ANNUAL REPORT 2016 - London Stock Exchange · 30.06.2017 · the Karachaganak Petroleum Operating (KPO) consortium. Extension of the long-term contract with NCOC for the Chagala

ANNUALREPORT2016

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.

2016 ACCOMPLISHMENTSPAGE 4

CONTENTS

PAGE 6 PAGE 8

CORPORATE GOVERNANCE STATEMENTPAGE 28

BUSINESS STRATEGY & UPDATEPAGE 10

CHAGALA OPERATIONSPAGE 14

CORPORATE SOCIAL RESPONSIBILITYPAGE 38

FINANCIAL STATEMENTSPAGE 42

2

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

MISSION & GOALS

MISSION AND GOALS

CHAGALA GROUP | ANNUAL REPORT 2016

3

TO INVEST IN COMPANIES THAT PROVIDE ITS CLIENTS WITH A HOME AWAY FROM HOME IN WESTERN KAZAKHSTAN AND ANY OTHER REGION THEY OPERATE IN. THE COMPANIES CHAGALA INVESTS IN PROVIDE FRIENDLY STAFF, POPULAR RESTAURANTS AND THE BEST ALL ROUND ACCOMMODATION VALUE IN THE REGION;

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

TO INVEST IN COMPANIES THAT PROVIDE 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.

Chagala Group invests in companies that deliver quality accommodation solutions at a reasonable cost to the oil and gas industry in Kazakhstan – we invest in companies that build, own, manage and maintain safe, comfortable properties for the people developing Kazakhstan’s vast oil and gas sector in the Caspian Sea region. Our investments have properties or interests in companies that own properties and operate 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

4

DESPITE CHALLENGING CIRCUMSTANCES, THE COMPANIES CHAGALA GROUP INVEST IN, HAVE CONTINUED SUCCEEDED IN ACHIEVING THE STRATEGIC OBJECTIVES SET BY STAKEHOLDERS, AND DELIVERED THE REQUIRED OPERATING AND FINANCIAL RESULTS TO CONTINUE INTO A HEALTHY FUTURE. 2016 SAW THE GROUP:

Completion of the project of reconstruction and refurbishing an office building in the city of Uralsk in Western Kazakhstan. The 5,600 sq. m. gross area building has been completely reconstructed into a Class A office destined to become the administration center in Uralsk of the Karachaganak Petroleum Operating (KPO) consortium.

Extension of the long-term contract with NCOC for the Chagala Centre Office in Atyrau that gives us a privilege to not only continue but to actually strengthen partnership of our investments with its key client, which has been our partner for many years now.

Improvement of the infrastructure invested in Atyrau complex — landscaping of the complex area, building of the main entrance, paving of roads and pathways. All these innovations were introduced to improve surrounding area where clients live and staff operates.

General renovation of the Company’s investments in Uralsk and Bautino to create a better home away from home for our clients.

2016 FINANCIAL HIGHLIGHTS

2016: USD 20.3 million TOTAL REVENUE

2016: 7.7 million EBITDA

2016: USD 4.4 million OPERATING PROFIT

2016: USD 0,8 million NET PROFIT

2016: USD 92.1 million TOTAL ASSETS

2016: USD 15.6 million ROOM AND RENT REVENUE

2016: USD 2.6 million FOOD AND BEVERAGE REVENUE

2015: USD 23.5 MILLION

2015: 8.0 MILLION






2016 ACCOMPLISHMENTS


5

2016 ACCOMPLISHMENTS

6

At a time when global uncertainty, economic slowdown in the region and low commodity prices continue to challenge the industry we operate in, Chagala Group achieved strong results for shareholders, customers, employees, and the communities we serve. This solid performance and the stability of our growth continue to make Chagala Group a partner of choice for shareholders and clients.

Chagala Group continues to achieve the strategic objectives set by stakeholders, and delivered the required operating and financial results to continue into a healthy future. Last year we completed the

MICHAEL C. CARTER JR.Chairman

CHAGALA GROUP CONTINUES TO ACHIEVE THE STRATEGIC OBJECTIVES SET BY STAKEHOLDERS, AND DELIVERED THE REQUIRED OPERATING AND FINANCIAL RESULTS TO CONTINUE INTO A HEALTHY FUTURE.

MESSAGE FROM THE CHAIRMAN

MESSAGE FROM OUR CHAIRMAN


7

reconstruction and refurbishment of an office building in the city of Uralsk in Western Kazakhstan, extended the long-term contract with NCOC for the Chagala Centre Office in Atyrau, invested in improvement of the infrastructure in Atyrau complex and general renovation of the companies’ facilities in Uralsk and Bautino.

Behind our success is a great team of people – over 400 dedicated professionals, many of them have been working for companies where Chagala Group invests in for more than 10 and 15 years. They are guided by shared values, focused on working together to build deep, long-term relationships with customers to help them feel at home away from their real homes. And they are led by a talented, experienced senior management team. In 2016, we made several key appointments to further strengthen the team and ensure continuity of the Chagala Group leadership.

But, as I mentioned, it was not an easy year – we faced a shareholder dispute related that has ended in litigation between one shareholder and the directors of the Company. The outcome of the litigation is always uncertain, and depending on the outcome, the losing party could be required to pay an estimated two-thirds of the total incurred legal costs of the winning party, in addition to its own legal costs. The Board acted in the best interest of all shareholders.

But despite the challenges we face and general global turbulence we are looking forward to 2017 and beyond with prudent optimism.

On behalf of the Board, I would like to thank our Chief Executive Officer, Francisco Parrilla, and the executive management team for their continued strong leadership. I would also like to express my gratitude once again to all our customers and partners as well as all employees for their contributions to Chagala Group sustainable development and continued growth. Our reputation for high quality, international standards in service, responsive management and customer friendly facilities continues to set the benchmark in Kazakhstan.

BEHIND OUR SUCCESS IS A GREAT TEAM OF PEOPLE – OVER 500 DEDICATED PROFESSIONALS, MANY OF THEM HAVE BEEN WORKING FOR CHAGALA GROUP FOR MORE THAN 10 AND 15 YEARS.

OUR REPUTATION FOR HIGH QUALITY, INTERNATIONAL STANDARDS IN SERVICE, RESPONSIVE MANAGEMENT AND CUSTOMER FRIENDLY FACILITIES CONTINUES TO SET THE BENCHMARK IN KAZAKHSTAN.

8

MESSAGE FROM THE CEO

In the challenging economic environment and amid rising competition, Chagala Group continues to achieve its sustainability targets twenty years since it was founded. Low oil prices and difficulties with the implementation of major oil and gas projects have led to a reduction in projects and staff but strong control over costs in management of our investments and continuous improvements in operating standards and business processes have allowed us to maintain strong EBITDA.

In 2016, Kurmangazy Development LLP, an investment of Chagala Group, completed the reconstruction and refurbishment of an office building in the city of Uralsk in Western Kazakhstan. The 5,600 sq. m. gross area building has been completely reconstructed into a Class A office

FRANCISCO PARRILLACEO

LOOKING AHEAD, WE ARE DETERMINED TO MAINTAIN THE CLARITY OF OUR DIRECTION. WE WILL CONTINUE TO FOCUS OUR ENERGY ON MAXIMIZING OUR EVER-EXPANDING POTENTIAL AND MAINTAINING OUR CUTTING-EDGE COMPETITIVE ADVANTAGE.

MESSAGE FROM OUR CEO


9

destined to become the administrative office of the Karachaganak Petroleum Operating (KPO) consortium, one of the largest companies involved in the development of gas condensate fields in Kazakhstan. It was an honor to be part of this historical moment that so many have been waiting in Uralsk: the first step of the move of KPO into the city of Uralsk. We remain grateful to client and partners and the trust deposited on the Group. We are linked by many years of successful partnership with the developers of the Kashagan field and this new project is our first experience of cooperation with KPO, that we hope with continue in time for many years.

The year is also marked with the extension of the partnership of our investments with core clients. We feel privileged to not only continue, but strengthen this partnership with our investment’s core clients. I would like to thank our partners for their continued

support and trust. Last year we renewed a substantial lease agreement with North Caspian Operations Company B.V. (“NCOC”) for the Chagala Centre Office in Atyrau.

Aside from general economic turbulence, the Group has also faced litigation. On 27 July 2016, TIPP Investments PCC filed a claim in the Commercial Division of the British Virgin Islands against the Company and its three current directors, with the date for the trial of this claim (estimated to last some fifteen days) has not yet been fixed but is likely to take place during the next financial year. Although the Directors are confident of the merits of their Defence, as with any litigation, the outcome of the case is uncertain.

But despite the challenges we face, Chagala Group remains committed to offering high quality solutions at

a reasonable price, paying special attention to providing reliable service for our clients and creating the most comfortable conditions for work and life. By building long-term relations with our partners and catering to clients’ needs, we constantly improve the quality of our services. And I would like to thank our investments’ employees, clients and partners for their trust and dedication.

Looking ahead, we are determined to maintain the clarity of our direction. We will continue to focus our energy on maximizing our ever-expanding potential and maintaining our cutting-edge competitive advantage.

IN 2016, KURMANGAZY DEVELOPMENT LLP, AN INVESTMENT OF CHAGALA GROUP, COMPLETED THE RECONSTRUCTION AND REFURBISHMENT OF AN OFFICE BUILDING IN THE CITY OF URALSK IN WESTERN KAZAKHSTAN. THE 5,600 SQ. M. GROSS AREA BUILDING HAS BEEN COMPLETELY RECONSTRUCTED INTO A CLASS A OFFICE DESTINED TO BECOME THE ADMINISTRATIVE OFFICE OF THE KARACHAGANAK PETROLEUM OPERATING (KPO) CONSORTIUM, ONE OF THE LARGEST COMPANIES INVOLVED IN THE DEVELOPMENT OF GAS CONDENSATE FIELDS IN KAZAKHSTAN.

10

BUSINESS STRATEGY AND UPDATE



11

Chagala Group invests in companies that operate or have interests in Kazakhstan expecting that these companies are premier providers of accommodation and office space solutions to the country’s major oil and gas projects. The Company has built its success on identifying companies with a track records of having identified the future accommodation needs of the companies engaged in developing Kazakhstan’s vast hydrocarbon potential and then investing in companies that design, build and manage the assets required to service those needs.

OUR STRATEGY IS SIMPLE:

INVEST ONLY IN COMPANIES THAT DEVELOP OR INVEST IN ASSETS THAT HAVE A DEFINED USER WITH LIKELY LONG-TERM TENANCY ALREADY IDENTIFIED.

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

CREATE AN ENVIRONMENT THAT ALLOWS OUR INVESTMENT TO EMPOWER THEIR STAFF TO ACT AND DELIVER ON OUR SERVICE PROMISE WHEN EVER AND WHERE EVER NEEDED.

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

General financial turbulence created challenging circumstances, but the Company has continued succeeding in achieving the strategic objectives set by its stakeholders, and delivered the required operating and financial results to continue into a healthy future.

Chagala Group investments had a strong year: they completed the project of reconstruction and refurbishing an office building in the city of Uralsk in Western Kazakhstan. The 5,600 sq. m. gross area building has been completely reconstructed into a Class A office destined to become the administration center in Uralsk of the Karachaganak Petroleum Operating (KPO) consortium. They also extended the long-term contract with NCOC for the Chagala Centre Office in Atyrau that gives

BUSINESS STRATEGY

12

us a privilege to not only continue but to strengthen partnership our investments with its key clients, which has been partners for many years now. They have also improved the infrastructure in Chagala Atyrau complex and completed general renovation of the investments facilities in Uralsk and Bautino to create a better home away from home for our clients.

The companies Chagala Group

invests in are the preferred provider of short- and long-term accommodation solutions to the oil and gas industry in Western Kazakhstan. Most of their clients are “bankable, blue chip” tenants who have come to rely on our quality and reliability. They employ a western business model combined with in-depth local knowledge. To anticipate and meet the needs of the market, we continue to bring into our investments experienced, qualified management, adding required

expertise as needed.

Our strategy also entails diversifying the customer base of our investments as well as exploring complementary geographic expansion and careful entry into retail and other areas. While we explore diversification needed to serve our investment’s customers, we will carefully guard our future investments in new projects to maintain market sustainable margins.

In 2016, inflation in Kazakhstan lowered to 8.5% from 13.6% in 2015, which was in alignment with the target range of the National Bank of Kazakhstan. Proposed structural reforms and resumption of bank lending will allow the non-oil sector to slowly grow to 4%. The government of Kazakhstan also launched the “Nurly Zhol” initiative that offers subsidies

for infrastructure, SMEs and housing sectors. The National Fund was also redesigned to strengthen buffers and lower the influence of global oil prices on the economy. The National Bank also reviewed its policy toolkit to help induce a steady reduction of the policy rate.

The estimated population of Kazakhstan

in 2016 was 17.855 million people. The unemployment rate remained at last year’s level of 5%.

In 2017, the Index of Economic Freedom ranked Kazakhstan 42nd out of 180 countries in its rating that analyses critical economic data. Kazakhstan’s ranking significantly improved by 26

UPDATEKAZAKHSTANI ECONOMY

KAZAKHSTAN CONTINUES TO EXPERIENCE ECONOMIC DIFFICULTIES IN 2016 DUE TO LOWER OIL PRICES AND STAGNATION IN THE ECONOMIES OF RUSSIA, CHINA AND EUROPE. IN 2016, THE GROWTH RATE AMOUNTED TO 1.1%, WHICH WAS A THIRD CONSECUTIVE YEAR OF DOWNTREND. ACCORDING TO THE INTERNATIONAL MONETARY FUND (IMF), KAZAKHSTAN’S PROJECTED GDP RATE WILL PICK UP TO 2.5% IN 2017 AND 3.8% IN 2018 DUE TO A SIGNIFICANT INCREASE IN OIL PRODUCTION AND EXTERNAL DEMAND.



13

places compared to 2016 when it was 68th. This indicates that the current economic situation of Kazakhstan is steadily improving.

In 2016 Kazakhstan produced 78 million tons of oil, which exceeded its initial target of 75.5 million tons, thanks to resumed oil production at the Kashagan oil field, which delivered about 1 million tons of oil. Starting from 2017, Kazakhstan is expected to see a rise in oil extraction from its three main oil areas – Kashagan, Karachaganak and Tengiz.

In autumn 2016, Kashagan resumed production operations. In 2017, the Kashagan oilfield plans to produce between 5 and 8 million tons of oil. Kashagan reserves are estimated to contain 9 – 13 billion barrels of crude oil. By the end of 2017, Kashagan will produce 370,000 barrels a day. Since the launch of the Kashagan oil field, many international financial organizations, such as the International Energy Agency and Organization of the Petroleum Exporting Countries (OPEC), have raised their growth forecasts for Kazakhstan. Kashagan remains the largest extraction site in Kazakhstan as annual oil production is estimated to be higher than the overall oil production of Kazakhstan in one year.

There is also a positive trend in the activity of other Kazakhstani oil production fields. In July 2016, Tengizchevroil announced its expansion plans through The Future Growth Project

and Wellhead Pressure Management Project (FGP-WPMP), which will bring an additional 12 million tons of oil. The project will start operating in 2022. The projects will create around 20,000 jobs and engage a vast number of Kazakhstani goods and service providers.

KazMunaiGaz, a state-owned company, discovered a new oil reserve at the S. Nurzhanov field. The new reserve is expected to enhance the government’s plans for expanding the overall production of oil in the country.

In January 2017, Kazakhstan’s reserves of natural gas were estimated to be 85 trillion cubic feet. Natural gas is mainly derived from crude oil and condensate-rich reserves that are situated at two principal oil fields – Karachaganak and Tengiz. In 2016, Tengiz and Karachaganak contributed 70% of Kazakhstan’s total natural gas production. Kashagan is also expected to provide about 100 billion cubic feet of natural gas when it returns to full capacity.

The Eurasia Project began its implementation phase in 2015, when a Special Interdepartmental Commission was created to oversee the implementation phase of the project and negotiate with future partners. In April 2016, Energy Minister Kanat Bozumbayev organized a meeting with the Special Commission. The meeting was also attended by representatives of key oil companies in the country, where it

was announced that the partners in the Eurasia Project would have access to tax relief.

In December 2016, OPEC member states and 11 non-member states signed a deal on reducing oil production to stabilize crude oil prices. Kazakhstan agreed to cut oil production by 20,000 barrels a day. However, the government of Kazakhstan is negotiating to leave the largest oil fields outside the deal, which are Kashagan, Tengiz and Karachaganak. Since Kashagan is expected to produce about 300,000 barrels a day by the end of 2017, the deal must be renegotiated to allow Kazakhstan to produce oil according to the capacity of the largest oil fields and sustain its economy.

Overall, the economy of Kazakhstan had a slight improvement in its economic situation due to increased oil production at the three main oil fields – Kashagan, Tengiz and Karachaganak. We are encouraged by the efforts of the Government of Kazakhstan as it continues its work to restructure the National Fund by providing additional tools in order to cut the national economy’s dependence on global oil prices. Meanwhile, Kazakhstan plans to invest in the expansion of oilfields and further negotiate terms of the OPEC deal that are vital for a stable economic environment. We are well positioned to capitalise on these opportunities and are confident that Kazakhstan can continue its growth story.

14

WE CONTINUE TO INVEST IN THE COMPANIES THAT 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 THE GUESTS WITH THE HIGHEST LEVEL OF SERVICE AND COMFORT IN THE REGION.

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

OPERATIONS

OPERATIONS


15

16

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 com-panies. The city is the heart of our business and features many projects developed by Cha-gala, particularly a hotel, serviced apartments, townhouses, apartments for sale, office space, sport and entertainment venues, warehouses, restaurants and bars.

ATYRAU

OPERATIONS


17

18

OPERATIONS


19

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

20

AKTAU EXECUTIVE SUITES

CHAGALA HOTEL AKTAU

Aktau is the biggest city in Mangystau region with a population 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 operations in Aktau include an 80 room apart hotel) situated close to the coast in a quiet residential area. The development occupies approximately 6,000 square me-tres of space and includes a restaurant and bar, meeting and banquet facilities as well as fitness facilities.

AKTAU

OPERATIONS


21

22

OPERATIONS


23

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

24

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

OPERATIONS


25

26

OPERATIONS


27

Kurmangazy Development, a Chagala Group subsidiary, in partnership with JSC «NC «SEC «Oral» has completed the project of reconstruction and refurbishing an office build-ing in the city of Uralsk in Western Kazakhstan. The build-ing was commissioned on May 26, 2016. The 5,600 sq. m. gross area building has been completely reconstructed into a Class A office destined to become the administra-tive center in Uralsk of the Karachaganak Petroleum Operating (KPO) consortium, one of the largest companies involved in the development of gas condensate fields in Kazakhstan. This project has been completed on time and in line with the Clients’ requirements.

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 significant for the city of Uralsk given that it undoubtedly have an effect on infrastructure and the growth of small and medium-sized business in Uralsk and provide the opportunity for a new level of development.

OFFICE BUILDING FOR THE HEADQUARTERS OF THE KARACHAGANAK PETROLEUM OPERATING CONSORTIUM

NEW PROJECTS

28

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



29

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

THE COMPANY’S 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 2016, 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. The Company’s GDRs trading the Standard listing category. In 2015, based on decision made at the Annual General Shareholder Meeting of the Company of that year, the Company cancelled its GDR programme and their listing. , The admission to trading of the Company’s GDRs on the Main Market 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 were admitted to the Official List of the United Kingdom Listing Authority and its Depositary Interests were admitted for trading on the London Stock Exchange’s Standard Market for listed securities under the TIDM code “CGLO”. The reason for this change include improving investor access to the Company’s Shares and reducing costs to the investors associated with the GDR programme.

CHAGALA STATEMENT ON CORPORATE GOVERNANCE

30

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. Through 31 December 2016, 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 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.

ROLE OF THE BOARDThe 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

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.



31

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 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.

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.

SPECIFIC RESPONSIBILITIES OF THE BOARD INCLUDE THE FOLLOWING:

32

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

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 COMPANY TO THE EXECUTIVE DIRECTOR AND CHIEF EXECUTIVE OFFICER AND OUTLINED THE COMPANY’S STRATEGIC GOALS AND MISSION TO HIM.



33

COMMITTEESTHE 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 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 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.

AUDIT COMMITTEE

The Audit Committee is led by Michael C. Carter Jr. The Audit Committee member is Javier Del Ser. 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

34

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.

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.

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 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 until 2012, when the internal auditor position has been regularly filled. The initial 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. However, as the qualifications and practices in Kazakhstan improved, the practice of appointing an internal auditor has been re-stablished.

The Board periodically meets and had a total of 6 official meetings during 2016 plus a number of informal ones. 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.



35

MR. 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.

SENIOR INDEPENDENT DIRECTOR

THE BOARD HAS APPOINTED MICHAEL C. CARTER JR. AS THE SENIOR INDEPENDENT DIRECTOR TO LIAISE WITH SHAREHOLDERS WHO WISH TO DISCUSS THE COMPANY AND ITS OPERATIONS. MR. CARTER CAN BE CONTACTED AT M.CARTER @CHAGALAGROUP.COM.

36

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. 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.



37

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

SVETLANA MENDESHChief Financial OfficerEXECUTIVE

MANAGEMENT

38

CHAGALA IS COMMITTED TO IMPROVING AND SHAPING THE FUTURE OF THE LOCAL COMMUNITIES IN WHICH ITS INVESTMENTS OPERATE, LIKE KAZAKHSTAN, AND ASSISTING TO CREATE VITAL EMPLOYMENT OPPORTUNITIES FOR THE LOCAL

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.



39

40

OUR PEOPLE AT THE CORE OF CHAGALA GROUP’S SUCCESS ARE OUR PEOPLE EMPLOYED BY THE COMPANIES IT INVESTS IN, AND THEY ARE OUR FOCUS. OUR INVESTMENTS EMPLOY OVER 400 PEOPLE, WHO WORK AT THEIR PROPERTIES IN SIX AREAS IN KAZAKHSTAN. WE WANT THEM TO ATTRACT AND KEEP THE BEST PEOPLE AND DEVELOP THE BEST TALENTS - TALENTS WHO HAVE IMPACT AND ARE BUILDING THE MOST INCREDIBLE TEAMS.

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

2. REWARDING AND RECOGNIZING ACHIEVEMENTS IN LINE WITH GUIDING PRINCIPLES

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

4. HELPING PEOPLE UNDERSTAND THE SIGNIFICANT ROLE THEY PLAY

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

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

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

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



41

TRAINING AND CAREER DEVELOPMENT

Chagala Group has a system in place to support investment’s 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 2016, 71 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 2016 for the fourth 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.

We awarded 14 Chagala Group investments’ employees who have been with part of Company’s investments staff for more than 10, 15 and 20 years.

COMMUNITY SUPPORTSINCE 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.

42

CONSOLIDATED FINANCIAL STATEMENTS


43

INDEPENDENT AUDITORS’ REPORT 44

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 49

CONSOLIDATED STATEMENT OF PROFIT OR LOSS 51

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME 52

CONSOLIDATED STATEMENT OF CASH FLOWS 53

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 58

CHAGALA GROUP LIMITED

FOR THE YEAR ENDED 31 DECEMBER 2016 WITH INDEPENDENT AUDITORS’ REPORT

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


44


44

INDEPENDENT AUDITORS’ REPORT


45


45

46


46


47


47

48


48


49

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

IN THOUSANDS OF US DOLLARS NOTE 2016 2015

ASSETSNon-current assetsProperty, plant and equipment 9 74,992 73,188Intangible assets other than goodwill 138 115Capital work-in-progress 9 554 2,265Investment property 10 3,891 3,902Investment in associates 6 3,551 3,529Value added tax recoverable 447 −Restricted cash 2 6

Deferred tax assets 25 − 12183,575 83,126

Current assetsInventories 11 1,403 1,363

Accounts receivable 12 2,801 2,816

Taxes prepaid 13 228 422

Corporate income tax prepaid 19 611

Due from related parties 26 602 2,065

Other prepayments and receivables 14 1,233 657

Cash and cash equivalents 15 2,213 1,7918,499 9,725

Total assets 92,074 92,851

EQUITY 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 (232) (378)Retained earnings 670 20Revaluation reserve, net of deferred tax 16 60,008 61,731Foreign currency translation reserve 16 (82,440) (83,490) 66,802 66,679

AS AT 31 DECEMBER 2016


50


50


Non-controlling interests 7 1,365 1,273Total equity 68,167 67,952

NON-CURRENT LIABILITIESLong-term borrowings 17 10,000 6,090Deferred tax liabilities 25 7,651 7,664Long-term advances from customers 20 446 916 18,097 14,670

CURRENT LIABILITIESCurrent portion of long-term borrowings 17 2,500 1,779Bonds payable 18 − 6,498Interest payable 88 135Corporate income tax payable 101 − Trade accounts payable 19 1,611 597Advances from customers 20 722 670Taxes payable 21 258 464Due to related parties 26 466 47Other payables and accruals 64 39 5,810 10,229Total liabilities 23,907 24,899Total equity and liabilities 92,074 92,851

Signed and authorised for release on behalf of the Board of Directors of Chagala Group Limited on 28 April 2017.

Chief Executive Officer Francisco Parrilla

Chief Financial Officer Svetlana Mendesh


51


51

CONSOLIDATED STATEMENT OF PROFIT OR LOSS


Room and rent revenue 8 15,621 17,532Food and beverages revenue 8 2,607 3,458Other operating revenue 8 2,080 2,536TOTAL REVENUE 20,308 23,526Utilities, cleaning and maintenance (3,491) (4,001)Costs of food and beverages (808) (1,148)Salaries and employee benefits 22 (5,439) (7,146)General and administrative expenses (2,873) (3,280)Depreciation and amortisation (3,333) (4,207)OPERATING PROFIT 4,364 3,744Foreign exchange gain/(loss), net 156 (940)(Impairment)/reversal of impairment of land and buildings 9 (3) 2,380Impairment of capital work-in-progress and goodwill 5,9 − (307)Changes in the fair value of investment property 10 (83) 686Loss on disposal of property, plant and equipment (69) (64)Finance income 23 9 53Finance costs 23 (1,539) (2,178)Other income 14 217Other expenses 24 (1,261) (128)Share of profit/(loss) of associates 6 22 (850)PROFIT BEFORE INCOME TAX EXPENSE 1,610 2,613Income tax expense 25 (841) (731)PROFIT FOR THE YEAR 769 1,882Attributable to:

Equity holders of the parent 630 1,813Non-controlling interests 139 69

769 1,882Earnings per share (in US Dollars):basic and diluted, for profit for the year attributable to equity holders of the parent 16 0.030 0.088



FOR THE YEAR ENDED 31 DECEMBER 2016


52


52

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016


PROFIT FOR THE YEAR 769 1,882

OTHER COMPREHENSIVE INCOME/(LOSS)

Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods:Foreign currency translation gain/(loss) 1,084 (41,529)Revaluation of property, plant and equipment 9 (2,129) 17,521Income tax effect 25 426 (3,504)REVALUATION OF PROPERTY, PLANT AND EQUIPMENT, NET OF TAX (1,703) 14,017NET OTHER COMPREHENSIVE LOSS NOT TO BE RECLASSIFIED TO PROFIT OR LOSS IN SUBSEQUENT PERIODS (619) (27,512)TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX 150 (25,630)

Attributable to: Equity holders of the parent (23) (23,508) Non-controlling interests 7 173 (2,122)

150 (25,630)





53


53

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2016


CASH FLOWS FROM OPERATING ACTIVITIESProfit before income tax expense 1,610 2,613 Adjustments for:Depreciation 9 3,290 3,970 Amortisation 43 237 Unrealised foreign exchange (gain)/loss (554) 940Change in allowance for doubtful debts 79 10

Finance income 23 (9) (53)

Finance costs 23 1,539 2,178

Accrual of share-based payments reserve 16 98 95

Share of (profit)/loss of associates 6 (22) 850

Loss on disposal of property, plant and equipment 69 64

Impairment/(reversal of impairment) on land and buildings 9 3 (2,380)

Impairment of capital work-in-progress 9 − 138

Impairment of goodwill 5 − 169

Change in the fair value of investment property 10 83 (686)CASH FROM OPERATIONS BEFORE WORKING CAPITAL CHANGES 6,229 8,144

(Increase)/decrease in operating assets:

Inventories (122) 157

Accounts receivable (366) (1,409)

Amounts due from related parties 1,872 (1,119)

Other assets (805) (783)

Increase/(decrease) in operating liabilities:Accounts payable 1,003 (306) Advances from customers (97) 1,414Amounts due to related parties 337 (160)Other payables (46) (275)

54


54


Cash generated from operations 8,005 5,663

Interest paid (1,265) (1,673)

Income taxes paid − (33)NET CASH FROM OPERATING ACTIVITIES 6,740 3,957

Cash flows from investing activitiesLoans provided to related parties (866) −

Loans repaid by related parties 504 −

Purchases of property, plant and equipment (4,078) (5,445)Proceeds from disposal of property, plant and equipment 5 49Acquisition of intangible assets (59) (97)NET CASH USED IN INVESTING ACTIVITIES (4,494) (5,493)

Cash flows from financing activitiesRepayment of long-term borrowings (8,799) (2,165)Receipt of long-term borrowings 13,435 5,550Redemption of bonds (6,590) −

Repayment of short-term borrowings − (2,239)

Receipt of short-term borrowings − 1,250

Transaction costs (8) (190)

Sale of shares 16 48 51

Contribution to non-controlling interests − 2

Dividends − (1,212)Net cash (used in)/from financing activities (1,914) 1,047


55


55



Net increase/(decrease) in cash and cash equivalents 332 (489)

Effect of exchange rate changes on cash and cash equivalents 90 (242)

Cash and cash equivalents at the beginning of the year 15 1,791 2,522CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 15 2,213 1,791



56


56

In thousands of US Dollars Share capital Additional paid in capital Treasury shares Revaluation reserve Foreign currency transla tion reserve Retained earnings Other reserves TotalNon-controlling

interests Total equity

AS AT 1 JANUARY 2015 8,503 80,293 (529) 47,734 (44,109) (1,147) 508 91,253 3,393 94,646

Profit for the year − − − − − 1,813 − 1,813 69 1,882Other comprehensive loss − − − 14,060 (39,381) − − (25,321) (2,191) (27,512)TOTAL COMPREHENSIVE INCOME − − − 14,060 (39,381) 1,813 − (23,508) (2,122) (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 (83,490) 20 − 66,679 1,273 67,952

Profit for the year − − − − − 630 − 630 139 769Other comprehensive loss − − − (1,703) 1,050 − − (653) 34 (619)TOTAL COMPREHENSIVE INCOME − − − (1,703) 1,050 630 − (23) 173 150

Dividends − − − − − − − − (81) (81)Other movements − − − (20) − 20 − − − −Shares repurchase (Note 16) − − 146 − − − − 146 − 146AS AT 31 DECEMBER 2016 8,503 80,293 (232) 60,008 (82,440) 670 − 66,802 1,365 68,167

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016


57


57




In thousands of US Dollars Share capital Additional paid in capital Treasury shares Revaluation reserve Foreign currency transla tion reserve Retained earnings Other reserves TotalNon-controlling

interests Total equity

AS AT 1 JANUARY 2015 8,503 80,293 (529) 47,734 (44,109) (1,147) 508 91,253 3,393 94,646

Profit for the year − − − − − 1,813 − 1,813 69 1,882Other comprehensive loss − − − 14,060 (39,381) − − (25,321) (2,191) (27,512)TOTAL COMPREHENSIVE INCOME − − − 14,060 (39,381) 1,813 − (23,508) (2,122) (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 (83,490) 20 − 66,679 1,273 67,952

Profit for the year − − − − − 630 − 630 139 769Other comprehensive loss − − − (1,703) 1,050 − − (653) 34 (619)TOTAL COMPREHENSIVE INCOME − − − (1,703) 1,050 630 − (23) 173 150

Dividends − − − − − − − − (81) (81)Other movements − − − (20) − 20 − − − −Shares repurchase (Note 16) − − 146 − − − − 146 − 146AS AT 31 DECEMBER 2016 8,503 80,293 (232) 60,008 (82,440) 670 − 66,802 1,365 68,167

ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

58


58

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

Percentage ownership and voting

ENTITIES COUNTRY OF RESIDENCE CITY 2016 2015

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% 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%

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016


59


59

Percentage ownership and voting

ENTITIES COUNTRY OF RESIDENCE CITY 2016 2015

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% 100%

Compass Group Management (Kazakhstan) Limited (Note 5) Hong Kong Hong Kong 100% 100%

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

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

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

Itasia Engineering LLP (Note 6) Republic of Kazakhstan Almaty 49% 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 presented in property, plant and equipment and investment property, which are measured at fair value.

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 2016.

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:

60


60

• Derecognises the assets (including goodwill) and liabilities of the subsidiary;• 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 statement of profit or loss;• Reclassifies the parent’s share of components previously recognised in other comprehensive income to the statement of profit or loss or retained earn-

ings, 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 2016, 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/ Inter-pretation Short description

Impact on financial position or performance

IFRS 9 Financial Instru-ments

IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instru-ments: Recognition and Measurement. IFRS 9 includes revised guidance on the classifica-tion 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 po-tential impact on its consolidated 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 consid-eration 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.



61


61

New Standard/ Inter-pretation Short description

Impact on financial position or performance

IFRS 16 Leases IFRS 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 Customers 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 applied consistently by Group entities.

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.

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.

62


62

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 statement of profit or loss reflects the Group’s share of the results of operations of the associate. When there has been a change recog-nised in other comprehensive income or directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when ap-plicable, in the statements of other 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 statement of profit or loss and represents profit or loss after tax and non-controlling 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 statement of profit or loss.

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 or at weighted average exchange rate if no significant fluctuations during the period; and

• all resulting exchange differences shall be recognised in other comprehensive income.i) Transactions and balances


63


63

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 statement of profit or loss.

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 AT 31 DECEMBER WEIGHTED-AVERAGE RATE DURING THE YEAR

2016 333.29 341.76

2015 339.47 222.25

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:

• 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.

64


64

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 OPERATIONS

The 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.


65


65

3.7 PROPERTY, PLANT AND EQUIPMENTLand 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 statement of profit or loss, 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 statement of profit or loss 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 is initially measured at cost and subsequently at fair value with any change therein recognised in profit or loss for the period in which it arises.

Transfers were made to (or from) investment property only when there was a change in

Documents

ANNUAL REPORT 2016 - London Stock Exchange · 30.06.2017 · the Karachaganak Petroleum Operating (KPO) consortium. Extension of the long-term contract with NCOC for the Chagala