jsc chateau mukhrani...economic and financial markets of georgia which display characteristics of an...

JSC Chateau Mukhrani

Statement of Financial Position as at 31 December 2014

4

The statement of financial position is to be read in conjunction with the notes to, and forming part of, the

financial statements set out on pages 8 to 39.

’000 GEL Note 31 December 2014 31 December 2013

Assets

Property, plant and equipment 9 12,955 14,886

Intangible assets 6 3

Prepayments for non-current assets 9 1,116 -

Deferred tax assets 8 99 -

Non-current assets 14,176 14,889

Inventories 10 4,533 2,963

Trade and other receivables 11 2,694 2,160

Taxes receivable 506 475

Cash and cash equivalents 12 357 754

Current assets 8,090 6,352

Total assets 22,266 21,241

Equity

Share capital 13 10,464 10,464

Share premium 13 18,203 18,203

Revaluation reserve 2,858 2,927

Accumulated losses (27,889) (23,882)

Total Equity 3,636 7,712

Loans and borrowings from a related party 15 14,456 3,150

Non-current liabilities 14,456 3,150

Trade and other payables 16 1,710 1,007

Loans and borrowings from a related party 15 2,464 9,372

Current liabilities 4,174 10,379

Total liabilities 18,630 13,529

Total equity and liabilities 22,266 21,241


Statement of Changes in Equity for 2014

6

The statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the

financial statements set out on pages 8 to 39.

’000 GEL

Paid in share

capital

Share

premium

Property, plant and

equipment

revaluation reserve

Accumulated

losses Total

Balance at 1 January 2013 5,950 5,673 2,927 (21,186) (6,636)

Total comprehensive

income

Loss and total

comprehensive income for

the year

- - - (2,696) (2,696)

Contributions and

distributions

Financial liability

converted into equity

(note 13(c)) 4,514 12,530 - - 17,044

Balance at 31 December

2013 10,464 18,203 2,927 (23,882) 7,712

’000 GEL

Paid in share

capital

Share

premium

Property, plant and

equipment

revaluation reserve

Accumulated

losses Total


2013 10,464 18,203 2,927 (23,882) 7,712

Total comprehensive

income

Loss for the year - - - (4,007) (4,007)

Other comprehensive

income

Revaluation of property,

plant and equipment - - 431 - 431

Deferred tax effect - - (500) - (500)

Total other

comprehensive income - - (69) - (69)

Total comprehensive

income for the year - - (69) (4,007) (4,076)


2014 10,464 18,203 2,858 (27,889) 3,636


Statement of Cash Flows for 2014

7

The statement of cash flows is to be read in conjunction with the notes to, and forming part of, the financial

statements set out on pages 8 to 39.

’000 GEL Note 2014 2013

Cash flows from operating activities

Receipts from customers 4,386 3,412

Payments to suppliers (4,450) (2,974)

Payments to employees (1,367) (1,150)

Other payments (33) -

Payments for taxes other than on income (346) (285)

Cash flows used in operations before income

taxes and interest paid (1,810) (997)

Interest paid (83) -

Net cash flows used in operating activities (1,893) (997)

Cash flows from investing activities

Acquisition of property, plant and equipment (1,892) (1,850)

Net cash used in investing activities (1,892) (1,850)

Cash flows from financing activities

Proceeds from loans and borrowings 3,527 3,184

Repayment of loans and borrowings (97) -

Net cash from in financing activities 3,430 3,184

Net (decrease)/increase in cash and

cash equivalents (355) 337

Cash and cash equivalents at 1 January 754 359

Effect of movements in exchange rates on

cash and cash equivalents (42) 58

Cash and cash equivalents at 31 December 12 357 754


Notes to the Financial Statements for 2014

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Note Page Note Page

Basis of Preparation 9

1. Reporting entity 9

2. Basis of accounting 9

3. Functional and presentation currency 10

4. Use of estimates and judgments 10

Performance for the year 11

5. Revenue 11

6. Expenses 12

7. Net finance costs 13

Income taxes 13

8. Income taxes 13

Assets 16

9. Property, plant and equipment 16

10. Inventories 19

11. Trade and other receivables 20

12. Cash and cash equivalents 20

Equity and liabilities 21

13. Capital and reserves 21

14. Capital management 21

15. Loans and borrowings 22

16. Trade and other payables 23

Financial instruments 23

17. Fair values and risk management 23

Other information 28

18. Commitments 28

19. Contingencies 28

20. Related parties 29

Accounting Policies 30

21. Basis of measurement 30

22. Changes in accounting policies 30

23. Significant accounting policies 31

24. New standards and interpretations not yet

adopted 39



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1. Reporting entity

(a) Georgian business environment

The Company’s operations are located in Georgia. Consequently, the Company is exposed to the

economic and financial markets of Georgia which display characteristics of an emerging market. The

legal, tax and regulatory frameworks continue development, but are subject to varying interpretations

and frequent changes which together with other legal and fiscal impediments contribute to the

challenges faced by entities operating in the Georgia. The financial statements reflect management’s

assessment of the impact of the Georgian business environment on the operations and the financial

position of the Company. The future business environment may differ from management’s

assessment.

(b) Organisation and operations

Chateau Mukhrani is a Georgian closed joint stock company as defined in the Civil Code of Georgia.

JSC Chateau Mukhrani was incorporated on 12 June 2002 as a Limited Liability Company under the

Georgian legislation. On 17 February 2010 the Company was reorganised into a Joint Stock

Company.

The Company’s register office is Mukhrani, Mtskheta, 3309, Georgia.

The Company’s principal activity is the cultivation of vine, wine production and trading, as well as

tourism and hospitality. The Company is based on the historical tradition of winemaking in the

Mukhrani region. In 2007, a major investment was made in the new winery of the Company. Now it

is equipped with ultra-modern technology and corresponds with ISO 9001:2005 Food Safety and

ISO 9001:2008 Quality Management standards. Since 2007, the Company is making wine from

grapes harvested in its own vineyards. To make the wine more exquisite and truly unique, the winery

receives grapes for processing that are a maximum of 15 minutes from harvesting.

As at 31 December 2014 and 2013 the Company is owned by JSC Marussia Georgia (80%), Mamuka

Khazaradze (11.97%) and Badri Japaridze (8.03%).

The Company’s immediate parent company (JSC Marussia Georgia) is wholly owned by Marussia

Beverages B.V. The Company’s ultimate parent company is Haydn Holding AB. The majority of the

Company’s funding is from, and credit exposures are to, other entities within the group headed by

Haydn Holding AB. As a result the Company is economically dependent upon the group headed by

Haydn Holding AB. The country of principal business and incorporation of Haydn Holding AB is

Sweden. Related party transactions are disclosed in note 20.

The Paulsen Familiae Foundation, a legal entity incorporated under the Jersey law, ultimately

controls the Company.

2. Basis of accounting

Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting

Standards (“IFRSs”).



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3. Functional and presentation currency

The national currency of Georgia is the Georgian Lari (“GEL”), which is the Company’s functional

currency and the currency in which these financial statements are presented. All financial information

presented in GEL has been rounded to the nearest thousands, except when otherwise indicated.

4. Use of estimates and judgments

The preparation of financial statements in conformity with IFRSs requires management to make

judgments, estimates and assumptions that affect the application of accounting policies and the

reported amounts of assets, liabilities, income and expenses. Actual results may differ from those

estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimates are revised and in any future periods

affected.

Information about critical judgments in applying accounting policies that have the most significant

effect on the amounts recognised in the financial statements is included in the following notes:

Notes 9, 23(g) – useful lives of property, plant and equipment;

Note 17(b)(ii) – allowances for trade receivables.

Information about assumptions and estimation uncertainties that have a significant risk of resulting

in a material adjustment within the next financial year is included in the notes:

Note 9 - impairment test: key assumptions underlying recoverable amounts;

Note 10 – determination of fair value less cost to sell of harvested grapes.

Measurement of fair values

A number of the Company’s accounting policies and disclosures require the measurement of fair

values, for both financial and non-financial assets and liabilities.

The Company has an established control framework with respect to the measurement of fair values.

CFO has overall responsibility for overseeing all significant fair value measurements, including Level

3 fair values, and reports directly to the shareholders and to the Group CFO.

The CFO regularly reviews significant unobservable inputs and valuation adjustments. If third party

information, such as market comparable prices, is used to measure fair values, then the CFO assesses

the evidence obtained from the third parties to support the conclusion that such valuations meet the

requirements of IFRS, including the level in the fair value hierarchy in which such valuations should

be classified.

Significant valuation issues are reported to the shareholders and to the Group CFO.



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When measuring the fair value of an asset or a liability, the Company uses market observable data

as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on

the inputs used in the valuation techniques as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable

inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different

levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the

same level of the fair value hierarchy as the lowest level input that is significant to the entire

measurement.

The Company recognises transfers between levels of the fair value hierarchy at the end of the

reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following

notes:

Note 9 – property, plant and equipment; and

Note 17(a) – financial instruments.

5. Revenue

’000 GEL 2014 2013

Revenue from sales of wine 4,163 3,168

Revenues from wine tours and events 454 325

Revenue from sales of Spirits 379 402

Other revenues 40 94

Total revenues 5,036 3,989



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6. Expenses

(a) Administrative expenses

’000 GEL 2014 2013

Management service fee 439 94

Salary 353 532

Depreciation 252 211

Taxes other than on income 263 142

Legal, financial and other consulting costs 115 246

Repair & maintenance 68 93

Travel and accommodation 48 36

Property maintenance and office supplies 41 50

IT consulting & maintenance 36 43

Representative expenses 34 54

Communication 30 26

Other administrative expenses 140 233

1,819 1,760

(b) Sales and distribution expenses

’000 GEL 2014 2013

Impairment loss on trade receivables 500 103

Listing fees 127 140

Management service fee 36 284

Degustation 31 25

Freight cost 18 43

Salary - 197

Other administrative expenses 68 200

780 992

(c) Marketing expenses

’000 GEL 2014 2013

Advertisement and promotion 378 350


Salary - 65

Other 3 4

384 457



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(d) Tourism expenses

’000 GEL 2014 2013

Salary 205 149

Fuel expenses 9 5


Communication 4 3

Repair & maintenance 2 2

Other 107 76

334 239

Salary expense of GEL 828 thousand (2013: GEL 556 thousand) has been charged to cost of sales,

part of which has been included in the carrying value of inventory.

7. Net finance costs

’000 GEL 2014 2013

Recognised in profit or loss

Interest expense on loan from related party 1,082 954

Net foreign exchange loss 58 602

Net finance costs recognised in profit or loss 1,140 1,556

Taxes

8. Income taxes

(a) Amounts recognised in profit or loss

The Company’s applicable tax rate is the income tax rate of 15% (2013: 15%).

’000 GEL 2014 2013

Current tax expense

Current year - -

Deferred tax benefit

Origination and reversal of temporary differences 599 -

599 -



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(b) Amounts recognised in other comprehensive income

’000 GEL 2014 2013

Before tax Tax Net of tax Before tax Tax Net of tax

Revaluation of property, plant and

equipment 431 (65) 366 - - -

431 (65) 366 - - -

In 2014 management identified that no deferred tax liability was calculated on the surplus of the

property, plant and equipment’s revaluation effects in previous years. To correct this omission, in

these financial statements the management calculated and recognised GEL 435 thousand as deferred

tax liability on the revaluation surplus as at 31 December 2014. The opening balances were not

restated as the management believes that the effect of such adjustment is not material for the financial

statements as a whole, and on the users’ decisions to be made based on these financial statements.

Reconciliation of effective tax rate

2014 2013

’000 GEL % ’000 GEL %

Loss before tax (4,606) 100% (2,696) 100%

Tax using the Company’s tax rate 691 (15%) 404 (15%)

Current year losses for which no deferred tax

asset is recognised (168) 4% (332) 12%

Non-taxable income/(non-deductible costs) 76 (2%) (72) 3%

599 (13%) - -

(c) Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

’000 GEL 2014 2013 2014 2013 2014 2013

Property, plant and equipment - - (115) (113) (115) (113)

Inventories - - (28) (10) (28) (10)

Trade and other receivables 102 31 - - 102 31

Loans and borrowings 140 92 - - 140 92

Tax assets/(liabilities) 242 123 (143) (123) 99 -



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(d) Movement in deferred tax balances

’000 GEL

1 January

2014

Recognised in

profit or loss

Recognised in other

comprehensive income

31 December

2014

Property, plant and equipment (113) 498 (500) (115)

Inventories (10) (18) - (28)

Trade and other receivables 31 71 - 102

Loans and borrowings 92 48 - 140

- 599 (500) 99

’000 GEL

1 January

2013

Recognised in

profit or loss

Recognised in other

comprehensive income

31 December

2013

Property, plant and equipment - (113) - (113)

Inventories - (10) - (10)

Trade and other receivables - 31 - 31

Loans and borrowings - 92 - 92

- - - -

(e) Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

’000 GEL 2014 2013

Tax losses 1,402 1,491

Tax losses of GEL 257 thousand for the year ended 31 December 2009 expired in 2014. Tax losses

of GEL 251 thousand, GEL 651 thousand, GEL 332 thousand and GEL 168 thousand expire in 2016,

2017, 2018 and 2019, respectively. Deferred tax assets have not been recognised in respect of these

items because it is not probable that future taxable profit will be available against which the Company

can utilise the benefits therefrom.



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9. Property, plant and equipment

’000 GEL Land Buildings

Under

construction

Plant and

equipment

Furniture and

office equipment Other assets Vehicles Bearer plants Total

Cost or deemed cost/Revalued

amount

Balance at 1 January 2013 3,031 2,296 5,652 2,455 104 279 226 944 14,987

Additions - 132 349 20 38 69 - - 608

Balance at 31 December 2013 3,031 2,428 6,001 2,475 142 348 226 944 15,595

Balance at 1 January 2014 3,031 2,428 6,001 2,475 142 348 226 944 15,595

Additions - - 294 249 13 223 31 - 810

Disposals - (1) (2) - - (124) (101) - (228)

Elimination of accumulated

depreciation - (346) - (428) (75) (115) (102) - (1,066)

Revaluation 841 (414) - 1 5 8 (10) - 431

Balance at 31 December 2014 3,872 1,667 6,293 2,297 85 340 44 944 15,542

Depreciation and impairment losses

Balance at 1 January 2013 - 114 - 135 19 25 28 - 321

Depreciation for the year - 116 - 138 26 37 40 31 388

Balance at 31 December 2013 - 230 - 273 45 62 68 31 709



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Land Buildings

Under

construction

Plant and

equipment

Furniture and

office equipment Other assets Vehicles Bearer plants Total

Balance at 1 January 2014 - 230 - 273 45 62 68 31 709

Depreciation for the year - 116 - 155 30 53 34 31 419

Elimination of accumulated

depreciation - (346) - (428) (75) (115) (102) -

(1,066)

Impairment loss - 954 - 1,468 1 78 68 - 2,569

Disposals - - - - - - (44) - (44)

Balance at 31 December 2014 - 954 - 1,468 1 78 24 62 2,587

Carrying amounts

At 1 January 2013 3,031 2,182 5,652 2,320 85 254 198 944 14,666

At 31 December 2013 3,031 2,198 6,001 2,202 97 286 158 913 14,886

At 31 December 2014 3,872 713 6,293 829 84 262 20 882 12,955

Carrying amounts had no

revaluations taken place

At 1 January 2013 731 1,770 5,652 2,206 77 254 162 944 11,796

At 31 December 2013 731 1,807 6,001 2,108 89 286 122 913 12,057

At 31 December 2014 731 694 6,293 734 71 254 - 882 9,659

Depreciation expense of GEL 164 thousand (2013: GEL 146 thousand) has been charged to cost of sales, part of which has been included in the carrying value of

inventory.

The estimation of the useful life property, plant and equipment is a matter of management estimate based upon experience with similar assets. In determining the useful

life of an item of property, plant and equipment, management considers the expected usage, estimated technical obsolescence, physical wear and tear and the physical

environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments for future depreciation rates.



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(a) Impairment loss and subsequent reversal

As of 31 December 2014 the Company has performed a revaluation of its property, plant and

equipment, except for bearer plants, and recognised an impairment loss of GEL 2,569 thousand

(2013: nil).

(b) Revaluation of land

In 2014 management commissioned BDO LLC to independently appraise land as at 31 December

2014. The fair value of land was determined to be GEL 3,895 thousand and reflects market prices in

recent transactions.

(c) Revaluation of property, plant and equipment (excluding land and bearer plants)

In 2014, management commissioned BDO LLC to independently appraise property, plant and

equipment, except for bearer plants, as at 31 December 2014. The fair value of property, plant and

equipment was determined to be GEL 8,178 thousand, which has been categorised as a Level 3 fair

value based on the inputs to the valuation techniques used (see note 4).

The majority of the Company’s property, plant and equipment is specialised in nature and is rarely

sold on the open market other than as part of a continuing business. Except for land, which was

appraised on the basis of recent market transactions, the market for similar property, plant and

equipment is not active in Georgia and does not provide a sufficient number of sales of comparable

property, plant and equipment for using a market-based approach for determining fair value.

Consequently the fair value of property, plant and equipment, except for bearer plants was primarily

determined using depreciated replacement cost. This method considers the cost to reproduce or

replace the property, plant and equipment, adjusted for physical, functional or economical

depreciation, and obsolescence.

Depreciated replacement cost was estimated based on internal sources and analysis of the Georgian

market for similar property, plant and equipment. Various market data were collected from published

information, catalogues, statistical data, etc., and industry experts and suppliers of property, plant

and equipment were contacted in Georgia.

In addition to the determination of the depreciated replacement cost, management estimated the

enterprise value, which represents the fair value less cost to sell of the whole business as of 31

December 2014. In determining the enterprise value, management used multiples of comparable

companies.

The following key assumptions were used by management in calculating the fair value less cost to

sell of the business:

applied a coefficient 2.17 as the average EV (enterprise value)/Revenue multiple of comparable

companies;

current year revenue amount was used in the calculation; and

applied 25% control premium.

As at 31 December 2014 the fair value less cost to sell of the whole business was estimated to be

GEL 13.6 million. This amount represents the value of profit generating assets (working capital,

property, plant and equipment, intangible assets etc.), excluding the assets under construction which

does not generate any cash flows yet (and is not considered to be part of the cash generating unit).

To calculate economical depreciation and obsolescence of the property, plant and equipment valued

using the cost approach, management adjusted the GEL 13.6 million for the net working capital

balance of GEL 6.9 million (mainly inventories) and for GEL 4.2 million which was the fair value

of the land and other fixed assets valued using the market approach as at 31 December 2014. The



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balance of GEL 2.5 million represents recoverable amount of the specialised fixed assets valued

using the cost approach, hence, this resulted in the depreciated replacement cost values of those assets

being decreased by GEL 3.0 million, out of which GEL 0.4 million was recognised as a decrease in

the revaluation reserve and GEL 2.6 million was recognised as an impairment loss for the year ended

31 December 2014.

Management has identified three key assumptions for which there could be a reasonably possible

change that could cause the carrying amount to exceed the discounted amount of future cash flows.

The above estimates are particularly sensitive in the following areas:

a decrease of the EV (enterprise value)/Revenue multiple by 0.5 basis point (from 2.17 to 1.67),

would decrease the enterprise value to GEL 10.5 million.

a decrease in the revenue amount by 20% would decrease the enterprise value to GEL 10.9

million.

a 5% decrease in the control premium would decrease the enterprise value to GEL 13.0 million.

(d) Property, plant and equipment under construction

Construction in progress represents building of the Mukhjranbatoni palace (Chateau). During 2014,

the Company continued construction of the Mukhjranbatoni palace for future development of the

hospitality business. The Company commenced reconstruction of the palace in 2010; costs incurred

up to the reporting date totalled GEL 6,283 thousand (2013: GEL 6,001 thousand).

As described in paragraph c) above, the property, plant and equipment under construction was

revalued as at 31 December 2014 using at cost approach. No economical depreciation and

obsolescence of the property, plant and equipment under construction was calculated as a result of

the revaluation, considering that the construction works are still in process and unique and specific

nature of the Mukhjranbatoni palace (Chateau).

Prepayments for non-current assets represents the amounts prepaid to different companies during

2014 for reconstruction of the Mukhjranbatoni palace (Chateau).

10. Inventories

’000 GEL 2014 2013

Work in progress 3,133 1,970

Packaging materials 658 407

Finished goods 619 458

Winification and vineyard materials 107 118

Other inventories 16 10

4,533 2,963

In 2014 raw materials, consumables and changes in finished goods and work in progress recognized

as cost of sales amounted to GEL 2,229 thousand (2013: GEL 1,528 thousand).

Work in progress contains the bulk wine of GEL 3,057 thousand as at 31 December 2014 (2013:

GEL 1,798 thousand) operating cycle of which is more than 12 months.



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Cost of harvested grapes per grape types:

’000 GEL 2014 2013

Saperavi 236 151

Rkatsiteli 118 75

Goruli Mcvane 108 69

Chardonnay 76 49

Tavkveri 55 35

Cabernet Souvignon 43 27

Souvignon Blanc 41 26

Shavkapito 36 23

Muscat 15 9

Petit Verdot 9 6

Syrah 9 6

Total cost of the harvested grapes 746 476

Management estimated that costs of harvested grapes were approximate to its fair value less costs to

sell at the point of harvest.

The total harvested grapes for the year ended 31 December 2014 was 562 tonnes (2013: 587 tonnes).

11. Trade and other receivables

’000 GEL 2014 2013

Trade receivables 3,230 2,209

Advances received 118 152

Other receivables 27 10

Impairment on trade receivables (681) (211)

2,694 2,160

12. Cash and cash equivalents

’000 GEL 2014 2013

Bank balances 357 754

Cash and cash equivalents in the statement of financial

position and in the statement of cash flows 357 754

The Company’s exposure to interest rate risk and a sensitivity analysis for financial assets and

liabilities are disclosed in note 17.



21

13. Capital and reserves

(a) Share capital and additional paid-in capital

Number of shares unless otherwise stated Ordinary shares

2014 2013

In issue at 1 January 10,464 5,950

Issued for cash - 4,514

In issue at 31 December, fully paid 10,464 10,464

Authorised shares - par value GEL 1 GEL 1

All ordinary shares rank equally with regard to the Company’s residual assets.

(b) Ordinary shares

In accordance with Georgian legislation the Company’s distributable reserves are limited to the

balance of retained earnings as recorded in the Company’s statutory financial statements prepared in

accordance with International Financial Reporting Standards. As at 31 December 2014 and 2013 the

Company had accumulated losses and no distributable reserves were available to be distributed.

(c) Share premium

On 7 May 2013 the charter capital of the Company was increased by issue of 1,188,000 shares

previously authorized but not issued and the issue of 3,326,415 new shares with par value of 1 (one)

Georgian Lari each, which were issued to JSC Marussia (Georgia) in return for the conversion of

convertible loans. Total converted loans amounted to GEL 17,044 thousand as at the conversion date

and the difference between par value of acquired new shares and the then carrying amount of the

converted loan, of GEL 12,530 thousand was recognized as share premium.

14. Capital management

The Company has no formal policy for capital management but management seeks to maintain a

sufficient capital base for meeting the Company’s operational and strategic needs, and to maintain

confidence of market participants. This is achieved with efficient cash management, constant

monitoring of Company’s revenues and profit, and long-term investment plans mainly financed by

the Company’s shareholders and parent companies. With these measures the Company aims for

steady profits growth.

The Company’s debt to capital ratio at the end of the reporting period was as follows:

’000 GEL 2014 2013

Total liabilities 18,630 13,529

Less: cash and cash equivalents 357 754

Net debt 18,273 12,775

Total equity 3,636 7,712

Net debt to equity ratio at 31 December 5.03 1.66



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15. Loans and borrowings

This note provides information about the contractual terms of the Company’s interest-bearing loans

and borrowings, which are measured at amortised cost. For more information about the Company’s

exposure to interest rate, foreign currency and liquidity risk, see note 17.

’000 GEL 2014 2013

Non-current liabilities

Loans from related parties 14,456 3,150

Current liabilities

Current portion of loans from related parties - 7,902

Interest on loans from related parties 2,464 1,470

2,464 9,372

16,920 12,522

(a) Terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:

31 December 2014 31 December 2013

’000 GEL Currency

Nominal

interest rate

Year of

maturity

Face

value

Carrying

amount

Face

value

Carrying

amount

Loans from related

parties GEL 9% 2016

16,920 16,920 - -

Loans from related

parties GEL

7% + 12 m

Euribor 2015 - - 3,288 3,288

Loans from related

parties USD

7% + 12 m

Euribor 2014 - - 960 960

Loans from a related

party EUR

7% + 12 m

Euribor 2014 - - 8,274 8,274

Total interest-bearing

liabilities 16,920 16,920 12,522 12,522

On 1 January 2014 a new contract was signed between the Company and the related parties according

to which, the Company has translated all its loans received from the related parties of GEL 10,956

thousand principal and GEL 1,387 thousand interest into a new loan, which was denominated in

GEL, bearing 9% interest rate and with maturity in 2016. As a result of these amendments of the

original loan terms, the original financial liability was accounted for as extinguished and the new

financial liability was recognised.

During 2014 the Company obtained loan from related parties of GEL 3,500 thousand maturing in

2016. On 31 December 2014 the Company had unused loan amount of GEL 1,000 thousand

(2013: nil).

Loans and borrowings from related parties are not secured.



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16. Trade and other payables

’000 GEL 2014 2013

Trade payables 1,245 428

Trade payables to related parties 451 552

Other payables 14 27

1,710 1,007

The Company’s exposure to currency and liquidity risk related to trade and other payables is

disclosed in note 17.l in

17. Fair values and risk management

(a) Accounting classifications and fair values

The estimates of fair value are intended to approximate the price that would be received to sell an

asset or paid to transfer a liability in an orderly transaction between market participants at the

measurement date. However given the uncertainties and the use of subjective judgment, the fair value

should not be interpreted as being realizable in an immediate sale of the assets or transfer of liabilities.

The Company has determined the fair values of financial assets and liabilities using valuation

techniques. The objective of the valuation techniques is to arrive at a fair value determination that

reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly

transaction between market participants at the measurement date. The valuation technique used is

the discounted cash flow model. Fair value of all financial assets and liabilities is calculated based

on the present value of future principal and interest cash flows, discounted at the market rate of

interest at the reporting date.

Management believes that the fair values of the Company’s financial assets and liabilities

approximate their carrying amounts.

(b) Financial risk management

The Company has exposure to the following risks from its use of financial instruments:

credit risk (see 17 (b)(ii));

liquidity risk (see 17 (b)(iii));

market risk (see 17 (b)(iv)).

(i) Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the

Company’s risk management framework.

The Company’s risk management policies are established to identify and analyze the risks faced by

the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.

Risk management policies and systems are reviewed regularly to reflect changes in market conditions

and the Company’s activities. The Company, through its training and management standards and

procedures, aims to develop a disciplined and constructive control environment in which all

employees understand their roles and obligations.



24

(ii) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial

instrument fails to meet its contractual obligations, and arises principally from the Company’s

receivables from customers.

Trade receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each

customer. However, management also considers the factors that may influence the credit risk of the

Company’s customer base, including the default risk of the industry and country, in which customers

operate, particularly in the currently deteriorating economic circumstances. Approximately 39%

(2013: 17%) of the Company’s revenue is attributable to sales transactions with a single customer.

However, geographically there is no concentration of credit risk.

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region

was as follows:

Carrying amount

’000 GEL 2014 2013

Domestic 89 1,113

CIS countries 1,880 721

Euro-zone countries 163 70

Other regions 417 94

2,549 1,998

The maximum exposure to credit risk for trade receivables at the reporting date by type of

counterparty was as follows:

Carrying amount

’000 GEL 2014 2013

Wholesale customers 1,812 523

Retail customers 372 1,263

Other 365 212

2,549 1,998

The most significant customer of the Company accounts for GEL 324 thousand of the trade and other

receivables carrying amount at 31 December 2014 (2013: GEL nil).



25

Impairment losses

The ageing of trade receivables net of impairment at the reporting date was as follows:

’000 GEL 2014 2013

Ageing since the date of sale

0- 30 days 981 354

31-120 days 769 957

121-180 days 771 368

180-365 days 28 319

2,549 1,998

In the above table the aging was calculated from the sales date. Average payment duration stipulated

in the contract is 90 days.

The Company believes that the unimpaired amounts that are past due are still collectible, based on

historic payment behavior and analyses on the underlying customers’ credit ratings, when available.

The movement in the allowance for impairment in respect of trade and other receivables during the

year was as follows:

’000 GEL Individual impairments

2014 2013

Balance at beginning of the year (211) (455)

Impairment loss recognised (500) (103)

Recovery of written off receivables 30 347

Balance at end of the year (681) (211)

At 31 December 2014 an impairment loss of GEL 681 thousand (2013: GEL 211 thousand) relates

to several customers that have indicated that they are not expecting to be able to pay their outstanding

balances, mainly due to economic circumstances.

Cash and cash equivalents

The Company held cash and cash equivalents of GEL 357 thousand at 31 December 2014 (2013:

GEL 754 thousand), which represents its maximum credit exposure on these assets. The cash and

cash equivalents are held with banks which are rated BB-, based on rating agency Fitch ratings.

Management does not believe that counterparties will fail to meet their obligations.

(iii) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations

associated with its financial liabilities that are settled by delivering cash or another financial asset.

The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always

have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,

without incurring unacceptable losses or risking damage to the Company’s reputation.



26

The Company aims to maintain the level of cash and cash equivalents at an amount in excess of

expected cash outflows on financial liabilities over the succeeding 60 days. Typically the Company

ensures that it has sufficient cash on demand to meet expected operational expenses for a period of

60 days, including the servicing of financial obligations; this excludes the potential impact of extreme

circumstances that cannot reasonably be predicted, such as natural disasters.

In addition, the shareholders and ultimate parent company of the Company have committed to

provide financial and other support as is necessary to permit the Company to continue in operational

existence.

Exposure to liquidity risk

The following are the remaining contractual maturities of financial liabilities at the reporting date.

The amounts are gross and undiscounted, and include estimated interest payments and exclude the

impact of netting agreements.

31 December 2014 Contractual cash flows

’000 GEL

Carrying

amount Total

On

demand

Less than

2 mths 2-12 mths 1-2 yrs

Non-derivative financial

liabilities

Loans from related parties 16,920 19,521 - - - 19,521

Trade and other payables 1,710 1,710 1,710 - - -

18,630 21,231 1,710 - - 19,521

31 December 2013 Contractual cash flows

’000 GEL

Carrying

amount Total

On

demand

Less than

2 mths 2-12 mths 1-2 yrs

Non-derivative financial

liabilities

Loans from related parties 12,522 13,011 9,373 - - 3,638

Trade and other payables 1,007 1,007 1,007 - - -

13,529 14,018 10,380 - - 3,638

It is not expected that the cash flows included in the maturity analysis could occur significantly

earlier, or at significantly different amounts.

(iv) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates

and equity prices will affect the Company’s income or the value of its holdings of financial

instruments. The objective of market risk management is to manage and control market risk

exposures within acceptable parameters, while optimizing the return.

The Company incurs financial liabilities, in order to manage market risks. The Company does not

apply hedge accounting in order to manage volatility in profit or loss.



27

Currency risk

The Company is exposed to currency risk on sales, purchases and borrowings that are denominated

in a currency other than the respective functional currencies of The Company. The currencies in

which these transactions primarily are denominated are EUR and USD.

Interest on borrowings is denominated in currencies that match the cash flows generated by the

underlying operations of the Company, primarily GEL. This provides an economic hedge and no

derivatives are entered into.

Exposure to currency risk

The Company’s exposure to foreign currency risk was as follows:

’000 GEL

USD-

denominated

EUR-

denominated

USD-

denominated

EUR-

denominated

2014 2014 2013 2013

Trade receivables 388 1,227 342 415

Cash and cash equivalents - 17 120 571

Trade payables (55) (249) (244) (301)

Loans and borrowings - - (960) (8,274)

Net exposure 333 995 (742) (7,589)

The following significant exchange rates have been applied during the year:

in GEL Average rate Reporting date spot rate

2014 2013 2014 2013

USD 1 1.7659 1.6634 1.8636 1.7363

EUR 1 2.3462 2.2094 2.2656 2.3891

Sensitivity analysis

A reasonably possible strengthening (weakening) of the GEL, as indicated below, against all other

currencies at 31 December would have affected the measurement of financial instruments

denominated in a foreign currency and affected profit or loss net of taxes by the amounts shown

below. The analysis assumes that all other variables, in particular interest rates, remain constant and

ignores any impact of forecast sales and purchases.

’000 GEL Profit or loss

Strengthening of GEL Weakening of GEL

31 December 2014

USD (20% movement) (57) 57

EUR (20% movement) (169) 169

31 December 2013

USD (20% movement) 126 (126)

EUR (20% movement) 1,290 (1,290)



28

(v) Interest rate risk

Changes in interest rates impact primarily loans and borrowings by changing either their fair value

(fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal

policy of determining how much of the Company’s exposure should be to fixed or variable rates.

However, at the time of raising new loans or borrowings management uses its judgment to decide

whether it believes that a fixed or variable rate would be more favorable to the Company over the

expected period until maturity.

Exposure to interest rate risk

At the reporting date the interest rate profile of the Company’s interest-bearing financial instruments

was as follows:

’000 GEL Carrying amount

2014 2013

Fixed rate instruments

Financial liabilities 16,920 -

16,920 -

Variable rate instruments

Financial liabilities - 12,522

- 12,522

Fair value sensitivity analysis for fixed rate instruments

The Company does not account for any fixed-rate financial instruments as fair value through profit

or loss or as available-for-sale. Therefore a change in interest rates at the reporting date would not

have an effect in profit or loss or in equity.

18. Commitments

The Company is committed to incur capital expenditure of GEL 562 thousand (2013: Nil). These

commitments are expected to be settled in 2015.

19. Contingencies

(a) Insurance

The insurance industry in Georgia is in a developing state and many forms of insurance protection

common in other parts of the world are not yet generally available. The Company has full coverage

for its plant facilities and third party liability in respect of property or environmental damage arising

from accidents on Company property or relating to Company operations. From August 2014 the

Company takes part in the insurance scheme set up by the government of Georgia. This is scheme of

agro insurance sector, according to which the harvest of the Company is insured.



29

(b) Taxation contingencies

The taxation system in Georgia is relatively new and is characterised by frequent changes in

legislation, official pronouncements and court decisions, which are sometimes unclear, contradictory

and subject to varying interpretation. In the event of a breach of tax legislation, no liabilities for

additional taxes, fines or penalties may be imposed by the tax authorities after six years have passed

since the end of the year in which the breach occurred.

These circumstances may create tax risks in Georgia that are more significant than in other countries.

Management believes that it has provided adequately for tax liabilities based on its interpretations of

applicable Georgian tax legislation, official pronouncements and court decisions. However, the

interpretations of the relevant authorities could differ and the effect on these financial statements, if

the authorities were successful in enforcing their interpretations, could be significant.

20. Related parties

(a) Parent and ultimate controlling party

The Company’s immediate parent company is JSC Marussia (Georgia). The Company’s ultimate

parent company is Haydn Holding AB and the Company’s ultimate controlling party is The Paulsen

Familiae Foundation, a legal entity incorporated under the Jersey law.

No publicly available financial statements are produced by the Company’s immediate parent

company. The next highest parent company that does so is Haydn Holding AB.

(b) Transactions with key management personnel

(i) Key management remuneration

Key management received the following remuneration during the year, which is included in

personnel costs (see note 6(a)):

’000 GEL 2014 2013

Salaries and bonuses 255 204

(c) Other related party transactions

’000 GEL

Transaction value for the year

ended 31 December

Outstanding balance as at

31 December

2014 2013 2014 2013

Sale of goods and services:

Parent company 1,972 51 927 -

Fellow subsidiaries 1,508 168 1,153 -

Supervisory board members 4 15 5 4

Purchase of goods and services:

Parent company 421 762 47 -

Fellow subsidiaries 729 184 451 -



30

’000 GEL

Transaction value for the year

ended 31 December

Outstanding balance as at

31 December

2014 2013 2014 2013

Loans received from related parties:

Parent and ultimate parent company 2,800 2,523 14,858 11,088

Minority shareholders who are

presented on Supervisory board 700 630 2,062 1,254

Other (entities under common control) - - - 180

All outstanding balances with related parties other than loans given, are to be settled in cash within

six months of the reporting date. For the loans received from related parties please refer to note 15.

None of the balances are secured.

21. Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following

items, which are measured on an alternative basis on each reporting date.

Items Measurement bases

Property, plant and equipment, except for bearer plants Fair value

Agricultural produce Fair value less costs to sell

22. Changes in accounting policies

Except for the changes below, the Company has consistently applied the accounting policies set out

in note 23 to all periods presented in these financial statements.

The Company has adopted the following amendments to a standard and new interpretation with a

date of initial application of 1 January 2014:

Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41): These amendments require a bearer

plant, defined as a living plant, to be accounted for as property, plant and equipment and included

in the scope of IAS 16 Property, Plant and Equipment, instead of IAS 41 Agriculture. The

amendments are effective for annual reporting periods beginning on or after 1 January 2016, with

early adoption permitted.



31

23. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in

these financial statements, and have been applied consistently by Company entities, except as

explained in note 22, which addresses changes in accounting policies.

Certain comparative amounts have been adjusted as a result of a change in the accounting policy

regarding property, plant and equipment – bearer plants (see note 23(k)).

Set out below is an index of the significant accounting policies, the details of which are available on

the pages that follow:

(a) Revenue 31

(b) Finance income and costs 31

(c) Foreign currency 32

(d) Employee benefits 32

(e) Income tax 33

(f) Inventories 33

(g) Property, plant and equipment 33

(h) Financial instruments 35

(i) Impairment 36

(j) Provisions 38

(k) Comparative information 38

(a) Revenue

(i) Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of

the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue

is recognised when persuasive evidence exists, usually in the form of an executed sales agreement,

that the significant risks and rewards of ownership have been transferred to the customer, recovery

of the consideration is probable, the associated costs and possible return of goods can be estimated

reliably, there is no continuing management involvement with the goods, and the amount of revenue

can be measured reliably. If it is probable that discounts will be granted and the amount can be

measured reliably, then the discount is recognised as a reduction of revenue as the sales are

recognized on dispatch when significant risks and rewards of ownership are transferred.

(b) Finance income and costs

The Company’s finance income and finance costs include:

interest income;

interest expense;

the net gain or loss on financial assets at fair value through profit or loss;

the foreign currency gain or loss on financial assets and financial liabilities;

Interest income or expense is recognised using the effective interest method..



32

(c) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currency of the

Company at exchange rates ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated

to the functional currency at the exchange rate at that date. The foreign currency gain or loss on

monetary items is the difference between amortised cost in the functional currency at the beginning

of the period, adjusted for effective interest and payments during the period, and the amortised cost

in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value

are translated to the functional currency at the exchange rate at the date that the fair value was

determined. Non-monetary items in a foreign currency that are measured based on historical cost are

translated using the exchange rate at the date of the transaction.

Foreign currency differences arising in translation are recognised in profit or loss.

(d) Employee benefits

(i) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as

the related service is provided. A liability is recognised for the amount expected to be paid under

short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive

obligation to pay this amount as a result of past service provided by the employee, and the obligation

can be estimated reliably.

(e) Income tax

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the

extent that it relates to a business combination, or items recognised directly in equity or in other

comprehensive income.

(i) Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the

year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax

payable in respect of previous years. Current tax payable also includes any tax liability arising from

dividends.

(ii) Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets

and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred

tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a

transaction that is not a business combination and that affects neither accounting nor taxable profit

or loss.



33

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences

when they reverse, based on the laws that have been enacted or substantively enacted by the reporting

date.

In determining the amount of current and deferred tax the Company takes into account the impact of

uncertain tax positions and whether additional taxes, penalties and late-payment interest may be due.

The Company believes that its accruals for tax liabilities are adequate for all open tax years based on

its assessment of many factors, including interpretations of tax law and prior experience. This

assessment relies on estimates and assumptions and may involve a series of judgments about future

events. New information may become available that causes the Company to change its judgment

regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax

expense in the period that such a determination is made.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary

differences, to the extent that it is probable that future taxable profits will be available against which

they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the

extent that it is no longer probable that the related tax benefit will be realized.

(f) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based

on the weighted average principle, and includes expenditure incurred in acquiring the inventories,

production or conversion costs and other costs incurred in bringing them to their existing location

and condition. In the case of manufactured inventories and work in progress, cost includes an

appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated

costs of completion and selling expenses.

The Company does not apply IAS 23 “Borrowing Costs” standard to borrowing costs directly

attributable to the finished goods (wine) that are manufactured, or otherwise produced, in large

quantities on a repetitive basis.

(g) Property, plant and equipment

(i) Recognition and measurement

After recognition as an asset, an item of property, plant and equipment, except for bearer plants,

whose fair value can be measured reliably is carried at revalued amount, being its far value at the

date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated

impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying

amount does not differ materially from that which would be determined using fair value at the end

of the reporting period. The fair value of land and buildings is determined from market-based

evidence by appraisal that is undertaken by professionally qualified valuators. The fair value of the

items of plant and equipment is their market value determined by appraisal. If there is no market-

based evidence of fair value because of the specialized nature of the item of property, plant and

equipment and the item is rarely sold, except as part of a continuing business, the Company may

need to estimate fair value using an income, market or a cost approach.

The frequency of revaluation depends upon the changes in fair values of the items of property, plant

and equipment being revalued. When fair value of a revalued asset differs materially from its carrying

amount, a further revaluation is conducted.



34

If an item of property, plant and equipment is revalued, the entire class of property, plant and

equipment to which that asset belongs is revalued. Subsequent depreciation of property, plant and

equipment is charged so as to write off the depreciable amount over the useful life of an asset and is

calculated using a straight line method.

A revaluation increase on property, plant and equipment is recognised directly under the heading of

revaluation surplus in other comprehensive income. However, the increase is recognised in profit or

loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in

profit or loss.

A revaluation decrease on property, plant and equipment is recognised in profit or loss. However,

the decrease is recognised in other comprehensive income to the extent of any credit balance existing

in the revaluation surplus.

(ii) Subsequent expenditure

The cost of replacing a component of an item of property, plant and equipment is recognised in the

carrying amount of the item if it is probable that the future economic benefits embodied within the

component will flow to the Company, and its cost can be measured reliably. The carrying amount of

the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and

equipment are recognised in profit or loss as incurred.

(iii) Bearer plants

Bearer plants are used solely to grow produce. The only significant future economic benefits from

bearer plants arise from selling the agricultural produce that they create. Bearer plants meet the

definition of property, plant and equipment in IAS 16 and their operation is similar to that of

manufacturing. Accordingly, the amendments require bearer plants to be accounted for as property,

plant and equipment and included within the scope of IAS 16, instead of IAS 41. The produce

growing on bearer plants will remain within the scope of IAS 41.

Bearer plants are carried at cost less accumulated depreciation and any accumulated impairment

losses.

The cost of bearer plants comprises the fair value of the assets determined as of 1 January 2013 as

deemed cost.

Depreciation of bearer plants is calculated using the straight-line method to allocate the cost less its

residual value over its estimated useful life of 30 years.

The residual value, useful lives and depreciation method of the Company’s bearer plants are

reviewed, and adjusted if appropriate, if there is an indication of a change since the last reporting

date.

The Company classifies harvested grapes as agricultural produce and uses them predominantly for

production of their own wines.

Agricultural produce harvested from the Company’s bearer plants are measured at its fair value less

costs to sell at the point of harvest. The fair value less costs to sell of agricultural produce at the date

of harvest is the deemed cost of the produce for the purpose of applying IAS 2 Inventories.

A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell is

included in the profit or loss.



35

(iv) Depreciation

Items of property, plant and equipment are depreciated from the date that they are installed and are

ready for use, or in respect of internally constructed assets, from the date that the asset is completed

and ready for use. Depreciation is based on the cost of an asset less its estimated residual value.

Depreciation is generally recognised in profit or loss on a straight-line basis over the estimated useful

lives of each part of an item of property, plant and equipment, since this most closely reflects the

expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets

are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain

that the company will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives of significant items of property, plant and equipment for the current and

comparative periods are as follows:

Buildings 50 years;

Plant and equipment 5-30 years;

Furniture and office equipment 7-10 years;

Vehicles 3-8 years;

Other assets 5-10 years;

Bearer plants 30 years.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and

adjusted if appropriate.

(h) Financial instruments

The Company classifies non-derivative financial assets into the loans and receivables.

The Company classifies non-derivative financial liabilities into the other financial liabilities

category.

(i) Non-derivative financial assets and financial liabilities – recognition and derecognition

The Company initially recognises loans and receivables and debt securities issued on the date that

they are originated. All other financial assets and financial liabilities are recognised initially on the

trade date at which the Company becomes a party to the contractual provisions of the instrument.

The Company derecognises a financial asset when the contractual rights to the cash flows from the

asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a

transaction in which substantially all the risks and rewards of ownership of the financial asset are

transferred. Any interest in transferred financial assets that is created or retained by the Company is

recognised as a separate asset or liability.

The Company derecognises a financial liability when its contractual obligations are discharged or

cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the

statement of financial position when, and only when, the Company currently has a legally enforceable

right to set off the recognised amounts and intends either to settle on a net basis or to realise the asset

and settle the liability simultaneously. The Company currently has a legally enforceable right to set

off if that right is not contingent on a future event and enforceable both in the normal course of

business and in the event of default, insolvency or bankruptcy of the Company and all counterparties.



36

Loans and receivables

Loans and receivables are a category of financial assets with fixed or determinable payments that are

not quoted in an active market. Such assets are recognised initially at fair value plus any directly

attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at

amortised cost using the effective interest method, less any impairment losses.

Loans and receivables category comprise the following classes of financial assets: trade and other

receivables as presented in note 11 and cash and cash equivalents as presented in note 12.

Cash and cash equivalents

Cash and cash equivalents comprise cash and bank balances with original maturities of three months

or less.

(ii) Non-derivative financial liabilities - measurement

The Company classifies non-derivative financial liabilities into the other financial liabilities

category. Such financial liabilities are recognised initially at fair value less any directly attributable

transaction costs. Subsequent to initial recognition, these financial liabilities are measured at

amortised cost using the effective interest method.

Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other

payables.

(iii) Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary

shares and share options are recognised as a deduction from equity, net of any tax effects.

Share premium

When share capital is increased, any difference between the registered amount of share capital and

the fair value of actual consideration received is recognized as share premium.

(i) Impairment

(i) Non-derivative financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to

determine whether there is any objective evidence that it is impaired. A financial asset is impaired if

objective evidence indicates that a loss event has occurred after the initial recognition of the asset,

and that the loss event had a negative effect on the estimated future cash flows of that asset that can

be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include:

default or delinquency by a debtor;

restructuring of an amount due to the Company on terms that the Company would not consider

otherwise;

indications that a debtor or issuer will enter bankruptcy;



37

adverse changes in the payment status of borrowers or issuers in the Company;

economic conditions that correlate with defaults;

the disappearance of an active market for a security; or

observable data indicating that there is measurable decrease in expected cash flows from a group

of financial assets.

Financial assets measured at amortised cost

The Company considers evidence of impairment for these assets at an individual asset. All

individually significant assets are individually assessed for impairment.

An impairment loss is calculated as the difference between an asset’s carrying amount, and the

present value of the estimated future cash flows discounted at the asset’s original effective interest

rate. Losses are recognized in profit or loss and reflected in an allowance account. When the

Company considers that there are no realistic prospects of recovery of the asset, the relevant amounts

are written off. Interest on the impaired asset continues to be recognized through the unwinding of

the discount. When a subsequent event causes the amount of impairment loss to decrease and the

decrease can be related objectively to an event occurring after the impairment was recognized, the

decrease in impairment loss is reversed through profit or loss.

(ii) Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax

assets are reviewed at each reporting date to determine whether there is any indication of impairment.

If any such indication exists, then the asset’s recoverable amount is estimated.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together

into the smallest group of assets that generates cash inflows from continuing use that are largely

independent of the cash inflows of other assets or CGU.

The Company’s corporate assets do not generate separate cash inflows and are utilized by more than

one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for

impairment as part of the testing of the CGU to which the corporate asset is allocated.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less

costs to sell. 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.

An impairment loss is recognized if the carrying amount of an asset or its related cash-generating

unit (CGU) exceeds its estimated recoverable amount.

Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs

are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of

CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on

a pro rata basis.

Impairment losses recognized in prior periods are assessed at each reporting date for any indications

that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a

change in the estimates used to determine the recoverable amount. An impairment loss is reversed

only to the extent that the asset’s carrying amount does not exceed the carrying amount that would

have been determined, net of depreciation or amortization, if no impairment loss had been

recognized.



38

(j) Provisions

A provision is recognised if, as a result of a past event, the Company has a present legal or

constructive obligation that can be estimated reliably, and it is probable that an outflow of economic

benefits will be required to settle the obligation. Provisions are determined by discounting the

expected future cash flows at a pre-tax rate that reflects current market assessments of the time value

of money and the risks specific to the liability. The unwinding of the discount is recognised as finance

cost.

(k) Comparative information

As a result of early adoption of Amendments to IAS 16 and IAS 41, balance of biological assets was

restated and reclassified to property plant and equipment under the bearer plants category that is

measured at cost less depreciation and impairment losses, if any. The bearer plants were recognised

at deemed cost at the beginning of the earliest comparative period which is 1 January 2013.

The following tables summarize the adjustments made to the statements of financial position at

1 January 2013 and 31 December 2013, and its statements of profit or loss and other comprehensive

income for the year ended 31 December 2013 as a result of the change of accounting policy and the

representation:

Statement of financial position 1 January 2013

GEL’000 As previously

reported Adjustments Reclassification

According to new

accounting policy

Biological assets 944 - (944) -

Property, plant and equipment

(bearer plants) - - 944 944

Overall impact on total assets - -

Statement of financial position 31 December 2013



According to new

accounting policy

Biological assets 822 91 (913) -

Property, plant and equipment

(bearer plants) - - 913 913

Overall impact on total assets 91 -

Statement of profit and loss and other comprehensive income for 2013



According to new

accounting policy

Fair value adjustment (122) 122 - -

Depreciation expense - (31) - (31)

Overall impact on profit and

loss 91 -



39

24. New standards and interpretations not yet adopted

A number of new Standards, amendments to Standards and Interpretations are not yet effective as at

31 December 2014, and have not been applied in preparing these financial statements. Of these

pronouncements, potentially the following will have an impact on the Company’s operations. The

Company plans to adopt these pronouncements when they become effective.

New or amended

standard Summary of the requirements Possible impact on

financial statements

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 de recognition 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 Company is

assessing the potential

impact on its 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 2017, with early adoption permitted.

The Company is

assessing the potential

impact on its financial

statements resulting

from the application

of IFRS 15.

Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All

amendments, which result in accounting changes for presentation, recognition or measurement

purposes, will come into effect not earlier than 1 January 2015. The Company has not yet analysed

the likely impact of the improvements on its financial position or performance.

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