES BETTER AND BRIGHTER. OUR COLLEAGUES IN VARIOUS REGIONS ON A REGULAR BASIS SUPPORT PEOPLE IN NEED, CHILDREN FROM ORPHANAGES, NGOS, AS WELL AS INDIVIDUALS WHO NEED FINANCIAL HELP FOR TREATMENT.

AS A COMPANY WE SUPPORT OUR EMPLOYEES THROUGH FINANCIAL AID. LAST YEAR WE SUPPORTED 26 EMPLOYEES.

1. NURTURING OUR PEOPLE TO MAKE SURE THEY FEEL VALUED, CHALLENGED AND FULFILLED

2. REWARDING AND RECOGNIZING ACHIEVEMENTS IN LINE WITH OUR GUIDING PRINCIPLES

3. SUPPORTING CAREER DEVELOPMENT TO HELP OUR PEOPLE REACH THEIR FULL POTENTIAL

4. HELPING OUR PEOPLE UNDERSTAND THE SIGNIFICANT ROLE THEY PLAY

5. ENGAGING WITH OUR PEOPLE, LISTENING TO THEIR FEEDBACK AND CHANGING HOW WE DO THINGS FOR THE BETTER

6. PROVIDING THE TOOLS, KNOWLEDGE AND SUPPORT OUR PEOPLE NEED TO DO A GREAT JOB FOR OUR CUSTOMERS.

To build business confidence for our customers, we believe it is essential to build inner confidence in our people too and that’s why we are committed to:

We recognize that our people are our most valuable asset. We have therefore developed an internal program for both executives and employees of Chagala Group to ensure we attract, motivate and develop talent that enables us to achieve sustainable growth, deliver client excellence and enhance our reputation.


4746

INDEPENDENT AUDITORS’ REPORT 48

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 50

CONSOLIDATED INCOME STATEMENT 52

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 53

CONSOLIDATED STATEMENT OF CASH FLOWS 54

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 58

CHAGALA GROUP LIMITED

FOR THE YEAR ENDED 31 DECEMBER 2015 WITH INDEPENDENT AUDITORS’ REPORT

The accompanying notes on pages 58 to 102 are an integral part of these consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS


4948

INDEPENDENT AUDITORS’ REPORT

«КПМГ Аудит» ЖШС, ҚазаҚстанда тҚркелген; Швейцария заҚнамасы бойынша тҚркелген KPMG International Cooperative (“KPMG Inter-national”) ҚауымдастыҚына кҚретҚн KPMG тҚуелсҚз фирмалар желҚсҚнҚҚ мҚшесҚ.

KPMG Audit LLC, a company incorporated under the Laws of the Republic of Kazakhstan, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity


5150

Chief Financial Officer Margarita Kapustyanskaya

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

IN THOUSANDS OF US DOLLARS NOTE 2015 2014

ASSETSNon-current assetsProperty, plant and equipment 9 73,188 101,403Intangible assets other than goodwill 115 161Capital work-in-progress 9 2,265 1,658Investment property 10 3,902 4,913Investment in associates 6 3,529 5,269Restricted cash 6 13Deferred tax asset 25 121 257

83,126 113,674Current assetsInventories 11 1,363 2,829

Accounts receivable 12 2,816 2,729

Taxes prepaid 13 422 426

Corporate income tax prepaid 611 1,012

Due from related parties 26 2,065 1,662

Other prepayments 14 657 763

Cash and cash equivalents 15 1,791 2,522

9,725 11,943

Total assets 92,851 125,617EQUITY AND LIABILITIES Equity attributable to equity holders of the parentShare capital 16 8,503 8,503

Additional paid-in capital 80,293 80,293

Treasury shares 16 (378) (529)

Retained earnings 20 (1,147)

Revaluation reserve, net of deferred tax 16 61,731 47,734Other reserves 16 − 508Foreign currency translation reserve (85,638) (44,109)Non-controlling interests 7 3,421 3,393

64,531 91,253Total equity 67,952 94,646

AS AT 31 DECEMBER 2015


Non-current liabilitiesLong-term borrowings 17 6,090 4,186Bonds payable 18 − 11,871Deferred tax liabilities 25 7,664 7,048Long-term advances from customers 21 916 − 14,670 23,105

Current liabilitiesCurrent portion of long-term borrowings 17 1,779 2,752Bonds payable 18 6,498 −Short-term borrowings 19 − 1,460Interest payable 135 196Trade accounts payable 20 597 1,681Advances from customers 21 670 321Taxes payable 22 464 546Due to related parties 26 47 386Other payables and accruals 39 524 10,229 7,866Total liabilities 24,899 30,971Total equity and liabilities 92,851 125,617

Signed and authorized for release on behalf of the Board of Directors of Chagala Group Limited on 28 April 2016.

Chief Executive Officer Francisco Parrilla


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CONSOLIDATED INCOME STATEMENT


Room and rent revenue 8 17,532 20,658Food and beverages revenue 8 3,458 5,225Other operating revenue 8 2,536 2,282TOTAL REVENUE 23,526 28,165Utilities, cleaning and maintenance (4,001) (5,018)Costs of food and beverages (1,148) (1,581)Salaries and employee benefits 23 (7,146) (8,342)General and administrative expenses (3,280) (3,443)Depreciation and amortization (4,207) (5,253)OPERATING PROFIT 3,744 4,528Foreign exchange loss, net (940) (134)Reversal of impairment/(impairment) of land and buildings 9 2,380 (876)Impairment of capital work-in-progress and goodwill 5, 9 (307) −Changes in the fair value of investment property 10 686 −Gain on disposal of land contributed to associate 6 − 1,740Loss on disposal of property, plant and equipment (64) (8)Finance income 24 53 26Finance costs 24 (2,178) (2,646)Other income 217 46Other expenses (128) (444)Share of loss of associates 6 (850) (263) PROFIT BEFORE INCOME TAX EXPENSE 2,613 1,969Income tax expense 25 (731) (601)PROFIT FOR THE YEAR 1,882 1,368Attributable to:

Equity holders of the parent 1,813 1,410Non-controlling interests 69 (42)

1,882 1,368Earnings per share (in US Dollars):basic and diluted, for profit for the year attributable to equity holders of the parent 16 0.088 0.068



FOR THE YEAR ENDED 31 DECEMBER 2015


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2015


PROFIT FOR THE YEAR 1,882 1,368

Other comprehensive income/(loss)Other comprehensive loss not to be reclassified to profit or loss in subsequent periods:Foreign currency translation loss (41,529) (16,346)Revaluation of property, plant and equipment 9 17,521 2,019Income tax effect 25 (3,504) (404)Revaluation of property, plant and equipment, net of tax 14,017 1,615Net other comprehensive loss not to be reclassified to profit or loss in subsequent periods (27,512) (14,731)Total comprehensive loss for the year, net of tax (25,630) (13,363)Attributable to:

Equity holders of the parent (25,656) (13,321)Non-controlling interests 7 26 (42)

(25,630) (13,363)





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CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2015



Cash flows from operating activitiesProfit before income tax expense 2,613 1,969Adjustments for:Depreciation 9 3,970 5,208Amortisation 237 45Unrealised foreign exchange loss/(gain) 940 (247)Change in allowance for doubtful debts 10 17Finance income 24 (53) (26)

Finance costs 24 2,178 2,646

Accrual of share based payments reserve 16 95 83

Share of loss of associates 6 850 263

Gain on disposal of land contributed to associate 6 − (1,740)

Loss on disposal of property, plant and equipment 64 8

(Reversal of impairment)/impairment loss on land and buildings 9 (2,380) 876

Impairment of capital work-in-progress 9 138 −

Impairment of goodwill 5 169 −

Change in the fair value of investment property 10 (686) −Cash from operations before working capital changes 8,144 9,102(Increase)/decrease in operating assets:

Inventories 157 (165)

Accounts receivable (1,409) 354

Amounts due from related parties (1,119) (703)

Other assets (783) 430

Increase/(decrease) in operating liabilities:

Accounts payable (306) 561Advances from customers 1,414 (258)Amounts due to related parties (160) 390Other payables (275) (199)Cash generated from operations 5,663 9,512


Interest paid (1,673) (2,214)Income taxes paid (33) (142)Net cash provided by operating activities 3,957 7,156Cash flows from investing activitiesLoans issued to related parties − (512)Purchases of property, plant and equipment (5,445) (3,034)Proceeds from disposal of property, plant and equipment 49 39

Acquisition of intangible assets (97) (134)Net cash used in investing activities (5,493) (3,641)Cash flows from financing activitiesRepayment of long-term borrowings (2,165) (5,970)Receipt of long-term borrowings 5,550 2,122Payment for termination of derivative financial instruments − (135)Repayment of short-term borrowings (2,239) −Receipt of short-term borrowings 1,250 1,460Transaction costs (190) (195)Repurchase of shares − (40)Sale of shares 51 40

Contribution to Non-controlling interests 2 −

Dividends (1,212) (400)

Net cash from/(used in) financing activities 1,047 (3,118)

Net (decrease)/increase in cash and cash equivalents (489) 397

Effect of exchange rate changes on cash and cash equivalents (242) 250

Cash and cash equivalents at the beginning of the year 15 2,522 1,875Cash and cash equivalents at the end of the year 15 1,791 2,522




5756

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2015

In thousands of US Dollars Share capital Additional paid in capital Treasury shares Revaluation reserve Foreign currency

translation reserve Retained earnings Other reserves Total Non-controlling interests Total equity

As at 1 January 2014 8,503 80,293 (612) 47,519 (27,763) (3,582) 508 104,866 3,435 108,301Profit for the year - - - - - 1,410 - 1,410 (42) 1,368Other comprehensive loss - - - 1,615 (16,346) - - (14,731) - (14,731)Total comprehensive loss - - - 1,615 (16,346) 1,410 - (13,321) (42) (13,363)Dividends - - - - - (400) - (400) - (400)Income from not paid dividend (Note 16) - - - - - 25 - 25 - 25

Other movements - - - (1,400) - 1,400 - - - - Shares repurchase (Note 16) - - (40) - - - - (40) - (40)Sale of shares (Note 16) - - 123 - - - - 123 - 123As at 31 December 2014 8,503 80,293 (529) 47,734 (44,109) (1,147) 508 91,253 3,393 94,646Profit for the year - - - - - 1,813 - 1,813 69 1,882Other comprehensive income/(loss) - - - 14,060 (41,529) - - (27,469) (43) (27,512)

Total comprehensive loss - - - 14,060 (41,529) 1,813 - (25,656) 26 (25,630)Dividends - - - - - (1,212) - (1,212) - (1,212)Other movements - - - (63) - 63 - - - -Shares repurchase (Note 16) - - 146 - - - - 146 - 146Shares cancellation (Note 16) - - 5 - - (5) - - - -Share-based payment plan expired (Note 16) - - - - - 508 (508) - - -

Acquisition of non-controlling interests (Note 16) - - - - - - - - 2 2

As at 31 December 2015 8,503 80,293 (378) 61,731 (85,638) 20 - 64,531 3,421 67,952

FOR THE YEAR ENDED 31 DECEMBER 2015ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT





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1 CORPORATE INFORMATIONChagala Group Limited (the “Company” or “Parent”) was incorporated as a private company in the British Virgin Islands (“BVI”) on 20 February 2006. The Company was formed for the principal purpose of acting as the parent company of a group of subsidiaries based in the Republic of Kazakhstan. The principal activities of the Company and its controlled subsidiaries (collectively referred to as the “Group”) consist of (i) ownership and management of hotels, serviced apartments, office accommodation and other commercial properties (ii) restaurant operations and (iii) development of commercial real estate in Western Kazakhstan.

The Company’s registered address is c/o Offshore Incorporations Limited, PO Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

On 27 February 2007 the Company listed its Global Depository Receipts (“GDRs”), each representing four ordinary shares, through an initial public offering (“IPO”) on the London Stock Exchange (“LSE”), and successfully floated 57.9% of its ordinary shares. GDR’s of the Company were publicly traded and the shareholding was dispersed with no single party able to exercise control.

Based on the decision made at the Annual General Shareholder Meeting the Company changed its listing on the LSE from GDRs to Shares. The admission to trading of the Company’s GDRs on the London Stock Exchange was voluntarily cancelled on 30 October 2015.

On 18 November 2015 the issued share capital of the Company consisting of 21,250,000 ordinary shares has been admitted, with a standard listing, to the Official List of the United Kingdom Listing Authority and to trading on the London Stock Exchange Plc's main market for listed securities under the TIDM code "CGLO".

A listing of the Group’s subsidiaries and associates as at 31 December is as follows:

Percentage ownership and voting

ENTITIES COUNTRY OF RESIDENCE CITY 2015 2014

SubsidiariesChagala Cooperatief U.A. (the “Coop”) Netherlands Amsterdam 100% 100%

Chagala International Holding B.V. (the “BV”) Netherlands Amsterdam 100% 100%

Starion Holdings B.V. Netherlands Amsterdam 100% 100%

Caspi Limited LLP Republic of Kazakhstan Atyrau 100% 100%

Kurmangazy Development LLP Republic of Kazakhstan Uralsk 70% −

Aktau Development Company LLP Republic of Kazakhstan Aktau, Bautino 100% 100%

Chagala Management LLP Republic of Kazakhstan Almaty 100% 100%

Bayan Limited LLP Republic of Kazakhstan Uralsk 100% 100%

Chagala Aksai LLP Republic of Kazakhstan Aksai 50.1% 50.1%

Seventh Sense Group LLP (Note 5) Republic of Kazakhstan Almaty − 100%

Compass Chagala Holding B.V. (Note 5) Netherlands Amsterdam 100% −

Compass Atyrau LLP (Note 5) Republic of Kazakhstan Atyrau 100% −

Compass Parkview LLP (Note 5) Republic of Kazakhstan Almaty 100% −

Compass Group Holdings

(Kazakhstan) Limited (Note 5) Hong Kong Hong Kong 100% −

Compass Group Management

(Kazakhstan) Limited (Note 5) Hong Kong Hong Kong 100% −

Compass Offices Holdings LLP (Note 5) Republic of Kazakhstan Almaty 100% −

Compass Offices Management LLP (Note 5) Republic of Kazakhstan Almaty 100% −

Compass Offices PV LLP (Note 5) Republic of Kazakhstan Almaty 100% −AssociatesArrowhead B.V. (Note 6) Netherlands Amsterdam 30% 30%

Itasia Engineering LLP (Note 6) Republic of Kazakhstan Almaty 49% 49%

Compass Chagala Holding B.V. (Note 5) Netherlands Amsterdam − 49%

2 BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS

2.1 BASIS OF PREPARATIONThe consolidated financial statements have been prepared on historical cost basis, except land and buildings which are measured at revalued amounts.

The consolidated financial statements are presented in US Dollars and all values are rounded to the nearest thousands ($000), except when otherwise indicated.

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

2.2 BASIS OF CONSOLIDATIONThe consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2015.

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.

Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

• Derecognises the assets (including goodwill) and liabilities of the subsidiary;

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015


6160

• Derecognises the carrying amount of any non-controlling interest;

• Derecognises the cumulative translation differences, recorded in equity;

• Recognises the fair value of the consideration received;

• Recognises the fair value of any investment retained;

• Recognises any surplus or deficit in the income statement;

• Reclassifies the parent’s share of components previously recognised in other comprehensive income to the income statement or retained earnings, as appropriate.

2.3 CHANGES IN ACCOUNTING POLICY AND DISCLOSURESA number of new Standards, amendments to Standards and Interpretations are not yet effective as at 31 December 2015, and have not been applied in pre-paring these consolidated financial statements. Of these pronouncements, potentially the following will have an impact on the Group’s operations. The Group plans to adopt these pronouncements when they become effective.

NEW STANDARD/ INTERPRETATION SHORT DESCRIPTION IMPACT ON FINANCIAL

POSITION OR PERFORMANCE

IFRS 9 Financial Instruments

IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39.

IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

The Group is assessing the potential impact on its con-solidated financial statements resulting from the application of IFRS 9.

IFRS 15 Revenue from contracts with customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.

The core principle of the new standard is that an entity recognises 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 or services. The new standard results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements.

IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.


NEW STANDARD/ INTERPRETATION SHORT DESCRIPTION IMPACT ON FINANCIAL

POSITION OR PERFORMANCE

IFRS 16 Leases

FRS 16 replaces the current guidance for the lease accounting, including IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The new standard cancels a currently used dual lessee accounting model. This model requires classification of the lease as on-balance finance lease and off-balance operating lease. It will be replaced by a single accounting model, which implies that the lease is recognised on balance and is similar to the current accounting of the finance lease. For lessors the currently used accounting rules will be preserved in general – the lessors will continue classifying the lease as finance lease and operating lease.

IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted provided that IFRS 15 Revenue from Contracts with Cus-tomers is also applied.


3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been ap-plied consistently by Group entities, except as described in note 3.8.

3.1 BUSINESS COMBINATIONS AND GOODWILLBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net as-sets. Acquisition related costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded deriva-tives in host contracts by the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in profit or loss or as a change to the consolidated other comprehensive income. If the contingent consideration is not scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.


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Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling inter-est over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in this circumstance is mea-sured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

3.2 INVESTMENT IN ASSOCIATESThe Group’s investment in its associates is accounted for using the equity method. Associates are all entities over which the Group has significant influence but not control. Significant influence is the power to participate in the financial and operating policy decisions of the investee.

Under the equity method, the investment in the associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The consolidated income statement reflects the Group’s share of the results of operations of the associate. When there has been a change recognised in other comprehensive income or directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statements of comprehensive income or changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The Group’s share of profit of an associate is shown on the face of the consolidated income statement and represents profit or loss after tax and non-control-ling interest in the subsidiaries of the associate.

The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the ac-counting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the loss as “share of losses of an associate” in the consolidated income statement.

Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recog-nised in profit or loss.

3.3 FOREIGN CURRENCY TRANSLATIONThe functional currency of the Company and its subsidiaries is the Kazakhstan Tenge (“KZT” or “Tenge”). All items included in the financial statements of each entity are measured using that functional currency. The Group selected US Dollars as a presentation currency, since it provides more useful information to its shareholders.

The results and financial position are translated into presentation currency using the following procedures:

• assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial posi-tion;

• income and expenses for each statement of comprehensive income presented are translated at exchange rates at the dates of the transactions; and

• all resulting exchange differences shall be recognised in other comprehensive income.

i) Transactions and balances

Transactions in foreign currencies are initially recorded by the Group entities in Tenge (the functional currency) at their respective functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange at the reporting date.

All differences arising on settlement or translation of monetary items are taken to the consolidated income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is de-termined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively).

The Group used foreign exchange rates of US Dollars against the Kazakhstan Tenge established by the Kazakhstan Stock Exchange (“KASE”) as follows:

EXCHANGE RATE WEIGHTED-AVERAGE RATE

at 31 December during the year

2015 339.47 222.25

2014 182.35 179.19

3.4 CURRENT VERSUS NON-CURRENT CLASSIFICATIONThe Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:

• Expected to be realised or intended to sold or consumed in normal operating cycle;

• Held primarily for the purpose of trading;

• Expected to be realised within twelve months after the reporting period, or

• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is current when:

• It is expected to be settled in normal operating cycle;

• It is held primarily for the purpose of trading;

• It is due to be settled within twelve months after the reporting period, or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

3.5 FAIR VALUE MEASUREMENTFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the mea-surement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:


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• In the principal market for the asset or liability, or

• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's abil-ity to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 − Quoted (unadjusted) market prices in active markets for identical assets or liabilities;

• Level 2 − Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;

• Level 3 − Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

3.6 NON-CURRENT ASSETS HELD FOR SALE OR FOR DISTRIBUTION TO EQUITY HOLDERS OF THE PARENT AND DISCONTINUED OPERATIONSThe Group classifies non-current assets and disposal groups as held for sale or for distribution to equity holders of the parent if their carrying amounts will be recovered principally through a sale or distribution rather than through continuing use. Such non-current assets and disposal groups classified as held for sale or as held for distribution are measured at the lower of their carrying amount and fair value less costs to sell or to distribute. Costs to distribute are the incremental costs directly attributable to the distribution, excluding the finance costs and income tax expense.

The criteria for held for distribution classification is regarded as met only when the distribution is highly probable and the asset or disposal group is available for immediate distribution in its present condition. Actions required to complete the distribution should indicate that it is unlikely that significant changes to the distribution will be made or that the distribution with be withdrawn. Management must be committed to the distribution expected within one year from the date of the classification. Similar considerations apply to assets or a disposal group held for sale.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale or as held for distribution.

Assets and liabilities classified as held for sale or for distribution are presented separately as current items in the statement of financial position.

A disposal group qualifies as discontinued operation if it is:

• A component of the Group that is a cash-generating unit (“CGU”) or a group of CGUs;

• Classified as held for sale or distribution or already disposed in such a way, or

• A major line of business or major geographical area.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discon-tinued operations in the statement of profit or loss.

3.7 PROPERTY, PLANT AND EQUIPMENT

Land and buildings are measured at fair value less accumulated depreciation on buildings and impairment losses recognised after the date of the revalu-ation. Valuations are performed once every three years, unless a significant change takes place in the operating environment of the land or the building, in which case the asset is revalued in that period to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

A revaluation surplus is recorded in other comprehensive income and credited to the asset revaluation reserve in equity. However to the extent that it reverses a revaluation deficit of the same asset previously recognised in profit or loss, the increase is recognised in profit and loss. A revaluation deficit is recognised in the income statement, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.

Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the reval-ued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being disposed of is transferred to retained earnings.

Furniture and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing part of the equipment if the recognition criteria are met.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets for the current and comparative periods as follows:

Buildings 20-50 years

Furniture and Equipment 3-10 years

An item of property, plant and equipment and any significant component initially recognised is derecognised upon disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consoli-dated income statement when the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospec-tively, if appropriate.

All assets under construction are classified as capital work-in-progress and measured at cost. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Capital work-in-progress is not depreciated. Once projects are completed and placed into service, they are transferred to property, plant and equipment. Also, capital work-in-progress includes unassembled or uninstalled furniture that is transferred to furniture category once assembled or installed.

3.8 INVESTMENT PROPERTYInvestment property was measured initially at cost, including transaction costs. Subsequent to initial recognition, the investment property was stated at cost, net of accumulated depreciation and accumulated impairment, if any.

Transfers were made to (or from) investment property only when there was a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the carrying amount at the date of change in use. If owner-occupied property becomes an investment property, the Company accounts for such property in accordance with the accounting policy at the date of change in use.

Starting from the 10th of June 2015 the Group changed accounting model applied to investment property to fair value model in accordance with requirements of IAS 40 “Investment Property”, with the exception of objects, which meet the classification criteria as assets held for sale (or are included into the disposal group classified as held for sale) in accordance with IAS 5 “Non-current assets held for sale and discontinued operations”. This change did not have a signifi-cant impact on comparative information as cost of investment property approximated its fair value.

Investment property is derecognised either when they have been disposed and no future economic benefit is expected from their use. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the income statement in the period of derecognition.

A gain or loss arising from a change in the fair value of investment property is recognised in profit or loss for the period in which it arises.


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3.9 BORROWING COSTSBorrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

3.10 INTANGIBLE ASSETSIntangible assets include computer software. Intangible assets are recorded at cost, less accumulated amortisation. Intangible assets are amortised on a straight-line basis over a period of five years effective for the current and comparative periods. Amortisation is recorded in the consolidated income state-ment in the period to which it relates.

3.11 INVENTORIES Inventories are recorded at the lower of cost and net realisable value. Inventory cost, which comprises all costs of purchase and other costs incurred in bring-ing the inventories to their present location and condition, is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Consistent with the industry practice, some hotel inventories (guestroom items, operating supplies) are classified as current assets despite useful life exceeding 12 months.

3.12 IMPAIRMENT OF NON-FINANCIAL ASSETSThe Group assesses at each reporting date whether there is an indication that a non-financial asset, other than inventories or deferred tax assets, may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU fair value less costs to sell and its value in use. Recoverable amount is determined for an individual as-set, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGU to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and applied to projected future cash flows after the fifth year.

Impairment losses of continuing operations are recognised in the consolidated income statement in those expense categories consistent with the function of the impaired asset, except for a property previously revalued where the revaluation was taken to the consolidated statement of comprehensive income. In this case, the impairment is also recognised in the consolidated statement of comprehensive income up to the amount of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impair-ment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated income statement unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

3.13 FINANCIAL INSTRUMENTSa) Financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity invest-ments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss.

The Group’s financial assets include cash and short-term deposits, loans, trade and other receivables, which are classified within loans and receivables category.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measure-ment, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the consolidated income statement. The losses arising from impairment are recognised in the consolidated income statement in finance costs for loans and in general and administrative expenses for receivables.

Derecognition

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• The rights to receive cash flows from the asset have expired

• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

b) Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.


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Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as finance income in the consolidated income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the consolidated income statement.

c) Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, other financial liabilities, or as deriva-tives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value and in the case of other financial liabilities, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, loans and borrowings, which are classified within other financial liabilities, and derivative financial instruments, which form part of financial liabilities at fair value through profit or loss.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39.

Gains or losses on liabilities held for trading are recognised in profit or loss.

Financial liabilities designated upon initial recognition at fair value through profit and loss so designated at the initial date of recognition, and only if criteria of IAS 39 are satisfied. The Group has not designated any financial liabilities upon initial recognition as at fair value through profit or loss.

Other financial liabilities

After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest rate (EIR) method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the consolidated income statement.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modi-fication is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated income statement.

d) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if:

• There is a currently enforceable legal right to offset the recognised amounts; and

• There is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

e) Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

• Using recent arm’s length market transactions;

• Reference to the current fair value of another instrument that is substantially the same;

• A discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 28.

3.14 CASH AND CASH EQUIVALENTSCash and cash equivalents are defined as cash at bank, cash on hand and short-term deposits with an original maturity of three months or less.

3.15 RESTRICTED CASH Cash and cash equivalents are defined as cash at bank, cash on hand and short-term deposits with an original maturity of three months or less.

3.16 TAXESa) Value added tax (VAT)

The tax authorities permit the settlement of sales and purchases value added tax on a net basis. Value added tax recoverable represents VAT on purchases net of VAT on sales.

Value added tax payable

VAT payable is recognised upon recognition of sale of goods and services to customers and related trade receivables. VAT on purchases is deducted from the amount payable.

Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debtor, including VAT. The related deferred VAT liability is maintained until the debtor is written off for tax purposes.

Value added tax recoverable

VAT recoverable is related to purchased goods and services, which were purchased with VAT and if the purchases were made in order to generate revenue.


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At each reporting date, the VAT recoverable amount is subject to offsetting against the VAT payable.

b) Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the coun-tries where the Group operates and generates taxable income.

Current income tax relating to items recognised in other comprehensive income or directly in equity is recognised in other comprehensive income or equity and not in the consolidated income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which ap-plicable tax regulations are subject to interpretation and establishes provisions where appropriate.

c) Deferred income taxes

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• Where the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;

• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

• Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;

• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in consolidated other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognised subse-quently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it incurred during the measurement period or in consolidated income statement.

3.17 PROVISIONS Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the consolidated income statement net of any reimburse-ment.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risk specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as finance costs.

3.18 SHARE CAPITALShare capital represented by ordinary shares is classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction from the proceeds in equity. Any excess of the fair value of consideration received over the par value of shares issued is recognised as additional paid in capital.

The shares bought back by the Group or ‘treasury shares’ reduce the amount of outstanding shares on the open market. Treasury shares are deducted from equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of the treasury shares. Any consideration paid or received is recognised directly in equity.

3.19 SHARE-BASED PAYMENT TRANSACTIONSSenior management and directors of the Group receive remuneration in the form of share-based payment transactions, whereby senior management and directors render services as consideration for equity instruments ('equity-settled transactions').

The cost of equity-settled transactions is recognised, together with a corresponding increase in other reserves in equity, over the period in which the perfor-mance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in salaries and employee benefits.

No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market condi-tion or non-vesting condition. These are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied.

When the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense had the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based pay-ment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

When an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.


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3.20 REVENUE AND EXPENSES RECOGNITIONRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regard-less of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The specific recognition criteria described below must also be met before revenue is recognised.

Rendering of services

Sales of services are recognised in the period the services are provided based on the total contract value. Room revenue is recognised when rooms are occupied, based on completed guest nights. Rent revenue is recognised on the straight-line basis over the lease term, which is determined in operating lease agreement. Revenues are measured at the fair value of the consideration received or receivable. When the fair value of consideration received cannot be mea-sured reliably, the revenue is measured at the fair value of the services provided.

Sale of goods

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods.

Expenses

Expenses are recognised as incurred and are reported in the financial statements in the period to which they relate on an accruals basis.

3.21 EMPLOYEES' BENEFITSThe Group pays social taxes to the Kazakhstan government for its employees. Social taxes and related staff costs are expensed as incurred.

The Group also withholds and contributes 10% from the salary of its local employees as the employees’ contribution to their pension funds. Under the legisla-tion, employees are responsible for their retirement benefits and the Group has no present or future obligation to pay its employees upon their retirement.

3.22 EARNINGS PER SHAREThe Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstand-ing, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

3.23 SEGMENT REPORTINGAn operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including rev-enues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance.

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group’s headquarters), head office expenses, and income tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and intangible assets other than goodwill.

4 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONSThe preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

ESTIMATES AND ASSUMPTIONS

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Impairment of non-financial assets

An impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in arm’s length trans-actions of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet com-mitted to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.

Revaluation of land and buildings

The Group uses the revaluation model for land and buildings allowed under IAS 16 Property, Plant and Equipment. The Group engages an independent valu-ation specialist to assess fair value as at the reporting date. The Group applied the income approach involving the exercise of significant assumptions and judgments in determining the fair values of land and buildings. The key assumptions used in deriving the valuation using the income approach are the dis-count rate and the projection of future cash flows. Fair value of land is determined by reference to market-based evidence by using the comparative approach which is based on comparison with similar properties where information on prices of transactions is available. The fair value of buildings has substantially been determined by using the income approach which is based on determination of expected profit from the buildings being valued. More details are provided in Note 9.

Fair value of investment property

Starting from 2015 the Group uses fair value model for measurement of its investment property. Fair value of land is determined by reference to market-based evidence by using the comparative approach which is based on comparison with similar properties where information on prices of transactions is available. The fair value of commercial property has substantially been determined by using the income approach which is based on determination of expected profit from the property being valued. More details are provided in Note 10.

Useful life of property, plant and equipment

The Group assesses the remaining useful lives of items of property, plant and equipment on an annual basis. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Deferred tax assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. More details are provided in Note 25.


7574

Allowances

The Group makes allowances for doubtful accounts receivable. Significant judgment is used to estimate doubtful accounts. In estimating doubtful accounts historical and anticipated customer performance are considered. Changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in the financial statements.

Fair value of financial instruments

Where the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instru-ments.

RECLASSIFICATIONS

The Group has changed presentation of the below items in the consolidated statements of financial position and consolidated income statement and consoli-dated statement of cash flows for the year ended 31 December 2015 and reclassified comparative amounts for the year ended 31 December 2014.

i) Property, Plant and Equipment and Investment property (Notes 9 and 10)

In order to more precisely reflect the impact of offsetting valuation differences noted during preparation of these consolidated financial statements, the man-agement made certain changes in presentation of property, plant and equipment and investment property as at 31 December 2014. This resulted in reduction of investment property and increase of property, plant and equipment by USD 1,397 thousand. No other balances in comparative information are affected. The impact of this change is not material and therefore no third balance sheet is presented.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2014 PRESENTATION IN 2015 PRESENTATION IN 2014

In thousands of US Dollars

Non-current assetsProperty, plant and equipment 101,403 100,006

Investment property 4,913 6,310

106,316 106,316

ii) Advances paid (Note 26)

Due to the fact that the development projects undertaken by the Group are usually short-term, having one year duration, the Group considers it relevant to present the advances paid within the framework of such projects as current assets. Therefore, all advances paid for property development to related parties have been included in the current assets as at 31 December 2015 and reclassified from non-current to current assets as at 31 December 2014.



Non-current assetsLong-term prepayments − 201

Due from related parties − 905



Current assetsDue from related parties 1,662 757

Other prepayments 763 562

2,425 2,425

iii) Value added tax (note 17)

In 2014 and 2015 the Group incurred additional financing costs under Murabaha loan agreements due to released value added tax turnover, which affected the proportion of value added tax that can be offset. The released value added tax turnover occurred, when Murabaha goods were purchased and sold. Since the release value added tax turnover directly relates to the purchase and sale of Murabaha goods under the loan agreements, the Group considers such costs as finance costs. The amount of USD 190 thousand was presented in finance costs in 2015 and USD 222 thousand were reclassified from general and admin-istrative expenses to finance costs for presentation purposes in 2014.

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014 PRESENTATION IN 2015 PRESENTATION IN 2014

General and administrative expenses (3,443) (3,665)Operating profit 4,528 4,306Finance costs (2,646) (2,424)Profit before income tax expense 1,969 1,969

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 PRESENTATION IN 2015 PRESENTATION IN 2014

Finance costs 2,646 2,451

Cash from operations before working capital changes 9,102 8,907

Transaction costs (195) −

Net cash used in financing activities (3,118) (2,923)

5 ACQUISITIONS, FORMATIONS AND MERGERS FORMATIONS IN 2015

In May 2015 the Group through its subsidiary Caspi Limited LLP established a joint venture – Kurmangazy Development LLP with National Company "Social Entrepreneurial Corporation "Oral" with the Caspi Limited's share participation of 70%. The Group has a control over the established company and includes it in its consolidated financial statements. The principal activities of the joint venture are refurbishment and further lease of the office building in Uralsk.


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ADDITIONS IN 2015

On 16 December 2015 the Group increased its aggregate interest in Compass Chagala Holding BV from 49% up to 100% and became the sole shareholder. A cash contribution comprised USD 1.

On 16 December 2015 the Group acquired 100% of the shares of Compass Group Holdings (Kazakhstan) Limited and Compass Group Management (Kazakh-stan) Limited, respectively, as established and registered in compliance with the laws of the Hong Kong for a cash contribution of USD 1. Acquired Compass Group Holdings (Kazakhstan) Limited and Compass Group Management (Kazakhstan) Limited have 100% of the shares in three subsidiaries: Compass Offices Holdings LLP, Compass Offices PV LLP and Compass Offices Management LLP as established and registered in compliance with the laws of the Republic of Kazakhstan. The main activities of the acquired companies is operation of serviced offices and meeting rooms.

The following table summarises the recognised amount of the identifiable assets, liabilities and contingent liabilities attributable to acquired interest in all Compass companies as at the date of acquisition:

IN THOUSANDS OF US DOLLARS FAIR VALUES RECOGNISED ON ACQUISITION

Cash and cash equivalents 21

Trade accounts receivable 15

Other assets 469

Loans* (2,095)

Trade accounts payable (61)Net assets (1,651)Loans to the Group* 1,482

Goodwill on acquisition (169)Total consideration 0.002

* At the date of acquisition, the Group signed deeds of assignment with Grand Strong Holdings Limited (“GSHL”) to transfer all outstanding loans of Com-pass Group companies (Compass Office PV (Kazakhstan) LLP, Compass Offices Holdings (Kazakhstan) LLP and Compass Chagala Holding BV) in the total amount of USD 1,482 thousand to the Group. Consideration fee paid by Chagala Group Limited for loans assigned comprised USD 4. The Group considers these loans as a part of the acquisition and included them in the recognised amounts of identifiable net assets attributable to acquired interest. The total cost of the combination was USD 1 and was paid in cash. The net cash inflow on acquisition was as follows:

IN THOUSANDS OF US DOLLARS

Cash paid (0.002)

Minus: cash acquired with the subsidiary 21Net cash inflow 20.998

From the date of acquisition, Compass companies incurred net losses of USD 82 thousand, which has been included to the net profit of the Group for the year ended December 31, 2015.

If the acquisition of Compass companies had occurred on 1 January 2015 the consolidated loss of the Group for the year ended 31 December 2015 would have been USD 847 thousand and consolidated revenue would have been USD 23,916 thousand.

As at 31 December 2015 the Group impaired the goodwill and recognised losses in the Statement of Comprehensive Income.

MERGERS IN 2015

On 28 December 2015 Seventh Sense Group LLP, being a 100% subsidiary of the Group, was merged with another 100% subsidiary of the Group, Chagala Management LLP.

ADDITIONS IN 2014

In February 2014, the Group increased its aggregate interest in Itasia Engineering LLP up to 49% through a cash contribution of USD 0.045 thousand.

In February 2014, the Group established a joint venture Compass Chagala Holding B.V. (or “CCH B.V.”) with Compass Offices Management Limited. CCH B.V. is a legal entity established under the laws of the Netherlands with the main activity being the operation of serviced offices and meeting rooms. The Group had 49% of interest in CCH B.V as at 31 December 2014. During 2014 CCH B.V. registered two 100% subsidiaries Compass Parkview LLP and Compass Atyrau LLP.

In April 2014 the Chagala Cooperatief U.A. established a new 100% subsidiary – Chagala Riverside B.V. (or “CR B.V.”). CR B.V. is a legal entity registered un-der the laws of the Netherlands with the main activity being to acquire, exploit and operate a commercial property. Chagala Riverside B.V. was subsequently renamed to Starion B.V.

6 INVESTMENT IN ASSOCIATESARROWHEAD B.V.

The Group has a 30% interest in Arrowhead B.V. (or “ABV”), which is involved in the development of commercial and residential properties in the Republic of Kazakhstan. ABV is a legal entity established under the laws of the Netherlands. In 2012 ABV created two subsidiaries, 100% owned by the entity: Flecha LLP was created on 11 September 2012 with its main activity in Atyrau; Crossbow LLP was created on 16 April 2012 with its main activity in Almaty. Flecha LLP is working on the construction of Saraishyk Residential Complex and supermarket development in Atyrau. The Complex is located near Chagala properties and comprises 4 blocks of two and three bedroom apartments covering an area of circa 14,000 square meters. The apartment block was finished in September 2014. The supermarket was completed in March 2015. Сrossbow LLP has purchased an office building in Almaty. The six floor building contains 5,156 square meters of useable ‘A’ class office space and is being leased to external clients.

During 2014 the Group increased its investments in Arrowhead B.V. by USD 4,710 thousand (2013: USD 1,452 thousand) by contribution of land with a carrying amount of USD 2,224 thousand, recognising a gain of USD 1,740 thousand, which represents the difference between the carrying value of the land contributed and its fair value reduced by the proportion of the Group’s interest in ABV.

The following table presents the summarised financial information of Arrowhead B.V.:

IN THOUSANDS OF US DOLLARS 2015 2014

Current assets 3,998 8,570

Non-current assets 10,769 13,569

Current liabilities (2,139) (3,526)

Non-current liabilities (865) (1,050)Equity 11,763 17,563Proportion of the Group’s ownership 30% 30%Carrying amount of the investment 3,529 5,269Revenue 1,570 1,193

Cost of sales (551) (600)

General and administrative expenses (272) (781)

Finance costs (211) (309)

Foreign exchange loss (3,665) (487)


7978


Other expenses (333) −Loss before income tax expense (3,462) (984)Income tax benefit 628 107Net loss for the year (continuing operations) (2,834) (877)Group’s share of net loss for the year (850) (263)

ITASIA ENGINEERING LLP

The Group has a 49% interest in Itasia Engineering LLP (or “Itasia”), which is involved in the construction of properties and provision of capital repair services for the Group. Itasia is a legal entity established under the laws of the Republic of Kazakhstan.

In 2015 Itasia incurred net losses and total comprehensive loss, of which the share of the Group constituted USD 15 thousand (2014: USD 5 thousand). The Group did not recognise the net losses on Itasia in the Statement of Comprehensive Income due to zero value of the investment. As at 31 December 2015 the amount of unrecognised Group’s share of Itasia’s net losses equals to USD 54 thousand (2014: USD 39 thousand).

7 MATERIAL PARTLY-OWNED SUBSIDIARYCHAGALA AKSAI LLP

Financial information of the Group’s subsidiary that has a material non-controlling interests, Chagala Aksai LLP, is provided below.

Proportion of equity interest held by non-controlling interests:

COUNTRY OF RESIDENCE 2015 2014

Chagala Aksai LLP Republic of Kazakhstan 49.90% 49.90%

Amounts allocated to material non-controlling interest:


Accumulated balances of material non-controlling interest 3,436 3,393

Profit/(loss) allocated to material non-controlling interest 43 (42)

The summarised financial information of Chagala Aksai LLP is provided below. This information is based on amounts before inter-company eliminations.

Summarised statement of profit or loss:


Revenue 641 534

Operating costs (404) (455)

Other expenses (52) (183)Profit/(loss) before income tax benefit 185 (104)


Income tax (expense)/benefit (14) 21Net profit/(loss) for the year 171 (83)Other comprehensive loss (87) −Total comprehensive income/(loss) 84 (83)Attributable to non-controlling interest 43 (42)

Summarised statement of financial position:


Current assets 915 994

Non-current assets 1,720 3,614

Current liabilities (21) (35)

Non-current liabilities (52) (50)Total equity 2,562 4,523Translation difference 4,324 2,277

6,886 6,800Attributable to equity holders of parent 3,450 3,407

Non-controlling interest 3,436 3,393

Summarised cash flow information:


Operating activities 216 (195)

Investing activities (13) 157Net increase/(decrease) in cash and cash equivalents 203 (38)

KURMANGAZY DEVELOPMENT LLP

Financial information of the Group’s subsidiary established in 2015 that has a material non-controlling interests, Kurmangazy Development LLP, is provided below.

Proportion of equity interest held by non-controlling interests:

COUNTRY OF RESIDENCE 2015

Kurmangazy Development LLP Republic of Kazakhstan 30%


8180

Amounts allocated to material non-controlling interest:

IN THOUSANDS OF US DOLLARS 2015

Share capital contribution at the date of establishment 2

Loss allocated to material non-controlling interest (17)

The summarised financial information of Kurmangazy Development LLP is provided below. This information is based on amounts before inter-company eliminations.

Summarised statement of profit or loss:


Revenue 2

Operating costs (36)

Other expenses (22)Loss before income tax benefit (56)Income tax benefit −Loss for the year (56)Other comprehensive income −Total comprehensive loss (56)Attributable to non-controlling interest (17)

Summarised statement of financial position:


Current assets 2,078

Non-current assets 1,985

Current liabilities (3,165)

Non-current liabilities (916)Total equity (18)Translation difference (31)

(49)

Attributable to equity holders of parent (34)

Non-controlling interest (15)

Summarised cash flow information:


Operating activities 1,258

Investing activities (4,088)

Financing activities 2,852Net increase in cash and cash equivalents 22

8 OPERATING SEGMENT INFORMATIONFor management purposes, the Group is organised into business units based on services rendered and has two reportable operating segments: room and rent operations and food and beverages operations. Other operating segments which are mainly represented by sport and leisure and technical support services are not material to the Group and are aggregated under ‘Other’ caption in tables below.

Management monitors the operating results of its business segments separately for the purpose of making decisions about resource allocation and perfor-mance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements except for certain costs and expenses which are not allocated to segments.

In 2015 one of the Group’s major customers accounted for USD 14,155 thousand of the Group’s total revenues (2014: USD 18,307 thousand).

The following table presents information regarding the Group’s business segments:

YEAR ENDED 31 DECEMBER 2015 IN THOUSANDS OF US DOLLARS

ROOM AND RENT

FOOD AND BEVERAGES OTHER

ADJUSTMENTS AND

ELIMINATIONS

TOTAL OPERATIONS

RevenueSales to external customers 17,532 3,458 2,536 − 23,526

Internal sales 2,327 908 − (3,235) −Total revenue 19,859 4,366 2,536 (3,235)1 23,526Results

Depreciation and amortization (3,723) (234) (115) (135) (4,207)

Reversal of impairment/(impairment) of land and buildings 3,023 (155) (471) (17) 2,380

Impairment of capital work-in-progress and goodwill − 386 − (693) (307)

Changes in the fair value of investment property − − − 686 686

Loss on disposal of property, plant and equipment (2) − − (62) (64)

Finance costs, net (2,178) − − 53 (2,125)

Share of loss in associate − − − (850) (850)

Other income/(expenses), net 62 (88) − (825) (851)Segment profit/(loss) 10,339 2,145 1,481 (11,352)5 2,613


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ROOM AND RENT


ADJUSTMENTS AND

ELIMINATIONS

TOTAL OPERATIONS

Segment assets 73,330 3,027 2,508 13,9862 92,851Segment liabilities (15,235) (207) (120) (9,337)3 (24,899)Other segment informationCapital expenditures4 4,773 141 366 5494 5,829

1. Internal sales are eliminated on consolidation.

2. Segment assets do not include property, plant and equipment for administrative purposes (USD 1,665 thousand), intangible assets other than goodwill (USD 115 thousand), investment property - land (USD 3,004 thousand) investment in associates (USD 3,529 thousand), restricted cash (USD 6 thousand), deferred tax assets (USD 121 thousand), taxes prepaid (USD 422 thousand), corporate income tax prepaid (USD 611 thousand), due from related parties (USD 2,065 thousand), other prepayments (USD 657 thousand) and cash and cash equivalents (USD 1,791 thousand) as these assets are managed on a group basis.

3. Segment liabilities do not include long-term borrowings (USD 1,123 thousand), deferred tax liabilities (USD 7,664 thousand) taxes payable (USD 464 thousand), other payable (USD 39 thousand) and due to related parties (USD 47 thousand) as these liabilities are managed on a group basis.

4. Capital expenditure consists of additions of property, plant and equipment and intangible assets.

5. Profit for the operating segments does not include general and administrative expenses (USD 3,280 thousand) and salaries and employee benefits of administrative employees (USD 2,994 thousand).


ROOM AND RENT


ADJUSTMENTS AND

ELIMINATIONS

TOTAL OPERATIONS

RevenueSales to external customers 20,658 5,225 2,282 − 28,165

Internal sales 1,891 994 459 (3,344) −Total revenue 22,549 6,219 2,741 (3,344)1 28,165 ResultsDepreciation and amortization (4,626) (318) (181) (128) (5,253)

Impairment of land and buildings (876) − − − (876)

Gain on disposal of land contributed to associate − − − 1,740 1,740

Loss on disposal of property, plant and equipment − − − (8) (8)

Finance costs, net (2,460) − − (160) (2,620)

Share of loss in associate − − − (263) (263)

Other expenses, net (375) − − (157) (532)Segment profit/(loss) 6,269 1,382 2,243 (7,925)5 1,969Segment assets 98,913 4,126 2,512 20,066 2 125,617Segment liabilities (17,656) (499) (460) (12,356)3 (30,971)Other segment informationCapital expenditures4 1,960 117 202 7554 3,034

1. Internal sales are eliminated on consolidation.

2. Segment assets do not include property, plant and equipment for administrative purposes (USD 1,872 thousand), intangible assets other than goodwill (USD 161 thousand), investment property (USD 4,913 thousand) investment in associates (USD 5,269 thousand), restricted cash (USD 13 thousand), deferred tax assets (USD 257 thousand), taxes prepaid (USD 426 thousand), corporate income tax prepaid (USD 1,012 thousand), due from related parties (USD 1,662 thousand), other prepayments (USD 562 thousand) and cash and cash equivalents (USD 2,522 thousand) as these assets are managed on a group basis.

3. Segment liabilities do not include long-term borrowings (USD 3,856 thousand), deferred tax liabilities (USD 7,048 thousand), interest payable (USD 53 thousand), taxes payable (USD 546 thousand), other payable (USD 467 thousand) and due to related parties (USD 386 thousand) as these liabilities are managed on a group basis.

4. Capital expenditure consists of additions of property, plant and equipment and intangible assets.

5. Profit for the operating segments does not include general and administrative expenses (USD 3,443 thousand) and salaries and employee benefits of administrative employees (USD 2,162 thousand).

9 PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment and related accumulated depreciation consist of the following:

2015 IN THOUSANDS OF US DOLLARS LAND BUILDINGS FURNITURE AND

EQUIPMENTCAPITAL WORK-IN-

PROGRESS TOTAL

Net carrying amount at 1 January 11,435 84,889 5,079 1,658 103,061Additions 223 1,244 1,564 2,798 5,829

Revaluations recognised in the state-ment of other comprehensive income 3,721 13,800 − − 17,521

Reversal of impairment/(impairment) 10 2,370 − (138) 2,242

Transfer to investment property − (704) − − (704)

Disposals − (52) ( 91) − (143)

Transfers (142) 1,162 7 (1,027) −

Depreciation charge for the year − (2,225) (1,745) − (3,970)

Translation reserve (6,389) (38,793) (2,175) (1,026) (48,383)Net carrying amount at 31 December 8,858 61,691 2,639 2,265 75,453Gross book value 8,858 69,425 28,601 2,265 109,149

Accumulated depreciation − (7,734) (25,962) − (33,696)Net carrying amount at 31 December 8,858 61,691 2,639 2,265 75,453

Transfers from capital work-in-progress to buildings and furniture and equipment mainly represent finished project - Social club and Central store in Atyrau.

During the year the management transferred two restaurant buildings to investment property group due to the change in purpose of use. Both restaurants were leased to third parties.


8584

2014 IN THOUSANDS OF US DOLLARS LAND BUILDINGS FURNITURE AND

EQUIPMENTCAPITAL WORK-IN-

PROGRESS TOTAL

Net carrying amount at 1 January 16,140 104,182 8,451 764 129,537Additions 381 735 716 1,202 3,034

Revaluations recognised in the state-ment of other comprehensive income 1,962 57 − − 2,019

Reversal of impairment/(impairment) 409 (1,285) − − (876)

Transfer to investment property (4,913) − − − (4,913)

Disposals − − (1,094) − (1,094)

Transfers − 103 64 (167) −

Depreciation charge for the year − (2,539) (2,669) − (5,208)

Depreciation on disposals − − 946 − 946

Translation reserve (2,544) (16,364) (1,335) (141) (20,384)Net carrying amount at 31 December 11,435 84,889 5,079 1,658 103,061 Gross book value 11,435 90,398 29,296 1,658 132,787

Accumulated depreciation − (5,509) (24,217) − (29,726) Net carrying amount at 31 December 11,435 84,889 5,079 1,658 103,061

Transfers from capital work-in-progress to buildings and furniture and equipment mainly consist of the capital repair conducted during 2014. In 2014 the Group recognised impairment loss in relation to a hotel located in Aktau. The management performed internal analysis of fair value of this hotel based on expected discounted cash flows and concluded that fair value is below its carrying value and recognised the related impairment loss.

During the year the management transferred a land plot to investment property, due to the change in purpose of this land usage in the future. As at 31 Decem-ber 2014 the management of the Company has no specific purpose or development projects for this land plot.

CAPITAL WORK-IN-PROGRESS

The Group develops real estate properties in Western Kazakhstan.

On 30 April 2015 and 31 July 2015 the Group completed Social club construction and Central store projects, respectively, which were started in 2014.

In the second half of 2015 the Group started the reconstruction of an office building in Uralsk city through its subsidiary, Kurmangazy Development LLP. The project is planned for completion in the middle of 2016.

The carrying amount of capital work-in progress as at 31 December is as follows:


Caspi Limited LLPSocial club − 772

Office building in Atyrau city 338 615

Central store − 119

Other 49 29Kurmangazy Development LLP


Office building in Uralsk city 1,878 −

Other − 1232,265 1,658

REVALUATION OF LAND AND BUILDINGS

If land and buildings were carried under the cost model, the carrying amounts would have been as follows:

2015 IN THOUSANDS OF US DOLLARS LAND BUILDINGS TOTAL

At cost 765 47,613 48,378

Accumulated depreciation − (15,834) (15,834)Net carrying amount at 31 December 765 31,779 32,544

2014 IN THOUSANDS OF US DOLLARS LAND BUILDINGS TOTAL

At cost 1,316 86,104 87,420

Accumulated depreciation − (14,732) (14,732)Net carrying amount at 31 December 1,316 71,372 72,688

FAIR VALUE OF LAND PLOTS

The Group engaged an independent appraiser to determine fair value of land as at 31 December 2015. The fair value of land plots was determined with refer-ence to price offers in a range from USD 4,601 to 13,020 per 100 square meters adjusted for bargaining discount (10-20%), size and location differences (+/- 5-25%). The lowest price offers of USD 368 per 100 square meters for land plots in Aksai and Bautino and the highest price offer of 26,000 per 100 square meters for land plots in Almaty are considered as out of range as the Group’s land plot assets are mainly concentrated in Atyrau and Aktau cities. The fair value at 31 December 2015 has been categorized within Level 3 of the fair value hierarchy based on the inputs to the valuation technique used (see Note 3.5). Should the Group have applied 25% of bargaining discount, the fair value of land plots would have decreased by USD 1,275 thousand. Bargaining discount is the most influential unobservable input.

As at 31 December 2014, the fair value of land plots was re-estimated by internal experts by reference to sellers’ market prices in range from USD 8,300 to 10,000 per 100 square meters adjusted for negotiation discount (discount 10-20%), size and location differences (discount 5-15%). The fair value at 31 December 2014 approximated its carrying amount and has been categorized within Level 3 of the fair value hierarchy based on the inputs to the valuation technique used (see Note 3.5). Should the Group have applied a 25% of negotiation discount, the fair value of land plots would have decreased by USD 599 thousand. Negotiation discount is the most influential unobservable input.

FAIR VALUE OF BUILDINGS

As at 31 December 2015, the fair value of buildings was determined by independent appraiser. The fair value has been categorized within Level 3 of the fair value hierarchy based on the inputs to the valuation technique used.

Buildings of the Group include two major groups: business centres/restaurants and leisure assets (including apartments, hotels, townhouses).


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As at 31 December 2014 the fair value was re-estimated by internal experts. The fair value has been categorized within Level 3 of fair value hierarchy based on the inputs to the valuation technique used (see Note 3.5).

For hotels, apartments and townhouses

As at 31 December 2015 fair value of hotels, apartments and townhouses was determined principally by cash flow projections. The expected cash flow projections up to 2021 were discounted at a pre-tax rate of approximately 21%. Cash flows were estimated based on current rental income from leasing of hotels, apartments and townhouses assuming an occupancy rate of 50-96% for the projected period, growth rate in rental charge 5-15% for the projected period, and a growth rate for operational expenses in line with rental income 5-16%. The terminal value was derived at the end of the five-year period with a 4.34% growth rate.

The above estimates are particularly sensitive in the following areas:

• An increase of 1% in the discount rate used would have decreased the estimated fair value by USD 1,974 thousand.

• A 10% decrease in occupancy rate would have decreased the estimated fair value by USD 8,255 thousand.

As at 31 December 2014 fair value for hotels, apartments and townhouses was determined principally by cash flow projections. The expected cash flow pro-jections up to 2020 were discounted at a pre-tax rate of approximately 18.27%. Cash flows were estimated based on current rental income from leasing of ho-tels, apartments and townhouses assuming an occupancy rate of 50-75% for the projected period, growth rate in rental charge 6-7% for the projected period, and a growth rate for operational expenses in line with rental income. The terminal value was derived at the end of the five-year period with a 2% growth rate.


• An increase of 1% in the discount rate used would have decreased the estimated fair value below the carrying amount by USD 1,353 thousand;

• A 10% decrease in occupancy rate would decrease the estimated fair value below the carrying amount by USD 2,855 thousand.

For business-centres

As at 31 December 2015 fair value of business-centres was determined by the capitalisation method. The independent appraiser applied a capitalisation rate of 18.99%. Cash flows were estimated based on office rental income assuming an occupancy rate of 100% for the projected period, actual rental charge under contracts existing at the moment of valuation, and operational expenses in line with rental income.


• An increase of 1% in the discount rate used would have decreased the estimated fair value by USD 1,001 thousand;

• A 10% decrease in occupancy rate would decrease the estimated fair value by USD 2,662 thousand.

As at 31 December 2014 the fair value for business-centres was determined principally by cash flow projections. The management applied a capitalization rate of 15.85%. The estimated fair value approximates the carrying amount of business centres. Cash flows were estimated based on current office rental income assuming an occupancy rate of 100% for the projected period, growth rate in rental charge of 6-7% for the projected period, and a growth rate for operational expenses in line with rental income.


• An increase of 1% in the discount rate used would have decreased the estimated fair value below the carrying amount by USD 1,036 thousand;

• A 10% decrease in occupancy rate would decrease the estimated fair value below the carrying amount by USD 1,344 thousand.

10 INVESTMENT PROPERTYIn 2015 the Group reclassified two restaurant buildings in Atyrau from property, plant and equipment to investment property, which were rented out under operational lease contracts to third parties for a period of at least 5 years (Note 9).

In 2014 the Group reclassified land plots from property, plant and equipment to investment property, due to a change in the expected future use of these land plots. As at 31 December 2015 such land plots have no specific purpose or development.


Net carrying amount at 1 January 4,913 −Transfer from property, plant and equipment 704 4,913

Change in the fair value 686 −

Translation reserve (2,401) −Net carrying amount at 31 December 3,902 4,913

As at 31 December 2015 and 2014 the fair value of land plots was determined by external independent property appraisers, having appropriate recognised professional qualifications and recent experience in the location and category of the lands being valued. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the period in which they arise, including the corresponding tax effect.

In 2015 the fair value of land plots has been determined by reference to sellers’ market prices in the range from USD 200 to 10,000 per 100 square meters, adjusted for bargaining discount (10-20%), size and location differences (2-25%). The fair value at 31 December 2015 has been categorized within Level 3 of fair the value hierarchy based on the inputs to the valuation technique used (see Note 3.5). Should have the Group applied 25% of bargaining discount, the fair value of land plots would have decreased by USD 455 thousand. Bargaining discount is the most influential unobservable input.

In 2014 the fair value of land plots has been determined by reference to sellers’ market prices in the range from USD 7,000 to 15,000 per 100 square meters, adjusted for negotiation discount (discount 10-15%), size and location differences (discount 5-10%).

The fair value at 31 December 2014 was equal to the carrying amount. Fair value has been categorised within Level 3 of fair the value hierarchy based on the inputs to the valuation technique used (see Note 3.5). Negotiation discount and location coefficient are the most significant unobservable inputs.

VALUATION TECHNIQUE AND SIGNIFICANT UNOBSERVABLE INPUTS

The valuation model considers the present value of net cash flows to be generated from the property, taking into account expected rental growth rate, void periods, occupancy rate, lease incentive costs such as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted us-ing risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), tenant credit quality and lease terms.

11 INVENTORIESAs at 31 December, inventories consisted of the following:


Housekeeping goods 511 821

Materials 208 467

Restaurant and kitchen supplies 191 393

Food and beverages 71 189

Spare parts 70 224

Stationery and office equipment 37 62

Working clothes 25 46


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Other 250 627 1,363 2,829

Inventories recognised as an expense are as follows:


Cost of sales − Food and Beverages 1,148 1,583

Repairs and maintenance 387 427

Housekeeping goods 311 380

Staff meals 274 299

Replacement costs 145 370

Other 240 531 2,505 3,590

12 ACCOUNTS RECEIVABLEAs at 31 December, accounts receivable consisted of the following:


Trade accounts receivable 2,849 2,705

Other − 1002,849 2,805

Allowance for doubtful debts (33) (76) 2,816 2,729

Accounts receivable are non-interest bearing and are generally on 7 to 30-day term. The Group’s accounts receivable is denominated in US Dollars (40%) and Tenge (60%) (2014: 28% and 72% accordingly).

At 31 December 2015 the largest trade accounts receivable are from North Caspian Operating Company (“NCOC”) representing 65% (at 31 December 2014: from NCOC representing 64%) of total trade accounts receivable.

The movements in the allowance for doubtful debts were as follows for the years ended 31 December:


As at 1 January (76) (75)Change for the year 8 (17)

Write-offs − 3

Translation reserve 35 13As at 31 December (33) (76)

As at 31 December the ageing analysis of accounts receivable is as follows:

IN THOUSANDS OF US DOLLARS TOTAL NEITHER PAST DUE

NOR IMPAIRED

PAST DUE BUT NOT IMPAIRED

180-270 DAYS 271-360 DAYS >360 DAYS

2015 2,816 2,809 5 2 −2014 2,729 2,690 20 19 −

See Note 28 on credit risk of trade receivables to understand how the Group manages and measures credit quality of trade receivables that are neither past due nor impaired.

13 TAXES PREPAIDAs at 31 December taxes prepaid consisted of the following:


VAT recoverable 398 368

Other taxes prepaid 24 58 422 426

14 OTHER PREPAYMENTSAs at 31 December other prepayments consisted of the following:


Advances paid to suppliers 583 629

Other 93 143 676 772Impairment allowance (19) (9) 657 763

At 31 December other prepayments were made in the following currencies:


Tenge 553 740

US dollars 61 26

Euro 62 6 676 772


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15 CASH AND CASH EQUIVALENTS As at 31 December cash and cash equivalents consisted of the following:


Cash in current bank accounts 1,280 2,495

Short-term deposit 500 −

Cash on hand 11 27 1,791 2,522

Cash in current bank accounts does not earn interest. Short-term deposit is made for and earn interest at the respective short-term deposit rates.

At 31 December cash and cash equivalents were denominated in the following currencies:


US dollars 1,606 1,952

Tenge 145 543

Other currencies 40 271,791 2,522

16 SHARE CAPITAL AND OTHER RESERVESORDINARY SHARES ISSUED AND FULLY PAID

During 2015 the Group performed consolidation of shares, transforming each 4 shares into 1 consolidated. Adjustment is incorporated in the weighted aver-age number of shares in respect of share consolidation for the comparative year ended as at 31 December 2014 for a relevant comparison of earnings per share (“EPS”).

Based on the decision made at the Annual General Shareholder Meeting the Group changed its listing on the LSE from GDRs to Shares. The admission to trad-ing of the Company’s GDRs on the London Stock Exchange was voluntarily cancelled on 30 October 2015.

At 31 December 2015 the issued and fully paid shares of the Group consist of 21,250,000 shares of USD 0.40 each (as at 31 December 2014: 84,634,654 shares of US Dollars 0.10 each).

TREASURY SHARES

In January 2014, following to Share Repurchase program, the Group repurchased 186,020 GDRs and 97,068 shares for USD 40 thousand paid by cash and USD 196 thousand offset against a liability.

In April 2015 according to incentive bonus scheme, 498 400 shares were transferred to the management of the Group at an estimated fair value of US Dollars 0.293 each which was determined based on the quoted market price of one Company’s GDR. The scheme prescribed USD 95 thousand to be accrued as performance pay and USD 51 thousand to be paid in cash.

According to incentive bonus scheme, 450 000 shares were transferred in 2014 to the Chief Executive Officer (CEO), Francisco Parrilla, at an estimated fair value of US Dollars 0.275 each which was determined based on the quoted market price of one Company’s GDR. The scheme prescribed USD 83 thousand to be accrued as performance pay and USD 40 thousand to be paid in cash by the CEO.

Under the share consolidation taken place in September 2015, the number of treasury shares as of 31 December 2015 decreased to 498,533 shares. Batch of 25,810 shares was cancelled upon consolidation.

In January 2014 cancellation of 1,500 shares were made with nominal value of US Dollars 0.10 each.

DIVIDENDS PAID

In May 2015 the Group declared dividends of USD 1,212 thousand, USD 0.2336 per consolidated share.

In June 2014 the Group declared dividends of USD 400 thousand, USD 0.0047 per share.

FOREIGN CURRENCY TRANSLATION RESERVE

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements from the functional to presentation currency.

REVALUATION RESERVE AND TRANSFER FOR LAND AND BUILDING DUE TO DISPOSAL

The revaluation reserve is used to record increases in the fair value of land and buildings and decreases to the extent that such decrease relates to an increase on the same asset previously recognised in equity.

Transfer for land and building represents revaluation reserve related to assets being disposed of that was transferred to retained earnings.

CHARTER CAPITAL CONTRIBUTION (NON-CONTROLLING INTERESTS)

In June 2015 Social Enterprising Corporation Urals JSC made its cash contribution to the charter capital of jointly established Kurmangazy Development LLP in the amount of USD 2 thousand (equivalent of KZT 300 thousand). The contribution represents 30% interest.

NATURE AND PURPOSE OF OTHER RESERVES

Share-based payment plans

The Group grants options to its senior management and directors to subscribe ordinary shares in the Group. The options are granted under the established Chagala Group Limited share option scheme (the “Plan”). There are no cash settlement alternatives. The Group does not have a past practice of cash settle-ment for these share options.

No share options were granted during 2015. As at 31 December 2015 all options were expired. No share options were granted or expired during 2014. The Group does not plan to grant options in the nearest future.

The following table illustrates the number and weighted average exercise prices (WAEP)* of, and movements in, share options during the year:

IN US DOLLARS NUMBER 2015 WAEP 2015 NUMBER 2014 WAEP 2014

As at 1 January 1,500,000 0.824 1,500,000 0.824Expired 1,500,000 0.824 − −As at 31 December − − 1,500,000 0.824

*Until 30 October 2015, the Company listed Global Depository Receipts which each represented 4 shares.

The weighted average remaining contractual life for the share options outstanding as at 31 December 2014 was 0.04 years.

Earnings per share

Basic earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.


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2015 2014

Weighted average number of ordinary shares outstanding (thousands) 20,704 20,600Profit for the year attributable to equity holders of the parent (in thousands of US Dollars) 1,813 1,410Basic and diluted earnings per share, US Dollars 0.088 0.068

In 2015 no effect of dilution existed as share options were fully expired. In 2014 share options were not considered dilutive as the exercise price of the share options exceeded the average market price of ordinary shares during the years.

17 LONG-TERM BORROWINGS As at 31 December long-term borrowings comprised the following:

IN THOUSANDS OF US DOLLARS CURRENCY 2015 2014

Long-term borrowings Islamic Bank Al-Hilal JSC USD 5,248 −

Islamic Bank Al-Hilal JSC KZT 842 1,959

Kazinvestbank JSC KZT − 2,2276,090 4,186

Current portion of long-term borrowings Islamic Bank Al-Hilal JSC USD 302 −

Islamic Bank Al-Hilal JSC KZT 281 131

Kazinvestbank JSC KZT 1,196 2,6211,779 2,752

Total long-term borrowings 7,869 6,938

KAZINVESTBANK JSC

In September 2011, Caspi Limited LLP signed an agreement with Kazinvestbank JSC to open a KZT denominated non-revolving credit facility of KZT 1,400 million for financing the construction of townhouses with maturity date of September 2016. The interest rate for the first year is fixed at 9.5%, and the interest rate for the subsequent periods is defined as refinancing interest rate of National Bank of RK (refinancing interest rate) plus 2%, but in total not exceeding 12%. During 2015 the interest rate regarding this loan facility was adjusted with additional agreement and increased up to 13%. In 2015 the effective interest rate is 13.9% (2014: 10.1%).

Additionally, in November 2012 Caspi Limited LLP along with Aktau Development Company and Bayan Limited (subsidiaries of Chagala Group Limited) signed a joint agreement with Kazinvestbank JSC to open a KZT denominated non-revolving credit facility of KZT 761 million with maturity date of November 2016. The purpose of the credit facility is refinancing of the borrowings from HSBC Bank and Raiffeisen Bank. The interest rate for the first year is fixed at 9.5%, and the interest rate for the subsequent periods is defined as refinancing interest rate plus 4%. During 2015 the interest rate regarding this loan facility was adjusted with additional agreement and increased up to 13%. In 2015 the effective interest rate is 13.9% (2014: 10.9%).

As at 31 December 2015 the credit facilities are secured as follows:

• Pledged immovable properties with a carrying amount of USD 27,943 thousand;

• Assigned demand of receivables under existing contracts and future cash flows from the sale of services under existing contracts for the amount of KZT 1,100 million (USD 3,240 thousand);

• Corporate guarantee issued by Chagala Group Limited.

ISLAMIC BANK AL-HILAL JSC

In October 2014 Caspi Limited LLP and Aktau Development Company LLP (the “Companies”) entered into a general agreement Murabaha for the purchase and sale of Murabaha goods with Islamic Bank Al-Hilal JSC to open two credit lines. The first revolving credit line was USD 2,500,000 to finance working capital requirements. Under this credit line the Companies have the right to roll over the credit facility during the period of 36 months from the date of first utilization. Under this credit line the Murabaha profit is fixed to 7% for facilities denominated USD and to 8% for facilities denominated in KZT. The second credit line was USD 7,500,000 to finance capital investments requirements including USD 440,000 to refinance a loan from HSBC Kazakhstan JSC. The Mura-baha profit is one year LIBOR plus 6%, but the minimum is 7.5% for credit facilities denominated in USD and one year LIBOR plus 7%, but the minimum is 8% for credit facilities denominated in KZT. Caspi Limited LLP received credit facilities in KZT during 2014.

In November 2014, Caspi Limited LLP received a loan from Islamic Bank Al-Hilal JSC within a second limit to finance the purchase of land plot. The credit facility equals KZT 381,100 thousand, with the maturity date in November 2019 and fixed Murabaha premium of 8%. In 2014 it was fully drawn. The grace period for this loan is twelve months from the date of the loan receipt and commences in the last quarter of 2015.

In 2015 the Caspi Limited LLP received from Islamic Bank Al-Hilal JSC the following credit facilities within the second credit line with indicated Murabaha profit as one year LIBOR plus 6%, but the minimum is 7.5%:

• In March 2015 – a credit facility in the amount of USD 550,000 with a first principal payment date in March 2016

• In August and November 2015 – credit facilities with carrying amounts of USD 2,500,000 and USD 1,000,000 accordingly for Kurmangazy Development LLP project in Uralsk;

In addition, the Companies received from Islamic Bank Al-Hilal JSC the following credit facilities within the first credit line with a right to roll over during the period of 36 months from the date of first utilization:

• In March 2015 Aktau Development Company LLP drew down a credit facility in the amount of USD 500,000 with an annual fixed rate 7%;

• In November and December 2015 Caspi Limited LLP received two credit facilities of USD 700,000 and USD 300,000 accordingly with annual fixed rate 7%.

The Group incurred additional financing cost because of value added tax turnover, which affected the proportion of value added tax that can be offset. The value added tax turnover occurred, when Murabaha goods were purchased and sold. As a result the Group could not offset value added tax of USD 190 thou-sand, and paid the same out to the state budget.

As at 31 December 2015 the credit facilities are secured as follows:

• Pledged immovable properties with a carrying amount of USD 6,299 thousand;

• Corporate guarantee issued by Chagala International Holding B.V.

18 BONDS PAYABLEIn March 2012 the Company announced the placement on the Kazakhstan market of a 5-year KZT denominated bond in the amount of KZT 2,250 million with a coupon rate of 10% per annum. The principal amount is payable in December 2016 and the interest is payable in semi-annual instalments. As at 31 Decem-ber 2015, the amount of unamortised discount related to this bond is USD 130 thousand (2014: USD 468 thousand).


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The bond proceeds were used for financing construction of residential and commercial real estate in the Republic of Kazakhstan, as well as for repayment of some liabilities to creditors, including the credit facility with HSBC Bank and Raiffeisen Bank.

Bonds payable movement is as follows:


As at 1 January 11,871 13,853Interest accrual 1,198 1,461

Transfer to interest payable (1,012) (1,256)

Translation difference (5,559) (2,187)As at 31 December 6,498 11,871

19 SHORT-TERM BORROWINGS In November 2014 the Company received a loan from Islamic Bank Al-Hilal JSC within a second credit limit to refinance a loan from HSBC Bank Kazakhstan JSC in the amount of KZT 81,200 thousand. In 2014 it was fully drawn. The maturity date for this credit facility is November 2015 and Murabaha profit equals to 1 year LIBOR plus 7%, but the minimum is 8%.

Further, the Company received a loan from Islamic Bank Al-Hilal JSC within a first credit limit to finance working capital requirements in the amount of KZT 185,000 thousand, with a maturity date in December 2015 and fixed interest rate of 8%. In 2014 it was fully drawn.

As of 31 December 2015 both credit facilities were fully repaid and had no outstanding balances.

20 TRADE ACCOUNTS PAYABLEAs at 31 December trade accounts payable consisted of the following:


Supplies 568 1,668

Construction services 29 13597 1,681

Trade accounts payable are non-interest bearing and are normally settled on 30-day terms. The majority of trade payables are KZT denominated.

21 ADVANCES FROM CUSTOMERSAs at 31 December advances from customers consisted of the following:

IN THOUSANDS OF US DOLLARS CURRENCY 2015 2014

Long-term advances from customersAdvance from KPO BV USD 916 −

916 −Advances from customers

Advance from KPO BV USD 279 −

Advance from NCOC KZT 105 195

Other advances KZT 286 126670 321

Total advances from customers 1,586 321

In September 2015 under office building reconstruction project in Uralsk Kurmangazy Development LLP entered into a long-term contract with Karachaganak Petroleum Operating B.V. (“KPO BV’) and received a USD denominated advance in the amount of USD 1,500 thousand. Since the advance received is treated as a non-monetary item, the outstanding amount was adjusted to the exchange rate as at 31 December 2015.

22 TAXES PAYABLEAs at 31 December current taxes payable consisted of the following:


VAT payable 338 420

Withholding tax payable in respect of import contracts 26 33

Other taxes 100 93464 546

23 SALARIES AND EMPLOYEE BENEFITSSalaries and employee benefits for the year ended 31 December comprised the following:


Payroll and related taxes 5,656 6,631

Benefits 1,490 1,7117,146 8,342


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24 FINANCE INCOME/COSTSAs at 31 December finance income comprised the following:


Interest on loans granted to associates 53 26 53 26

As at 31 December finance costs comprised the following:


Interest expense on borrowings 1,998 2,433

Unwinding of bond discount 180 205

Other − 8 2,178 2,646

25 INCOME TAX EXPENSEIncome tax benefit or expense for the year ended 31 December comprised the following:


Income tax expense – current − 181

Deferred income tax expense 794 468

Overprovided deferred income tax in prior periods (63) (48)Income tax expense reported in the consolidated income statement 731 601Revaluation of land and buildings 3,504 404Deferred tax expense reported in the consolidated other comprehensive income 3,504 404

The accounting profit multiplied by the Group’s domestic tax rate is reconciled to tax benefit or expense as follows:


Profit before taxation 2,613 1,969Theoretical tax charge (benefit) at the statutory rate of 20% 523 394

Overprovided deferred income tax in prior periods (63) (48)

Tax effect of items which are not deductible or assessable for taxation purposes:

Non-taxable items of the Parent, COOP and BV − (24)

Other non-deductible expenses 271 279Income tax expense reported in the consolidated income statement 731 601

The deferred tax balances as at 31 December were as follows:


Deferred tax assetsTax loss carry-forwards 731 1,675

Other 192 162923 1,837

Deferred tax liabilitiesProperty, plant and equipment (8,466) (8,628)

(8,466) (8,628)Deferred tax liability, net (7,543) (6,791)

Reflected in the consolidated financial statements as at 31 December as follows:


Deferred tax assets 121 257

Deferred tax liabilities (7,664) (7,048)Deferred tax liability, net (7,543) (6,791)

Reconciliation of deferred tax liabilities, net:


As at 1 January (6,791) (7,080)Deferred tax expense reported in the income statement (731) (420)

Deferred tax expense reported in other comprehensive income (3,504) (404)

Effect of foreign currency translation 3,483 1,113As at 31 December (7,543) (6,791)

In the context of the Group’s current structure, tax losses and current tax assets of the different companies may not be set off against current tax liabilities and taxable profits of other companies and, accordingly, taxes may accrue even where there is a consolidated net tax loss. Therefore, deferred tax assets of one company of the Group are not offset against the deferred tax liabilities of another company.


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26 BALANCES AND TRANSACTIONS WITH RELATED PARTIESDuring the year ended 31 December 2015 and 2014 the Group entered into transactions with related parties. Those transactions along with related balances at 31 December 2015 and 2014 and for the periods then ended are presented in the following table:

BALANCES WITH RELATED PARTIES AS AT 31 DECEMBER


Amounts due from related parties, including loansAssociates 2,065 1,662

2,065 1,662Amounts due to related partiesAssociates 47 385

Other related parties − 147 386

Amounts due from associates mainly represent advances paid to Itasia by Kurmangazy Development LLP for construction works regarding Office building renovation project.

RELATED PARTIES TRANSACTIONS FOR THE YEAR ENDED 31 DECEMBER


Associates and other related partiesSales to related parties 545 840

Purchases from related parties 4,124 1,526

The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. For the year ended 31 December 2015, the Group has not recorded any impairment of receivables relating to amounts owed by related parties In 2015 and 2014 sale transactions includes the rent services rendered to the associates. Purchases in 2015 include acquisition of land and building from National Company "Social Entrepreneurial Corporation "Oral" by Kurmangazy Development for further development.

KEY MANAGEMENT PERSONNEL


Remuneration and compensation paid 636 903

Share-based payments (Note 16) 95 83

Key management personnel comprise members of the Management Board and Board of Directors of the Group, totalling five persons during 2015 (2014: seven). The total compensation to key management personnel is included in salaries and employees benefits in the consolidated income statement.

Terms and conditions of transactions with related parties

The Group does not provide any discount on hotel services to related parties. Outstanding balances at year-end are unsecured and interest free and settle-ment occurs via bank transfer. There were no financial guarantees provided for any related party payables.

27 CONTINGENT COMMITMENTS AND OPERATING RISKS BUSINESS ENVIRONMENT

The Group’s operations are primarily located in Kazakhstan. Consequently, the Group is exposed to the economic and financial markets of Kazakhstan which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in Kazakhstan. In addition, the recent significant depreciation of the Kazakhstan tenge, and the reduction in the global price of oil, have increased the level of uncertainty in the business environment.

While management believes it is taking appropriate measures to support the sustainability of the Group’s business in the current circumstances, unexpected further deterioration in the areas described above could negatively affect the Group’s results and financial position in a manner not currently determinable. However these consolidated financial statements reflect management's assessment of the impact of the Kazakhstan business environment on the opera-tions and the financial position of the Group. The future business environment may differ from management’s assessment.

TAXATION

The taxation system in Kazakhstan is relatively new and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by vari-ous levels of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year generally remains open for review by the tax authorities for five subsequent calendar years under newly amended tax law but under certain circumstances a tax year may remain open longer.

These circumstances may create tax risks in Kazakhstan that are more significant than in other countries. Management believes that it has provided ad-equately for tax liabilities based on its interpretations of applicable tax legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on these financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

CONTRACTUAL COMMITMENTS

As at 31 December 2015 the Group had no material contractual commitments for the purchase of property, plant and equipment from third parties (31 December 2014: none).

28 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments consist of cash and short-term deposits as well as accounts receivable, loans, borrowings and accounts payable. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk and credit risk.

MARKET RISK

Market risk is the risk that the fair values of future cash flows of financial instruments will fluctuate because of changes in market prices. Market prices com-prise different types of risk: interest rate risk and currency risk. Financial instruments affected by market risk include borrowings, bonds payable, deposits and derivative financial instruments.

INTEREST RATE RISK

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates to the Group’s long-term debt obligations with floating interest rates related to the refinancing interest rate of National Bank of RK (refinancing interest rate, US LIBOR).

As at 31 December 2015 approximately 44% of the Group’s borrowings are at a floating interest rate (2014: 41%).

The following table demonstrates the sensitivity of a possible change in interest rates, with all other variables held constant, of the Group’s profit before income tax (through the impact on floating rate borrowings). There is no impact on the Group’s equity.


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IN THOUSANDS OF US DOLLARS INCREASE/DECREASE IN BASIS POINTS EFFECT ON PROFIT BEFORE TAX

2015Refinancing interest rate +100 (31)

-100 31

LIBOR +100 (33)

-100 332014Refinancing interest rate +100 (70)

-100 70

LIBOR +100 (9)

-100 9

CURRENCY RISK

Foreign 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 Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in a different currency from the Group’s functional currency) and foreign currency derivatives.

On 20 August 2015, the National Bank of the Republic of Kazakhstan (“the NBRK”) announced that it cancelled the previously established corridor of 170-198 KZT per USD and released tenge to a floating rate. The KZT closed at 255.26 per US Dollar after the announcement, down approximately 35.5% from the previ-ous day’s close of KZT at 188.38 per US Dollar. Depreciation of tenge in relation to USD Dollar by 86% as at reporting date caused unrealised forex exchange losses from revaluation of foreign currency borrowings in the consolidated income statement of the Group.

The Group does not consider these unrealised forex losses as unhedged expenses, since almost 40% of revenue generated by the Group are US dollar de-nominated or linked to the US Dollar exchange rate and the management assesses that US dollar revenue generated by the Group would be sufficient to cover cash outflows on interests and principal repayments and timely coincides therewith, which mitigates the Group’s exposure to the risk of unfavorable changes in foreign exchange rate and creates an economic hedge

The following table demonstrates the sensitivity to a reasonably possible change in the US Dollar exchange rate, with all the variables held constant, of the Group’s profit before income tax.

2015 2014

IN THOUSANDS OF US DOLLARS

INCREASE IN EXCHANGE RATE

EFFECT ON PROFIT BEFORE TAX

INCREASE IN EXCHANGE RATE

EFFECT ON PROFIT BEFORE TAX

US Dollar +20% (567) +20% 543

US Dollar +10% (284) +10% 181

CREDIT RISK

The Group trades only with recognised, creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in Note 12.

With respect to credit risk arising from cash at bank, the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of this instrument. The Company held cash and cash equivalents of USD 1,780 thousand as at 31 December 2015 (31 December

2014: USD 2,495 thousand), which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with bank and financial institution counterparties, which are rated C to A, based on rating agency Standard and Poor’s ratings.

LIQUIDITY RISK

The liquidity risk is the risk that the Group will encounter difficulty in the meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquid-ity to meet its liabilities, when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank deposits, borrowings and bonds payable.

The tables below summarises the maturity profile of the Group’s financial liabilities at 31 December based on contractual undiscounted payments:

IN THOUSANDS OF US DOLLARS ON DEMAND LESS THAN 3

MONTHS 3 TO 12 MONTHS 1 TO 5 YEARS MORE THAN 5 YEARS TOTAL

As at 31 December 2015Borrowings 613 428 1,330 6,838 − 9,209

Bonds payable − − 7,291 − − 7,291

Trade accounts payable − 597 − − − 597

Due to related parties − 47 − − − 47

Other payables and ac-cruals − 39 − − − 39

613 1,111 8,621 6,838 − 17,183As at 31 December 2014Borrowings − 652 4,047 4,777 − 9,476

Bonds payable − − 1,234 13,573 − 14,807

Trade accounts payable − 1,681 − − − 1,681

Due to related parties 386 − − − − 386

Other payables and ac-cruals − 60 − − − 60

386 2,393 5,281 18,350 − 26,410

BREACH OF A LOAN COVENANT

The Group has Bonds payable with a maturity date in December 2016, therefore the outstanding amount of USD 6,498 thousand has been presented as current liabilities as at 31 December 2015. This reclassification reduced the Group’s current ratio below 1 as at reporting date. As a result, the current ratio covenant under the KZT 761 million loan agreement with Kazinvestbank JSC has been breached. The outstanding balance of this loan has been classified as payable on demand since there is a risk the lender can request an immediate repayment. The lender is aware of the covenant breach nature and the Group’s current negotiations to refinance bonds. The management does not consider this breach as a significant liquidity risk and expect the repayment of the loans within the initial repayment schedule.

CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating in order to support its business and maximise shareholder value.


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The Group monitors capital using a gearing ratio, which is total debt divided by total capital. The Group’s policy is to keep the gearing ratio below 50%.The debt includes borrowings, bonds payable and trade accounts payable. Capital includes equity attributable to the equity holders of the Group.

The debt-to-equity ratio at the year-end was as follows:


Borrowings 7,869 8,398

Bonds payable 6,498 11,871

Trade accounts payable 597 1,681Total debt 14,964 21,950Equity 64,531 91,253Debt-to-equity ratio 0.23 0.24

FAIR VALUES

Fair value is defined as the amount at which an instrument could be exchanged in a current transaction between knowledgeable willing parties according to arm’s length conditions, other than in a forced or liquidation sale. As no readily available market exists for a large part of the Group’s financial instruments, judgment is needed to arrive at a fair value, based on current economic conditions and the specific risks attributable to the instrument.

The carrying amount of cash, trade accounts receivable, accounts payable and other current monetary assets and liabilities approximates their fair value due to the short-term maturity of these financial instruments.

The fair value of borrowings is estimated by discounting future cash flows using rates currently available for debt or similar terms and remaining maturities. The fair value approximates their carrying values gross of unamortised transaction costs.

The fair value of bonds payable is estimated by reference to quoted market prices at KASE.

CARRYING AMOUNT FAIR VALUE

IN THOUSANDS OF US DOLLARS 2015 2014 2015 2014

Financial assetsTrade accounts receivable 2,816 2,729 2,816 2,729

Due from related parties 2,065 1,662 2,065 1,662

Cash and cash equivalents 1,791 2,522 1,791 2,522Financial liabilitiesBorrowings 7,869 8,398 7,869 8,398

Bonds payable 6,498 11,871 6,598 12,081

Interest payable 135 196 135 196

Trade accounts payable 597 1,681 597 1,681

Due to related parties 47 386 47 386

Other payables and accruals 39 60 39 60

FAIR VALUES HIERARCHY

All financial liabilities are categorised within Level 2 of fair value hierarchy based on the inputs to valuation technique.

29 EVENTS AFTER REPORTING PERIODThe following events occurred subsequent 31 December 2015:

• The Group has received several offers to refinance bonds and is in the process of negotiating optimal conditions.

• From 1 January 2016 the Group extended the contract for business centre office lease till 31 December 2016 and is currently negotiating further 5 years extension.

• On 16 March 2016 the Group has initiated a merging process of two subsidiaries of the Group - Compass Chagala Holdings B.V. and Chagala International Holding B.V. Legal procedures of the deal are expected to be finalised during April 2016.

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